I have been blogging about my analysis on Forex currency pairs and it hit me that some of the audience have no clue what I’ve been talking about. So if you are one of the Forex beginners, here is my guide how to trade Forex for beginners.
Basics of trading in general
Think of trading as a marketplace. There are basically two players, a buyer and a seller. With trading, you can be either one of the two.
When you buy
Also known as going long or taking a long position, your play is basically buying low then selling high, which means you’re expecting the market to go up.
When you sell
Also known as shorting or taking a short position, your play is obviously the opposite, which is selling high then buying low. This means you are expecting the market to go down.
That’s all there is to trading plainly speaking. However, what makes it a lot difficult is timing, identifying opportunities, identifying the trend, forming a strategy or a plan to trade, managing your emotions and lastly managing your risks.
Now, I won’t dive into those topics here on this blog since this is more for forex beginners. I’ll be discussing more about how to trade forex for beginners. If you have any experience in trading then you’ll likely find this very elementary.
The most commonly used chart types is the candlesticks type. As the name implies it is called as such because it looks like a candle. You’ll likely see the candlesticks color-coded as well. It could either be green & red OR white and black.
- Green / white candle – means the price action was positive or it moved or climbed higher
- Red / black candle – means the price action was negative or it moved or dropped down lower
Below is a clear explanation of the parts of a candlestick.
And just as a FYI, shadows are also known as wicks.
The second common chart type you may come across with is a bar type chart. With this kind of chart, all you’ll see are vertical lines with a short horizontal tip on the left and right sides of the vertical bar.
They may also be color coded, wherein the colors will essentially be the same and the same meaning as I listed above.
Below is also a graphical explanation of a bar chart. The horizontal tip on the left will always be the opening price and the one on the right will always be the closing price.
Bar chart basics
So that’s pretty much all there is to know about candlesticks and bar charts basics.
Now there’s another thing to be said about candlesticks, which is the patterns that they form. These candlesticks pattern tell a story or have meaning and understanding them is very useful in trading. There’s over a handful of them to be discussed so I will be writing a separate blog in the near future solely for candlesticks patterns.
So now let’s dive into our Forex beginners tutorial.
What is Forex
Short for foreign exchange, it is basically two currencies and their equivalent value against each other. This is why you’ll see my post or hear me in my video mentioning currency pair. There is always two currencies involved when you’re going to trade Forex.
The currencies are abbreviated to their three-letter form. Below are some examples.
Below are some samples of most common currency pairs.
What you’ll need
You will definitely need to open an account with a broker in order for you to start trading forex. There are numerous brokers that one can find online and with all bells and whistles that they offer. I will not go into the features that brokers offer rather I’ll likely write-up a review comparing some of the most common ones.
Choosing a broker will also depend on your country of residence as some are only available or legal for some and not others.
That being said you’ll need to do your research as well.
Capital or Money to trade with
This is very obvious since you’ll need money in order to trade. How much you ask? This will be dependent on the broker that you choose.
The common amount I see that is required as a minimum to fund an account is 1,000 be it USD, CAD, EUR or what have you.
The good thing with forex trading, that I like a lot is the margin that they allow you to trade with. This is where leveraging comes in.
Your broker basically loans you an “x” amount multiplier to your account capital. For example some broker will give you a 10x margin, meaning if let’s say you funded your account with $1,000, then you will be allowed to make trades amounting up to $10,000.
The good and the bad about margin
The good thing with margin is that you are leveraging the money lent to you by your broker, thus giving you more opportunities available for you to take advantage of.
The bad thing with margin though is that if you don’t know how to manage your risks then you’ll end up in debt. Since that is a loan and if you end up losing the entire position then you’ll end up being in debt with your broker.
Finally I’ll end with a concise explanation of trends.
- Uptrend – means the market is trending up and you’ll clearly see the bars or candlesticks are showing higher highs and higher lows
- Downtrend – means the market is trending down and you’ll see the bars or candlesticks showing lower highs and lower lows
Please leave your comments, feedback and questions below.
Have a wonderful day everyone!