Learning How to Trade Forex by thinking like a Forex Trader in 5
Steps.
1. Understand your place
in the Forex Market
This is very important
you must understand that you are very small fish in a big ocean.
In the Foreign
Exchange Market the majority of the liquidity is coming from big banks and
experienced institutional traders. These are the big fish. The big fish
will happily enjoy you as a little snack.
You are only fooling yourself if you think it
will be easy to take money off these big forex traders.
You have to learn to
swim alongside these big fish and catch the same currents they do.
Swimming against them just marks you as prey and sooner or later you will
be eaten.
2. Learn to read the Forex Charts and
Understand the Foreign Exchange Market.
Many novice forex traders believe that these big forex traders
have access to some secret forex trading strategy or use a secret set of
indicators, but the truth is this is just not the case.
These major forex
players are using simple, but proven technical analysis techniques - most
commonly horizontal support/resistance, identification of trading ranges,
Fibonacci these are then coupled with fundamental themes.
Begin by accepting that
the other major participants are highly experienced in the market and they make
money because of experience and by a complete understanding of the core skills
and not because they hold a holy grail of secret indicators.
3. Money Management
It is crucial that you understand as a novice
forex trader the emphasis is not on how much you can make from forex trading
but on how you manage what you have.
This is the most common downfall of all
novice traders. It is common place to see a starting trader risk the
majority of their account on one or two positions.
This style of trading is
not sustainable and professional traders do not trade in this manner.
Everyone sometime in their career will have a string of bad trades.
A typical number might be 10 losing trades in a row. The question
is do you have a money management plan in place that enables you to survive
this?
4.
Focus on the Market
Many novice forex
traders open their forex charting software and activate their latest hot indicator
or tool and proceed to place their trades as per the tools recommendations.
This style of forex trading is unlikely to have much long term success.
When these indicators
fail to generate the required profits then these traders then move rapidly on
to another set of indicators.
You must focus on the forex market and
understand what the indicators are telling you so that you can pick the forex
trades which have the best probability of being winners.
Successful forex traders
use indicators and tools as Fibonacci, Pivot points, price channels, MACD, RSI
etc. These tools by themselves do not make a successful trader.
There are many successful traders and unsuccessful traders who use the
exact same indicators.
The key is that successful traders understands how the market
behaves around the indicators and understands what the signals actually mean.
The best way to achieve this is to stop swapping between tools
and select those that compliment your trading plan, understand how they work,
and then spend time in the market experiencing them.
5. Plan your trade and trade your plan.
This is a common saying that seems to get
lost on novice traders. It should be every trader's goal to make pips on
each forex trade as per their trading plan. Forex Traders must treat each
trade as a business decision by calculating their risk and defining their
entries and exits points, those that do not open themselves to big
losses when a trade goes bad.
Many novice traders seem to lack the discipline
to follow a plan for each trade. So what happens is typically the
following; a novice trader will see a potential set-up, they decide on some
arbitrary sum to buy or sell with a quick guesstimate, then place the trade
without analyzing any risk and having an exit strategy.
Of course this way of
trading can be profitable over the short term, more down to luck than skill.
But eventually the luck runs out and the trader is caught napping and a
common result is a wiped out account.
The first question novice traders tend to ask
themselves how much will I make on this forex trade?
The first question
experience traders tend to ask themselves is how much is my potential loss /
risk?
Article Source: http://EzineArticles.com/expert/Adrian_Faiers/336992