How to become a great forex beginner

As with any kind of financial market trading, you need to be able to answer the following question: How Can I Compete against the Pros and Big Institutions as a forex beginner?

If you're looking to get started in forex trading, this is the place to start. The following article will help you learn everything you need to know about forex trading for beginners. 

Forex trading for beginners

Whenever you are trading forex and any other financial market, most of your competition consists of the top professionals who are responsible for most of the trading volume. They have nearly every advantage over you: skill, experience, and any advantage that money can buy, the best equipment, information sources, industry insider contacts, whatever. You have no better chance of beating someone like David Woo or Stephen Jen at short-term forex trading than you do at beating Michael Jordan or Lebron James at basketball. So how can you compete as a forex beginner? You don’t. The real answer obviously is, don’t even try to understand how to trade forex as they do.

That’s fine; there’s plenty of money to be made if you know the secret, which is really no secret. It’s just common sense. In the beginning, don’t try to be a bad imitation of an experienced pro. Instead, focus on becoming a great forex beginner. That means finding and using the trading techniques, styles, and instruments that even a forex beginner can, in measured stages, start to implement successfully. You’ll spend most of your time calmly and persistently searching the charts for those few easier opportunities, rather than spending long hours glued to your computer, frenetically making lots of trades based on rash decisions, based on short timeframes in which price movements are harder to predict, with the odds firmly against you. How do you identify and execute these simple, low-risk, high-yield trades? Funny you should ask. The following is forex for beginners' guide of how we’ll do it.

Continue reading for more information or experience forex trading for beginners with a FREE $20 welcome bonus. Use code WELCOME20 at registration.


How David Beats Goliath - More on How to become a great Forex Beginner

As I’ve said before, you have to start forex trading somewhere. Welcome to the somewhere. We’ll teach a variety of ways to harness the power of the forex market that are safer, simpler, and more likely to be profitable than the higher-risk methods most commonly practiced.

Regardless of your skill level or risk tolerance, there are solutions here to suit you. A prime focus of this blog is to be a forex trading for beginners road map for finding, planning, and executing trades that are safe and simple enough for beginner to intermediate skill levels. More specifically:

  • We will teach you how to identify and trade only the lowest risk, highest potential yield opportunities with easy to identify low-risk entry and exit points. When prices are rising, that means finding the trades where you can buy close to the likely near-term low price, called support, and sell at the likely high price, called resistance, for a given holding period. When prices are falling, you’ll do the opposite. In other words, sell a currency at its likely high, and buy it back at a lower price, and profit on the difference, which is called “going short” a given currency pair.
  • Unlike almost every other forex trading for beginners' source, we will show you simple ways to trade the more predictable, persistent, and thus safer, longer-term forex trends. We will show you alternative instruments to the usual high leverage spot market forex trading.

We will show you how to be a disciplined trader, focused on profits, not gambling. This includes doing something you’ll rarely see in forex for beginners' guides. We will NOT encourage you to trade short-term intraday moves in which you enter and exit within a matter of minutes or hours.

We will coach you to manage risk so you can be profitable even when most of your trades lose money. That means:

  • Know when and how to exit quickly and minimize losses when the odds go against you and accept those losses as part of the business.
  • Know when and how to stay in the trade until your indicators show the odds are no longer with you and know to avoid the temptation to grab a quick profit and get out too soon.
  • Create a simple but thorough trading plan so your decisions about position size and entry and exit points are made beforehand and not under the emotional duress of ongoing trade with money at risk.
  • Manage your trading capital so you can survive sudden unanticipated losses.
  • Help you practice the techniques we teach with some trade simulation exercises.
  • We will explain the basics of trader psychology so you don’t defeat yourself with the wrong expectations, and you will learn how to handle winning and losing streaks.

What’s the Catch? There is a catch: Forex trading requires time and effort as with any other competitive, lucrative field. In previous articles about forex managed accounts and copy trade systems we’ve explained to you some approaches that are easier than the usual forex trading for beginners strategies, but even these require study and practice. Like achieving anything else worthwhile, especially a lucrative, stimulating career, you’ll need the discipline for a sustained investment of time, effort, and money. You’ll suffer some uncertainty, frustration, and failure, with no guarantee of success, as you would in achieving anything else worth attaining. Sorry if we’re bursting anyone’s bubble. Fortunately, you’ve got the right forex for beginners' tools to minimize the drain on your time, emotions, and finances. 

Most Forex Beginners Fail within Their First Two Years

While we’re trashing get-rich-quick illusions, here’s a helping of fear to keep you motivated and paying attention. In case you forgot (or skipped) what the fact is this: Per available data, the odds are firmly against you. Most forex beginners lose money and are gone within a matter of months. U.S. regulators have reported that the vast majority (around 80 percent or more) of forex beginners fail within their first two years. Few manage to last at day trading in general. At least one large publicly traded forex brokerage reports that a large percentage of its traders are profitable, and that’s because most of the forex beginners copy the success of the leading traders. Many take a rather simplistic view that because most beginner traders fail, forex trading should be avoided altogether by amateur traders or investors. By that same reasoning, one should avoid real estate and insurance sales and any other field that offers low barriers to entry is potentially lucrative and attracts intense competition from which only a minority prosper.

Consider that one cannot even begin to practice in most lucrative, skilled professions without years of professional training, typically costing over $100,000 intuition, related expenses, and lost wages. After that, there’s a demanding battery of exams, followed by years of relatively low paying jobs with grueling hours, commuting, office politics, and ass-kissing thrown in as you learn how the job is done.

Even after passing through all those hoops, only a minority will make the big money. From our own experience working in large accounting firms, we’d be surprised if 10 percent of the new hires out of college eventually become partners or find equally lucrative roles in the field. Having worked with traders for years in various capacities, it’s clear that most traders don’t do the preparation needed to have even a chance to succeed. The small minority that attempts a serious program of study and practice enjoy a lucrative part-time or full-time career as forex traders, forex money-managers (manage investor's funds and earn additional income from trades or profit), forex signal-providers (offer signals and receive a fixed monthly income from subscribers) or introducing-brokers (work on behalf of a broker and earn money every month for successful referrals)  

We wrote this article for those like you, the sincere, serious traders or investors who seek the path to better results. Here is the good news:

  • The failure rates are inflated by all those casual gamblers who were never serious traders.
  • That you’re reading this article puts you in a different category of trader altogether. You’re doing the right preparation as you would for any profit-making endeavor, and you’re going to get sound, conservative advice.

Even if in the end forex trading isn’t for you, you’ll have learned valuable ways to profit from forex as a long-term investor, money manager or forex introducing-broker. In sum, we can’t guarantee you success, but we can make you better, and put you miles ahead of the rest of the forex trading beginners out there.

Forex Basics - the most important lessons

1. Trade Only the Most Liquid Currencies

Though most currencies are convertible and tradable, the first aspect you have to learn about forex trading for beginners is that most traders stick to the eight major currencies (known as majors), because they have the most liquidity or availability, meaning that lots of buyers and sellers are usually present at any given time. That means you’re likely to get the best price and avoid slippage. For example, if you want to buy or sell something, you’ll get a better price if thousands of counterparties are competing for what you have to offer, as opposed to just one or two.

Here are the eight major currencies, along with their symbols and nicknames, ranked in order of liquidity:

  • USD - United States Dollar (Buck, Greenback, The Reserve Currency) 
  • EUR - Euro (Zone members Euro Fiber, The Unified Currency, The Single Currency, The Anti-Dollar) 
  • JPY - Japan Yen (Yen, Jippy) 
  • GBP - Great Britain Pound (Cable) 
  • CHF - Switzerland Franc (Swissy) 
  • CAD - Canada Dollar (Loonie) 
  • AUD - Australia Dollar (Aussie) 
  • NZD - New Zealand Dollar (Kiwi) 

Currency Labels Explained:

Why these symbols? In general, the first two letters stand for the country, and the last letter signifies the currency.  

2. Risk versus Safe Haven Currencies

To be able to learn forex trading basics, always remember that depending on how they behave, these major currencies are classified as one of two kinds: risk and safety or safe-haven currencies. For now, just know that in general:

  • Risk currencies are those that appreciate in value in times of optimism and depreciate in times of pessimism like other risk assets such as stock indexes or industrial commodities.
  • Safe haven or safety currencies depreciate in times of optimism and depreciate in times of pessimism like other safety assets that are in demand when markets are fearful, such as investment-grade bonds.

Here’s an image showing how these currencies rank on the risk-to-safety spectrum:

In other words, the AUD is the currency that tends to raise the most when markets feel optimistic and want risk assets, and the JPY tends to fall the most. In times of fear, when risk assets are selling off, the opposite occurs.

These labels refer solely to how these currencies behave relative to other assets. These categories do NOT refer to the safety of these currencies as a store of value. For example, the JPY generally behaves as the ultimate safety currency, however, few would dispute that the CAD is a better long term store of value given Canada’s better fiscal health. While the above general ranking works over a given period of days or weeks, it rarely applies perfectly on a daily basis.

For example, even if markets are feeling very optimistic, and classic risk barometers like the S&P 500 are trending higher, currency specific news events can cause lower-ranked risk currencies to outperform the AUD and NZD.

3. Currencies Trade in Pairs and Why That Matters

Like everything else, currencies need to be priced in a currency, so currencies always trade in pairs. This fact makes the forex market different from other markets in two critical ways.

Here’s the first big difference. Thus, unlike how traditional asset markets price stocks or commodities in terms of a given currency, foreign exchange (forex) prices are the product of the movement of one currency relative to another. For example, when traders talk about the price of the U.S. dollars (USD), they’re referring to the dollar value relative to another currency, depending on which pair they’re considering. This is a critical difference from other asset markets.

For example, on a given stock exchange, traders need only consider how share prices change relative to the local currency, which is assumed to have an essentially fixed value regardless of what’s actually happening in the forex market. However, forex traders must consider how a currency will move relative to multiple currencies, all of which are moving at the same time. For example, it’s common for a given currency to be up versus some currencies but down versus others. That often complicates an assessment of its overall strength and is not something to learn in forex for beginners.

For now, just learn this forex for beginners basic principle: if traders want to benefit from the USD’s strength the most over a given period, they must also choose the currency against which it will be strongest during the anticipated time span of the trade, be it an hour, year, or anything in between. Even when the New Zealand Dolar (NZD) is relatively weak, if the USD is doing even worse, you can still profit from buying the NZDUSD.

This is such a huge advantage over other markets such as stocks that it alone justifies learning to trade forex because forex trading gives you an easier, more reliable way to play bear markets.

In other markets, there are often technical rules that make it harder to profit from downtrends. These include the periodic outright bans on short selling (typically when that’s most profitable), and the Uptick Rule, which often prevents less sophisticated traders from catching the most profitable sharp downtrends, and keeps them away until the trend is moving higher, thus making short selling riskier. When you short stocks, your broker must borrow shares from someone who owns them. These aren’t always available when you want them, because other short-sellers want to borrow them too. However, such bans are impossible in currency markets, because currencies trade in pairs, which means you’re always selling one in order to buy the other, that is, shorting (selling) one and going long (buying) the other. Some currencies (safe-haven currencies) rise in times of pessimism or bear markets; others (risk currencies) rise in times of optimism or bull markets.

Profiting from bear markets is just a matter of buying safe-haven currencies and selling risk currencies to pay for them. In bull markets, you do just the opposite. Unlike specific stock exchanges, currency markets are too international and interlocked for anyone to ban selling a given currency at a given price. Even central banks’ attempts at manipulating prices are rarely sustainable for long. Confused? Stay with us here—the details of how we’re always buying one currency and selling another, and how we profit from bear as well as bull markets, will be clarified further on when we learn the anatomy of a forex pair price quote and better understand what actually happens in a forex trade.  

4. How to Read a Forex Pair Price Quote

Read the pair as the Euro-U.S. Dollar or the Euro-Dollar. The currency on the left, the EUR, is called the base currency. That’s because price movements of the EURUSD are “based” on the base currency. The EURUSD price will rise on the charts if the EUR is rising versus the USD. In other words, when this pair is trending higher, it means the EUR is rising versus the USD (and vice versa, the USD is falling versus the EUR). When the EURUSD is falling, that means the EUR is falling versus the USD, and the USD is rising versus the EUR.

Thus, when you think the base currency will rise versus the counter currency, you buy or “go long” the pair.

The currency on the right, in this case, the USD, is usually called the counter currency because the price of the pair moves “counter” to the value of the USD versus the EUR. That is, if the EURUSD is rising, the value of the USD relative to the EUR is falling. The currency on the right is also called the quote or terms currency because price movements of the EURUSD are “quoted” in “terms” of the USD. Price is read as counter currency per base currency. In other words, do not read the pair like a fraction. Instead, were ad the EURUSD price as U.S.Dollars per Euro and not Euros per Dollar. For example, if the EURUSD price is 1.1131, that means the price or exchange rate is 1.1131 USD per EUR, or, the EUR costs 1.1131 USD.

The above price quote means you could do one of the following:

  • Buy the EURUSD pair at the (higher) ASK price.

That means: You buy Euros and pay for them to buy selling dollars, paying the higher ask price. For every 1 EUR you buy, you’re selling $1.1132 USD, regardless of whether your account is funded with JPY, GBP, EUR, and so on. Amounts are converted as needed.

  • OR Sell the EURUSD pair at the (lower) BID price.

That means: You sell Euros and get U.S. dollars in exchange for them at the lower sell or bid price. For every 1 EUR you sell, you’re being paid $1.1131 USD.

In sum, if you want to learn the basics of forex trading, understand this: you’re always buying at the higher price and selling at the lower price so that the forex broker can earn the spread in lieu of fees or commissions. When you buy or go long the EURUSD, you’re long the base currency EUR and you’re short the USD. When you sell the pair, you’re doing the opposite. Thus, you’re always long one currency and short the other, so it’s as easy to short one currency versus another and, thus, benefit from its downtrend as it is to be long that same pair. When you enter or exit a position you buy at the higher ask price, and sell at the lower bid price. Why? The difference or spread between the bid and ask prices is the profit the market maker or broker earns for pairing buyers and sellers instead of charging a commission like stock brokers.  

Understanding forex trading for beginners is important, but if you want some help, sign up and a dedicated trainer will provide you step-by-step guidance to get started. Start trading and experience the best of forex for beginners. Use code WELCOME20 at registration.

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