Forex Trading Guide for Beginners

How to trade exotic currency pairs
Forex Trading Guide for Beginners
May 18, 2017 Charles Green
How to trade exotic currency pairs

The currency trading market, also known as the Foreign Exchange Market, the FX, or the Forex is one of the largest financial markets in the world — with an average daily turnover of $5.1 trillion in April 2016. It is traded 24 hours a day, 7 days a week. The market is, for the most part, high risk, but the more a person knows about Forex, the more successful they will be in trades.

How to Trade Forex Successfully for Beginners

Currency traders bet on the movement of exchange rates, and the movements of exchange rates are affected by many factors. First, the Forex, like any financial market, is really about speculation. No trader or group gets official information ahead of time that will indicate that a currency rate is going to change. There are many environmental impacts that affect the currency exchange rates for countries. Wars, coups d’état, and changes in the economy of a country are just a few. In short, just about anything that affects citizens in a country affects the value of that country’s currency.

Traders try to predict fluctuations in the exchange rate and bet on the pairs that will give them the largest gains on their bet. When one country’s currency is being traded against another country’s currency, it is called a “pair”. All of the major pairs that are traded involve the US dollar. When a currency pair is being traded that does not involve the US, it is called a “cross currency pair.” An example of a cross currency pair would be EUR/JPY (Euro/Japanese Yen). The most actively traded cross currency pairs are the EUR, JPY, and the GBP (sterling pound).

There are a couple of important things to know about how the pairs are shown. First, the stronger currency is traditionally listed on the left. So, when you see EUR/USD, you know that the Euro is stronger than the US dollar. This stronger currency is called the “base currency.” The base currency is what you buy or sell. So, if you buy 10000 EUR you are automatically selling 10000 USD.

On paper, it would look like this, 10000 EUR/USD. The currency on the right is called the “counter currency” or “secondary currency.” The value of this currency when you buy or sell your base currency will determine what the profit or loss is on your trade.

Reading this does not convey the speed with which trades are happening. Trading is taking place throughout every day and night every day of the year. The market can fluctuate by the minute with many of the currency pairs. There are pairs that provide less risk as well as extremely high-risk pairs. You will want to know which pairs fit in with the level of risk you are willing to take. Low-risk pairs are the best Forex pairs to trade for beginners.

Now, this is only one tiny little piece of what you need to know to begin trading. There are strategies, methods, and much more that will be important in making successful trades on a consistent basis.

Best Currency Trading Strategies for Beginners

Trend following– Trend following has been the mainstay of profitable stock, futures, and Forex traders for many years. Basically, trend following consists of determining the direction and momentum of a trend and placing a trade in the direction of the trend. One of the easiest ways to find the trend is to use a moving average. Now before you stop reading and shake your head and say that a moving average is an indicator and indicators don’t work it would be smart to test moving averages out for yourself. As the legendary trader Robert Strakken says, “How can beginning traders hope to ever become successful without learning a few basic Forex analysis techniques?” So before you write simple technical indicators off as useless, realize that something as simple as a moving average has been responsible for billions and billions of dollars in profitable trades over the years.

Breakout strategies A breakout strategy works on the supposition that when market prices move outside of a trading range (break out), there is a tendency for them to continue in that direction. Breakout strategies were based upon the highest high and the lowest low over a period of time. If a trader is using a 10-day breakout system they will buy when the price moves above the highest high of the last 10 days. On the flip side of the equation, they will sell the market when the price moves below the lowest low of the last 10 days. 10 days was simply chosen as an example and you can construct a breakout trading system using any time period you wish such as five minute, four hours, 10 days, etc.

Start with these Books

So exactly what are the best books for beginners? The simple answer is a book written by a successful trader who has started from humble beginnings and will be able to guide you in the right direction. It is both exciting and informative to read their success stories. It’s also good to know that many of these successful traders had the same struggles and challenges as all of us do when starting out. 

Trading Systems – Techniques and strategies designed to trade Forex successfully. Good books will have plenty of trading system examples along with performance reports detailing how those systems have done.

Trading Psychology and Discipline – Information on how to stay focused, disciplined, and profitable. Keeping the right mindset and keeping your emotions out of the way are as important if not more important than the trading methods themselves.

Risk Control and Money Management – Methods to control risk so that you can preserve capital and keep on trading. Money management techniques will help you grow your account faster. Using proper money management is absolutely essential. No trader becomes super successful and wealthy without it.

Summary
The Beginners Guide to Forex Trading
Article Name
The Beginners Guide to Forex Trading
Description
This article provides an overview of the Forex market, along with suggestions for what strategies are best for beginners and what books are best to read.
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Publisher Name
Market Traders Institute
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