How to Trade Forex Successfully
Learn the fundamentals of currency trading and become familiar with the tactics & strategies employed by professional Forex traders.
Alvexo welcomes you to this tutorial on how to generate returns from Forex Trading. As part of our comprehensive educational series, this course will provide you with all the resources and know-how you need to consistently generate income from trading Forex.
Our course material is suitable for novices, intermediate-level traders and experts alike. We want to make clear that long-term success in the Forex arena requires a strategic plan, market insights, and determination.
Fortunately, it is possible to start to trade Forex as soon as you have a basic understanding of the information contained in this tutorial. What we are about to show you is going to help you learn how to make money trading Forex. You can safely practice your newfound trading skill with the help of a practice Forex trading account.
Forex Trading 101
When trading Forex, we are in fact investing in the relative values of two currencies. Each pair of currencies is referred to as a ‘currency pair’, and each pair contains a base currency and a quote currency.
For example, in the EURUSD currency pair, the base currency is the euro (EUR) and the quote currency is the US dollar (USD). The value of this currency pair equals the amount of dollars that are required to purchase one euro.
When you trade currencies, you are effectively buying one currency and selling the other currency in the same pair. For example, If you purchase 500 euros at the EURUSD exchange rate of 1.1419, you will be selling 570.95 dollars.
Let us assume that this trade stays open for one week and then you decide to exchange your 500 euros into US dollars at the prevailing exchange rate of 1.1800, you will have made a profit of $19.05.
If you had taken a position 10 times as large, your profit would have been $190.50. The purpose of trading currencies is always to generate a profit. This can be achieved by an appreciation of the quote currency or a depreciation of the base currency.
If you believe the euro will appreciate relative to the dollar, you will buy the EURUSD currency pair. On the other hand, if you believe the euro will depreciate relative to the dollar, you will sell the EURUSD currency pair.
These two actions are known as ‘going long‘ and ‘going short‘ on the euro. When you decide to go long on a currency you intend to sell at a higher price at a later point in time. When you decide to go short on a currency, you intend to purchase it at a lower price at a later point in time. This is how speculators work the currency trading markets – by buying long and selling short.
If you look carefully at a currency pair, you will notice that both the base currency and the quote currency have up to 4 decimals quoted for sell and buy prices. Two important terms enter the picture: Bid and Ask prices.
The difference between the two is known as the Spread. The bid price represents the price your broker will pay for the currency pair. The ask price represents the price at which your broker is willing to sell the currency pair. The bid price is lower than the ask price.
With that knowledge in mind, it is required of you as a trader to put emotion aside and trade with purpose and clarity. It is never advised to overexpose yourself to substantial losses in the markets.
Only use funds that you have earmarked for trading purposes. Your appetite for risk should be carefully assessed before you engage in real money trading. A good idea to gauge your performance in the currency trading market is a Forex trading journal. Always maintain sufficient equity in your account so that you do not become subject to margin calls.
This tutorial will explore many of the trading techniques employed by traders at all levels of their trading career. It is intended to give you an overall picture of the bustling world of Forex trading and how you too can gain maximum advantage from your trades.
Attributes of Successful Forex Traders
As you immerse yourself in Forex trading, you will quickly learn that there is an incredible amount of knowledge to be gained from the markets.
Important macroeconomic variables routinely come into play; economic indicators like the Consumer Price Index (CPI), the Producers Price Index (PPI), Gross Domestic Product (GDP), Gross National Product (GNP), trade balance data, unemployment data, inflation rates, interest rates and overall monetary policy are especially important.
If the perception is bullish, the markets typically react accordingly, and vice versa. As a Forex trader, you will be presented with a myriad of information that you will need to interpret so that you can successfully navigate the currency market.
Patience, attention to detail and discipline are key characteristics of successful currency traders. Long-term profitability in the foreign exchange market is not a once-off deal. To be successful, you must see the big picture and that means learning how to manage your investment bankroll, applying the right theory to practical situations, and utilizing all of the available resources.
A calculated mix of technical and fundamental analysis is essential to view the complete picture; the qualitative data is just as important as the quantitative data. Be wary of individuals over-promising you guaranteed returns with their purported trading strategies – no such system exists!
However, methodical daily planning, plenty of practice and sound financial management will be bolstered by the wealth of resources available to you here at Alvexo. We encourage you to combine a hands-on approach with automated trading (economic indicators, mobile alerts and trading signals) to maximize your Forex returns.
Tactics & Strategies Employed by Professional Forex Traders
There is no single strategy that guarantees returns under all currency trading conditions. Instead, professional currency traders utilize a combination of strategies that are best suited to current market conditions.
Adaptation is key to succeeding in the currency trading arena and education is paramount. Multiple resources are available to boost your trading success, incorporating a blend of technical and fundamental analysis.
Forex professionals advise newcomers to apply several different tactics and strategies to different trading situations. As a newcomer to Forex trading, there are several trading strategies that you will find beneficial.
These include Candlestick Patterns with Moving Averages, the Basic Ichimoku Trading System, Fast Moving Average Crossover Strategies, and Stochastic Oscillators (for range and trend strategy). For more about using market indicators in your trading strategy, read Alvexo’s guide to using trading signals.
For those traders who do not have ample time to spend on their PCs, scalping is a preferred technique. There are multiple Forex scalping systems on the market, such as Stochastic Scalping, Simple Scalping & Directional Movement, Simple Gap Trading Strategies, Simple Breakout Systems, and Trend Following Strategies.
Hedging, another trading technique, is the practice of safeguarding your investments by taking the opposite position on the same trade. Expert-level traders employ hedging strategies to reduce their Forex trading risk.
They do this by purchasing different types of derivatives on the same underlying asset or taking opposing positions. When you open a trading account with Alvexo, your broker will work with you to adapt the trading strategy that best fits your knowledge and level of expertise.