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Six Steps to Profiting with Currency Trades

Trading currency is an attractive option for many people. The foreign exchange (forex) market offers 24/7 trading, unmatched liquidity, zero commissions and low account minimums. If you’d like to learn how to trade currencies yourself, follow these six steps:

1) Learn how to read charts

Trading forex is done in one of two ways, technically or fundamentally. Fundamental trading means you’ll be analyzing economics; technical trading means you’ll be analyzing charts. Which one you prefer, or what mix you prefer, is up to you. Regardless, you should become familiar with reading charts, if for no other reason than everyone else is also looking at them. As well, by becoming skilled in chart reading, you’ll be able to put together a trading system based on charts. This technical analysis guidebook is an excellent place to begin learning about charts.

2) Learn forex fundamentals

Once you’ve got the charts out of the way, you’ll want to learn about fundamental factors that affect currency trades. For an introduction on fundamental factors which affect currency trades, read this. Some forex traders never end up using fundamental analysis, but you should still know about it. For example, even the most die hard chart trader can be thrown off balance by an interest rate announcement.

3) Develop a system


How will you make your currency trades? To answer this question, you should have a set of buy and sell rules. This will by your “trading system.” If your trading system uses charts, then you can back test it to see if it was profitable in the past. Please remember, however, that just because a system worked in the past doesn’t mean it will continue working in the future. After you find a system that works, continue testing it in the present. This system that you develop will be your personalized answer to how to trade currencies…take time to make sure it’s a good one.

4) Use a forex simulator


Where will you test your strategy to make sure it works? A simulator. Just like you wouldn’t test out a new pilot on a real plane, so instead you use a simulator, you do the same thing with forex. There are a variety of places that offer simulated forex trading, e.g., oanda.com, which are extremely realistic. By using one of these simulators, you’ll become familiar with trading forex generally, and you’ll also learn whether your strategy can make any real money. The longer that you train on the simulator, the better.

5) Find a brokerage

Once you’ve found a working strategy and you’ve tested it out on the simulator, the next step is to find a brokerage. The main factors you want to look for are the following: Low spreads (measured in pips), low minimum account sizes, reputation and a quality user interface. There are plenty of forex brokerages to choose from, and if you keep the above factors in mind, you’re likely to find a good one.

6) Practice good money management

After you‘ve found a brokerage and have committed real money, this is where it’s essential you remember money management. Specifically, start off with a small amount of money, stick to your plan, keep your losses small and don’t risk too much on any one trade. What you want to avoid through proper money management is going broke- you want to live to trade another day.
If you follow the above six steps, you’re way ahead of the people who jump in recklessly and are doomed to fail. Forex trading is no easy task, but if you go in with a plan and stick to it, you’re already ahead of the competition. Doing your homework is very important, but no one has ever become a master trader just from reading books. The real world is where training truly begins.

 

 
 
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