Beginner to Intermediate Guide to Trading the Forex Markets

The first thing that everybody should know about the Foreign Exchange, or Forex Markets, is that every day is different. New economic policies, events, trade, laws, and so much more are shaping the way the markets are going to go every minute of the day. You have to think of the markets as dynamic, and ever changing. Literally, you’re trading currencies that are fundamentally based on economies that never stop moving! Plus, you cannot leave out the fact that markets are constantly manipulated by “Big Money” or “Smart Money”, but that’s a different topic for another time.

Another really important thing to remember is that trading is a big competition, (some say chess match), to see who can take money from the accounts of those who do not know what they are doing, and put it into the accounts of those who do know what they are doing. Some might even say its a game where the patient take money from the impatient. Both are true, and if you have spent enough time trading then you already know this!

I’m going to be totally honest with you. Anybody looking to get started trading, needs to read this “Forex Trading Guide” that will tell you how to get started trading Forex. Even if you have been trading for some time, I can tell you right now you’re going to find some really helpful information in here. So please read this to the very end — it will be worth it!!

 

Introduction

Trading the forex markets can be a volatile experience at times. If you have traded long enough, then you know you can place a trade, aim for a target, get stopped out, and watch the market go back and hit your target. It’s a super frustrating thing, but its totally normal. Other times the forex markets are dead. It’s a common mistake to think one single strategy is going to work for you every day. Really, to get how to get started trading the Forex markets, you need to be learning how to adapt to the Forex markets.

If you think you can find a “Holy Grail” forex strategy, or a magic Forex trading robot that runs on autopilot and makes enough income everyday for you to quit your job — then its likely that you’re not setting your expectations correctly. There is no “Holy Grail” in Forex trading. There is no magic Forex trading robot. Are there good forex strategies? Yes. Good Forex trading robots? Absolutely. There is a whole other world of Forex trading out there called “Algorithmic Trading”. It’s amazing, time consuming, and difficult. But, back to the main point of the article.

Look, nobody is going to do everything for you. It’s the truth. If you’re looking for somebody who will, start looking for PAMM, MAM, or Auto trading services. Good luck though, because most of them will just lose your money. Trust me, I know from experience. Chances are that you are going to have to put in a little work to become consistently profitable; to be able to quit your job, and make a decent living trading. However, I am here to tell you that it is very possible to quit your job and make a full time income trading the Forex markets if that is what you want. Even just a part time income is possible. It all depends on you, and that is the honest truth.

So what does it take to quit your job and make a full time income trading the Forex markets? A lot of things, but you should start with: Consistency, Discipline, Mindset, and Knowledge. Obviously there are more things, but those are some MAJOR things you need to master first and foremost if you want to be a full time Forex trader.

Another VERY important thing, is that you need to become comfortable with failing, and losing. The easiest way to do this is to understand that failure is not bad. Failure is your best friend, and the greatest teacher. Every time you fail, you’re actually just learning a lesson. Often the difference between the winner and loser, is that the winner just failed a few more times.

Lucky for you, we are going to give you some tips to get started in this Forex trading guide for beginner and intermediate traders!

Let’s start with a good old list of things you always need to remember.

 

MAJOR FACTORS YOU ALWAYS NEED TO CONSIDER

 

The Currency Pair

New traders often struggle to get profitable. In fact, 90% of Forex traders are not, or never get profitable. Which is interesting, because statistically traders in general are considered to be in the top 10% of intelligence of the world.

In order to be able to quit your job and make a full time income trading the Forex markets, it might be best to consider getting more familiar with only a single currency pair or two. Specifically currency pairs that involve currencies you actually know something about. Could be anything. If you are in the UK, you might want to go with GBP pairs. Australia, AUD pairs. USA – USD pairs. Or maybe you just really like a specific pair, and want to go for it.

There are MANY pairs you can trade in Forex markets. Keep in mind, that an estimated 70% of all Forex trades are related to EURUSD. It is the most widely traded currency pair. Low spreads make this one even more attractive. It isn’t too volatile like GBPJPY or a commodity like XAUUSD (Gold). It’s generally a more consistent pair for Forex trading.

However, the other major pairs you can trade are USDJPY, GBPUSD, EURCHF, AUDUSD, etc. Between these pairs, there’s enough volatility for anyone with the right mindset and discipline to make a consistent amount of pips each month.

One thing you might want to consider when picking different pairs is to pay attention to when the pairs move the most. If you can, try to match that to a time you can actually do a bit of trading. GBP, USD, and EUR based pairs move a lot more during London session or New York session than they do during Asia session (on average). In this case it might be better to pick a JPY-based pair that moves a bit more during Asia session. USDJPY, GBPJPY, and AUDJPY are all decent examples. An important takeaway here is that you may have a strategy that works really well when pairs move a lot, or your strategy may work best when the markets aren’t moving as much. It’s important to pay attention to details like this so that your strategy gives you the best probability when trading.

The first goal for you in our Forex Trading Guide: Find the pair that clicks. One that feels good to you. Study it, understand it and exploit it as much as you can!

 

When Should You Trade?

Most traders learn one strategy, and believe it will work ALL of the time, every single time they trade. I’m here to tell you, that is simply not true. Different days of the week yield different results, and different times of the day can be wildly different when trading.

Typically if you’re trading London Session, be ready for a wild ride. New York session can be a little bit volatile, but towards the end of it can have some nice ranges to scalp once volatility dies down a little bit. When I say volatility, I mean the markets move a lot up and down. The markets might feel a little crazy to you during volatile times. After New York session, the day usually tapers off until Asia session where you get a little more movement again. After lunch (EST) and around Asia session can be great for range strategies, and/or scalping strategies. Sometimes you’ll get a few bigger moves. London/New York sessions you can both scalp, and employ trend, breakout, and a whole host of strategies.

Key Notes on Sessions: 

  • London Session: (Middle of the night for the US) is volatile. Big moves. Things move fast.
  • London + New York Session Overlap (Early morning for the US): There are usually some pretty decent moves during this time. You have two financial powerhouses battling it out.
  • New York Session (Early morning until end of business day): Things can still be volatile up until about lunch time, where volatility typically tapers off a bit.
  • In Between New York and Asia Session (Afternoon in the US, to evening): Right when New York session closes you can see the markets get a little weird sometimes. Spreads widen for a bit. Then the markets tend to start ranging, sometimes even going completely dead until Asia.
  • Asia Session (Late evening for the US): Asia session is usually ranging with some “pick up” in volatility as London session nears. Sometimes, Asia will feel like its setting the stage for London. Other times Asia will feel a bit off.

The key to this specific concept is to understand what certain days are like, and what different sessions are like throughout each day. Which means you likely are going to need different strategies for different days, and also different sessions.

As far as days of the week go, for example, Sundays can be super flat, and ranging markets. Some people avoid Sundays if they don’t have a good strategy for them. You might get a few decent moves here and there if you’re trying to trade like a normal Tuesday, but not usually. Scalping and range trading strategies tend to work well on Sunday. An important thing to remember on Sunday is the gaps. The markets can often open with gaps, and sometimes continue to have some weird gaps throughout Sunday night.

As far as days of the week, typically, coming out of the weekend, Monday’s are what we call “trap days”, “slow moving days”, “fake days”, and a lot of other things. Mondays can feel so right some days, and then so backwards other days. One Monday could be a “trap day” where the markets move in fake directions to trap buyers/sellers before going in the directions that were actually intended, and another Monday could feel perfectly normal. Some Mondays there is news released so the markets are CRAZY, and other Mondays are just plain slow. If there is news, you would want to have a news trading strategy in your arsenal. These can be breakout strategies, trend strategies, and so on. If you don’t have a good strategy that fairs well with Mondays, then it might be good to skip trading on that day of the week!

Tuesday-Thursday is when the markets MOVE. Sometimes on Wednesday volatility can slow down just a bit, meaning the markets move just a little less. But They almost always pick right back up come Thursday. Many people favor trading the middle of the week because there is decent, some what predictable movement in the markets. These days of the week tend to not feel so hit and miss when you’ve got something consistent, and they also tend to not have those Monday, backwards feeling. However, on some pairs Tuesday can be the starting day for a new trend “cycle”, in which you can catch a giant trend movement as well, so keep that in mind.

Fridays are usually busy markets until about 12pm EST (give or take). After that you’ll usually see the markets taper off a bit, where you would either stop trading, or probably try to grab a few quick scalps. Be careful leaving things over the weekend though. Swap fees can get you depending on the size of your trade, and Sunday gaps may or may not mess your trades up!

Also, be very careful of news on Fridays. Friday is a typical news release day, and for new traders, you can get “whipsawed” in your open trades. This is basically where the market moves so fast and furious that it either hits your stoploss really fast, or if you didn’t have one, it wipes your whole account. It could also hit your take profit really fast too, so if you have a good news trading strategy, Friday’s can be really fun!

Now real quick, lets touch on Months out of the year…

These are considered to be some of the best months for trading:

  1. January
  2. February
  3. March
  4. April
  5. May.

After those months, volatility slows down for the duration of summer:

  1. June
  2. July
  3. August.
  4. September

Note that June-August can still have some AWESOME conditions. These are often still great months for trading! However, just remember that many traders on Wall Street stop trading after May, until the fall. This doesn’t mean you need to, its just something to be aware of.

The second good trading period occurs in autumn, and is the most volatile part of the year. You can call this the Autumn Boom:

  1. September
  2. October
  3. November.

Volatility can be a good thing or a bad thing. These are generally months when you need to be a little bit careful if you are new, but with enough practice they can be fun.

December is also a generally good month for trading, but keep in mind there is a noticeable decrease in market activity near the end. You can probably guess the reason (holidays).

Overall, you need to find what you prefer, as different people will prefer different times of the day, on different days of the week, during different months of the year. Often this will depend on the style of trading you like whether quick scalp trading, intra-day, or swing trading. Its crucial you find what works for you, and stick with it.

Key Point(s): Analyze different days of the week + different trading sessions, and have strategies that allow you to react based on what the market shows you on any given day, or moment. Always remember that almost every trade you place is going to start off with drawdown — don’t freak out. Have patience, this is completely normal!

 

Over Trading & Protecting Yourself

Many people don’t do well trading too much. Some of the most successful traders I’ve met, have a daily goal. Could be a dollar amount, could be a pip amount. Either way, they set a realistic goal, they hit the goal, and they quit for the day. Allowing yourself to turn into a gambler and over trade can cause you to take that one extra trade that ruins the last several days profits. Its okay to trade a lot, but I would suggest not trading a lot if it messes with your head. Its not worth it. Learning to master your emotions when trading can seriously be the key that unlocks everything for some people. Always remember that there will always be more opportunities in the markets!

Additionally, don’t allow yourself to get greedy. Sometimes if you’re unsure about the trade and you are in profit, then its best to just take profit instead of waiting. When you’re mind is unsure, you’re more likely to let fear get ahold of you, and take a loss when the market goes negative. Don’t worry, as this is super common. The best way to get around it is to just take profit as soon as its in profit, even if its small. You can’t go broke if you’re always taking profit, but believe me, fear can lose you a lot of money.

Key Point(s): Set realistic goals until you are consistent, then raise them. You can’t go broke if you’re always taking profit, and protecting your capital.

 

Your Forex Broker

This one can make or break your trading. A good or bad Forex broker can make or break a strategy. Generally, unless you want to be manipulated you’re going to want to find an “A-Book” Forex broker, and stay away from “B-Book brokers”.

  • You want your Forex broker to be transparent and not manipulate the market against you.
    You need a Forex broker to offer competitive spreads (under 2 pips max for all the crosses and minors)
  • You need a Forex broker that offers fast trade execution without any virtual dealing plugins, dealing desks, market making, and so on. They need to pass your trade onto the liquidity provider as fast as possible (so your order can get filled). This is often done through FIX API, and or STP.

So how do you know what broker to pick? For starters, make sure you have a broker that doesn’t just advertise “ECN trading”. You need to make sure they are purely an ECN/STP Forex broker. Some brokers will claim on the surface that they are an ECN Forex broker, but in reality will only be an ECN Forex broker for large and/or winning accounts. The rest of the traders are “B-Booked”, aka traded against.

Typically Forex brokers who operate in London data centers (Like LD4) are B-Book Forex brokers looking to get closer to the old London banks (this is where a lot of pricing data comes from). Many of the good, and transparent brokers put their trading servers in NY (like NY4) data centers, because that is the financial center of the world. They want to be close to the action, as well as faster price quoting.

Other things you can do are look over the Forex brokers “Safety of Funds” statements, “Terms and Conditions”, “Privacy Policy”, etc. Often you will find provisions that sound a lot like they do market making, even though they try and advertise that they don’t.

If you get confused, or need help, please message @sbhooley on Facebook or Telegram for assistance. You can also email [email protected] for recommendations!

Key Point(s): Find the right broker, or you’re likely going to hate trading, and or lose a lot of money.

Now let’s go over some other important concepts.

 

WHY DO MOST STRATEGIES FAIL?

Let’s not forget a very important concept that not a lot of other trading companies seem to want to touch on. “Why do most strategies fail?”

 

The Most Common Problem, is YOU.

I don’t say this to be rude. In fact, I say this with love and the intent to help you reach your true potential. I see far too many people who give up so easily. Who say they want riches, and freedom. But in reality, most people don’t put in the work it takes to get there. But this is common in many areas of life. In specifics to trading, I see a lot of common things amongst thousands of traders.

For example, when entering a trade.  I see way to many people freaking out when they enter a trade, it goes negative quickly. They freak out because it doesn’t instantly go into profit, or spends “too long” in the negative. The reality is that almost every trade you place is going to be negative for at least some time. Part of this is the spreads you have when you trade, and the other part is that honestly really common for most trades to spend most of their time in what we call “drawdown”. Its not something that is easy to avoid, and some of the best traders learn to not care when they see it. They have tested their strategy, and they stick to it. You need to learn to have patience with trading.

You can have a great strategy/system, but if you don’t have the proper expectations, and discipline, then you’ll find yourself always blaming it. You’ll find yourself moving from system to system, strategy to strategy, trying to find the “Holy Grail” of trading. Stop it. I already told you above their isn’t a 100% magically profitable Holy Grail. You’re going to have to learn to control your fear, greed, and emotions in general when trading. You’re going to have to learn to discipline yourself to stick to a strategy, and keep failing until you learn enough to be profitable. This is an absolutely MUST.

On the note of having patience, its a good idea to force yourself to get consistent on a demo account before you just jump into a live account after a few good trades. Spending time on demo, especially many weeks allows you to go through the ups and downs of the markets. You get to experience the changes that happen daily, and learn to adapt. Instead of losing your hard earned money, you can lose fake money — The trick is to treat demo like a real account. Use a realistic balance, and realistic lot sizing. When you lose, treat it like a real loss. This way when you transition to live, there is no difference. Too many people play around on demo and have fun, and then wonder why they lost all their money when they switched to a live account.

 

Always Practice, and Back Test.

If you are not back testing your strategy, you’re losing valuable time. Back test on demo, just realize demo will have instant order filling, and will always be really quick. When you go live, your order has to get filled by order matching, Liquidity Providers, etc before you can actually get the price you are asking. If a broker doesn’t have a deep pool of liquidity, you might get slippage. You need to account for this when going live, because you won’t get slippage on demo. You also need to take into account commissions and spreads as well when you go live, because some demo platforms don’t include commissions on demo trades.

You simply need to back test your strategy and make sure it works before you waste time and money trying it out.

Key Point(s): Don’t freak out about drawdown. Don’t place blame on strategies, systems, etc. Take accountability for your trading, utilize demo, don’t forget to practice/backtest!

 

RISK MANAGEMENT & BUILDING A TRADING PORTFOLIO

 

Strategy + Building Your Portfolio

Every Forex trader needs to understand the realities of trading the Forex markets in today’s markets. The markets are not the same as they were 5 years ago. Probably not even the same as 2-3 years ago. The Forex market liquidity is not the same as it used to be either. In fact, 2% of firms are currently making upwards of 70% of the market liquidity using algorithms and or algorithmic trading. That’s right. There isn’t a magic market making wizard hunting you down in a big room. Trading algorithms are driving HUGE majorities of the markets. In short, trading conditions aren’t the same as they used to be. YOU need to be able to adapt to the markets, and that’s exactly why we wrote this Forex trading guide.

As Forex trader, you need to have multiple trading strategies to react to the markets. While its a good idea to start trading with one or two pairs so that you can learn them, over time you’ll want to be able to trade multiple different pairs in your portfolio. It is SUPER important to build yourself a winning portfolio of both instruments to trade, and winning strategies. As we mentioned above, pick the right currencies, brokers, etc. Remember that every day is likely going to be a bit different than the last trading day.

If you want to win the war, you need to be ready for battle each day, armed with an arsenal of tools and weapons.

 

Balance, Equity, Leverage, Etc

Remember that it is easier to convert $1,000 into $2000 in a month than it is to convert $100 into $200 for many reasons. The biggest being what is called “Leverage”. If your strategy relies on a simple 10 pip movement and you have only 100:1 leverage (beware of brokers that allow anything over 500:1) then your $100 account will give you maximum buying power of $10,000 which is a 0.10 lot.

Now lets just break down the mechanics here so you can really understand this concept. Its crucial, so please pay attention to this.

Lets say you place that .10 lot, and the trade goes your way. You have now caught 10 pips, and you would have made $10. Now stop and just think about what you just did. 100% risk, $10 reward. You just risked $100 to make $10.

Let’s now go over the math on a $1k account. In the same trade on a $1k account, you would have still risked $100 to make $10. That part does not change. What does change is that you now have $1k instead just $100. You’re risk has gone from 100% to 10%. You now have a better chance, and hopefully the ability to survive the next day to make back your losses. Can you see how this is far less likely on smaller accounts?

Remember this as well. On a $100 account, a 0.01 trade is equal to $1. Using proper risk management, it will take a lot of time to flip an account $1 by $1. This is why trading with smaller accounts CAN work, but once you are decent at trading stick to larger accounts. The trick is to learn how to grow and compound small accounts, rather than just try to over leverage and flip them. That’s where too many people end up blowing everything.

 

Some Cool Tricks to Try When Trading

The Stoploss in Profit: This is also known as “setting your trade to break even” or “taking a partial profit”. When you have a few pips profit, put your stop loss above your entry. That way if the market retraces, you’re literally “risk free”. The worst that can happen is that the market hits your stop loss in profit, which means you still make a profit. Now, this is harder to do when scalping, but if you can get it down, it can be well worth it. Now from experience, the first thing you’re going to think about after enough times of doing this, is to take off the stop loss because you might feel like if you had just let it go a little negative, you could have made more money. I’m just going to warn you right now, its often not worth it. You can’t go broke always taking profit, or never taking a loss with a stop loss in profit. Sure, you could have made more, but honestly, there will always be more opportunities. So never let greed, or the fear of missing out steal your hard earned money!

Placing multiple trades around the same entry: If you’re doing two trades, this is often known as twin trading. But you can do three or more as well. The premise is that you’re taking two similar entries on the same setup. Different people have different variations of this. A common one is to have one trade with a short take profit, and one or more other trades with larger take profits. For example, in twin trading, one could set a short take profit on one trade, and then have another trade with a larger take profit. Mix it up with putting your stop loss in profit, or using a trailing stop (only applicable on MT4 desktop). That way no matter what happens you either hit your larger TP on the second trade, OR you just hit your stoploss in profit. Either way, you win!

 

 

SUMMARY

Overall, there are so many things we could go over, but this should give you a really good start. If you have questions, please feel free to reach out to me on Facebook! Just keep in mind, I’m a busy person, so I’ll respond when I can.

Happy Trading!

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