If you don't want to drown in forex market whirlwinds, then you should plan your trade carefully. The plan will be your guide when the market suddenly turned bad, or when your trading system is giving out false signal. Still, with so many rules and analysis, how do we figure out what to be done and which should be done first?

If you don't want to drown in forex market whirlwinds, then you should plan your trade carefully. The plan will be your guide when the market suddenly turn bad, or when your trading system is giving out false signal. Still, with so many rules and analysis, how do we figure out what to be done and which should be done first?

There are so many articles that talks about what a beginner should know about forex trading, that beginners often become confused when they come face to face with trading platform. For that reason, we have prepared this article for you. These are three steps you need to take to place your first order.

 

1. Make A Map Of Forex Market Movement

Follow price movements on the chart consistently. Start by analyzing one currency pair chart in weekly and monthly timeframe to see its year to year dynamics. Then compare it with smaller timeframes. Comparing chart in a small timeframe with a bigger one will give you clearer market perspective on a currency pair. See if a certain pair is in high levels or in low levels, in bullish or bearish rally, or contrarily, it is ranging. Then define points of supports and resistances. Support is the last low levels, and resistance is the last high levels.

Map of forex market movement could also be seen through one or several indicator you have applied. But as we won't be talking about those confusing indicators now, we will get right on with the next step.

 

2. Follow The Trend, Not Against It

Observe forex market trend right then, is it bullish or bearish? Follow that trend when you open a new position. How do you know if there is a trend happening?

Follow

Note the supports and resistances on the chart. When there is two supports or two resistances come after one another, it signals the beginning of a trend. The third support/resistance confirms that the trend is in place. The picture above shows you the trends within EUR/USD M1 chart fast movements.

The best place to buy is at prices near the last support, while the best place to sell is near the last resistance. As you could see in the chart, if you open position at any point near the third support/resistance, then you are likely to receive big reward. In forex market, trend is your friend; if you ignore your friend, then he/she would sulk and make you suffer.

 

3. Determine Your Risk Limit

The proven method to control losses is by determining maximum risk, the highest portion of the capital that you could bear to lose, before you start making trades. This will be your guidance in putting stop loss points and how many open positions you will leave afloat.

In some cases, forex traders are failed and bankrupt because they bet too much portion of their capital and implement bad money management, or simply by not setting stop loss order. Just by failing in putting stop loss order, their account becomes prone to losses due to unexpected occurrences, such as blackouts (power failure), frozen computers, hurricanes, etc. There's no word but Major Fail to illustrate what more could happen if even maximum risk is not determined since the beginning.

It is also important to specify your Take Profit point in case you fall a and by the time you wake up, you find out that you've miss your target. Well, that's just an example, but as it is not impossible, we strongly suggest you to always unhesitantly put a definite Stop Loss and Take Profit, or a Trailing Stop together with your order. Furthermore, it is forbidden to change your risk limit with cheap excuses such as, just this once, or something like that. Be resolute, because every time you change it, you ruin your trading plan and that is, my friend, the first step toward failure in this business.