What You Need to Know Before You Start
By Your Trading Mentor,
Trading Angel
WHAT IS FOREX TRADING?
Forex trading, also known as foreign exchange trading or currency trading, is the buying and selling of currencies on the foreign exchange market. Forex trading involves the exchange of one currency for another at an agreed-upon price, with the aim of making a profit from the difference in exchange rates between the currencies.
The foreign exchange market is the largest and most liquid financial market in the world, with an average daily trading volume of over $5 trillion. The market operates 24 hours a day, 5 days a week, and involves a vast network of buyers and sellers, including banks, corporations, governments, and individual traders.
Forex trading can be done through a forex broker or trading platform, which provides access to the market and allows traders to buy and sell currencies. Traders can also use leverage, which allows them to control larger positions than their account balance would otherwise allow, in order to increase their potential profits.
Forex trading involves significant risks, and traders need to have a solid understanding of the market, as well as effective risk management strategies, in order to be successful. However, with proper education, experience, and discipline, forex trading can be a lucrative and rewarding endeavour.
WHAT IS DAY TRADING?
Day trading is a type of trading strategy where a trader buys and sells financial instruments, such as stocks, forex, or options, within the same trading day, with the aim of making a profit from the short-term price movements in the market. Day traders typically close out all their positions at the end of the day and do not hold any positions overnight.
Day trading requires a high level of skill, knowledge, and discipline, as traders need to be able to quickly analyse market data, make informed trading decisions, and manage their risk effectively. Day traders often use technical analysis tools and charting software to identify short-term trends and patterns in the market, and may also use fundamental analysis to consider the underlying factors that may impact the price of the financial instrument being traded.
Day trading can be a high-risk activity, as traders are exposed to volatility and price fluctuations in the market. However, it can also be a potentially lucrative strategy for experienced traders who are able to manage their risk and make informed trading decisions.
It is important to note that day trading is not suitable for everyone, and traders should have a solid understanding of the market, as well as effective risk management strategies, before attempting to day trade.
HOW LONG DOES IT TAKE TO LEARN HOW TO FOREX TRADE?
Learning to day trade forex can take varying amounts of time depending on a number of factors such as your level of experience with financial markets, trading skills, dedication, and the quality of educational resources you have access to.
If you are completely new to trading and have no prior knowledge about financial markets, it can take several months to a year to learn the basics of forex trading. However, if you already have a good understanding of financial markets and trading concepts, you may be able to learn the basics of forex trading in a few weeks to a few months.
It is important to note that becoming a successful day trader requires more than just theoretical knowledge. You also need to develop discipline, patience, and emotional control, as well as practice trading with real money in a controlled environment. This process can take months or even years of practice and experience.
In summary, learning to day trade forex takes time and effort, and the amount of time it takes to become proficient varies from person to person. It is important to focus on building a strong foundation of knowledge and skills, and to be patient and persistent in your efforts to become a successful trader.
What steps must a complete beginner take before starting to day trade forex?
If you are a complete beginner who wants to start day trading forex, it’s important to take the following steps before jumping in:
1. Learn the basics of forex trading: Before you start trading, you need to understand the basics of forex trading. This includes concepts such as currency pairs, bid-ask spreads, leverage, margin, and more.
2. Develop a trading plan: A trading plan is a set of rules that guides your trading decisions. It should include your trading goals, risk tolerance, entry and exit strategies, and more.
3. Choose a broker: You need to choose a reputable forex broker that provides a trading platform, access to markets, and other trading tools.
4. Practice with a demo account: Most good brokers offer demo accounts that allow you to practice trading with virtual money in a risk-free environment. This will help you familiarise yourself with the trading platform and gain experience before risking real money.
5. Start with a small amount of capital: When you start trading, it’s important to start with a small amount of capital that you can afford to lose. This will help you manage your risk and avoid significant losses.
6. Keep learning: Forex trading is a complex and dynamic field, and there is always more to learn. Keep reading and learning about forex trading and practice consistently to improve your skills and knowledge.
By taking these steps, you can build a strong foundation of knowledge and skills that will help you become a successful day trader in the forex market.
Investing in a trading mentor can be a valuable way for a beginner trader to speed up their progress and improve their trading skills. A trading mentor can help guide a beginner trader through the process of learning to trade, provide feedback on their trading strategies and performance, and offer insights into the market that the trader may not have considered.
However, it’s important to note that not all trading mentors are created equal, and finding a good mentor can be challenging. Many “mentors” are just trying to sell their own trading courses or products, and may not have the trader’s best interests in mind. Additionally, some mentors may not be a good fit for a particular trader’s learning style or personality.
Before investing in a trading mentor, a beginner trader should do their research and carefully evaluate potential mentors to ensure that they are reputable and have a track record of success. The trader should also consider their own learning style and personality, and look for a mentor who is a good fit.
In summary, investing in a trading mentor can be a valuable way for a beginner trader to speed up their progress and improve their trading skills, but it’s important to do your research and find a mentor who is a good fit.
Understanding the proper terminology is an essential first step before learning to day trade. Here are a few reasons why:
1. Effective communication: Day trading involves a lot of communication with other traders, brokers, and market participants. Understanding the proper terminology ensures that you can communicate effectively and avoid misunderstandings.
2. Understanding market data: Day traders need to be able to interpret market data such as price charts, order books, and news releases. Understanding the proper terminology allows you to understand the data more effectively and make informed trading decisions.
3. Trading strategies: Different trading strategies rely on different technical indicators and chart patterns, each with their own terminology. Understanding the terminology allows you to understand the trading strategies more effectively and implement them successfully.
4. Risk management: Day trading involves a high degree of risk, and effective risk management is essential. Understanding the terminology allows you to understand the risks associated with different trades and implement effective risk management strategies.
5. Avoiding mistakes: Day trading is a complex activity that requires a lot of attention to detail. Understanding the proper terminology can help you avoid costly mistakes such as misunderstanding order types, misreading charts, or misinterpreting news releases.
Overall, understanding the proper terminology is essential for effective communication, understanding market data, implementing trading strategies, managing risk, and avoiding costly mistakes. It is an important first step for anyone interested in learning to day trade.
Here are the trading terms you need to know
BULLS AND BEARS
In trading, bulls and bears are used to describe two opposing market sentiments or trends. Here are the differences between the two:
1. Bull market: A bull market is characterized by rising prices and a general sense of optimism among investors. A bullish investor expects prices to continue to rise, and may enter long positions in anticipation of further gains. In a bull market, buyers outnumber sellers, and there is typically a high level of trading volume.
2. Bear market: A bear market is characterized by falling prices and a general sense of pessimism among investors. A bearish investor expects prices to continue to fall, and may enter short positions in anticipation of further losses. In a bear market, sellers outnumber buyers, and there is typically a low level of trading volume.
3. Market psychology: Bulls and bears reflect the market psychology of investors. Bulls are optimistic and believe that the market will continue to rise, while bears are pessimistic and believe that the market will continue to fall. This psychology can influence trading decisions and market trends.
4. Economic indicators: Bulls and bears are also influenced by economic indicators such as GDP growth, interest rates, and inflation. A strong economy with low inflation and low interest rates generally favors a bull market, while a weak economy with high inflation and high interest rates generally favors a bear market.
5. Trading strategies: Bulls and bears also influence trading strategies. In a bull market, traders may focus on long positions and buy-and-hold strategies, while in a bear market, traders may focus on short positions and more active trading strategies.
Overall, bulls and bears represent two opposing market sentiments or trends, with bulls being optimistic and expecting prices to rise, and bears being pessimistic and expecting prices to fall. Understanding these concepts is important for traders to make informed decisions based on market trends and economic indicators.
BID AND ASK
In trading, the bid price and ask price are the prices at which buyers and sellers are willing to buy and sell an asset, such as a stock, currency, or commodity.
The bid price is the highest price a buyer is willing to pay for an asset at a given time. It represents the demand for the asset and is typically lower than the ask price.
The ask price, on the other hand, is the lowest price a seller is willing to accept for the asset. It represents the supply of the asset and is typically higher than the bid price.
The difference between the bid and ask prices is known as the bid-ask spread. This spread represents the transaction cost for trading the asset and is typically narrower for highly liquid assets such as major currency pairs and broader for less liquid assets such as small-cap stocks.
PIP VALUE
In trading, a pip (short for “percentage in point”) is a unit of measurement used to express the change in value between two currencies. The pip value represents the smallest price change that a currency pair can make, and is typically used to calculate the profit or loss of a trade.
The pip value is dependent on the currency pair being traded, as well as the size of the position. For currency pairs where the quote currency (the second currency listed) is the US dollar, the pip value is typically $10 for a standard lot (100,000 units of the base currency), $1 for a mini lot (10,000 units of the base currency), and $0.10 for a micro lot (1,000 units of the base currency).
For currency pairs where the quote currency is not the US dollar, the pip value is determined by converting the pip value in the quote currency to the account currency using the current exchange rate.
For example, if a trader buys 1 lot of EUR/USD at a price of 1.2000 and sells it at a price of 1.2020, the trade has made a profit of 20 pips. If the trader’s account is denominated in USD and they traded a standard lot, the profit would be $200 (20 pips x $10 per pip). If the trader’s account is denominated in a different currency, they would need to convert the pip value to their account currency using the current exchange rate.
STOP LOSSES AND TAKE PROFITS
Stop loss and take profit are two types of orders that traders can place in advance to manage their risk and secure their profits in a trade.
A stop loss order is an instruction to close a trade automatically at a specific price level in order to limit potential losses. When a trader places a stop loss order, they are essentially setting a maximum loss they are willing to accept on a trade. If the market moves against their position and reaches the stop loss level, the trade will be automatically closed at that level, preventing further losses.
A take profit order is an instruction to close a trade automatically at a specific price level in order to secure a profit. When a trader places a take profit order, they are essentially setting a target profit they want to achieve on a trade. If the market moves in their favor and reaches the take profit level, the trade will be automatically closed at that level, securing the profit.
Both stop loss and take profit orders can be set at the same time when a trader enters a trade. This allows them to manage their risk and potential reward on a trade in advance, without having to constantly monitor the market. It is important to note that stop loss and take profit levels should be based on a trader’s individual risk tolerance and trading strategy, and should be carefully calculated to avoid being triggered too early or too late.
MARKET STRUCTURE
In price action technical analysis, market structure refers to the framework of the price movements of an asset over time. It includes the identification of key levels of support and resistance, as well as the formation of trends and patterns.
Market structure in price action analysis is typically analyzed using charts, such as candlestick charts or bar charts, which display the price movements of an asset over a specific time frame. By analyzing the price movements, traders can identify patterns and levels that can provide clues as to the future direction of the asset’s price.
For example, an uptrend can be identified by a series of higher highs and higher lows, while a downtrend can be identified by a series of lower highs and lower lows. These trends can provide traders with potential entry and exit points for their trades.
Support and resistance levels are also important aspects of market structure in price action analysis. Support refers to a level at which buying pressure is strong enough to prevent the price of an asset from falling further. Resistance, on the other hand, refers to a level at which selling pressure is strong enough to prevent the price of an asset from rising further. By identifying these levels, traders can determine potential entry and exit points for their trades and manage their risk accordingly.
Overall, market structure is an important aspect of price action technical analysis as it provides traders with a framework for analyzing the price movements of an asset and making informed trading decisions.
PRICE ACTION
In forex trading, price action refers to the analysis of the historical price movements of a currency pair to identify patterns, trends, and other trading opportunities. Price action traders believe that studying the movement of price alone, without relying on indicators, can provide valuable insights into the market and help predict future price movements.
Price action traders typically use candlestick charts or bar charts to visualize the price movements of a currency pair over a specific time frame. They look for patterns such as support and resistance levels, trend lines, and chart patterns such as head and shoulders or double tops and bottoms. By analyzing these patterns, they can identify potential entry and exit points for their trades.
Price action trading is based on the idea that the market is always changing and that price movements reflect the collective beliefs and actions of all market participants. Therefore, by analyzing the price movements themselves, traders can gain a better understanding of market sentiment and make more informed trading decisions.
Price action trading can be used in conjunction with other forms of technical analysis or fundamental analysis to develop a comprehensive trading strategy.
TECHNICAL INDICATORS
Sure! Technical indicators are mathematical calculations based on the price and/or volume of a financial instrument, such as a currency pair in forex trading. They are used to analyze the market and to help traders make informed decisions about when to enter or exit a trade.
There are many different technical indicators that forex traders use, but some of the most common ones include:
1. Moving averages: These indicators calculate the average price of a currency pair over a certain period of time, such as 50 or 200 days. Traders use moving averages to identify trends and to determine potential support and resistance levels.
2. Relative strength index (RSI): This indicator measures the strength of a currency pair’s recent price movements, and is used to identify overbought or oversold conditions. Traders use RSI to help determine when to enter or exit a trade.
3. Bollinger Bands: These indicators use a moving average and standard deviation to create a band around the price of a currency pair. Traders use Bollinger Bands to identify potential breakout or reversal points.
4. Fibonacci retracements: These indicators use the Fibonacci sequence to identify potential support and resistance levels. Traders use Fibonacci retracements to help identify potential entry and exit points.
5. MACD: The Moving Average Convergence Divergence (MACD) indicator uses moving averages to identify potential trend changes in a currency pair. Traders use the MACD to help confirm potential entry and exit points.
It’s worth noting that while technical indicators can be helpful in analysing the market, they should not be relied upon exclusively. Fundamental analysis, which involves analysing economic and geopolitical factors that can affect currency prices, is also an important part of forex trading.
Until next time, Happy Trading!
Love From Your Trading Mentor,
Trading Angel x