1) Open A Practice Account

If you’ve never traded forex before, it is a good suggestion to open a practice or demo account with websites like AVAFX.com, Forex.com, or FXCM.com first, before you open a live account. This will give you some time to play around with pretend money while you get the hang of how the market moves, before you involve your real cash.

2) Separate Your Emotions From Your Knowledge

Never let your emotions become an influential factor in your decisions to buy and sell. You’ll find that when you have a practice account it’s a lot easier to make buying and selling decisions, because you know that whether you win or lose you still won’t really lose your real money. That changes, though, when you start trading with real money. You start worrying over a trade you just made, thinking, “what if the market goes the opposite direction and I lose!” So if the market does turn against you a little bit, you panic and liquidate your open positions.

Or if you’re wanting to make a trade and you see a currency pair rising incredibly fast, you may think, “I better hurry up and buy it before I miss my chance!” Then right after you buy it, the market goes back down and you lose. It’s very important to create a dividing line between your emotions and the knowledge and experience you have in trading currencies. You don’t have to worry about missing your chance! There will always be another chance. It’s better to wait for another opportunity to come along, taking time to study it and knowing for sure whether you think it would be a good idea to trade it or not.

When you trade forex you must detach yourself from the money you invest. The moment you transfer that money to your trading account, consider it gone. That way, if you gain money, it will be a nice surprise, but if you lose you won’t be terribly disappointed.

3) Watch For “Spikes” On The Charts

One useful method that I found for reading charts is watching for “spikes”. As the candlestick chart in fig. 1 shows, when the market goes up or down very rapidly it will appear as a spike on the chart. When the chart spikes like this, more often than not, the market will turn and go in the opposite direction from the spike. It doesn’t happen this way all the time, but it is quite frequent.

Fig. 1

When you see a chart spiking, wait till the spike reaches its fullest and starts to recede back to the base of the spike. This is where you want to buy the currency pair. Be careful not to hold on to it for too long though. As you can see in fig. 1, where the first spike with notations is, the market went up after the down spike, but then soon afterwards it continued on its course down. You want to sell while you’re ahead, because after the spike it’s hard to tell whether the market will go up or down. This brings us to tip number 4.

4) Sell While You’re Ahead

One of the most important things to know when trading forex is knowing when to sell. Unless you have tons of money in your trading account, a good tip is to sell while you’re ahead. Don’t wait for your profit to increase “just a little bit more” before you sell, you may end up losing all your profit and more.

Another thing is, you need to always be on your toes and ready to sell at a moments notice. Again, unless you have mass quantities of cash in your account, you should be monitoring your open positions constantly. Don’t buy something then wait hours before checking on its progress. This is very important! It will be different later when you have more money in your account, but for starters if you have, let’s say only $500.00, you really should be watching the market all day.

5) Don’t Go Cheap When Opening An Account

When you start trading foreign exchange, begin with a sizable amount of money in your account. If you want an account with a 200:1 leverage, start with a bare minimum of $500.00. Though you would be way better off with somewhere around $1,000.00. The more money you have in your trading account the better chance of success you’ll have at making a profit. In my opinion, $500.00 is too small of an amount to start with, but it may work for some people.

6) Only Trade With 10% Of Your Margin Balance.

If your leverage is 200:1 your margin will be whatever your account balance is multiplied by 200. So, if you have $500.00 in your account, your margin balance will be $100,000.00. Now, if the lot size is 10k, in order to make one trade, you will need to use $10,000.00 of the margin. So technically you could purchase, at most 9 lots at ounce with a margin of $100,000.00. It’s just that you don’t ever want to do that! Why not? Because, the more open positions you have, the faster you will gain or lose money. Thus, it is wise to only use 10% of your margin balance at a time. Keep your gains small while at the same time minimizing your losses.

So to sum up, if you have $500.00 in your account, your margin will be $100,000.00. Therefore, only purchase 1 lot. If you have $1,000.00 in your account your margin will be $200,000.00. So you may then purchase 2 lots.

After awhile of using this 10% rule, it may start to seem like you’re not making as much profit as you could be. You might be tempted to use more then 10%. A word of caution: Don’t give into this. Although your profits will seem small, you will have much more success while investing in the foreign exchange market if you apply this rule.

7) Practice, Practice, Practice!

Now you’ve opened a practice account and played around a little, but you still don’t feel confident with using real money just yet. Time is running out, and before you know it your practice account expires and the company representatives start pressuring you to open a live account. What do you do? Open another practice account and keep on learning until your ready. Study, read other how-to articles, and become a pro.

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Here are some links to forex sites that offer free practice accounts:

AVAFX.com

Forex.com

FXCM.com

ForexMicroLot.com

Here are some links to forex sites that do not offer practice accounts:

Finexo.com

Easy-Forex.com

Warning: Forex trading is extremely risky. The market is very volatile, which means you may win considerably, but you may also lose considerably.