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What Facts About Forex do Beginners Need to Know About Trading?

What Facts About Forex do Beginners Need to Know About Trading?

People with different levels of training and individual qualities come to the financial market. However, only 5% of traders receive regular earnings, and 95% of users either work with zero return or go into negative territory. Training is one of the main conditions for entering the coveted 5% of the lucky ones. Theoretical knowledge is the basis for successful trading. Without terminology, even an ordinary YouTube video will not help you understand the principles of trading in the market.

A successful trader always learns, but not only by comprehending the theory. He teaches the history of Forex, works out new strategies, looks for mistakes, and tries to fix them. The main thing is that he never gives up. Throughout the history of Forex, traders and experts have managed to determine which factors turned out to be the most significant. These factors should be taken into account if you really want to be successful in the market.

Risk management

The ability to manage risks is key for a novice trader. He must understand how to reduce losses and correctly build a trading strategy. There are four main methods of risk management:

  • Risk avoidance. Traders refuse to knowingly lose trades, cooperate exclusively with reliable brokers, and insure capital in risky transactions.
  • Risk diversification. Reduce risk indicators by opening several transactions on unrelated assets. These, in the event of a loss, beat off the loss of a risky transaction.
  • Risk compensation. The occurrence of risky transactions is avoided by constant monitoring and analysis of the market and timely entry into hedging positions.

Working with risks will allow the trader to be in the black most of the time.

Psychological aspect

Forex is not a casino where luck plays a leading role. Trading is conducted thanks to the knowledge and skills of a specialist, and loss of composure can lead to bad consequences.

Dr. Van Tharp conducted a study on the influence of trader psychology. Success depends on the following factors:

  • Trading strategy – 10%
  • Capital management skills – 30%
  • Emotional background and psychological state of the trader – 60%

Bottom line: before trading Forex, you need to stabilize your emotional background. You cannot trade if:

  • The trader overestimates or underestimates his abilities
  • The risk of losing money or missing a chance to profit causes panic
  • Greed appears, provoking an uncontrolled desire to place bets

Trading will not be successful if the trader is superficial about his work. According to the expert, special attention should be paid to the problem of a gambling attitude toward trading.

Technical analysis

Technical analysis is a statistical and mathematical assessment of previous quotes for successful forecasting of subsequent price behavior. In Forex, the initial data for analysis are:

  • Lowest and highest price
  • Opening and closing costs
  • The volume of transactions for a certain period

The basic basis is the analysis of price charts. They show the market's movement. But technical analysis simply states that the price is moving in some direction and does not take into account factors that may influence the formation of a trend.

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