Introduction to Forex Trading: Basics and Terminology
Bid Price: The price at which a trader can sell a currency pair. It normally varies for every broker.
Ask Price: The price at which a trader can buy a currency pair. Also, varies and hence make a difference in spread
Spread: The difference between the bid and ask prices. There are brokers that offer lower spread, and trading time or session also affect the spread.
However, stock trading has a lower spread because you're trading an actual stock. Once you place a trade, the only time it will start to count loss or profit is when it hits the bid/ask or the spread. Same thing with Stop Loss and Take Profit, it will trigger SL & TP before and after the spread.
Leverage: The ability to control a large position in the market with a smaller amount of capital. Usually 1:500 - 1:1000, let's say you have $100 capital, it will mean you have up to $100,000 leverage.
Margin: The amount of money required to open a leveraged position. There are several brokers that let you open a micro account that only cost $5 to $1 dollar minimum deposit in forex.
Pip: The smallest price movement in a currency pair, typically measured to the fourth decimal place. Price in point refers to the ratio of how much you can profit or loss in a trade.
Lot Size: The standardized trading amount in forex, usually 100,000 units of the base currency. Differs from standard to micro and ultra low, an important part of capital protection for calculating risk percentage.
Long Position: Buying a currency pair in anticipation of its value increasing. Just another term for placing a buy trade.
Short Position: Selling a currency pair in anticipation of its value decreasing. Placing a sell trade in selling opportunity.
Stop Loss: An order to close a trade at a predetermined price to limit losses. To avoid your account from being wiped out, you must practice placing stop loss in every trade you placed.
Take Profit: An order to close a trade at a predetermined price to lock in profits. Depending on your analysis at which price in points you determined that price will reach.
Margin Call: A notification from a broker to add more funds to the trading account to maintain open positions.
Market Order: An order to buy or sell a currency pair at the current market price. For traders who have not much screen time to wait for a trade, they will place a market order containing what price you'd want to trigger a trade, with determined Stop Loss and Take Profit. It's like pre-trading.
Limit Order: An order to buy or sell a currency pair at a specified price or better.
Stop Order: An order to buy or sell a currency pair once it reaches a specific price level.
Understanding Currency Pairs: Major, Minor, and Exotic
There are many pairs that you can trade in the market, most of the pairs you might have heard of are EUR/USD or GBP/USD. These are major pairs which means a high yield currency. A kind of pair with high liquidity and low volatility, minor pairs are AUD/JPY or EUR/GBP, these are also good to trade on, exotic pairs are USD/TRY, EUR/TRY, USD/CZK and more.
Market Participants: Who Trades Forex and Why
Anyone can participate in the market, if you're trading your own capital you belong to retail traders, and if there are small traders, there are big boys who're big enough to move the market in a certain direction. Here is the list of forex market participants.
1. Commercial Banks
2. Central Banks
3. Government
4. Hedge Fund Managers
5. Exchange-traded funds (ETFs)
6. Brokers
7. Multi National Corporation
8. Institutions
9. Retail Traders
10. Regulators
Reading Forex Quotes: Bid, Ask, and Spread
Reading Forex quotes identifies your position, the bid and ask determined reach with the anticipation of the spread, being aware of spread is important to avoid sudden stop loss.
Basics of Technical Analysis: Charts and Indicators
Trading charts have three different views, line, bar, candle. But the most popular and many traders utilized, is candlesticks, mainly because there are candlesticks patterns and signals a trader can follow. In terms of indicators or tools that you can use in your strategy to distinguish entry, these are available in your MetaTrader. Example of Indicators are Stochastic, EMA, Donchian, and more
Fundamental Analysis: Economic Indicators and News Events
For me this is the most important aspect of trading that traders need to look at. This involved economic analysis to take advantage of significant volatility. Many are anticipating these events to avoid trading and stop their trade if it's on the way. But this is how others are wrong, they can definitely take advantage of economic events and profit exponentially. Examples of economic events are CPI, GDP, UNEMPLOYMENT REPORT, PPI, FOMC and more.
Risk Management: Importance of Stop Loss and Take Profit Orders
Stop loss is very important in risk management just like what i said earlier, as well as setting Take profit in every trade. This is to prevent further loss, and possible reversal on TP. Depending on your risk appetite the minimum risk percentage should be 2% maximum is 5%. Risk to reward is at least 1:2 to gain consistent win rate
Different Trading Styles: Scalping, Day Trading, Swing Trading
You can trade multiple time frames in three different sessions. Scalping means trading within 1, 5, 15, 30 minute timeframe, Day trading is trading that takes days to accomplish, Swing trading can hold up to weeks to reach a certain target.
Creating a Trading Plan: Setting Goals and Strategies
For me trading is a complex area to tackle, I mean it took me a year to fully understand the concept of forex. Having a trading plan is an integral part of your journey trading, setting goals is only one step towards the pinnacle, and forging your own strategy you'd have to exert time and effort to look for the strategy that suits your personality and trading style.
Introduction to Forex Brokers: Types and Regulations
Unlike before, there are more brokers now to try with the convenience of your mobile phone. It's true that you can now trade using your phone. And as you embark on your trading journey, you should know that your brokers need to be regulated, check its background, regulations and how long it's been running.
In terms of types of brokers, there are only two things you need to know about your broker, it's either Dealing Desk or Non-Dealing Desk, a Market Maker and Straight Through Processing (STP) or Electronic Communication Network (ECN). I will write more of these in the next article
Demo Trading: Practicing Without Risking Real Money
Practice makes perfect? Maybe, but for you to familiarize yourself with the chart you need to start demo trading first, practicing without risking your money can gain confidence to start with real money. But in my case, I took one demo account and one Ultra Low account to practice both Demo and Live account. It is to prepare me not to be overwhelmed by the real money I took Bid or Ask.
Developing Discipline and Emotional Control in Trading
Discipline is an equal mindset you need to acquire as Trading Psychology and developing Risk Management. This is to avoid revenge trading and over trading, this must be inserted in your trading plan and strategy. It's okay to take it slowly as long as there is progress, emotional control in trading is a long term goal.
Understanding Leverage and Margin
This refers to how you can leverage your capital or margin. A lot may think that you can't trade because you only have $5 - $100, well this is why leverage is there to help you make your trading journey happen even with a small amount.
Trading Psychology: Dealing with Greed, Fear, and FOMO (Fear of Missing Out)
A cornerstone to traders success, and a tool to prevent burned accounts. This is the main reason why 90% of traders failed in the first month/year of trading. I understand greed is a natural emotion of every individual, and no one can escape its temptation, especially when you have a losing streak.
Baited with few loss to take revenge and then in one snap, you lost everything. Fear Of Missing Out (FOMO) is also a culprit, you make undetermined trades just because you may missed a trend. Is it safe to say that the reason we fall in this category is that we are afraid of being losers, and that the psychology of being losers sticks to our mind, it's very frustrating.
Reviewing Trade Performance: Learning from Successes and Mistakes
Journaling your trades is like creating a blueprint to rectify mistakes from previous trades, this is where you can see the areas that you need to improve.
Having a portfolio is essential to track what you may have missed out and what are the things you can do to stop it from happening again. Learn from your success but most importantly, learn from your mistakes, the only way for you to do this is you start reviewing your trade performance by having a journal of your trades.
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