Illustration on the preview: Vincenzo Campi "Fruit Saleswoman"
Forex is a currency exchange market, where people trade currencies and stocks and where success of some people is built on the defeat of the others. If you have earned money, someone has lost. And vice versa. Beginners may have a hard time in this world of business sharks. I will tell you how a beginner can not only survive in the world of Forex, but learn to earn money.
My name is Slava, I do not have experience at Forex, or economic education. I have a computer, 500 dollars and a task to go through doing business at Forex. This article is a diary of my experience and step by step instruction.
Where to begin
Before starting to trade using real money it is better to have some practice. A trader shall open a demo account and figure out how to open and close trades, monitor price movement, place stop loss and take profit orders. I will tell you more about it later. Money on the demo account is not real. A trader cannot earn or lose anything. After clear understanding of the principles of the market, you can open a real trading account.
Select an option: open a trading or a demo account:
Fill in the fields:
After this you will receive a message with passwords on your e-mail address. You do not need to deposit your demo account. In case of the real account you shall select a convenient way to replenish your trading account.
Start the program and select assets
You shall decide whether you will trade currencies or stocks. But first of all, you shall open a terminal, which is a trading program.
I worked in the web terminal. It allows you to trade directly from your browser without installing a program on your computer. However, you can download the program to your computer, phone or tablet.
Enter your user name and password, which you received by e-mail after opening an account. The terminal will be available, enabling you to start trading.
I'm going to trade shares of Apple. I do not know why, but I like this company and the way they do business. And if I will be able to earn money with their help, it will be just wonderful!
The terminal has opened I can see a chart and something is changing on it. I have no idea what is going on and what I shall do next. It seems that I will not be able to go ahead without learning some theory.
What shall we know?
First of all, let’s try to understand a chart. I have read an article about the charts and decided to choose a chart with "candlesticks." Here they are:
If the bar goes black, it means that the price goes down, if it is white, the price goes up. A candle wick on top shows the highs of the price, a candle wick in the bottom shows the lows of the price. Now we understand the readings of the chart showing the rise or the decline in price.
The price moves in accordance with some rules, or trends. There are upward, downward and sideways trends. Uptrend means that the price goes up:
downtrend shows the decline in price:
and sideways movement means that there is no any change in price:
Trend helps to make an analysis and a forecast of what will happen next. Actually, it is impossible to accurately predict changes in price.
One of the problems of trading at Forex is the effect of trader’s emotions. When a transaction is successful, a trader is reluctant to close it because he/she naturally wants to earn more. But the price may change movement direction and never return to the same level. It is better to earn less than lose everything.
If a trade is unfavorable, a trader can wait and believe that things will change. But nothing changes, except that you now have less money. It is necessary to eliminate emotions and close a trade before you have lost all your money.
The program has an option, which helps to deal with your emotions: these are stop-loss and take-profit orders. Stop-Loss is an option when a trade closes if it does not bring profit, which helps to avoid losses. Take Profit is an order to fix profit. In accordance with this order a trade will be closed when your profit reaches a specified level.
Note that there are several exchange market and their working hours are different. I trade Apple stocks, so I will work in the American market. It works from 16:00 to 1:00 Moscow time. It means that I can trade only at this time period.
Asian market works from 3:00 to 12;
European market: from 9:00 to 18:00;
Pacific market: from 00:00 to 9:00 Moscow time.
How to trade
Trading concept is simple. If the price of stocks falls, we sell them. When the price goes up we close a trade. When the price goes up, we buy stocks. When the price begins to decline we close a trade. The difference between the opening and closing prices is our profit; well, or a loss, if our trade was unsuccessful.
If you want to earn money, you need to understand what will happen to the price the next moment, which is difficult. If you trade without a system you will lose your money.
The price can be affected by various factors, such as the number of positions in the market, economic news, comments and statements of politicians, wars and holidays. An experienced trader takes into account all the factors and, based on the data, predicts behavior of price.
Before opening a trade, a trader shall decide whether he/she is going to buy or sell. Select the number of shares or currencies and open a trade:
Symbol is the name of stocks or currency pairs. Volume is the amount of shares or currency used for trading. Sell by market means to open a sell position. Buy by market means to open a buy position.
In order to better understand the process, I have opened a demo account and started to practice. I saw that the price went up and placed several buy orders:
You can see that all my trades have been profitable. So, later I have opened two more positions:
However, they turn out to be unsuccessful, as at this moment the rise in price has slowed down and the profit did not cover the spread. Now let’s talk about the spread.
A trader makes profit on the price difference, but how a broker makes profit? I am sure you have made the right guess. A broker earns money with the help of a trader. For a broker a spread is important. Spread is a difference between selling and buying prices of the currency or stocks. When you open a trade, you are immediately in the red. If you have opened the right trade, the profits will cover the loss, but if not, you will lose more.
The price of selling is lower than the price of buying. The difference between these two prices is a spread. A broker earns money in any case and on every trade and regardless the fact whether a trader earns or lose. A trader pays for all trades.
I close all trades. I have grasped main idea of trading. Now it's time to move on to an account with real money. I have $ 500. I am going to buy shares of Apple. I can see that the price is going to rise, so I open sell positions.
At first I am losing. But then the price rises sharply and I'm gaining some profit. I have earned a cent and closed a trade.
I have opened a trade for five stocks:
and earned 11 cents. It's all good, of course, but it will take too long to become rich and successful. I decided to open more trades.
I have opened positions for 30 stocks at once. I am losing because of the spread, then, the price stopped moving at all. It neither went up nor down.
And after that the price went up, I gained thirteen dollars and closed the deal! Immediately after this I opened another trade, placed a stop loss order and switched my attention to some other business. An hour later I looked at the screen - my stop-loss order have closed a trade. I have lost.
For a beginner Forex is a game of luck. For a professional it is a hard work. Being just a beginner, I physically could not digest all the information required to plot successful trading and I traded on a spur of the moment. In order to trade successfully, a trader need to learn to analyze the market.
Methods of analysis
There are two types of analysis: technical and fundamental.
Technical analysis is an analysis of the price behavior in the past. For example, determination of the price trend is a technical analysis. It can be done manually or automatically.
If you analyze manually, you need to look at the chart, take into account the highs and lows of the price, opening and closing prices, and volume of transaction. If you want to make an analysis automatically, you need to set the system in order to receive respective signals. The system will monitor all the changes and suggest you a plan of action.
Technical analysis is useful for the short-term trading. In order to trade successfully, a trader shall learn how o create a trading system.
Fundamental analysis is an analysis of interest rates and the rate of unemployment, GDP and other economic and political events in the countries, which currency or stocks you use for trading.
Fundamental analysis is more difficult than technical because you need to follow the news and be able to interpret it. Fundamental analysis is useful for long-term trading and almost useless for trading in lower timeframes.
LiteForex provides analytics from Claws & Horns, offering forecasts, signals and recommendations, which help make trading decisions. Analytics showed that stocks of Apple are in the uptrend. It means that I need to open a buy position.
Forex is a risky business, but it cannot be compared with a game in a casino. There is no dealer, who can deceive or tricky machine, the result in Forex depends only on a trader’s actions.
A trend may change, the price can suddenly soar up and sharply fall down, no one provides you any guarantees. Even experienced traders can lose money. As we said before price behavior depends on the traders’ actions, economic and political events. A trader shall make all kind of analysis. If you are not sure, do not open the deal.
- Register with LiteForex and open a demo account.
- Start trading terminal and select a currency pair or stocks. Practice on demo-account.
- Open a trading account and put a deposit.
- Analyze price movement. Monitor trends. Read news and analytics provided by “Claws & Horns”.
- Control your emotions. Always place stop-loss and take profit orders.
- You are not the Wolf of Wall Street. If you set an aim to buy a yacht and a helicopter, you will have to sweat and toil.
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The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.