How to start trading Forex? How to start analyzing the Forex market? Today we will talk about the basic knowledge needed for trading. Based on expert experience and conversations with professional traders, we can confidently say that trading is simple and exciting. So, let’s get started!
Basic terms and concepts
Most of the time the foreign exchange market is in motion, which can go either up or down. Therefore, the first two types of trends are upward (aka bullish) and downward (aka bearish). For successful trading on the Trade in Forex site, remember the key definitions:
- A bullish trend is observed when a new peak updates the previous one, and a new drop does not fall below the previous one;
- With the downward trend, the situation is reversed: a bearish trend is observed when a new drop updates the previous one, and a new peak does not rise above the previous one.
Sometimes prices move within the “corridor”: they rise, then fall within certain limits. Such a situation is often observed for several days before the planned important news. “Corridor traffic” is called a sideways trend (also known as horizontal or neutral). For this trend, it is essential to remember the following: it is observed only when the amplitude is not less than 300 points. If this rule is not followed – it is impossible to trade.
In the process of movement, prices are based on or repelled by invisible lines, which are called “lines of support and resistance.” To visualize them – just connect the peaks or drops. If the price breaks support or does not reach resistance – this is a signal of weakening the trend. If the price does not reach support or break the resistance – this is a signal of acceleration. Transactions can be opened only in the direction of the trend: if it is ascending – buy, if descending – sell.
How to start the analysis of the forex market?
When opening any deal, it is important to make decisions based on reliable data because intuitive trading inevitably leads to failure. Forex has two major areas of market analysis: technical and fundamental. According to the technical analysis, the price chart contains all the necessary information to decide to open a transaction – just study the price history. According to fundamental analysis, market prices exist and change under the influence of fundamental factors, which should be discussed in detail in a separate article.
Mastering fundamental analysis is much more difficult than technical, so we will pay special attention to the second direction. Methods of technical analysis:
- Classic – includes the analysis of graphs. These include pattern trading strategies, equidistant channels, Fibonacci lines, and more.
- Candlelight is distinguished by several hundred candle models that predict various changes in the market.
- Analysis of indicators involves the use of special programs for trading.
- Eliot’s wave theory is controversial, but many traders earn very well by using it.
Now let’s talk about how to get to the top of trading as effectively as possible.
The main stages of forex trading
Any activity can be represented as a sequence of steps, forex is no exception. Successful traders follow the below steps:
- Choose a broker: first of all, pay attention to the availability of the license, as well as the terms of trade – a minimum lot, number of tools, size of the spread, etc.
- Learn how to work on a trading platform: brokers usually provide instructions on how to trade, but this is not always the case. It is important to be able to work with tools, use alerts, and trade “in one click” – without all these skills, it will be difficult.
- Gain knowledge – if you do not understand the financial markets – you will not be able to trade, this is a clear fact. If you spend 2 hours a day for two or three months, you can form a good idea of the market and learn several strategies.
- Replenish the trading account – when we open a deal, we set the Stop Loss level – if the price does not go in our direction and reaches it, the deal will be closed with minimal damage. Losses due to Stop Loss should not exceed two per cent of the capital.
- Choose a strategy and follow it – the essence of any strategy is to exceed the number of successful deals over unsuccessful ones, so trade must be guided by a clear plan.
Alexander Elder, a great trader of today, says that most people in the stock market are driven by two emotions: fear and greed. They equally deprive the ability to think rationally. Never follow emotions wherever the price goes – towards you or against you. Emotions clearly lead to failure, strategies require cold calculation and a sober mind. Good luck!
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