Easy Forex Training for Beginners
Easy Forex Training for Beginners
Hi there! As you probably know there are countless training courses available online trying to teach methods to make money on the Forex or Foreign Exchange markets. But I tend to find that they are quite complicated, require purchasing expensive software, use terms that are quite alien to most amateur traders or first time traders.
What is Forex Trading - simply put it is trading on a currency pair - so USD vs EUR, or JPY vs USD. So essentially these trade against each other and one currency will increase in value against the other currency. The FOREX market is the largest most liquid market in the world with about $6.6 trillion traded every day!
I want to teach a simple method that can be used in the Forex market that almost anyone can use. And the key thing that you MUST LEARN is discipline around risk management. Risk management is a fancy way of saying that you want to limit your losses to let's say $50 per trade, but allow for making a profit of let's say $200. This would be an example of a 4:1 risk reward ratio - i.e you can risk $50 in the hope of making $200.
Why 4:1? This is lesson 1. A ratio of 4:1 allows you to have 10 trades and losing 8 of those trades, and winning just 2 trades you manage to break even! Don't believe me? It's simple maths:
-$50 x 8 = -$400
+$200 x 2 = +$400
= Breakeven $0.
Now obviously you want to tilt the equation so that you end up winning more than 2 out of every 10 trades to end up with an overall profit on your trading, so there are some simple rules that I like to follow that the beginner trader can easily follow.
To start off, obviously you need a broker account to place your trades. Stick with one that you like - most allow you to start with a demo account so you get to trade with fake money before diving in with your own money. This is probably a good idea if you are a complete beginner. I have listed some of the more popular brokers below - please use these links to sign-up - this is the only way I can keep this website live:
FOREX Brokerages:
or
Risk Management Rules when Trading (4:1 Ratio, 2% risk)
The most important rule in trading is not losing all of your capital (money).
So as I mentioned earlier, aim to have a 4:1 risk reward ratio. In other words allow each trade to lose $50 or win $200. You can set these limits when you place your trade - so once you place your trade you just walk away, and later that day the chances are you will either have lost $50 or won $200.
So Risk Reward is the first part of the equation. The second is to decide how much are you actually willing to risk on each trade. Is it $50 or $100 or $500? Well that depends on your total trading capital. One rule I learned was to risk no more than 2% of your capital on any one trade. So let's say yo have $10,000 in your trading account, you should be willing to risk no more than $200 on any one trade.
Risking this amount means that you could have 50 consecutive losing trades before you lose all of your capital. And unless you are extremely unlucky, it is highly unlikely that you would have that level of loss.
So think 4:1 and 2%
Trade entry points
This is the last point of the puzzle - at what level do I place my trade. Do I buy or sell? Well there are more trading signals than days in the year and you can easily get totally lost trying to figure out what ones work, or switching from one trading signal to another. I like to keep things simple. All you need to do is ensure you can win at leat 3 out of every 10 trades to be profitable (assuming you follow my risk reward/ money management techniques above).
The first thing to do is to open your chart - all trading platforms will have a charting view - this represents what price the currency pair is at now, and how it has traded in the past -and you can set the timeframe to monthly, daily, hourly, minutes or further breakouts. I like to use daily.
The next thing is to set up some indicators. I set up the following:
1. Bollinger Bands
2. Pivot Point (Set as Daily, with the formula (H+L+C)/3
3. RSI (set to 14 70 30)
4. (Optional) - Weighted Moving Average
Set the price setting to show candlestick (with green for prices up, Red for prices down).
I find Bollinger Bands a good indicator for major FX Pairs like JPY/USD and EUR/USD. I would recommend staying clear of GBP versus any other currency. My personal preference is to trade just 2 FX pairs, and JPY/USD and EUR/USD are 2 of the most traded and therefore most liquid to trade.
The pivot points are great and quite accurate. Wait until the price gets to the last Resistance point (top bar) before Selling at that price, or wait until the price gets to the lowest Support level (bottom bar) before Buying at that price.
So Sell at 10800 or Buy at 10600 based on the below chart:
Source: Screenshot from IG
Should you use Forex Trading Bots / EA?
You will inevitably find advertising for trading Bots or automated trading applications. I would avoid these at all costs (and by the way you could spend thousands on these). The problem with them is that you cede control to a machine, so you don't see what you are trading, how often you are trading and what losses you may be making until it's too late.
You need to be in control of your own trading. Don't let a machine do the work. You will most likely lose some or even all of your capital. These "bots" can work in some scenarios, but one of the problems is that the market environment can change and only you can spot this and adjust your trading accordingly. Some example in a trending market (e.g. if the EUR is increasing slowly and steadily against the USD), then some algorithms may work really well. But if this trend changes and trading get's into a range (up and down within a narrow price range), then the same algorithm may not work.
By the way, my strategy works best in a range trading environment. As you progress and get more proficient in your trading, you can start looking at more advanced trading methods, to learn how to spot when a range trading scenario stops and you get into a trend for example.