Posted by forex at 5:53 AM
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1. Open a Forex demo account with the broker of your choice. This is the most important and useful technique for training in the Forex market. A demo account allows you to 'trade' in the same manner as a regular account; however the actual money in the account is fake. No one should engage in active Forex trading without gaining familiarity in this fashion.
2. Understand the Forex 'pip.' A pip is the smallest unit of change in a currency valuation. Most valuations are taken to several decimal places. A single pip represents the smallest measured change in a valuation at this level. Thus, if a currency is valued at 1.3456, then a change to 1.3458 would be two pips.
3. Evaluate the implications of high leverage in your account and its relation to pips. Most U.S. Forex brokers provide 1 percent margin. This means that if you purchase 10,000 units of a currency (which is usually the minimum size position offered) at a price of 1.3456 per unit, this would normally cost $13,456. But the 1 percent leverage means you can buy this amount of currency units for only $134.56. A change in a single pip is still based on the $13,456, thus equals a $1 change in your $134 investment.
4. Calculate the rate of change in your investment's value if it were to quickly change by 10 pips. If you put only $1,300 to work in a single trade, 10 pips could result in a $10 profit or loss within seconds. For this reason, the risks must never be ignored and you should practice with your demo account until you are consistently profitable.
5. Study past price charts and develop a feel for chart patterns. This is the most difficult skill and helps distinguish the 'art' of Forex trading. Traders learn the nuances of chart patterns only after years of experience. Among the most important concepts are the phenomena of 'support' and 'resistance.' These are price points that have proven difficult for an investment vehicle to pass in either the up or down directions in the past. Support and resistance levels are usually visible on any charting level, from multi-day charts to intra-day minute-based charts.
6. Trade in your Forex demo account indefinitely until you feel comfortable with the process and are able to understand how trading decisions affect your account balance. Many new traders are ignorant of the risks and focus too much on the potential rewards instead of on how much they could lose.