If you’re involved in any kind of investing then you already know how important it is to remain informed of trends, developments, news and techniques that can have an effect on your returns (and ultimately, on your portfolio). Nowhere, however, is the need for continual education and for continually remaining abreast of news and developments as paramount as in the realm of foreign currency trading, wherein external stimuli can cause the quickest movements in price, while the quickest and smallest movements in price of only a pip or two can correspondingly wipe out a retail forex trader’s profit…or make his day. In forex trading, staying on top of economic and political news and developments and educating yourself as to their effect on your chosen currency pair(s) is an ongoing requirement, without which it would be impossible to optimize your forex trading gains.
In fact, education is of critical importance at every stage of a retail forex trader’s development and as such, the need for extensive forex-related education begins as soon as an investor decides to get involved in forex trading. As an initial step, those interested in trading forex need of course to learn about the unique characteristics of the forex market, its players and the methodologies utilized by forex brokers and dealers, including the distinctions between money market brokers and ECN brokers and the types of clients which each typically services. Once a newbie forex trader feels that they’ve gotten sufficient grasp on the macroeconomic workings of the market, it would be time to educate themselves as to the particular services offered by forex brokers in order to identify those who are most likely to be able to offer the trader the scope and level of services which he requires, via a platform which he finds to be user-friendly, thorough and appropriate for his needs. The best way for a novice trader to accomplish this is to open a demo account, or multiple demo accounts, with a variety of brokers until he has identified the optimal fit for his trading style and service requirements. In identifying the brokers with whom a trader may choose to work, the trader should also make abundant use of the free educational tools provided by the numerous online forex brokers, whether through webinars, through printed materials and e-books, or through attending a locally-held class or seminar. Many brokers make this service available as a marketing tool to expand their retail client list.
Trading in a demo account is an excellent way for the novice forex trader to educate himself about the workings of the forex markets while both gaining real time knowledge of the peculiar movements of currencies and at the same time becoming familiar with the nature of the various platforms offered by various brokers. The trader must surmount a steep learning curve covering entry and exit points, pips, stop loss and take profits, trailing stops and the like, and the best way to do this is via the real-life scenarios encountered through demo account trading experience. The trader can also use his demo account experience to review his successes and his failures, identifying his strengths while highlighting his weaknesses so that he can avoid repeating similar patterns of behavior.
Once out trader has learned which platform seems to suit him the best, it’s time to learn how to take advantage of all of the services and capabilities which the platform has to offer. The most effective platforms provide charting software, real time streaming and the ability to overlay charts upon each other, while allowing the trader to designate the time period on which he chooses to focus, and the trader should be utilizing his demo account to learn as much as he can about the different types of charts, tools and indicators available to assist him in maximizing his retail forex trading gains. In doing so, it should be the trader’s goal to identify several indicators which he finds to be the most understandable, or which he believes can be the most useful to him, and on which he can rely: too many charts and too many indicators can lead to an overflow of analytical data, which can cause the trader to become incapable of making any rational entry and exit decisions due to all of the analytical noise. It’s important to not only know how to utilize indicators and tools, but also, to know when you’ve got command of enough of them to ignore the rest. On the most basic level, however, retail forex traders should educate themselves sufficiently to be able to create and interpret candlestick charts, bar charts and line charts, and should be adept at drawing and understanding the meaning of trend lines.
Having developed a working knowledge of the forex market as well as the skills needed to trade successfully through use of their demo accounts, the novice retail forex trader must still educate himself on how to implement appropriate risk management strategies. In forex trading, good risk management is typically implemented via the use of hedging strategies, of which there are many, and the onus is on the trader to determine which strategies work best with his personal trading style. For some, it may be trading with the longer term trend while making full use of trailing stops, while for others, it may be the taking of offsetting positions to hedge against the possibility of the market moving against them. While the variety of effective hedging strategies is almost limitless, they are an essential element of every serious trader’s arsenal and thus, retail forex traders must learn how to devise and implement appropriate hedging strategies.
No trader’s foreign exchange education is complete unless he also puts some effort into learning effective money management techniques. In the context of forex trading, money management encompasses not only the management of the funds in the retail trader’s account, but also the movement of those funds out of the account and toward other, non-forex destinations. Profits should be regularly removed from the trading account, leaving a balance sufficient only to continue trading activities and cover current positions; leverage should be utilized judiciously, if at all, in order that the trader does not get in over his head if the market turns against him. The study and perfecting of effective money management techniques should be part of every forex trader’s on-going educational routine.
When the subject is forex trading, the need for education never abates. To remain successful, forex traders must consistently be aware of the economic and political developments affecting their chosen currency pair(s). Doing so requires the on-going commitment of a great deal of the trader’s time, so if you’re not prepared to make the necessary investment in your continuing forex education, you may want to think twice before getting involved. If you do choose to move ahead, you’ll learn (among other things) that in the fast-moving world of forex trading, money—and opportunity—never sleeps.
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