Forex Trading Techniques Step By Step

Decide What Type of Trader You Are

This is probably the most important step because your trading plans and strategies will be built based on who you are. Do you feel more comfortable when you watch every single movement in the markets as you trade? Or do you like to analyze the markets at the end of the day and then place your trades accordingly? Are you comfortable with leaving your positions open while you sleep? Do you prefer fundamental or technical analysis, or both? Everyone is different. You need to decide the trading style that best suits you.
What Is Your Risk Tolerance?

Currency trading involves high risk. So, you need to decide your comfort level with risks. If you are a very conservative trader, you probably want to avoid all major economic news announcement and releases. How much are you willing to lose in each trade? For example, if you only want to lose $100 in a trade in a $10,000 account, you are setting your risk to 1% per trade. Then you can adjust your trading size based on your risk tolerance and profit / loss targets. Some currencies are more volatile than others. If you are a more conservative trader, you probably want to make sure that you follow your money and risk management rules strictly before trading volatile currency pairs or in volatile market conditions.

What Are Your Market Preferences?

Since the Forex markets are running 24 hours a day, we can't possibly monitor and trade all of the markets at all times. So we have to choose the markets we want to trade in. Most of the traders would say that the Asian markets tend to be slow and quiet. The European and US markets are the most liquid markets. However, no matter what markets you prefer, they should work with your trading plan and strategies.

Develop Your Trading Plan

Your trading plan basically defines how you trade. It may look something like this:

Investment capital
Risk tolerance per trade as a percentage (1% to 2% preferred)
Currency pairs You are interested in (Start with 1 to 3 pairs first. Focus on their behaviors and patterns.)
Preferred analysis (e.g. MACD divergence, Support / Resistance break out...)
Win/Loss ratio (i.e., how you set up the profit taking and stop loss orders, such as 2:1, 1:1)

Create Your Own Trading Strategy

This is the details of your trading method. Before you buy or sell, this is the list of instructions and rules you follow each time, so you don't let your emotion make the decisions for you. For example,

Buy open when 5 ema > 10 ema, and KD above 30, and RSI above 50
Limit buy at 10 pips above the recent low
Set profit taking and stop loss ratio at 1:1. 100 pips away from the entry point. (e.g. Limit buy Euro at 1.3300. Win/Loss ratio 1:1. Take profit at 1.3400. Stop loss at 1.3200)
More stop loss to entry point when trade is 30 pips in profit. (e.g. Using the above example, limit buy Euro at 1.3300. When Euro is trading at 1.3330, move stop loss from 1.3200 to 1.3300.)

Practice Forex Trading without Risking a Dime

Now that you have a trading plan and a trading strategy, it's time to test it and see if it works. There are many Forex brokers out there. Try at least 3 of them. Test their platforms, execution, customer support and service. You can open demo accounts with the brokers of your choice, one at a time, to test your strategy. Most of them will allow you to trade in demo for a month. Some don't even have a time limit. If the strategy works, stick to it. If not, modify one rule at a time based on your observation and lessons learned. This is also the time to learn from the mistakes and fine tune your trading plan and strategy. Maybe you'll find that your strategy doesn't work in the US market, but it is working in the Asian market. Without risking a dime, this is a great way to find out if Forex trading is for you, and develop a successful trading strategy.

Ask Questions

There are many Forex forums out there. Share your experience and ask questions.

By: UbenDallas

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My name is Carl. I am a currency trader for over 15 years. Simple Forex System Trading is my currency trading journal. For shopping tips or gift ideas, please visit Laiee.com. It is a shopping idea blog full of items I personally hand picked.