With billions of dollars traded daily, forex trading now ranks as one of the largest capital investment markets on the planet. However, there is also a common misconception that you need lots of money to get into forex trading-that is untrue.
There are plenty of forex brokers that allow you to join this market with as little as $50, and it’s a highly accessible market. Here is the kicker-the less you invest in the fx market, the less likely you are to make any decent profits, and the more you invest, the riskier it is. Ultimately, it all depends on your ultimate end game.
How to Approach Forex Trading in 2021
For many, the idea of leveraging their life savings on a market that is volatile and unpredictable seems like an incalculable risk. That said, fx trading is still a great way to make a living, but you have to be willing to shoulder the downsides.
While it is inherently risky, fx trading can be lucrative. If you have the right approach and do proper research, you can potentially build a formidable investment portfolio. It is a very profitable investment once you get the hang of it.
So, what is the best place to start?
Focus on Trend Trading
The beginning is always rough for any trader. The amount of research you have to do to understand market dynamics will probably exhaust you. For this reason, it is critical to start cautiously as you gradually build momentum. The first and most common fx trading strategy is identifying price movements based on market trends.
While this analysis may seem simple in theory, it still requires the ability to interpret trends and predict the directional momentum of market forces. Technical analysis of price graphs, range fluctuations, and the time frame of these movements may be necessary to get the recommended entry and exit points.
Trend trading operates on different time horizons, from short to long term. If you limit your trading capital to around 1% of your portfolio, you can minimize risk as you feel out of the market.
Begin with a Micro Forex Account
Many traders will advise you to start your trading practice on a demo account. This practice is ok if you want to minimize risk, but it also reduces your exposure to the real action. Demo accounts have limited operational value.
You are trading with virtual money. Essentially, there are no real-time results and no actual trading experience. Remember the variables of trading actual money-the emotional stress, the price movements are real and tangible, and when you make a profit, you win ACTUAL money.
A micro account allows you to do actual trading, put your money on the line, and make moves that count. The value you get here is real-time trading experience plus an evaluation of which losses are manageable. These are all experiences that will prepare you for the real world of fx trading.
Research the Most Lucrative Currencies on the FX Market
Note that only seven currency pairs make up 70% of the total fx trading volume. This statistic is relevant because you do not want to trade unpopular currencies. The best way to technically analyze trends is to identify pairs that are constantly moving.
The idea is to monitor these currencies, see how they are performing, and determine a pattern. Novice traders habitually jump on trades simply because they witness a bit of movement-this is risky. Gain as much insight as you can on the currencies you want to trade. It will go a long way in helping you determine the best entry and exit points.
Lastly, concentrate your efforts on the currencies with the least volatility. Stay away from pairs that have zero predictability, and do not bet on everything. Pick a trading strategy that guarantees small profits as you grow your portfolio.
Invest in Day Trading
Day trading is one of the oldest and most effective training techniques. If you want a crash course in the fx market-try day trading. It is a system that allows you to tap into several financial markets, and you can make different trades in 24 hours. Remember that you are still learning the ropes, so you need to trade small, identify fundamental trends and improve strategy.
Day trading is a significant starting point. It limits your risk and allows you to transition into larger financial markets.
Bottom Line
Forex trading is not a complex process. All you have to do is establish your trading goals, develop a strategy and understand the market. As for how much you invest, it all depends on how big a risk you want to take.
