Forex for dummies - where to start trading
The Forex market is the largest financial market in the world. The largest banks in the world make currency exchange here, many funds are invested here to earn money on the difference in exchange rates (speculation). Beginners are attracted by simplicity and access to trade. After all, for starters, you just need a broker account and access to the Internet.
Forex does not forgive mistakes, but makes it possible to significantly increase your capital. This is the toughest market. In order not to drain your deposit, the trader needs not only knowledge and skills, but also a little luck and composure.
The balance will fluctuate constantly up and down. If you do not notice this, then it will become much easier to trade. Although how can one easily relate to earnings or losses of $ 100 ... $ 1000 in a couple of minutes? Of course, the scale of the amount of money each has its own. For some, the amount of $ 100 will seem like a trifle, but for someone it’s already some, but money.
Note: the myth of excess returns
Immediately dispel the myth of excess earnings on Forex. For example, there are rumors among newcomers that an initial deposit of $ 100 is enough to earn millions of dollars. In fact, no one has managed to rise from $ 100 to $ 1,000,000, so we must proceed from a more realistic view. A yield of 30-100% per annum will be a good indicator for Forex.
You can also see concepts such as "overclocking deposit." This is a high-risk trading, where one or two unsuccessful transactions can destroy the entire deposit. It is like a lottery, where one out of a thousand is lucky. And then you're lucky if he stops in time.
Although there is only one strategy called "pyramiding", which allows you to quickly increase your deposit during the trend movement. But on Forex, trend movements are quite rare.
1. Forex for dummies - basic concepts
There are many new terms and concepts on Forex that are not used in everyday life. There are also slang words that will become clear to you over time. Let's start our study with the basic basics.
1 An order is a position, a deal. As a matter of fact, this is what you buy / sell. Each order has an open time, open price, volume and name of the instrument. Take profit and stop loss can also be set (if desired).
2 is the volume of the purchase. Note that an order of 1 lot is a rather large deal (the sum of 100 thousand base units). The base unit goes first in the name of the pair. For example, in the EURUSD pair, the euro currency is the base currency. The EURUSD = 1.30 rate will mean that 1 lot costs $ 130 thousand (they buy 100 thousand euros).
Many brokers allow you to split a lot into hundredths, that is, you can buy amounts that are multiples of 0.01 lots: 0.01, 0.07, 0.58, etc. This creates the ability to flexibly manage capital, even with a small deposit.
3 - market price of sales and purchases at a point in time. For example, Ask = 1.30015, Bid = 1.30005 (we can buy at 1.30015, and sell at 1.30005).
In other words, by ask we can instantly enter the market, and by Bid we can exit (see what Bid and Ask are). The difference between the prices is called the spread.
4, - actions in which an instant entry is made on the market. Buy (Bai) - buy, Sell (Rural) - sell. On Forex, you can open positions both to increase (long positions, long) and to lower (short positions, short).
5, - pending orders (application) for the purchase / sale. For example, the current price is 1.30015, then you can place a purchase order at a price of 1.29800. If the price (Ask) touches this value at least once, then the position will open. Perhaps this is the most common type of orders in the Forex and stock markets. Almost all professional traders use such orders.
6, - opening a market position upon reaching a certain level. Used in trading strategies for breaking through levels. These are popular and profitable strategies.
For example, now the price for a pair of XAUUSD (gold) is $ 1292, we put a Buy stop at $ 1300. As soon as the price (Ask) reaches this level, the market opens. As a rule, this price will be slightly worse, because a small gap occurs in the market (“price jump above the level”). Be prepared for the fact that by placing an application for $ 1300 in reality it will buy for $ 1302. The speed of execution of orders and similar slippages directly depends on the broker. To reduce such losses, I recommend working only with the largest and most proven ones.
7 (trend) - directional movement of the market in the direction of increase or decrease. They say about the bullish trend in case of growth and about the bearish in case of fall. The trend implies that each new local peak is larger (smaller) than the previous one. Typically, a trend is clearly visible on charts with a long period (for example, 4 hour and daily).
8 Support / resistance level - price levels at which a trend reversal has recently taken place. For example, let there be a resistance level of 1.31000. As soon as the price reaches this mark, a rollback occurs and the price begins to go down. Many traders trade from levels, that is, they place limited orders at these prices.
Strong levels are formed throughout the year and are clearly visible on the daily charts. Most often these are round numbers.
9 Flat is a lateral movement (lack of directional movement). Price moves erratically in some corridor. In such trading periods, speculators and intraday traders make good money.
2. Start trading Forex - where to start
You can open orders (positions) for any period. There is no restriction on the duration of the order. However, for a long retention, you will need to pay a commission. Every day a commission is taken for the transfer of the position (swap), but it can be positive. This means that the trader is paid extra for holding a position. This situation arises due to the strong difference in the key rates of the central banks that are participating in the current pair.
All trade is conducted through special programs called “terminals”. Most often it is MetaTrader 4 or 5. The forex broker will provide data (login and password) to connect to your trading account. The terminal is in Russian. On them you can find a lot of useful information on the Internet. There are applications on Android and iOS.
For trading on the stock market, other terminals are used (Quik, Transaq).
In the terminal you can carry out technical analysis and analyze the chart on different timeframes. Most often, charts are analyzed in the format of Japanese candles. It is possible to add basic indicators:
- Fibonacci levels
- Indicator Cloud Ichimoku
- Moving Averages (EMA, SMA)
- ATR indicator
- MACD indicator
- Bollinger Bands
Forex trading is conducted almost full 24 hours a day, 5 days a week. Many couples have a 5-minute break from 23:55 to 00:00. But compared with the days - this is actually a negligible time, so many traders do not even notice it.
2.1. Where to Trade - Choosing a Forex Broker
To start trading, you need an intermediary between the trader and the exchange - Forex Broker. All trading is done through them. A trader independently selects a suitable broker and trades through it. It is impossible to trade in the Forex market in any other way.
There are quite a lot of brokers, there are plenty to choose from. True, only a few brokers have a license issued by the Central Bank of Russia.
Below is a list of the main criteria for selecting a reliable broker:
- Review reviews
- Trading conditions (spread, commissions, swaps)
- License availability
- How long has been trading
- What is the place in the ranking by turnover
I just wanted to list my top reliable Forex brokers with whom I work:
- Overview of the best Forex brokers
2.2. Types of Forex accounts - which one to choose
When opening a brokerage account, several types of accounts will be offered for selection. Each broker they can call in their own way, but the idea is the same everywhere. As a rule, these are the following accounts:
- . Low starting amount (from $ 100 ... $ 500). The worst conditions for trading. In general, opening this type of account, in my opinion, does not make sense, because the second type of account is much better.
- . A relatively small starting amount (usually starts at $ 300). Trading conditions are much better. I recommend using this particular account.
- . A large starting deposit amount (from $ 3000). There are exclusive terms of trade (crushing lots), etc. There are useful options, but in general they are practically useless for most traders. I would say, even if the deposit amount is $ 10,000, then I still choose ECN.
I recommend that novice traders choose the type of ECN account as the most optimal. You will not be disappointed with this choice. The speed of execution of applications will be instant, slippage will be much less than in a standard account, lower commission for spread and transfer of position.
Each account has the opportunity to take leverage. This allows you to trade on a deposit larger than you have. Moreover, this service is free.
2.3. Deposit and account opening
I advise you to open an account for at least $ 500, because even smaller amounts are quite tiny. Trading "trifles" is impossible to learn anything.
You can replenish your account through many payment systems: bank card, WebMoney, Yandex.Money, QIWI.
It is not necessary to replenish the account immediately. You can open a demo account and trade on it. However, trading with virtual money will not provide experience and knowledge. Therefore, it is better to open a real account, albeit with a small amount.
2.4. Installation of a trading terminal
Most often they use the MetaTrader 4 terminal to trade Forex. It has everything you need for trading: charts, indicators. You can place pending orders, enable trailing stop, etc.
The Metatrader 4 terminal has existed for 10 years and still remains the most popular Forex trading program. There is a newer version 5. There are no fundamental differences there. There are only various functions that allow you to more flexibly manage orders.
3. Forex Strategies and Analysis
Before embarking on Forex trading, you should definitely think about a trading strategy: how, when and why to sell / buy. It will be difficult for a beginner to follow the developed trading system (TS) due to the lack of self-discipline. All traders had difficulty with this.
Trying to adhere to some kind of work scheme is still necessary. The following questions need to be answered:
- Trend or try to catch trend pivots
- What levels to set stop loss and take profit
- What to do if the market goes the other way
These questions need to know the answer in advance. As they say, the right thoughts come only when all emotions are over.
There are countless forex strategies available. Each is something good and something bad. One works well in trend, the other in flat, the third inside the day, the fourth for breakdown, etc.
An ideal trading system does not exist. Everywhere there will be both profitable and unprofitable transactions. The quality of the strategy must be evaluated over a long period of time, so that it plays on all types of markets: low and high volatility, trend and flat. This is the only way to understand how effective it is.
I advise you to familiarize yourself with the fundamental articles from technical analysis:
- Candlestick models and patterns on examples
- Divergence and convergence in trading
- Pin bar in trading
I also advise you to read about trading strategies:
- Strategies for Trading the Exchange
- The intersection of moving averages
- Ichimoku - trading strategies
- VSA analysis
- Averaging strategy
- Martingale Strategy
It would seem that you need to apply different strategies at each stage of the market and there will be super profit. You are certainly right, in theory - it all works. So almost every trader and I reasoned at one time. Only dividing the market into stages of growth and flat is possible only by looking at the chart in history. In real trading, everything is much more complicated. For example, as soon as it becomes clear that there is a trend in the market, by that time prices have already gone far. Plus, the chances that this is almost the end of growth are very high.
There are several approaches to the analysis and trading in the market. Each of them has both its supporters and opponents.
3.1. Fundamental analysis
Fundamental analysis implies a foundation on the basic principles of economics. For example, if a company improves its financial performance every quarter, then there is reason to invest in it, since with this picture the company should grow in capitalization.
For example, the economy of a country is growing. They invest in it, production is growing, consumption is growing. In this case, it makes sense to invest in the stock index of this country. This can be done through ETF funds.
It does not matter how expensive what is bought. The main thing is that there are basic reasons that further growth will continue.
With a fundamental approach, there is a long-term investment (of several months). Usually this type of trade is inherent in those who have a lot of money. This principle is also called buy and hold or passive investing.
3.2. Technical analysis
Technical analysis is based only on the current price level. For analysis, only price charts (graphical analysis), figures of graphical analysis and indicator readings are used.
Graphic analysis involves the study and search for various figures on the chart. In fact, this is pretty little use. Most traders use indicators.
There are so many indicators. However, all indicators are based on 5 values:
- Opening price
- Closing price
There is no magic indicator for all occasions. Some are good in trend, some are in flat. Most strategies are based on indicators and oscillators.
4. Choosing a strategy for trading
A little higher, we examined two approaches to analysis: Fundamental and Technical. Accordingly, someone trades in one approach, someone in another.
1 Fundamental analysis is more suitable for "calm" traders who invest for long periods. As a rule, this is from six months or more. Moreover, this approach most often brings at least 10% per annum on average. This is higher than the rate on bank deposits. At the same time, this type of trade does not take much time and does not spend the nerves of the investor. There is no need to open a terminal even every day.
It is difficult to make any clear recommendation or strategy here. Since transactions are performed on a one-time basis, both the approach and analysis are one-time. Perhaps even consultations with analysts.
2 Technical analysis requires ongoing participation, as trading is short-term. Typically, positions are held from an hour to several days. Strategies for Forex trading are many. Somewhere there will be many signals to enter positions, somewhere few.
What strategy to choose a beginner to trade? Start by exploring basic simple strategies (which are profitable over a long period of time).
In my opinion, it is very important that the chosen strategy is right for you in terms of psychological comfort. Someone can sit for several days with a minus deal, while someone cannot. Therefore, it is worth choosing a comfortable strategy to feel good.
- Trading Psychology
- Is it possible to live on earnings from trading
- Trader about trading - what trade hides
- The main rules of Forex trading
5. Basic rules for a novice trader
Let's consider what basic principles and fundamentals are there for a novice trader to trade.
- Capital Management (money management). This is an important moment in the life of any trader. Speaking as is, money management is half your success. How much position will be allocated to each trade depends a lot.
- Control emotions. A difficult psychological moment that not everyone can do. As I wrote at the beginning of the article: it is difficult to be calm in the fluctuation of the balance plus / minus $ 100 ... $ 1000.
- Setting Stop Loss. To protect your deposit from "drain", a protective price is set for each order, i.e. limitation of losses. It is possible to trade and not set a stop loss, but in this case you cannot make mistakes in the direction of movement. And this is impossible. In any strategy there will be losing trades.
- Keep a deal diary. It seems that this is an excess, but a similar magazine for transactions will allow you to quickly find the reasons for good luck and not good luck in specific transactions.
- Discipline. The best trader is disciplined. He has everything under control and there is no reason to panic. To develop such clarity is possible only for years of bidding. Over time, all traders begin to realize the importance of this rule.
- Read less news. Economic news can lead you astray. As statistics show, after reading some forecast for growth / decline, you need to do the opposite. So the probability of success will be greater.
6. Books for a novice trader
For those who are going to seriously engage in trading. We recommend reading special literature. The direction of financial markets has developed greatly. Many good books have appeared. I will try to choose the best:
- The Way of the Turtles (Face Curtis)
- How to play and win on the stock exchange (Alexander Elder)
- Long-Term Secrets of Short-Term Trading (Larry Williams)