Top 7 Tips for Being Successful in Trading Foreign Currencies
By Tom Cleveland
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It is very difficult these days to go anywhere on the Internet and not be bombarded by a host of banner ads touting the wonderful world of trading foreign currencies or “forex” for short. This investment genre has gained immense popularity over the past decade, seemingly because of the flexibility of services offered by forex brokers and by the ability of today’s trading software to take mountains of data and assimilate them into usable information right at your fingertips. You can trade “24X7” nearly every day of the week, but this is not the latest form of Internet “gambling” or some new type of video game. High risks are involved. Violent swings in market valuations can spoil your day, and free leverage allows you to magnify gains, but this practice can also magnify losses, as well. Before you run out to experiment with your hard-earned cash, the seven tips that follow will help ensure that you minimize your risks, approach the market like a veteran trader, and enjoy the process of “netting” consistent gains from this investment arena:
- The first step is to read the high-risk profile disclosures that the law requires. You should only invest money that you can afford to lose. Do not approach forex trading with an overtly demanding objective of producing thousands of income on a weekly basis. Winning at forex is about following a very strict strategy to the letter, adapting when necessary to market conditions. If one does not approach the market in a disciplined fashion, then failure is only a matter of time. Failure rates are roughly 65%. You must go about this when the odds are in your favor, minimize and accept losses, and profit from your big winners;
- You must read up on the topic to familiarize yourself with forex terminology and prepare for more intense study. Enroll in a local class or take online tutorials, but it is best to find a “mentor” early on to guide your initial progress and provide wisdom along the way;
- Choose a reputable forex broker. Do not be tempted by claims from brokers overseas. U.S. regulators have cracked down on much of the fraud in this arena, primarily sourced from jurisdictions across our national borders. The Commodities Futures Trading Commission (“CFTC”) is the regulator in charge, and they publish capitalization reports for all American registered brokers. Be sure to review client testimonials, check reviews, and go with an established broker with a proven track record;
- After knowledge, experience is your next imperative. Your broker will provide a “free” demo account with virtual cash so that you can practice trade to your heart’s content with real-time quotes. Veterans swear by their practice regimens, citing three to six months as the time necessary to gain the consistency and emotional control to tackle the real market head on;
- Develop your “step-by-step” trading strategy. Your “system” will guide your every move before, during, and after you close a position in the market. Your system is there to prevent your emotions from destroying your decision-making process;
- Start trading in the real market. Start slow and with small amounts. There is always a new opportunity around the corner;
- Record your results in a journal and review them over the weekend while you prepare for the coming week.
Tom Cleveland has had an extensive career in the international payments industry, spanning over 3 decades. Mr. Cleveland earned an engineering degree from Georgia Institute of Technology and did graduate work in Finance at Georgia State University. Currently, Tom writes for ForexTraders.com and offers a lot of insight by expressing his ever-growing investment knowledge.
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Article Submitted On: September 25, 2012