27 Forex Trading Principles for Beginners
BY Chris Andreou|December 22, 2022
If you’re just starting with Forex and are looking for the mother of all guidelines, you’re in luck. Our extended list of Forex trading principles for beginners is here to help you get started with Forex trading. Apply these principles and you’re well on your way to building your career in trading and building a good portfolio.
Forex Trading Principles for Beginners Outline:
- Know Your Goals
- Enter the Market with a Plan
- Find A Broker You Trust
- Start Small
- Learn How to Manage Risk
- Be Realistic
- Use Charting Tools
- Follow the Trend and Don’t Chase Pumps
- Forex Trading Is Not a Magic Formula
- Forex Trading Requires Patience and Discipline
- The Forex Market is Always Mispriced
- Don’t Try To Do It All
- Learn from Your Failures and Study Your Successes
- Diversification is Key
- Don’t Be Dissuaded by Losses
- Maintain a Trading Journal
- Study Various Strategies
- Learn All About Trading Psychology
- Find a Mentor
- Observe the News Daily
- Test Out New Techniques
- Understand currency pair values
- Learn the 3 different types of Forex pairs
- Determine how to Enter Trades (long or short)
- Learn How to Gain and Use Leverage
- Currencies Don’t move Independently
- Not all Traders Are the Same – Find Your Style
#1 Know Your Goals – Forex Trading Principle
The first basic Forex trading principle is to know your goals. When you first start trading, it’s important to know your goals because it will determine what kind of plan and strategy you will create to reach your goals.. You need to ask yourself:
- What are you trying to achieve by trading?
- What steps do you need to take to get there?
- How long will it take to reach your goals?
For example, if you’re looking for a way to make some extra spending money, your goal will be very different than if you’re looking for a way to invest for retirement. It’s important that you take the time to think about what your endgame is before making any decisions about how much money you want to put into trading or how often you want to trade.
3 Ways to Know Your Goals When You Start Forex Trading
- It’s important to know that it’s time to start trading when you are ready to make a commitment. You don’t want to start forex trading and then give up after a month or two, so be sure you’re ready for the long haul.
- As a principle of Forex trading, you need to know what you’re going to focus on when you start. Do you want to be a trader or an investor? Or do you have another goal? Knowing this will help determine which tools and strategies are right for your personal situation.
- You need to know where your money will come from when you start forex trading. Will it be from your savings? A loan from the bank? A gift from family members? This is important because it impacts how much risk you can take on, as well as how much money you’ll have available for other things like rent and food.
#2 Enter the Market with a Plan
When you start forex trading, the market can feel like a scary place. You’re not sure where to begin, and you have no idea what to do next.
But it doesn’t have to be that way! The second Forex trading principle on our list says that the best way to enter the market is with a plan—and there are lots of different kinds of plans out there. You can even use one that’s already been laid out for you.
The first thing you need to do when entering the market is prepare a plan. This plan will help you stay organized and keep your emotions in check when things get tough—which they will, especially when you’re just starting out.
Trading Principles To Include in Your Plan:
- What kind of trader do you want to be? Are you going to focus on technical analysis? Fundamental analysis? Or both?
- Which assets are most likely to move as soon as there is news? What are those assets’ key characteristics?
- How are different currencies affected by each other? How does this affect the movement of these currencies relative to each other over time?
- Where can you find reliable information about what’s happening in the market right now (or coming up next week/month)?
Once you’ve got your plan set up, it’s time to start!
#3 Find A Broker You Trust
The third Forex trading principle is to find a broker that suits your needs. Here are some things to consider:
- How much money do I have available for trading? If you only have a few hundred dollars, it may not be worth opening an account with a more expensive broker.
- Do I want to trade with leverage? Leverage is when you borrow money from your broker in order to buy more currencies than what you could afford if you had only put down the cash yourself. It’s important to understand the risks associated with leverage before deciding whether or not it’s right for you.
- What kind of platform do they use? Different platforms offer different features, so it’s important for traders who have specific needs (like having multiple monitors) to choose brokers with platforms that meet those needs.
#4 Start Small
When you’re starting out in Forex trading, it’s important to start small. That way, you can get a feel for how the market works and what kind of strategies work best for you.
If you’re just starting out, we recommend starting with a demo account so that you can get a sense of what it feels like to trade without putting any of your own money at risk. You can learn about different strategies and watch how the market behaves under different circumstances—all without risking any real money!
Once you’ve gotten a feel for how things work, then it’s time to step up: open an account with a broker and start trading with real money!
Instead of going in with a huge amount of capital right away and risking everything on one trade, try putting in just $100 or so at first. This will allow you time to learn about what works for your strategy and what doesn’t work for your strategy before committing too much money at once.
#5 Learn How To Manage Risk
Managing risk is one of the most important trading principles to master as a beginner Forex trader. It’s easy to get caught up in the excitement of trading and forget that you’re just starting out. But if you don’t manage your risk, you could lose everything.
When you’re starting out as a Forex trader, you don’t have an established track record or a lot of capital, so it’s easy to get nervous and make rash decisions. But if you can learn to manage risk properly and keep your cool when the market gets rough, then you’ll be able to take advantage of all sorts of opportunities!
Steps to Managing Risk
The first step in learning how to manage risk is figuring out what kind of trader you are. There are three basic types:
- Conservative traders (those who prefer very low-risk strategies)
- -Moderate traders (those who have a medium tolerance for risk)
- Aggressive traders (those who gamble big).
Each type has its own set of challenges and rewards.
The second thing that will help you learn how to manage risk as a beginner Forex trader is getting some experience with different trading styles before committing too much capital into one strategy or another.
The different trading styles are:
- Day Trader
- Swing trader
- Position trader
#6 Be Realistic
When you first start forex trading, it’s important to be realistic and manage your expectations.
Forex trading is a competitive field, and while it can be very profitable, it’s also extremely competitive, and risky. You won’t be able to jump into forex trading and make a bunch of money right away—it takes time and effort, just like any other business.
#7 Use Charting Tools
As a beginner in Forex trading, you may find that the charting tools available to you are overwhelming. There are so many different types of tools and charts—line charts, bar charts, candlestick charts—and each one will give you a different look at the market. But don’t let that overwhelm you! It’s helpful to have an understanding of what each type of chart is best used for and how they work together.
When choosing which chart to use, ask yourself:
- What am I trying to accomplish? (Are you looking for a long-term view or a short-term view?)
- What kind of information do I need? (Do I need to see only price movements or also volume?)
- How much data do I want? (Do I want more than just today’s data or do I need weeks’ worth?)
How Some Types of Charts Work:
A candlestick chart uses colored bars to represent price movements over time. The color of the bar indicates whether the price closed higher or lower than its opening value. Candlestick charts are easy to read and can be used to identify trends by looking at how prices move over time.
A line chart is similar to a candlestick chart in that it shows price movements over time, but instead of using colored bars, a line chart uses lines that connect closing prices on consecutive days. This type of chart is typically used for long-term analysis. It allows you to see how prices change over longer periods of time.
A bar chart is used to compare two currencies over time. It shows how much one currency is worth compared to another. The currency pair can be compared over months or years. The first currency in the pair is on the horizontal axis of the chart, while the second currency is on the vertical axis of the chart. For example: if you want to see how much USD has gained against EUR over time, then you would use USD/EUR on your horizontal axis and time (months/years) on your vertical axis.
#8 Follow the Trend and Don’t Chase Pumps
Following the trend and not chasing pumps is a good rule to follow when you first start Forex trading.
In Forex trading, you have to be careful about what you’re chasing. The trend is your friend. Don’t try to follow pumps or short-term gains. Instead, learn how to ride the waves of the trend and make consistent, long-term trades that work for you. Once you’ve gained enough experience and you’ve grown your portfolio, then you can begin to take a few well-researched risks.
#9 Forex Trading is Not a Magic Formula
One principle of Forex trading that you need to understand as a beginner is that Forex trading is not a magic formula. It is an art, which means that it takes time and experience to learn how to trade successfully.
Forex trading can be very profitable if you understand the basics, but it also has its risks. Make sure you know exactly what you are getting into before making any investments in this type of trading. There are no shortcuts when it comes to Forex trading.
If you want to be successful at Forex trading, then you will need to learn how the market works, and how to identify trends. You will also need to learn how to manage your emotions so that they do not get in the way of making sound decisions about which currencies are worth investing in at any given time.
#10 Forex Trading Requires Patience and Discipline
Another principle of Forex trading that you need to understand is that Forex trading requires patience and discipline.
You need to be patient because you will experience periods of time where the market is moving up or down at a rapid pace, but you won’t be able to decide which way it’s going until after it’s already happened.
You also have to have discipline because it’s easy in this kind of situation to get excited and make a trade before you’re ready—and then later regret it when your emotions get the best of you.
#11 The Forex Market Is Always Looking For Equilibrium
The Forex market is always looking for equilibrium. This means that traders are always looking to determine whether an asset is under or overvalued in relation to its expected future performance.
In other words, if you can predict that the price of a commodity will go up, then you should buy it now because it will be more valuable when the time comes.
The same goes for predicting a drop in price—you should sell it now because it won’t be worth as much later on.
#12 Forex Trading Principle: Don’t Try To Do It All
Forex trading principle number 12 for beginner traders states that you should not try to do it all. Instead, you need to find a strategy and stick with it.
Learn about different strategies and see what kind of results other traders have had with them. Make sure that you are comfortable with the strategy before investing any money.
#13 Learn From Your Failures and Study Your Successes
Forex trading is not a get-rich-quick scheme. It’s a long-term investment, and if you want to make money in it, you need to learn from your failures and study your successes.
In my opinion, the most important thing to learn from a failure is that it happens. In fact, it is not just an option that might happen, but more like a certainty. You should expect to fail at something and then use that experience to improve yourself.
How do you learn from your failures?
When you make a mistake or lose money, You have to identify what led to the failure, so that next time you can avoid it. Think about what could have been done differently or how things could have been changed so that it didn’t happen. Then go out there and try again!
How do you study your successes?
The best way to study your successes is by keeping track of everything you do in order to become better at what you do. Record all of your trades, how much profit was made off each trade and what went into making that decision (such as having some fundamental knowledge about the market). This way when you’re studying another trade from before where something similar happened but with different results (such as losing money instead), then you can look back at both situations and see why one worked out differently than the other, so that next time around it may work out better for you.
#14 Diversification is Key
When trading the forex market, it is important to diversify your portfolio.
Diversification allows you to spread risk across multiple currencies and avoid putting all of your eggs in one basket. This allows you to avoid volatility and other risks associated with certain types of currencies or markets.
It also helps you gauge how volatile your investments are over time, which can give you an idea as to whether or not you should be investing in a particular currency or market.
#15 Don’t Be Dissuaded by Losses
When you first start Forex trading, don’t be dissuaded by losses.
The market is volatile and unpredictable. It can be hard to get a feel for what’s going on and how to navigate the waters of Forex trading. But don’t let this keep you from making trades! You’ll learn more by making mistakes than you will by not trying at all.
Don’t be afraid to take risks. What’s the worst thing that could happen? You’ll lose some money? That’s okay—you’re here to learn how to trade, so the best way to do that is by putting yourself out there, do your homework, and take calculated risks.
#16 Maintain a Trading Journal
If you’re just starting out in trading, an important trading principle to consider is keeping a trading journal. The good news is that it’s not hard! It’s just a matter of figuring out what works for you and sticking to it.
Tips for keeping a trading journal:
- Focus on what matters most (your trades).
- Avoid distractions that could impact your performance (like social media).
- Stay organized with clear guidelines for each entry (like an entry date and the reason for the trade).
- Keep your journal near where you trade so that it’s easy to get to.
- Choose a format that works for you—you can use an app like Evernote or Day One, or just write everything down in a notebook.
- Write down the date and time of each trade, along with any notes about why it happened and what went right or wrong. If there was something unusual about that day’s market action, make sure to include it in your notes as well.
#17 Forex Trading Principle: Study Various Strategies
Learning and studying strategies is another important Forex trading principle. Once you’ve got a handle on how currency markets work, you can start learning about different strategies. There are many different types of strategies out there—you’ll find some that focus on using technical analysis and others that focus on fundamental analysis—but at their core they all have one thing in common: they’re designed to help you make money by predicting future market movements.
#18 Learn All About Trading Psychology
If you’re going to start Forex trading, you need to understand trading psychology.
Trading psychology is one of the most important trading principles. It can help you make more money, or it can cost you big bucks.
Trading is a lot like a relationship. It’s an emotional rollercoaster, and if you don’t have a good understanding of your own emotions, it can be easy to get caught up in the market’s momentum. But even with that knowledge, it’s hard not to get swept up in the excitement of trading—especially when you’re new to it!
You need to keep your trading psychology in check to ensure you’re making sound financial decisions every time you log on to trade.
Emotions of Trading Psychology:
- Fear: the fear of losing money.
- Greed: the greed to make more money than is realistic or possible.
- Anger: the anger at your broker or exchange for making a mistake.
- Happiness: the happiness when your trades work out well, and sadness when they don’t.
#19 Forex Trading Principle: Find a Mentor
Forex principle number 19 is finding a mentor or coach. They can guide you as you start your forex trading journey could be greatly beneficial.
Forex mentors can be found in a variety of places, but some of the best places to find one are at local trading clubs and educational seminars. If you’re looking for a mentor online, check out their social media profiles and reviews.
If you’re not sure how to find a Forex mentor, ask yourself: Who do I want to learn from? Who has the experience and knowledge that I need? What type of mentorship would work best for me?
Tips to finding a mentor:
1. Find someone who’s been trading for a while and ask them if they’d be willing to mentor you.
2. Join a community of traders—online or in-person—where you can learn from others.
3. Contact a brokerage firm and ask if they have any mentors available.
#20 Observe the News Daily
You need to observe the news every day. Why? Because the news can affect the price of a currency, which means that it can affect your bottom line. News help to keep you up-to-date on what’s going on in the market, and allow you to make informed trading decisions.
What information to look for on the news:
- New regulations from various governments
- Changes in interest rates
- whether or not there’s going to be a central bank meeting (or press conference) coming up soon. This can have a big impact on currency valuations, so it’s worth keeping an eye on.
- any major economic indicators: if they come out unexpectedly high or low, that could change how people see a currency and what they’re willing to pay for it.
- statements from politicians—both domestic and foreign—so that you can stay informed about what they’re saying about your country’s economy and finances.
For long-term investors, it’s important to watch economic indicators and central bank statements. For day traders, macroeconomic factors are less important than technical analysis. And for scalpers, all kinds of market data (including economic indicators) should be taken into account when deciding whether or not to make an investment.
#21 Forex Trading Principle: Test Out New Techniques
If you’re just getting started in Forex trading, it’s important to test out new techniques. You want to make sure that you’re doing things the right way, so that you can be confident in your decisions and avoid mistakes.
Once you’ve gotten the hang of one or two methods, you can start to think about expanding your knowledge. At first, try to focus on one thing at a time—if there are several things that interest you, pick the one that interests you most. Once you’ve got the hang of that method, move on to another approach and keep refining your skills with each one.
A great way to test out new techniques without risking your capital is through a risk-free demo account.
#22 Understand Currency Pair Values
As a beginner in Forex trading, a Forex trading principle to understand is how currency pairs work.
Currency pairs are the two currencies that are being traded in a given transaction. The first currency is called the base currency and is always one unit of value larger than the second currency, which is called the quote currency. For example, if you were trading USD/JPY (US dollar vs Japanese Yen), then USD would be your base currency and JPY would be your quote currency.
The price of a currency pair will always be quoted as an amount of units of the quoted currency per unit of the base currency. For example, if USD/JPY was trading at 100 USD per 100 JPY, then the price would be written as 100 JPY per 1 USD (or 0.01 USD). The price can also be written as 1 JPY per 0.01 USD (or 1 USD for 100 JPY).
factors that affect the price of a currency:
- The interest rate differential between the two countries.
- The inflation rate in each country, which is measured by the consumer price index (CPI).
- The growth rate in each country’s economy and its GDP per capita, expressed as a percentage.
#23 Learn the 3 Different Types of Forex Pairs
A major forex trading principle is understanding the three main types of forex pairs.
The 3 main types of pairs are:
1) Major currency pairs (e.g., USD/JPY, EUR/USD, GBP/USD)
2) Minor currency pairs (e.g., NZD/JPY, GBP/CHF, AUD/USD)
3) Cross currency pairs (e.g., GBP/NZD, AUD/CAD).
There are also “exotic” currency pairs like NZD/CAD or ZAR/GBP. They are often very volatile and typically have a very low trading volume.
#24 Determine How to Enter Trades (long or short)
Whether you are a long-term forex trader or a short-term forex trader, you need to learn to determine how and when to enter trades.
The first step is to determine your entry strategy.
Do you want to buy when the price goes up? Or do you want to sell when the price falls? Do you want to buy when the price crosses above or below a certain line? Perhaps you want to sell when the price crosses above or below a certain line?
Once you know what type of entry strategy makes sense for your portfolio, make sure that it fits with your overall plan for growth. For example, if you are looking for long-term growth and stability, then buying when the price is rising may not be the best move for you.
Next, determine how much risk is appropriate for your portfolio at this time. In general, it’s better to take on less risk than more risk because it allows for more flexibility in case things go wrong (and they DO go wrong).
Finally, make sure that your entry strategy aligns with both of these things:
1) The amount of risk that feels comfortable given where you are at right now.
2) The type of volatility that will help you achieve your goals over time.
#25 Learn How to Gain and Use Leverage
As a forex trader, it’s important to understand the concept of leverage. Leverage is a method used in trading that allows you to trade with more capital than you actually have. It’s done through the use of margin, which is essentially borrowing money from your broker. This allows you to make larger trades than you would normally be able to afford.
The use of margin can be risky because if the value of your investment falls below the amount borrowed, your entire position will lose money. If it rises above your purchase price, however, then you’ll make money on the difference.
How Leverage Works
When you use leverage, your profits are multiplied by that amount of leverage. If you have $10,000 and use 5:1 leverage, your profits will be multiplied by 10x ($10,000 x 5 = $50,000). This means that if you lose all of your capital—if your broker calls in their loan—you’ll still owe them their full principal plus interest fees. In addition to its risks, however, using leverage also allows traders to make larger trades than they could afford without it.
Many traders consider leverage essential for success because it gives them an opportunity to make more money than they would otherwise be able to achieve with their own funds alone – but this also means that they need to be careful not to go overboard!
#26 Currencies Don’t Move Independently
This is the fundamental principle of forex trading: currencies don’t move independently.
This means that if the value of one currency goes up, then another currency will lose value. So if you buy a currency that goes up in value, then you can sell it for more than you paid for it.
If you want to buy one currency and sell another, then you have to find out which one is going to be more valuable at some point in the future.
#27 Final Forex Trading Principle: Not All Traders Are the Same
“Not all traders are the same.” This is the final forex trading principle that I’d like to share with you today.
In the world of forex trading, there is no one-size-fits-all approach. You need to find your own style—and that means finding a way to trade that works for YOU.
It’s important to remember that you can’t be a good trader if you don’t practice consistently. If you want to improve, try different things and see what works for you! It’s okay if it takes time—the point is that the only way to get better at anything is to keep practicing it.
There are so many different strategies and styles out there, so take some time and find out which ones work best for you.
How to Find Your Style
The first step to finding your style of trading as a beginner forex trader is to decide what kind of trader you want to be.
- You can be an investor, who buys and holds assets for a long time.
- Or you can be a day trader, who trades throughout the day in hopes of making small gains every day rather than one big gain over time.
- You can be somewhere in between—a swing trader who trades for a few days at a time or even just one day at a time, but doesn’t hold assets overnight like an investor does
- Try to do some research on the different trading styles and see which one fits you best.
- Look at your personality and see if it matches any of the trading styles.
- Try out a few different strategies, see if you like them, and then stick with what works for you!
FAQ: What Is The 80/20 Rule in Trading?
The 80/20 rule is a principle that states that 80% of the results are produced by 20% of the effort. It’s also known as the Pareto Principle, and it can be applied to almost every aspect of your life. Forex traders use it to determine which trades will bring them the most profit.
It helps traders focus on the most important aspects of their trading strategy and helps them avoid wasting time on tasks that don’t add a lot of value. For example, if you’re building an automated trading strategy using an algorithm and you find yourself spending hours debugging it, you might want to consider whether or not that’s really worth your time.
In layman’s terms, the 80/20 rule for traders means that 20% of a traders portfolio can be responsible for 80% of their profits. However, on the flip side, 20% of their portfolio can be responsible for 80% of their losses.
Forex Trading Principles Conclusion
When you’re first getting started with your Forex trading, you have to learn how to go about it in a way to maximize your gains and minimize risk.
No matter your level of experience in trading, it’s always good to revisit a few trading principles that you should keep in mind. These are more elementary decisions and guidelines, but they are extremely useful in helping you to make your next Forex move with the best possible chance of success. Have a method, have a game plan to your trades, and plan both entry and exit points before you start trading. If you follow these simple rules, it will help to keep you from succumbing to emotional trading, which can be as risky as outright gambling.
Lastly, we hope that you found these trading principles most helpful as you continue in your trading career. You can also visit other resources on our site to help advance your knowledge of the Forex market and begin with an account. We wish you the best of luck in moving forward.
Risk disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Never deposit more than you are prepared to lose. Professional client’s losses can exceed their deposit. Please see our risk warning policy and seek independent professional advice if you do not fully understand. This information is not directed or intended for distribution to or use by residents of certain countries/jurisdictions including, but not limited to, USA & OFAC. The Company holds the right to alter the aforementioned list of countries at its own discretion.
My name is author
15 Swing Trading Mistakes and Key Lessons
You want to learn how to become a successful swing trader? Then learning from others’ common swing trading mistakes is the first step. So you want to try out swing trading. And you think tha...
Naked Forex Trading ‒ Should You Try a Price Action Trading Strategy?
Naked Forex trading ‒ which is also referred to as price action trading ‒ is a style of trading not often brought up in contemporary trading conversations. It involves buying and selling curr...
Does Day Trading Make Sense? | Can you Succeed as a Day Trader?
There is a bit of speculation on whether day trading makes sense as a strategy. This short-term trading style has its perks but is it feasible to practice for an extended period of time? Can ...
Trade responsibly: CFDs are complex instruments and come with a high risk of losing all your invested capital due to leverage.