Forex trading
is highly volatile.
Foreign currency exchange (Forex) is a popular financial market for short-term traders. Unlike the stock market, Forex does not require federally-regulated minimum balance requirements. Some accounts can be opened for as little as $25. Additionally, the currency market is open 24 hours so novice traders can explore this field without quitting their day jobs. But Forex is among the most risky ways to participate in any financial market. Successful trading involves a steep learning curve that can take years to master. Some steps can ensure you get started in the right way.
Instructions
1. Sign up for a Forex demo account. These accounts serve many purposes. Most Forex brokers provide prospective clients with free access to their trading platforms for two to four weeks. A demo account functions like a regular account but uses fake money. Thus traders can experience the entire process of trading without risking a cent. Enough brokers provide this service for anyone to keep simulating in the market for months before actually opening an account.
2. Download the trading platform from the broker after you register for the demo account. Install the software after it is downloaded.
3. Open the Forex trading software from the broker.
4. Chart any currency pair provided by the broker. The major currency pairs are usually listed on the main screen of the Forex trading software. In some platforms, you can simply click the name of the currency pair to automatically generate a chart. Others will show the chart with a selection menu where you choose the pair you wish you to chart.
5. Study the chart for signs of trending. A concept from the early 20th century is now a standard approach to analyzing any price chart. The "Dow Theory" states that a financial instrument is in a trend when it creates a pattern of "higher highs and higher lows." As the currency pair rises and then turns around, this creates a "high." When it falls and then turns back to rise, this is a "low." If each subsequent high is higher than the previous high while the lows remain higher than the previous lows, the currency pair is in an up trend.
6. Buy into the currency pair if it is trending. Use the fake trading capital of the demo account. A popular and effective strategy is to wait for the pair to decline off a new high. If the trend continues, the trade is quickly profitable as the pair reverses to create another new high.
7. Sell the currency pair as soon as the trend breaks. If a high is formed that is lower than the previous high, or a decline falls past the lows of a previous low, then the price action no longer matches the strict definition of a trend.
8. Study charts of other currency pairs and buy and sell in the demo account until you are comfortable with this process. Patience is required to develop the skills to quickly identify and profit from trading opportunities. Do not fund a live Forex account until you have demonstrated consistent success in a simulator.
