Forex Trading Basics Every Trader Should Know

All traders find their way to mature and wise techniques, through a learning curve which is often long. And which always starts with the forex trading basics.

Some Forex Trading Basics to Always Remember

Success in the currency markets starts with the usual forex trading basics, which sometimes are not so usual and popular. In order to learn forex trading better than most, one has to be an original thinker and keep some of these basic tips while at the same time ignore other such basic tips. One very important tip is to try and be a specialist, and focus all your market research around few currency pairs. Another such tip, is to avoid high frequency trading, at least in the beginning, and go for the more relaxed and less stressful approach of swing trading. Learning to trade while having to deal with live forex rates and news driven volatility, is hardly a good start. And while the industry seems to push for this kind of trading, the truth is that most forex day-traders who make money, do in fact make money, but too little money. In fact, most profitable forex day-traders end up making less, per hour, than they would be making if they were working at a fast food joint. There is absolutely no gain in trying to be a smart day-trader, when one cannot handle the risk and volatility. Most new traders cannot cope, it’s that simple! Other important basic tips are things like focusing on the 4-hour chart, and going down to the minute charts because they create too much confusion. Thereby sabotaging the trader psychologically. Many good trends can be identified on the 4-hour chart perfectly. Other tips also focus on volatility and predictability, and advice new traders not to trade economic reports, or any kind of information which is portrayed as easy, but is in fact impossible to trade. And above all, it is important to maintain a cool approach to trading, and refrain from using so called low risk-reward ratios. These low ratios are actually bad ratios, this basic tip seems to be against common sense, but the probability of success, as defined per trade, does strongly favour the high risk-reward ratio approach.

Forex Trading Basics to Ignore

Apart from the so called low risk-reward ratio, there are more forex trading basics, which are actually bad tips. Many such tips are tips like the idea of placing stops right below or above yesterday’s low or high. This is in fact one of the worst tips ever, and all wise traders have long ignored it. Many other popular basic tips may or may not be wrong, but they are poorly defined and therefore do not constitute serious trading advice. The idea of not being allowed to add to a losing trade is one of those ambiguous tips, where one has to question the logic and the benefits of this basic tip. It is also a big mistake to take other traders’ advice too seriously, so that you feel the need to learn from veteran traders by attempting to emulate their trading methods to the letter. Things such as stop placement, stop loss size, profit target and news trading are all big factors. They cannot be measured and quantified, so as to be used in the same way on every single trade. And one trader’s stop loss size cannot possibly meet the needs of another trader. Therefore it is pointless to follow other people’s trading in an effort to duplicate their trading results, it won’t work. Trading has to be original and creative. The global market acts as a forex currency converter, it follows some basic principles, but at the same time it also has its own rules. Some currency pairs in particular, such as EURUSD are perfectly capable of defying technical analysis. So anyone who believes too much in technical analysis is likely to be disappointed when even the best chart patterns and signals will let them down.