[B][U]GETTING STARTED[/U][/B]
[B][U]HOW TO SURVIVE[/U][/B]
[B][U]TRADING BASICS[/U][/B]
[B][U]TIPS FOR PIPS[/U][/B]
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Where Do I Begin?
First off, welcome to Babypips, you couldn’t have come to a better place.
On the Home screen there a green header with 3 white building blocks and the word ‘babypips’. Below that it says “New to forex trading?” and on the right hand side is a green button “start learning”. Click on this and you will enter one of the best forex learning resources available anywhere, better than 99% of paid-for courses.
Take as long as you need to work your way through the whole curriculum, its not a race. I suggest you open a demo account (I’ll talk about this later) to practice what you learn as you study.
Its important that you study ALL the sections and take ALL the quizzes, as well as educating you they will help you decide what type of trader you are and what trading systems are most suitable for YOU as an individual.
Please don’t be conned by any of the numerous people offering shortcuts or foolproof systems. What you learn at the school here will stand you in good stead for your career in forex.
Namaste
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How Much Money Do I Need?
A frequently asked question, with a myriad of different answers. The reasons for this include;
Where do you live?
Different countries have different income levels, and consequently people are likely to have different savings levels. What I will say is, regardless of where in the world you live, or what your income is, NEVER trade with money that you cannot afford to lose, and certainly not with borrowed money or credit cards.
What are your expectations?
If you expect to live solely off your profits from Forex you will need substantially more money in your account than if you are just looking for some extra cash, or just trying something new. As it’s highly likely that you will lose a large chunk, if not all, of your first trading account then it’s probably prudent not to overstretch yourself.
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How To Choose A Broker
Unashamedly copied and pasted from Babypips “Tools” section
How to Choose a Forex Broker
With so many different choices out there, how does a Forex “newbie” pick a broker? Chances are most new traders have no idea on where to start - and that’s okay! We’re here to help! We have put together a simple three step process to heklp you find a broker that YOU think will best suit YOUR needs. You might be thinking now, “Three steps? That’s it?” Yesssiirrrr!
In the first step, you will go through some of the main questions you need ask yourself when reviewing different brokers. Then you will take a look at different brokers and their available features. We have put together a comparison guide by taking some of the most frequently asked questions across the internet, and surveyed some of the most frequently asked about brokers out there, so that you don’t have to.
With this guide, you can narrow your choices down and take the final step of talking with different brokers and demo trading on different platforms. Simple, right? Let’s begin…
Step 1: Do your research
Before comparing brokers, do you know what to look for? No? Well, here are a few of the main questions you should ask yourself:
Is this broker registered with any regulating authorities? Check to see if your broker of choice is registered with the National Futures Association (NFA) or Commodity Futures Trading Commission (CFTC) if they’re based in the US. If the broker is based in the United Kingdom, check with the Financial Service Authority (FSA). If the broker isn’t registered with any of these or any other recognized regulating firm, then you may want to think twice before signing up with them.
Dealing Desk or Non-Dealing Desk broker? Does the broker offer fixed or non-fixed spreads? How wide are the spreads? These questions are more significant to those traders who like to take quick profits on a few pips. Large and/or variable spreads can cut into the profits of this type of trading strategy.
How much or how little leverage will a broker give you? We highly recommend you review "Leverage the Killer"before deciding on how much leverage would be suitable for your trading style. The phrase, “Less is More,” can save every newbie
Of course, you’re not going to start trading with real money right away, right? Well, when you do having a winning strategy and you are ready to trade live; knowing how much risk capital you have to start with makes a big difference. If you have $2000 or less to start with then you probably want to start trading “micro” lots. Not every broker has this feature.
Does this broker credit or debit daily rollover interest? Some brokers either do both, deduct interest, or neither. This information is important to traders who hold positions overnight.
Does this broker offer premium services such as charting, news feeds, and market commentary? How important are premium services to my trading?
Step 2: Compare brokers
Let’s not beat around the bush, now you need go to Broker Comparison Guide.
Step 3: Open demo accounts and ask questions.
Pick at least two brokers that fits most of your criteria and open up demo accounts. Trade in different market environments. Learn all the different features of each trading platform. If you have questions, don’t be afraid to ask. Many brokers have excellent customer service support and would be happy to answer your questions.
Most demo trading platforms are very similar to their live counterparts, but not exactly the same. There may be a difference in speed of execution, slippage, and platform reliability (most of the time live accounts are more reliable than demo accounts). When you do have your strategy down and you are ready to move to a live account, start off small, test the waters, and see if this particular broker will suit your trading needs.
Read more: How to Choose a Forex Broker - BabyPips.com
A final word from me. Don’t choose a broker based on who gives the biggest account bonus or cash back. If they need gimmicks like that to attract custom, they probably aren’t worth trusting your hard earned cash to.
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Why Do So Many Traders Fail?
Depending on who you speak to, the failure rate for new forex traders is somewhere between 80 and 95%. Thats right, as many as 19 out of 20 new traders will fail and either blow their account or quit because they couldn’t make it worth the time.
So, why is this?
There are more reasons than you might imagine, I’ll list as many as I can here and will add more as they come to mind, or as my fellow traders remind me of them. So, in no particular order;
Not Maintaining Trading Discipline
One mistake many traders make is to let emotions control trading decisions. Becoming successful forex can mean achieving a few big wins while suffering many smaller losses. Experiencing many consecutive losses is difficult to handle emotionally… Trying to beat the market or giving in to fear and greed can lead to cutting winners short and letting losing trades run out of control. Adhering to a well-constructed trading plan is key in maintaining trading discipline.
Poor Risk and Money Management
Too many new traders are so focused on how much they can gain in a trade that they forget how much they can lose.
Traders should know exactly how much of their account is at risk and are satisfied that it is appropriate in relation to the projected benefits BEFORE they open a trade, and should place their Stop Losses accordingly. As the account grows, capital preservation becomes more important. Using different trading strategies and currency pairs, together with the appropriate position sizing, can insulate a trading account from unfixable losses. Later, traders can split their accounts into separate risk/return tranches, perhaps with different brokers, where only a small portion of their account is used for high-risk trades and the balance is traded conservatively. This type of strategy can help ensure that low-probability events (Black Swan events) and broken trades are less likely to destroy one’s trading account.
Leverage
Leverage gives traders an opportunity to enhance returns, but is a double-edged sword that magnifies the downside as much as it adds to potential gains. The forex market allows traders to leverage their accounts as much as 1000:1, which can lead to massive trading gains in some cases and crippling losses in others. The market allows traders to use vast amounts of financial risk, but in many cases it is in a trader’s best interest to limit the amount of leverage used.
Not only does leverage magnify losses, but it also increases transaction costs as a percent of account size. If a trader with a $500 account uses 100:1 leverage to buy five mini lots ($10,000) of a currency pair with a five-pip spread, they incur $25 in transaction costs [($1/pip x 5 pip spread) x 5 trades]. So, before the trade even begins, he or she has to catch up, since the $25 in transaction costs , or 5% of their account. The higher the leverage, the higher the transaction costs as a percentage of account value, and these costs increase as the account value drops. This is great for the broker, and one reason why new traders are encouraged by them to scalp since the revenue for the broker is high, relative to the small account value.
In some countries leverage is legally limited to 50:1 and new traders in particular may find this a sensible level.
Trading Without A Plan
Similar to money management in many ways, this refers to the extraordinarily high number of new traders who simply jump into trading with no idea of what they can reasonably expect to get from a trade, how they would get it, and often absolutely no knowledge of the forex business. Its like opening a High Street shop without knowing what you are going to sell, how much you need to sell at, or if prospective customers would be interested in what you sell.
Take the time to study at the free school on BabyPips. When you’ve completed your studies you will understand how to devise a strategy and trading plan that suits you as an individual. We are all different, with different hopes, pressures, finances, etc, so you can’t simply copy someone else’s strategy and plan, it needs to be tailored to you.
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Using Indicators
Whether or not to use indicators, and which to use, can be a very emotive subject. Some traders swear by them, others swear at them.
Before choosing which indicators to use, or not use, study this subject at the school so you understand what purpose each has and what its limitations are.
What I would STRONGLY recommend is that, particularly for new traders, you start with the bare minimum number, perhaps only 1 or 2. Putting loads of indicators in your charts may look good and might impress friends who have zero forex knowledge, but they are only likely to complicate your analysis and make decision-making harder. You can always change them or add more as you gain experience and fine tune your trading plan.
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Emotions And Greed
Emotions and Greed will destroy your account. No doubt about it, if you can’t get both of these under control then your days as a forex trader are numbered.
Greed, excitement, euphoria, panic or fear are all perfectly natural emotions but we need to separate these from our trading lives. So how do we fo this?
Begin with small amounts.
By reducing our risk, we can be calm enough to realize our long term goals, reducing the impact of emotions on our trading choices. Think about it, compare how you would feel if you risked and lost a few dollars you found in an old jacket you were about to throw away, with losing next months rent? It makes sense to start small until you’ve built up some experience.
Have a plan
Create a simple trading plan, something along the lines of “If Xyz/Abc does this, then go long (buy)”, “If Xyz/Abc does that, then go short (sell). If Xyz/Abc does neither of the above, do not trade”. Then stick to the plan. Sometimes you may miss out on a potential profit, other times the trade may reverse just after you enter, and you lose money. But because you stick to a plan, this is easier to accept because you know that even the best plans will have bad days. The key is, you partly automate your trading, removing a lot of the emotions. If the plan consistently fails you, you can always revisit it to see how it can be improved.
Don’t revenge trade
It’s very tempting to enter a new trade simply to try and make up losses from earlier trades. Please don’t do this, your judgement is likely clouded by the loss you’ve just had. Better to turn off your pc and do something relaxing for a few hours, returning only when you feel refreshed and clear headed
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I will be happy, no, PipMeHappy to
chip in…
Hopefully this thread will help people
and prevent triplication of threads
dealing with the same topics…
this thread is a really good idea eddieb.
destilling compact and valuable information for one big lecture and sort of “look up book” to find all the necesarry information.
ill stop spamming the thread now, only wanted to say good idea.
Create A Journal
Starting a journal to log your trades is one of the best things a trader can do. A journal can be just a note/notebook or an excel document. An excel document is particularly useful as you can add screenshots of the trades you open.
Note your trading plan at the start of the journal, that way you can refer to it before, during, and after each trade if you need to.
In the journal, note the date and time, reasons for opening the trade, expectations, Stop Loss and Take Profit positions, and how you felt when you entered the trade.
You can add progress notes about how the trade behaves, if that’s in line or contradictory to your thoughts, anything you feel relevant.
Finally, when you close the trade, note the outcome, how you felt during and after the trade, and how you feel you could have improved it.
This may seem like a lot but, particularly when you are just starting out, it will help you develop and fine tune your trading. As you become more experienced you will likely reduce your notes as your trading plan settles and your emotions become detached from your trading.
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KISS
Keep It Simple, Stupid! At the risk of offending anyone, this should be one of the golden rules for new traders.
[U]Keep you charts simple. [/U]
Don’t overcomplicate them with indicators that you barely understand.
[U]Keep your pairs simple. [/U]
Trade a currency pair you understand a bit about. Exotic pairs may seem tempting to you, but do you understand what moves the Klingon currency? Likewise, it’s probably a good idea as a beginner to trade pairs where you are available to trade during their busiest times, that way you have more chance of catching a big move or closing a trade ahead of news events.
[U]Keep your trading simple[/U]
In general, try not to overcomplicate any aspect of your trading. Try not to over analysis the charts or news events, this can lead to trade paralysis where traders can neither enter new trades nor close existing trades because they are confused by information overload.
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Demo Or Live Account?
Not everyone will agree with this, but I recommend you start with either 1 or 2 demo accounts.
My reasoning is that you can use this to find your way around different brokers trading platforms before you commit any money- you may be less inclined to leave if you’ve already transferred money to them. Also, its quite likely that you will make mistakes when you start, I clicked “buy” instead of “sell” on my very first trade! You can also practice different trading strategies without risking real money.
As soon as you feel confident and ready to trade, open a live account. Only deposit the minimum amount the broker allows, and trade micro lots (you probably traded full lots on demo with the $100k play money you had).
You will find live trading very different to demo trading, purely because every penny you lose is coming out of your pocket! Try not to let this affect you, just as you shouldn’t get over excited when you gain. Stick to your trading plan and money management rules regardless.
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Types Of Orders
Most forex brokers will offer provides different kinds of orders for trading. Below Ive listed some of the most common types of orders that you are likely to come across.
[U]Market orders[/U]
A market order is a buy or sell order in which the broker is to execute the order at the [B]best available current price[/B]. Note, the price you see when you click is NOT guaranteed.
[U]Entry orders[/U]
A request from you for your broker to buy or sell a specified amount of a particular currency pair at a specific price. The order will be filled if/when the requested price is hit.
[U]Stop Loss orders[/U]
An instruction from you to close a position when it reaches a specified price. It is designed to limit a trader’s loss on a position, however in most cases [B]the broker cannot 100% guarantee being able to achieve this[/B], so will close at the best possible price obtainable. Traders are strongly recommended to use stop loss orders to limit their losses.
[U]Take Profit Orders[/U]
An instruction from you to close a position when it reaches a predetermined profit exit price. It is designed to lock in a position’s profit (not to be confused with Trailing Stops). Once the price surpasses the predefined profit-taking price, the take profit order becomes market order and closes the position.
[U]Good Until Cancelled (GTC)[/U]
In forex, most of the orders default as GTC, meaning an order will be valid until it is cancelled, regardless of the trading session. The trader must specify that if they wish a GTC order to be cancelled before it expires, usually by entering a closing date/time or by manually closing the order. Generally, the entry orders, stop loss orders and take profit orders in online forex trading are all GTC orders.
The above are the basic orders types available in most of them trading systems. Some trading systems may offer more sophisticated orders.
Trading The News
Don’t trade the news as a newbie to Forex.
No, nothing else, just don’t trade the news. Sit back, watch the screens by all means to see those wonderful whipsaws that would have wiped out your trade (if you’d been daft enough to open one), and see how 9 times out of 10 price eventually settles down roughly where it started pre-news.
This chart, from the “Trading the News” section of the Babypips school, shows the average pip movements for some of the major news releases. Obviously there figures can vary, so be careful. If you’re trading EurUsd and risking $10 a pip, a 150 pip move against you is going to cost you $1500.
You may also find that during news brokers widen their spreads, so you cost of entering trades is more. Also, due to high volatility your broker may not be able to close your trade at your desired price. This is a surprisingly common occurrence called slippage.
Just in case you’ve forgotten, DON’T TRADE THE NEWS
Thanks TurboNero, feel free to post anytime, you’ve a lot to offer
thanks eddieb, ill try my best and you are already covering everything. ill post links to this thread where i see new people need education.
hi eddieb
Nice thread. I am newbie. I just don’t understand what do you mean by don’t trading the news. does it means just ignore all the news or maybe some of the news or some news that might give big impact?
thanks
ray
Hi Ray.
Good question. By don’t trade the news, I mean avoid entering new trades when we know there is a scheduled news event coming up. Personally, I avoid High and Medium events that are relevant to pairs I trade or pairs that are closely correlated.
For example, if we know that this months decision on whether or not the Fed will raise rates is due at 1.30pm today, avoid entering new Usd trades in the 30 minutes either side of the announcement.
Most experienced retail traders avoid these events. Although the decision/announcement is often predictable, the reaction of the market is not. It’s simply far too risky for most traders, better to let things settle down.
Thanks eddieb, will check the news before make a new trade next time.
hi eddieb, just another question about the news. if we have an open trade and a high or medium event that relevant to the pairs will release in 30 minutes, what is the wise thing to do? close the trade?