Trading the forex market requires hard dedication and desire to learn from mistakes. As a beginner in the forex market, you may face many difficulties during the journey to become a better trader. New traders join forex every day but not all of them make money in forex.
The well-known fact that more than 70% of traders lose money, indicates that forex trading is not easy. Becoming a successful trader requires hard work and dedication. And in this article, you will learn some of the best forex trading tips to improve your trading skills in the foreign exchange market.
Practice on Demo Account
The first step a new trader should do after learning how to trade the forex is to trade on a demo account (paper account). A demo account is a practicing account that allows you to trade the financial markets on real quotes, but with “fake money”. Demo account helps you test and find your trading strategy.
You trade on a demo account, so you can prepare to trade the forex market with a live account funded with real money. Most of the forex broker offers a demo account that can be created for free. A demo trading account can be used on different forex trading platforms such as MetaTrader 4, MetaTrader 5, cTrader, etc.
But some of the common mistakes new traders make with demo accounts, it’s by “jumping” into a live account without a successful journey on a demo account. Many new traders don’t practice enough to find a profitable strategy on demo accounts. The reason why some of the new traders trade with a live account in a short time is because of the desire to make money.
And that’s the common mistake the new traders make, traders don’t dedicate enough time on a demo account to find a successful strategy. New traders on the forex market can avoid these mistakes by trading on a demo account for months or even a year. By practicing on a demo account for a long time, you can find your strategy, learn the behavior of the financial markets, react to losing trades, and more.
Demo account compared to a live account, is a different experience, because the live account involves your emotions, greed, psychology, and other factors that affect your trading. But since the demo account doesn’t involve real money, as a forex trader you can prepare yourself for a live account, by practicing and finding a profitable forex trading strategy.
Create a Trading Plan
The trading plan is one of the reasons why some beginners on forex trading fail. With a trading plan, you can improve trading performance, discipline, psychology, risk management, and more. If you have a trading plan and follow the plan according to your rules, then you can see an improvement in your trading journey.
As a new trader, you should create a trading plan and follow its rules. You can write your trades in a trading journal and explain the reason why you’ve entered those trades. And you can analyze your trades by looking at your trading journal history and learn from that.
The trading plan is recommended especially for beginners in forex trading, who are new to the foreign currency market and may not have rules of trading. With a trading plan, you can learn how to react to losing trades streaks or trade the max lots and trades according to your plan.
As a summary, a correct trading plan helps traders with:
Improving the psychology and discipline
Risking account balance on a safe percentage
Analyzing your past orders
Reacting to losing streaks
Finding profitable strategies
Don’t Trade With Emotions
When you trade on a demo account, you don’t use your own real money and this may keep your emotions away from your trading. But when you trade on a real account, the emotions are most difficult to control. You may have a profitable strategy but after some time you may lose some trades. And reacting to the losing trades can be difficult and may lead to more losing trades if you don’t control your emotions.
If you’re trading with emotions on forex, then you’re gambling. Forex trading is challenging and requires strong psychology to be profitable. If you have a losing trade, then the best way to avoid losing more trades is by stopping the trading for some hours or even a day. If you decide to trade after your trade wasn’t successful, then you’re revenge trading.
Revenge trading is the common mistake made by beginners and experts too. Closing your trades on a loss can be frustrating but you should stop trading for some time and take a break. If you take a break or trade on another day, then you will feel more relaxed and find new opportunities in trading.
If you open a swing trade which usually takes hours or days to reach your target profit, you may look at that trade many times. And by staring at your trades many times you may see candlesticks that you think can start a trend against your trade.
So you react by closing your first trade on a loss. But then you decide to trade again because you think the market is now going on your predicted direction after new candlesticks have formed. The market may act against your trade and you would close your trade on a loss again.
And by ending your trade on losses, your emotions start to become more active. You will start to react to the market in a gambling way, by opening more orders believing that your trade will finally go in the right direction according to your analysis. This may lead to a more losing streak and blowing your entire account.
The most useful method to keep emotions out of your trading journey is by taking breaks, walking, drinking with friends, playing video games, etc. By doing these activities you don’t have to stare at the market chart many times and you will feel more relaxed by keeping your emotions away from trading.
Use Risk Management
Trading forex can be difficult but fun too. If you have spotted an opportunity in the market with your technical analysis, you may think to risk more than you need. The reason why you think that it is because you think your trade is correctly analyzed and by increasing the lot size you will make more money. And that’s the common mistake the new traders make by not keeping the risk management on point.
If you risk more than 5% per trade, then your account balance will go down more if your trade ends on a loss. Another reason traders don’t pay much attention to risk management is by having multiple entries on different entry prices. If you have entered a sell order and the trade is going in your predicted price, then you open another sell order or limit order. By doing this you can end both trades on a loss if the price changes direction against your trade.
By using safe leverage for your account you can risk less and keep your account protected in case of losing trades. Lower leverage doesn’t allow you to risk too much and it minimizes the amount of loss on trades. The most important thing is to place the stop loss on the right price level as it can reduce the loss rate amount.
Learn From Mistakes
The last tip is to learn from your past mistakes and correct them. To learn from your mistakes, you can analyze your entries from your journal and see the reason why you have entered on the lost trade. By doing this you analyze your past mistake and try to not commit the same mistake again on the next trades.
If your trading journey is not going well, you can switch back to a demo account. When you practice on a demo trading account, you can try different trading styles such as day trader (day trading), swing trader (swing trading), scalp trader (scalp trading).
You can analyze your mistakes on why you traded, for example, the EUR/USD currency pair. You can switch to different time frames such as a daily chart, weekly chart, etc, and see the results. And by analyzing your past mistakes, it will help you to not commit the same mistakes.