A concise guide to help you get started trading forex

Beginner Questions
1

Hello Guys,

I hope you are all well.

This is my first post on the forums and I wanted to contribute something to the beginners section. Hopefully it will help some of you out. It is not a be all and end all guide. It is supposed to be concise and I hope you modify this to suit you and make it your own.

Trading is very simple (not easy) and the essence of it is buying (relatively) cheap and selling (relatively) expensive… Dont complicate it with more information than is necessary and dont box yourself in to any style of trading. Instead, look for opportunities wherever you can find them and focus on protecting your capital.

Start your analysis with the daily time frame and plot support and resistance levels on it. Find recent highs and lows in price and use them as targets to aim for. If you observe any price chart, you will see that price trades towards recent highs and lows to retest them. In many cases, the price pierces recent highs and lows then reverses. Not always, sometimes you get a lower high or higher low but you can expect the high and low to get taken out at some point in the future. Price likes to pierce recent highs and lows because this is where most traders place their stops. The big players want to take you out, so they can accumulate and profit and this is how they do it. They have all sorts of tricks up their sleeve to trick you too but remember, for you to get in, another trader has to sell their inventory to you. For you to get out at a profit, another trader has to capitulate at a loss.

Learn to read the price chart / action. Strength shows itself on down bars. Weakness on up bars. Indicators are misleading derivatives of the price. You dont need them and I advise against them.

Wait for price to approach a support or resistance level before initiating a trade. Anticipate and expect false breaks and trade in the opposite direction. This is the primary way the big players trick and trap you before gunning your stop loss so they can profit. Your entry and target is the other guys stop loss. You make money when the other guy liquidates his position and loses. That is the harsh reality of trading in the forex market and never forget that.

Before initiating a trade, check the same or lower time frames for a price action signal to confirm your entry. I like looking for pin bars and double or triple tops. Generally speaking, I dont like trading break outs for the reason mentioned above. I see them as sucker trades so I look for fake outs instead. The FX market ranges 80% of the time and trends only about 20% of the time, so this makes sense to me. You will find short term trends in larger term ranges. Trade ranges instead of trends.

Check the market sentiment for the pairs you are interested in and trade against the majority. ESMA (The European Securities and Markets Authority) has recently passed legislation requiring European brokers to publish the percentage of their clients that lose money. Which varies from broker to broker but its about 70-80%. You want to trade in the opposite direction to the majority. Since the FX market is decentralized, you have to check the sentiment from various sources but I have found MyFXBook to give a broad cross section of the market with data from many brokers. Barring in mind that nothing works 100%, 100% of the time, what you are looking to do is stack many small edge’s in your favor for long term consistent success.

Timing, this is a very important element in trading but often overlooked or ignored. There is a time to do a thing and a time to do nothing. The best times to trade are when markets open or sessions overlap for the currencies in question. For example the EURUSD, when Europe opens and when the US opens. Volume and volatility usually comes in to the market at predictable times. Put a tick volume indicator on your chart and you will see that volume peaks at predictable times. This is when you should be getting in or getting out of a trade because this is where you will find the most customers. Check your chart and you will see. This alone has the potential to make positive changes to your trading results. You dont need to trade that much to make decent returns. Less can be a whole lot more when you trade at the right times. Remember, trading at the wrong times can set you back. Sometimes it is better not to trade or do something else. I have reduced my trading to set times and have created windows of opportunity where I can initiate a trade. if its not there, I go and do something else instead.

Trading profitably requires patience and is very boring.

When it comes to money and risk management, i have found that risking a fixed dollar amount per trade is a good way to go and this should be spread over about 0.5x the ATR (average true daily range) of the pair you are trading. Pick an amount you are comfortable risking per trade and spread it across, say 50 pips if you are trading the EURUSD, for example. You should set a budget for about 50 trades, or 2% risk in conventional terms. Generally speaking, you want to make more per trade than whatever you are prepared to lose. However, trades dont always work out as planned so you have to be flexible and stay alert. Again, dont box yourself in that you must make $3 for every $1 risk. look for the potential, yes, but be prepared to cut and run all the time…

The most important aspect of trading, and carries more weight than your method and money / risk management combined is how disciplined you are. Your trading psychology. If you are feeling off or unsure, dont trade. This is a huge topic of trading and I really couldn’t do it justice in this post but practice and time will desensitize you to taking risk and generally allow you to become more comfortable letting winners run and cutting losers quickly. Be ruthless when it comes to cutting losers. With practice and time, you will get a better understand when you are on to a loser or a winner. You have to put in the screen time and follow the market and your trade but you will never know for sure. Experience helps.

When I have more time, I will make more posts.

For now though, happy trading and trade responsibly.

5 Likes
2

I posted part of this as a response to a question in another thread.

The smart money knows where to push the price to create a predictable response from most retail traders.

The simple answer why the price usually moves against you is that you have been mislead in to taking a position to create liquidity for the smart money to get in and out at a profit.

It is ok, the market seldom moves in ones favor immediately but you should work towards being accurate. What I mean by this is entering and exiting the market at favorable prices at favorable times. When you consider both price and time in your trading you create a cross hair which allows you to hone in for more accuracy. Everyone needs a margin for error though. this is why its important to define your risk first and set a stop loss.

Have you ever wondered why so many people fail at this even though there is so much information out there explaining how to do it?

Have you ever wondered why most people cant get technical analysis to work consistently for them so they can profit despite the untold number of books written on the subject?

Hahahahaha…

Show a man a cloud and ask him what he sees. He might tell you that he sees a heart or a horse or a castle in the sky or that he doesnt know. Anything except a cloud and what is.

When you look at a chart, you should try to determine where stop losses might be clustered and where most traders are likely to enter trades and in which direction. Then consider doing the opposite when the price reaches there. You can bet that price will most likely go there and we know that most traders are doing the wrong thing at the wrong time and lose money.

The price moves in the same direction for everyone. You can check any third party price feed to see that.
Although you may feel that the broker is out to get you, blaming the broker wont help.

The truth of the matter is that the market is out to get you and this wont change if you switch from broker A to broker B.

You have to change instead.

3 Likes
3

You are a trading currency.

Not a stochastic cross, an RSI because it is over 70 or a bollinger band.

You are not trading moving averages, or some other squiggly line attached to your chart.

You should be trading price, because it is either cheap or expensive.

Do you need some indicator to tell you to buy that thing you want from the store when there is a 30% or even 50% discount?

Do you need confirmation to buy it as if the price is not enough. You dont because you know what it usually retails for and the price will revert back before long.

Start looking at price for currency like this. Try and determine, what is a fair price and what is relatively cheap or relatively expensive.

Look at your chart. Can you see the price area where most transactions occurred just by looking at it? Can you see where price gravitates too and pivots around. That is ‘fair value’.

Above this price area is relatively expensive, below it is relatively cheap.

3 Likes
4

Most traders in other industry’s would be happy to make a 30% profit margin.

The profit margin for electronics is about 30% after selling fees.

The profit margin for other tangible goods could be 50% after the costs for doing business.

Not in forex though, we have to make 10x our margin in a single transaction by the end of the week.

Because we are greedy.

1 Like
5

oh wow, great post thanks!

6

What an incredibly insightful post, thankyou for taking the time to write this I for one appreciate it. It will certainly help me with my journey.

7

Thank you for the feedback. I am pleased you like it.

There is more to come but if you have any questions, feel free to ask.

8

This is good stuff and well written. Thanks!

This. I am still new to all this but do not understand why anyone would trade without a fixed or % risk - even the platforms make it so easy to adjust position size to match an exact risk amount based on your SL position. Is there some sort of mania that will overtake me even though I am forewarned?

9

Yes, it is called ego and the need to be right.

Most traders want to be right more than they want make money. They subconsciously believe that by being right, they will make money. Which is true to some extent but an experienced trader does not care about being right, they want to make money and approach the market without or with very limited bias.

The topic of trading psychology is so important and so vast but rarely explored or touched upon. To put it simply, you need to be self aware and catch yourself when doing something detrimental.

Having a plan and having the discipline to follow it go hand in hand.

Your ego wants to sabotage you as a protective, defensive mechanism, because it must be right especially when you are ‘losing’.

Notice what I say. Your ego wants to sabotage you. You are not your mind…

1 Like
10

Hope other traders won’t ignore that and take into account because its very useful trading manual especially for unseasoned traders.

11

Thank you,

This thread might turn in to something more than I initially planned.

I will post more soon.

12

great posts my friend. thank u very much for the help.

13

Nice post!

14

Thanks for sharing this!

15

What are your plans friend? Did you consider starting own trading journal, explaining your trade decisions in details

16

Thank you for your question.

At the moment, I am somewhat just going with the flow.

Here is a trade I entered about 20 hours ago (dashed green line). The stop loss has been modified (dashed red line) to just better than break even so I cant lose on it. I am looking to add to this position because there is still, in my opinion a lot of potential for the pair to go lower.

Quite simply, here are the reasons for the trade without going in to too much detail. (time permitting)

  • Price pierced the recent swing high, which probably triggered stops from early sellers and tricked more buyers to go long on the ‘break out’. Their stops are lower, probably below the recent swing low.I am expecting them to get taken out too.
  • Double top.
  • Price is expensive in my opinion and relative ‘fair value’ for this pair is the area where I have entered a TP. (dashed red line - arrow points to it)
  • This happened at a time where I anticipated volume / volatility to enter the market shortly afterwards.

I entered without hesitation and the deal quickly moved in to a profitable position more or less immediately. The draw down in equity was at most, a few pips. The potential, about 140 pips.

USDJPY - trade
USDJPY - trade1632×657 24.2 KB

2 Likes
17

I added to the position just now with half the size of the original, first deal.

All stop losses modified so I can walk away from the deal with a small profit even if price reverses on me and takes me out.

Notice the tick volume (extreme activity spike) at short term resistance. Lots of activity going on in this area.

Preserving your capital is of paramount importance. Maximizing your opportunity to profit is secondary.

Now, just sit and wait. Lets see what happens.

USDJPY - trade 2
USDJPY - trade 21630×850 29.3 KB

USDJPY - trade 3
USDJPY - trade 31632×690 27.4 KB

2 Likes
18

I closed them with a net profit.

  • Fake break out to the downside, the market is now hunting sellers stops.
  • Possible short term correction. (short squeeze)

You can always get back in again if you still like it.

USDJPY - trade 4
USDJPY - trade 41631×696 24.2 KB

2 Likes
19

Thank you for your posting! Very clear and precise entries :slight_smile:

20

How do I make forex easy to understand by a newbie who never knew before?