7 Forex trading tips for beginners who want to earn extra income
If you’re a beginner trader, you probably got started with Forex on the premise that you might earn some side income.
And that’s actually the best place to get started, since it would take at least a few months to train up your trading skills. Meanwhile, having a regular job ensures that you can pay for your daily expenses.
The first thing you need to know about Forex trading is that the challenge lies not in making money, but in preventing yourself from losing a lot of money.
After all, making $2,000 in a week of trading is pointless if you lose $3,000 the next week.
- So the first tip, if you’re looking to earn extra income with trading, is to focus on keeping your losses small.
Beginner Forex Trading Tip #1: Limit your downside
Most people associate trading with “making money” because of Hollywood’s constant portrayal of rich bankers and traders who bet big and win big.
In reality though, successful traders don’t think too much about “making money” at all.
Instead, they spend their time and energy on limiting the downside of their trades.
In other words, winning traders make sure they don’t lose too much money on the inevitable losing trades.
- Because while there are an infinite number of ways to succeed in trading, there’s only one way to fail, and that is to lose a lot of money.
Beginner Forex Trading Tip #2: Consider your personal situation
News trading isn't my my cup of tea. I know because I’ve tried it many times in the past and always end up emotionally drained… even if I made money!
That’s why I completely stopped trying to trade the news. It’s simply too stressful for me.
If I had insisted on being a news trader, I’d probably have burnt out years ago and lost a whole lot of money in the process.
Thankfully, I'm lucky enough to be aware of my emotional shortcomings when it comes to short-term trading, and avoided them.
And don’t just think you know. Actually try it out. People tend to have a poor understanding of the type of trading style that suits them, so try them all and see which ones resonate with you.
Beginner Forex Trading Tip #3: Rely 100% on yourself
Too many people try to avoid being responsible for their trading results.
Instead of learning to trade for themselves, they blindly apply some “buy and sell indicator”, or install automatic trading robots.
They want to be told exactly what to do and when to do it, so they have someone to blame when something goes wrong.
This type of employee mindset might work in an office environment, but it doesn’t work in the world of trading.
As a retail trader, you are 100% on your own. If you blow up your account, there's no one else to blame but the guy you see in the mirror.
If this sounds unbearable to you, you probably shouldn't be trading.
I don't mean to come across as rude, but I don't want to see you waste years of your time and losing a large chunk of your savings before you come to the same conclusion.
Beginner Forex Trading Tip #4: Be humble. Start small.
A big mistake new Forex traders tend to make is to enter the market with guns blazing.
To them, the market is simply a price chart with colourful lines drawn all over it.
What they don’t see, is the thousands of battle-hardened experienced traders on the other side of the market that are waiting for them to make a mistake.
All financial markets thrive on emotions, and the more excited (or fearful) the beginner is, the more money he is ready to give to the markets.
This is why it pays to be humble, and to trade small, at least at first.
New traders often ask me, “How many lots should I be trading?”
And my answer is always the same. “The smallest possible lot size.”
“What?? Just one micro lot?” They’d say, “How can I make money with that?”
…which brings me to the next point.
Beginner Forex Trading Tip #5: Aim for consistency, not money
When beginner traders make money, they tend to increase their trading lot size because their focus is on the money.
They think, “since I’m winning, I should trade larger!”
What inevitably happens then that the market phase changes and they end up losing all of their prior profits and then some.
The inconvenient truth is that beginner traders haven’t been around long enough to understand the subtle shifts in the various phases of the market. That only comes in time, and with experience.
Beginner Forex Trading Tip #6: Record and review your trades
Human memories are horrendously feeble and inaccurate. Beginner Forex traders tend not to realise this and rely solely on what they remember to analyse their past trades.
The benefits of keeping a trade journal are too numerous to mention here.
At the same time though, there are just as many excuses to “justify” not keeping a trade journal.
So allow me to qualify this point by making a simple statement:
If you’re struggling with your trading, I’ll bet that you either don’t keep detailed trading records, or that you don’t review them.
That’s the simple fact that I’ve noticed among traders over the years. Losing traders tend to be the ones that don't keep a trading journal.
- So put throw your excuses out the window, and ask yourself a serious question: do you really want to be a winning trader?
Beginner Forex Trading Tip #7: Choose a properly regulated broker
This is a simple tip that many retail Forex traders ignore.
Too often, they fall prey to a nice-looking website, deposit bonuses and some fancy marketing.
At the end of the day though, the question you need to ask yourself is, “when something bad happens, how easy will it be for my broker to run away with my money?”
If your broker is located in Cyprus or some equally questionable jurisdiction, the answer is “pretty easily”.
Now I’m not saying that these brokers are actively planning to run away with your money… but that if they ever decide to do so (in their sole discretion), it’s won’t be hard for them to get away with it.
- This is why I only trade with brokers that are regulated in established financial jurisdictions like in the US, UK, Australia, Hong Kong or Singapore.
The process of trading is challenging enough as it is. Don't waste any more of your time worrying about the security of your funds, and just go with a broker that's situated in a reputable financial jurisdiction.
It takes just a little more time during the registration process, but the peace of mind it gives you will be well worth it.
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