10 best Trading Tips & Tricks

Foreign exchange trading offers almost every speculative investor the opportunity to achieve high profits in a short time. On the other hand, however, it is also associated with considerable risk, as a total loss can also occur within a short time. It is therefore very important that all players in the market at least know the most important basics and rules to be observed when trading with foreign exchange. In addition, it is, of course, useful to obtain detailed information and to take advice, which is often given by professionals. In the following guide, we would like to list the ten most important rules that you should observe in connection with Forex trading.

Contents:

  1. Speculation
  2. Forex & CFD Broker
  3. Demo & live trading
  4. Information
  5. currency pairs
  6. temporary losses
  7. Risk Management
  8. accept losses
  9. Self Analysis
  10. take profits

Rule 1: Speculative character in Forex trading must be observed

A big mistake in Forex trading is that many newcomers think they can make fast money in a short time by trading Forex. Of course this is basically possible, but in most cases, especially beginners trade prematurely and thus suffer larger losses at the beginning. Therefore, an important rule in connection with Forex trading is to pay attention to the highly speculative nature of currency trading. One of the consequences of this is that only a small proportion of your total assets or capital, which you would like to invest in principle, is used for trading foreign currency pairs. How high this share is, of course, always depends on the individual situation and the needs of the trader. In general, however, it can be said that no more than ten to 15 percent of the total assets should be invested in forex trading. The golden rule in this context is also that capital intended for forex trading should never be placed on just one position, but should be diversified. Thus, the money intended for Forex trading should be spread over at least five to eight different positions, i.e. currency pairs.

Rule 2: Find the best Forex broker for you

Find the right Forex and CFD BrokersThere are now over 50 Forex brokers in total who provide access to trading, giving you the opportunity to speculate on the development of foreign exchange rates. Unfortunately, many investors are quickly influenced by advertising and choose a Forex broker without having taken the chance to compare the providers. There are numerous points in which the brokers differ from each other, such as

  • Trading platform
  • Customer Service
  • Knowledge and information area
  • Conditions
  • Bonus
  • Demo account
  • Number of currency pairs
  • Market access

For this reason, and especially because of the sometimes significant differences, a second rule is to definitely take the time to compare Forex brokers in detail. Only in this way is it possible to find the Forex broker that best suits one’s needs and ideas.

Rule 3: First train, then trade in real terms

Training demo accountAnother basic rule in connection with Forex trading is that beginners should definitely take advantage of the opportunity that every broker offers with a demo account nowadays. The demo account is the perfect opportunity to familiarize yourself with forex trading and to take a closer look at the trading platform. It is very important that you follow this rule, especially if you have never traded forex before or if you are unfamiliar with the trading platform because you may have previously had your account with another CFD broker, but the broker has provided a different trading platform.

If you decide to use the demo account, you should pay particular attention to the following points and take actions:

  • try out several designs of the trading platform
  • execute virtual trading orders
  • Try out chart variants
  • Test tools and additional functions
  • Simulate account management through previous orders

Rule 4: Provide comprehensive information before the first trade order

Obtaining Forex InformationAn important basis for later successful trading with foreign exchange is to be familiar with the subject. From its basic structure, Forex trading is simple, since you are only speculating on the rise or fall of an exchange rate. Nevertheless, there are, for example, numerous technical terms with which you are confronted daily when trading, the meaning of which you should know. Although these terms are easy to learn, forex trading naturally consists of many more activities and background information. One rule, for example, is that you should first obtain extensive information and above all try out and know strategies before you actually place your first trading order. Therefore, you should familiarize yourself with the following situations and mechanisms, for example:

  • Application of trading strategies
  • Recognition of trading signals
  • optimal use of the tools and information on the trading platform
  • Know the effect of chart movements
  • analyze one’s own actions
  • Use money management and risk management

Rule 5: Do not start with exotic currencies

Currency pairs ForexAs in any trading area, the first thing that beginners need to do in Forex trading is to gain experience in order to optimize their own trading activities. Therefore, almost all experts agree that newcomers should never start with so-called exotic currencies. The main reason for this is that the risk of rapid price movements and thus the unpredictability of the exchange rate is considerably higher than with standard currencies. Therefore, an important rule in Forex trading is to start by trading standard currencies, which include the following five in particular:

  • Euro – EUR
  • US dollar – USD
  • pound sterling – GBP
  • Swiss franc – CHF
  • Japanese yen – JPY

In addition, there are numerous currency pairs, which are also not yet counted as exotic currencies and are a kind of middle ground between standard and exotic currencies. These are for example Danish, Swedish and Norwegian crowns, Russian roubles and some Asian currencies.

Rule 6: Do not sell prematurely in case of temporary losses

Don’t sell too quicklyA very important rule, not only in Forex trading, but also in trading in binary options, CFDs, stocks or other securities, for example, is not to panic in case of temporary losses and close the open position too quickly. The only exception is when you have chosen a financial product that has a maturity date, such as warrants or futures. In foreign exchange trading, however, you should “sit out” interim losses to a certain extent, which are caused by unwanted price changes. Often, traders panic too quickly, smooth out the open position and then get annoyed that it was actually only a temporary negative price development and that a profit would have been made just a few hours later. This brings us to another rule, namely to use the methods that forex brokers use to hedge losses.

Rule 7: Stop Loss Order and further measures to minimize risk

Using Stop Loss OrdersOne of the most important rules in Forex trading is to limit possible losses from the outset. For example, you should never place an unlimited order, especially with exotic currencies, because then it can happen that you buy the currency at a much higher rate than you actually thought. However, it is just as important, or perhaps even more important, to generate a buy or sell order directly when you place it, or at least a short time later, to generate a stop-loss order. This order ensures that losses are limited to a level that you set yourself.

If, for example, you want to suffer a maximum loss of 20 percent on a forex position, a stop loss order could look like the following example:

  • Trading activity: purchase US dollar
  • Price at purchase: 1.0569 dollars per euro
  • maximum tolerated loss: 20 percent
  • Stop rate: $1.2682

In this case, by means of a stop-loss order, you thus specify that an automatic sale of the dollar will take place if the rate falls to 1.2682 dollars per euro. In this way, you have ensured that you can suffer a maximum loss of 20 percent with this open position. If you had not placed this order with a stop loss, you might have incurred significantly higher losses.

In addition to stop-loss orders, there are a number of other measures to minimize risk, such as automatic trading systems with built-in activities, professional analysis programs regarding trading signals or, to a certain extent, social trading, where you can learn from the experience of professional traders. However, almost the only loss mitigation measure that provides a guarantee is actually the stop-loss order. It should be noted that even a stop-loss order is no guarantee against massive price slides such as GAPs. In this case it is advisable to look for a broker with no obligation to make a margin call, or to trade with a provider such as IG (formerly IG Markets), who offers guaranteed stop loss orders to its customers for a fee. In this case, execution at the desired price is guaranteed even under the circumstances just mentioned.

Rule 8: Forex trading is and remains highly speculative

Forex and CFD trading is speculative Forex trading is a highly speculative way of making high profits in a short period of time. Due to the high risk of loss, however, one rule is that you should never calculate with fixed income when trading foreign exchange. It would be fatal to assume, for example, that you can generate income of 500, 1,000 or even more euros every month by trading. This realization is not easy, especially since various Internet portals advertise that Forex trading can even serve to generate a secure and regular income. This statement is unfortunately complete nonsense, because even if you have traded successfully for several months, there is no guarantee that this success will continue in the coming weeks and months.

Rule 9: Review your own trading activities in retrospect

Checking TradesIn Forex trading, even for professional traders who may have been active in the market for years, it is extremely important to keep learning, testing new Forex trading strategies and analyzing your own past behavior. Only those who learn from their mistakes can become successful traders in the long run. For this reason, it is recommended that you regularly review your own trading activities in retrospect and, for example, look back at the end of the month to see which trades were successful and why you suffered a loss in some forex trading transactions. Of course you should then draw conclusions from this analysis and adjust your trading behavior accordingly.

Rule 10: Take good profits sometimes

Taking profitsOn the one hand, there are many traders who panic when they lose and close out positions prematurely. On the other hand, there are at least as many speculative investors who hope for even higher profits and therefore hold a position for too long. Therefore, there is an important rule in Forex trading, namely to take already achieved and good profits with you, i.e. to close the position. To do this, however, it is necessary that you set a target point for yourself, when you reach this point you close the position. In this case, you will not be tempted to keep the position open for too long and then perhaps move from the profit zone to the loss zone.

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