- Due to the widespread popularity of Forex trading, competition among Forex brokers is high, and the selection of brokers is large. Those new to trading Forex can take this as an advantage. Nearly all Forex brokers provide a free "demo" account for a limited time, so you can evaluate the speed of trade execution on their software and get a feel for the interface they designed. Simulation accounts such as these operate exactly like a real live account with the broker, but you trade fake money. Thus, you can practice your skills at trading for free. Because there are so many brokers, when one demo account expires, simply open another demo elsewhere. Not until you are consistently profitable simulating should you consider putting real hard-earned capital to work in Forex trading.
- By far the most destructive force in Forex trading is the leverage. "Leverage" refers to the ability to purchase more assets than your actual cash balance allows. Few markets are as highly leveraged as Forex. It is possible with some brokers to buy $200,000 of currency with only $1,000, a 200:1 ratio. This dramatically increases your chances of quick rewards if your trading is consistently good. But you can also wipe out an entire trading account quickly if you are new to the business. For this reason, you can select a "Micro Forex" account with some brokers. This provides 1 percent of the standard leverage of a regular Forex account. New traders can dramatically minimize their losses while they learn to use real money if they limit their leverage in this way.
- Whether you trade Forex or any other financial market, always be aware of the trend of the instrument you trade. Trend analysis began nearly a century ago in the work of Charles Dow. His basic methods for identifying a trend are still valid today. Look at your Forex chart. If the prices are making a sequence of "higher highs and higher lows," then the instrument is trending. You increase your chances of success when you go with a trend.
- Traders who use bar charts or "candlestick" charts, both common in any Forex platform, can easily see major trend reversal signals in real-time. No signal is foolproof, and false signals do appear. But some warrant caution as a significant change in price direction could be imminent. One important signal is the "engulfment." This occurs when a price bar's entire range is both above and below the prior bar's range, and also points in a different direction. For example, if the currency traded from 1.200 to 1.205 in one bar, then opened at 1.206 in the next bar and dropped to 1.197, the second bar turned around and "engulfed" the prior bar. This occasional pattern shows a significant shift in market sentiment, suggesting prices will follow the direction of this second bar.
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