Professional traders and investors like George Soros, Andrew Krieger, Bill Lipschutz, who made millions by trading euros, dollars and yen agree that beginner traders should start their trading journey with Forex.
But you shouldn’t expect to dive into the world of the foreign exchange market and start making huge profits right away. The unspoken rule of life says:
Only by giving are you able to receive more than you already have.
The same goes for trading. To start making money you need to invest your time and obtain some knowledge first. Let this article be your first investment on the way to those precious dollars.
Now, let’s get down to business.
Essential skills a beginner trader should have
Professional traders identify 3 essential skills that can help novice traders become successful in the Forex market:
- Technical analysis skills
- Fundamental analysis skills
Let’s talk more about each of these skills:
Skill 1: Technical Analysis
Technical analysis is used to identify the most likely scenarios and price movements in the future based on past activity. Japanese candlesticks are one of the most common tools used in technical analysis. Candlestick charts display various price movements over time. They show an asset’s high, low, open, and closing prices for a given period. When analyzing candlestick charts, traders look at the combinations of candles, their order and their interaction with each other.
Technical analysis tools also include indicators and oscillators. Technical indicators are mathematical calculations based on a trading instrument’s past and current price or volume activity. They average the price activity for a certain period allowing traders to project the movement of an asset in the future. The Moving average is a classic example of a technical indicator.
Oscillators are used when there’s no clear trend, i.e., an asset is trading in a narrow range. Oscillators help the trader determine the asset’s oversold and overbought zones. The most popular oscillators are RSI, MACD and Stochastic.
Traders apply technical analysis tools to determine the right time to enter and exit the financial market. To do this, they can use signals of a single indicator or a combination of indicators. For example, MACD and RSI are often used in conjunction. MACD helps traders spot the changes in overall market sentiment, while RSI is used to identify a specific entry point.
Technical analysis is available to anyone. Having learned a couple of simple indicators, make sure to test them on a demo account first to see if it performs as planned.
Skill 2: Fundamental analysis
To put it simply, fundamental analysis is the process of evaluating the true value of an asset by analyzing the factors that could influence its price in the future.
Fundamental analysis studies anything that can influence the asset’s value – the state of the country’s economy, industry conditions, the financial well-being of the issuer, and even small factors like the effectiveness of the company’s management.
Any report, release or publication that indicates a strong positive or negative trend can become a signal to enter the market. What important factors to look at when conducting fundamental analysis? First of all, the analyst should evaluate the inflation rate and the country’s monetary policy, paying attention to interest rates, GDP and business activity indices in various sectors and industries.
Usually, if the release is positive, the price moves in an upward direction and vice versa. However, this is not always the case. Sometimes, the report turns out worse than expected, but the price still moves up. As you can see, fundamental analysis alone doesn’t provide 100% accuracy. It should be used in conjunction with other market analysis tools.
Skill 3: Discipline
In fact, discipline is the #1 most important skill. Being organized and doing everything according to plan is a trait that will help you not only to become a better trader. It’s the key to achieving personal goals and career success in general.
An essential habit of a disciplined trader is to know when to exit a trade.
It’s not so important if the market goes up, down, or flat. What matters is how you react to this market movement, and whether you react at all.
To make smart trading decisions, you need to have a trading strategy. A trading strategy is a set of rules that specifies a trader’s entry, exit points, and money management criteria for each trade. It takes into account all the nuances, and you have to follow all the steps strictly. That’s why self-discipline is so important. You can’t simply open trades because you “think” that the price will go in your projected direction. Your trading strategy should highlight the criteria to follow when opening a trade. And indicators, candlestick patterns and technical analysis figures will be of no use if you cannot apply them correctly in your trading. To cut it short, without a solid trading strategy, you can’t achieve any lasting success.
How to start making money in the foreign exchange market – the first steps
Now that you understand the basic tools of market analysis, it’s right about time to make some money:
- Select a platform to monitor prices
Most traders look up prices in TradingView, but they use the MetaTrader platform for trading.
MetaTrader 4/5 is a trading platform where you can perform trading transactions. It’s free, so you can download it now. You will need it later.
- Decide on a trading strategy
You already know the basic trading skills you need to have – technical and fundamental analysis.
We have TradingView at hand to monitor the prices and the MetaTrader platform to perform transactions. Excellent.
All we need now is to choose a trading strategy for beginners and start making money.
Steps to follow to build a winning trading strategy
Creating a trading strategy takes time. First, you need to decide which technical analysis tool you will be using. For example, you like Japanese candlesticks. Excellent!
You need to:
- Understand how chart patterns work.
To do this, we recommend reading “Candlesticks: Graphical Analysis of Financial Markets” and “Beyond Japanese Candlesticks” by Steve Neeson.
- Learn how to identify patterns on the chart;
- Understand when the chart pattern will work out and when it may be giving false signals;
- Write down the criteria in your notebook, Google Keep or another note-taking app.
And enter a trade only if all these criteria are met.
To see the bigger picture, we recommend using a combination of technical and fundamental analyses.
Having analyzed macro-economic factors and global developments around the world, use technical analysis to identify specific entry and exit points. Pay attention to support and resistance levels, price channels, overbought and oversold zones. Try to use a combination of both of these market analysis methods to get a more accurate picture. And don’t forget about self-discipline and a trading strategy. Never enter a trade when you’re not sure about the outcome.
via: Information Nigeria