It is a well known fact that the vast majority of Forex traders do not make money. However, on the other hand, I believe many people can massively increase their chances of being successful by following the simple tips below.
Start with a demo account
If you are new to trading, don't risk your money right away. You'll probably lose it. Practice on a demo account for a few months, or if you are extremely eager to get started, at least a few weeks. The longer the better really. I know what it's like at first, you just want to be trading!
Take time to choose your broker
Choosing a Forex broker is not a task to be rushed. There are so many to choose from, all have their own strengths and weaknesses. You can afford to be picky.
Bid/Ask spreads and execution are often the most important factors for short term traders. Longer term traders may want to pay closer attention to the "swap" rates paid by brokers. Especially if you are looking to make money on the interest rate differentials between currencies, such as a long AUD/JPY position.
Make sure you full know your platform inside out
It sounds simple, doesn't it? But from reading the various Forex forums, it's amazing how many people talk about making basic errors, such as incorrect position sizing, stop losses, limit orders etc.
Your trading platform is what you are going to be using to place your trading and orders, so it's vital you know exactly how it works. Play with the demo account until you know the platform like the back of your hand.
Have a strategy and stick to it
Making impulsive trades that are not part of a trading strategy usually ends in tears. Having a solid strategy that has been thoroughly tested is imperative. Never deviate from your strategy, no matter how tempting it might be.
Forward test and back test your strategies first
Many Forex traders like to back test their strategies. This is where you see how your strategy would have performed in the past. There is nothing wrong with this, it can be helpful, but just because a strategy you have created has performed well in the past, there is no guarantee the strategy will work when future testing. This is because when you back test strategies, you are usually "curve fitting" to some extent.
So once you have backtested your strategy thoroughly, be sure to test it on a demo account for a good few months before trading it live.
Use proper risk management
Always be sure that you have a solid risk management strategy and never deviate from it. For example you may want to risk 2% of your entire account on one trade. Perhaps you want to move your stop to break even when your trade is up 1%. Whatever you decide, stick to it.
Never chase the market
I know it's tempting to make a trade just so you can be "in the market", but always be patient and get the best possible entry. This can massively lower your risk and improve the chance of your trade ending positive.
Don't get cocky or arrogant
It's so easy to get cocky when you have had a long line of winning trades, you can begin to feel invincible. This can lead to rash and impulsive decisions. Remember, when you trade Forex, you are a very tiny fish in a very big pond. You must always respect that to be successful.
by Karl Marrion
Karl Marrion is an experienced stock and Forex trader with 7 years experience. He runs the website WiseStockBuyer.