Have you traded for less than 1 year?
Then Forex Trading for Beginners is perfect for you.
When I first learned about Forex trading, it was frustrating!
I had so many questions on my mind.
What is a pip?
Why do traders focus on the London session?
How do I read the weird looking numbers on my screen?
It sucks that I had to figure so many things out before I can even start trading. Because if I don’t, I could lose my hard earn money — unknowingly.
Now… I don’t want you to go through the same pain and frustration I had.
That’s why I wrote Forex Trading for Beginners so you have a strong start in Forex Trading.
Here’s what you’ll learn:
- What is Forex Trading and the advantage of it
- What are the different Forex trading sessions and why it matters
- How to read Forex currency pairs like a pro even if you’re new to trading
- What are the different types of orders and how to use them correctly
- How to trade Forex using Fundamental Analysis
- How to trade Forex using Technical Analysis
- How much money do you need to start Forex trading
Then let’s begin.
Forex is a short form of Foreign exchange and it means trading one currency for another.
When you go to Malaysia for a holiday, you’ll sell Singapore Dollars in exchange for Malaysian Ringgit.
Now, unlike the Stock market where it’s traded on a centralized exchange, the Forex market is traded over the counter. And it’s connected electronically between banks and brokers.
Here’s an overview:
Now you’re probably wondering:
“Who are the biggest players in the Forex market?”
Well, it’s the banks as they are the market makers.
Followed by corporations who trade Forex to hedge their positions.
And lastly, individuals (like you and me) who speculate, shop online or travel overseas.
What are the advantages of Forex Trading?
Now let’s look at some of the huge advantage Forex Trading offers that you can’t get elsewhere…
High liquidity – According to the Bank of International Settlements (BIS), Forex is the largest market in the world with over $5,000,000,000,000 traded each day. That’s Trillion with a “T” This means you can enter and exit positions easily with minimal slippage.
Low barrier to entry – Most Forex broker allows you to open an account with as little as $100.
Better risk management – You can trade micro lots which allows you to better manage your risk. And unlike Stocks, the Forex market seldom has gaps which mean you will rarely lose more than intended.
Trade anytime you want – The Forex market is open 24/5. This means you can place your trades anytime from Sunday around 5 pm EST to Friday around 4 pm EST (depending on daylight savings).
Low transaction cost – Unlike Stocks, most brokers don’t charge you a transaction cost. You only pay the spread.
So, what is a currency pair?
In Forex, you’re always dealing with currency pairs, and never just one currency alone.
EUR/USD: You exchange Euro for the US Dollar.
EUR/JPY: You exchange Euro for the Japanese Yen.
AUD/USD: You exchange Australian Dollar for US Dollar.
Here are the 6 major currency pairs that are traded the most often and have the most liquidity:
Let’s move on…
The Forex market trades 24 hours a day, 5.5 days a week.
It starts with the Syndey session, the London session, the New York session, and then back to the Syndey session.
If you’re on (GMT + 8), then these are the start and end of each session…
If you want to know what time the market opens in your time zone, you can use a tool like Foremarkethours.
It’s important to know that not all trading sessions are equal.
In terms of volatility, the London session is the most volatile, followed by New York, and then Asian.
So, if you’re a short-term trader, you must trade the London session when the market is the most volatile as you have a better chance of making money.
Because think about this…
If the market is not moving it’s impossible to make a profit from it — like squeezing water out of a rock.
Forex Trading for Beginners: How to read a Forex currency pair like a pro even if you’re new to trading
You’ve probably seen numbers like these…
And you’re thinking to yourself…
“What the heck do these numbers mean?”
Well, let me explain…
If you see EUR/USD 1.1792, it means 1 Euro is worth $1.1792 US Dollars.
If you see GBP/USD 1.5255, it means 1 British Pound is worth $1.5255 US Dollars.
If you see USD/JPY 113.22, it means 1 US dollar is worth $113.22 JPY.
Does it make sense?
Good. Now let’s take things a step further…
What is a pip?
Here’s the thing…
A Forex currency moves in units called pips (price interest point) which is the smallest incremental value of a pair.
Most Forex pairs are quoted at the 4th decimal place, except for JPY pairs, which are quoted at the 2nd decimal place.
This means for every 0.0001 change in price, it represents a 1 pip move.
For JPY pairs, every 0.01 change in price, it represents 1 pip move.
If EUR/USD is now trading at 1.1802 and 1 hour later it’s trading at 1.1807.
How much did the price increase?
If USD/JPY is now trading at 120.55 and 1 hour later it’s trading at 120.15.
How much did the price decrease?
And finally, there’s one last thing you must know about reading a currency pair…
What is the spread?
The spread is the difference between the Bid and Ask.
You’re probably wondering:
“What is the Bid and Ask?”
The Bid is the price you can sell right now (always the lower value).
The Ask is the price you can buy right now (always the higher value).
So, if you see something like EUR/USD trading at 1.1551/1.1552.
This means if you want to sell EUR/USD now, you will sell at 1.1551.
If you want to buy EUR/USD now, you will buy at 1.1552.
So, the spread is what your broker earns from you (think of it as a transaction cost).
If you’re new to trading, all these might seem like a mess.
Because this is how I felt when I started Forex trading. But trust me, in time, it will all make sense.
Now let’s move on…
Generally, there are 4 common order types:
- Market Order
- Limit Order
- Stop Order
- Stop Loss Order
Let me explain…
A market order gets you into a trade right now at the current price.
This order is used when you absolutely must enter the market and you’re willing to pay whatever the price is right now.
This order is usually used by longer-term traders since they would rather pay a premium price and get in the trade now than miss a potential move.
Pros – You know for sure that you’ll be in the trade.
Cons – You pay a premium for this certainty.
A limit order gets you into a trade only if the market has come to your desired price.
If Apple is trading at $100 and you place a buy limit at $95. This means you’ll only get filled if Apple trades down to $95, else you’ll not be in the trade.
Here are two diagrams to illustrate my point:
Buy Limit Order
You’ll enter a long position only if the market trades low enough to your desired price level.
Sell Limit Order
You’ll enter a short position only if the market trades high enough to your desired price level.
This order is usually used by short-term or swing traders because they want to get the best possible entry price as it improves their risk to reward.
Pros – You enter your trades at a “cheaper” price.
Cons – 1) You might miss the move. 2) You are trading against the current momentum.
A stop order gets you into a trade only if the market has moved in your favour (the opposite of a limit order).
If Google is trading at $100 and you place a buy stop at $110. This means you’ll only get filled if Google trades up to $110, else you’ll not be in the trade.
Here’s what I mean:
Buy Stop Order
You’ll enter a long position only if the market trades high enough to trigger an entry.
Sell Stop Order
You’ll enter a short position only if the market trades low enough to trigger an entry.
This order is used by breakout traders because they want to enter their trades with momentum.
Pros – You enter your trades with momentum.
Cons – It might be a false breakout and you’re long at the highs (or short the lows).
Stop Loss Order
Unlike the earlier types of order (which gets you into a trade), a stop loss order gets you out of the trade when the price moves against you.
This is an important order you must know because it protects you from blowing up your trading account.
Here’s how it works…
In a long position, the Stop Loss (red dotted line) will always be below the entry price (green dotted line)…
In a Short position, the Stop Loss (red dotted line) will always be above the entry price (green dotted line)…
Pros – It contains the “damage” done to your account so you can live to fight another day.
Cons – You might get stopped out of your trade prematurely (but it beats blowing up an entire account).
Now, if you want to learn how to set a proper stop loss, then go watch this training video below…
You might be wondering:
“What is Fundamental Analysis?”
Fundamental Analysis considers information like economic data and political events because these affect the strength/weakness of a currency.
There is a lot of fundamental data coming out every day and as a trader, you must filter out the ones that matter and the ones to ignore.
As of right now, these are some of the most important ones you should know.
- Non-Farm Payrolls (NFP)
- Federal Open Market Committee meeting (FOMC)
- European Central Bank meeting (ECB)
Let me explain…
Non-Farm Payrolls (NFP) – USD
NFP happens on the first Friday of the week every month.
It indicates the strength of the US economy as it reflects on consumer spending and job creation.
Federal Open Market Committee (FOMC)
The FOMC represents the US central bank.
This meeting discusses how well the US economy is doing and to hint whether there are plans to increase/decrease interest rates.
Euro Central Bank (ECB)
The ECB represents the central bank for countries in Europe who uses the Euro as a currency.
This meeting discusses how well the Eurozone is doing and to hint whether there are plans to increase/decrease interest rates.
Pro Tip: Go to Forex Factory and check out their news calendar.
The ones marked in “Red” are usually important and worth paying attention to.
Here’s what I mean:
Now, let’s move on…
Unlike Fundamental Analysis which uses “concrete” data, Technical Analysis relies on price and volume.
And you can apply mathematical formulas to price (or volume) which results in trading indicators (that you see on most trading platform).
The belief behind technical analysis is that all market information is reflected in the price — and that’s all you need to trade the markets.
Here are some common Technical Analysis tools:
- Support and Resistance
- Moving average indicator
- Candlestick chart
Let me explain…
How to use Support and Resistance
Here’s the definition of Support and Resistance…
Support – An area on the chart where there’s potential buying pressure to push price higher.
Resistance – An area on the chart where there’s potential selling pressure to push price lower.
You’re probably wondering:
“What is the use of Support and Resistance?”
Well, it allows you to time the markets and get a favourable entry point.
If you want to learn more, go read The Support and Resistance Trading Strategy Guide.
How to use the Moving Average indicator
The Moving Average is an indicator that “smooth out” past prices and it appears as a line on your chart.
Now, there are different ways to calculate Moving Average, but honestly, it doesn’t matter which method you use because the concept is what matters.
This means no point figuring out which is the best moving average — it doesn’t exist.
Instead, it’s more important to learn how to use the moving average correctly.
For example, you can use Moving Average to:
- Identify the direction of the trend
- Identify the strength of a trend
- Better time your entries
- Set your stop loss
- Trail your stop loss
Now, it’s not within the scope of this article to go into the full details on how to use the Moving Average indicator.
So… if you want to learn more, go read The Moving Average Trading Strategy Guide (you’ll not be disappointed).
There are different ways you can plot prices on your chart.
You can use a bar chart, Renko chart, Line chart, Candlestick chart, and etc.
However, in this post, I’ll discuss Candlestick chart because it’s the most popular approach.
So, what is a Candlestick?
Well, a Candlestick shows the open, high, low and close on your chart.
And it looks something like this:
But wait, that’s not all.
Because you can use this information and develop different Candlestick patterns (like Shooting Star, Hammer, Doji, and etc.) and they have a different meaning to it.
Now if you are new to Candlestick patterns, then go study my free Candlestick Trading Course that teaches you everything you need to know about Candlestick patterns.
Here’s the thing:
Before you fund a live account, I suggest you demo trade first.
I know you’ve probably seen other traders saying…
“Demo isn’t the real thing.”
And I agree it’s true.
But before you can even start, you must familiarize yourself with your trading platform.
And that’s when demo trading can come in handy.
It allows you to get familiar with your charting platform (like how to buy, sell, manage your trades, and etc.) without risking any real money.
Now once you’ve learned how to use your trading platform, then you can consider funding a live account.
So, how much money you should put in a live trading account?
There isn’t a magic formula to this because it depends on your personal finance, risk tolerance, and circumstance.
But if you want a guideline, here’s what I suggest:
- Decide an amount of money you’re willing to lose (that will not affect your lifestyle even if you lose it)
- Put half of it in your bank
- Fund the remaining half into your trading account
- When you’re consistently profitable, fund the remaining half (from your bank) to your live account
The beauty of this approach is that you pay lesser “tuition fees” to the market because half of the money is in your bank.
And when you’re ready, you can fund the remaining and scale your way up.
This isn’t a get rich quick scheme but, a get rich slow approach that keeps you in business for years to come — which is far more important than anything else.
So here’s what you’ve learned in this Forex Trading for Beginners guide:
- Forex is traded by the banks, corporations, and individuals
- The 3 main Forex sessions: Asian, London, and New York
- A pip represents the smallest price change in Forex
- The 4 main types of orders are: Market, Limit, Stop, Stop loss
- You can use Fundamental and Technical Analysis in Forex trading
- It’s best to start on demo before funding a live trading account
I know I’ve packed a ton of information in this guide.
So take your time and digest the materials.
Lastly, is there any question that I’ve not answered about Forex Trading?
Leave a comment below and I’ll be glad to help.