How to Trade Forex

Please note this is a comprehensive forex trading guide that we created based on our experience in global markets. DDMarkets is a popular signals service as reviewed by the leading websites in the forex industry.

From the guide you may learn how to trade forex, forex trading strategies, margin requirements and a lot more.

Aside proving market education content for online traders we also present our trading strategies and trade alerts, our track record dates back to 2014 where every strategy is well-documented on the website.

See our signals during he US elections as an example.

The Trading Journey

If you are considering to trade in global markets we believe our tutorial will save you from a substantial amount of losses and time mourning your lost capital in the market. We have constructed this comprehensive trading guide based on our trading experience.

We will cover the critical mistakes both new and seasoned traders tend to make and provide practical solutions to overcome the most common obstacles you are likely to face as you begin your journey across the market.

Market Expectations

The first crucial element before elaborating on the market are your motives and expectations from trading. Many new traders tend to see trading as a golden opportunity to boost one’s wealth in a relatively short period time in a completely legal environment.

Investing a small amount of capital could blossom into something wonderful after several clicks on the key, metamorphosing $200 into $10,000. After all, the price will either rise or fall. Predicting the future trend of the market price correctly can easily double or triple the investment.

You may find it amusing but many traders tend to believe trading will be the catalyst for a life-changing event that will ramp them through today’s social classes. Before clarifying the expectations form the market we would like to begin with one of the market’s classics, “The price will either rise or fall.”

Trading Psychology

Let’s say the market price is 150, you can wither buy, in which case you predict the price will rise or sell if you believe the price will fall. Let’s say you have made a decision to buy. You press the ‘Buy’ button in your trading platform and the order has been executed.

The amount you have invested in the trade makes each numerical figure worth $10, if the price rises from 150 to 151 you will be in a profit of $10. Thirty minutes into the trade the market price is 157, providing you with a profit of $70. However, until you close the trade the market price will continue to change, “rise or fall.”

This is when what you thought would be simple is now evolving into complex psychological battles where the weak will suffer, make no mistakes. If you exit the trade now, garnering a $70 profit and moments later the price spikes to 175, how foolish was it to exit with a $70 profit instead of $250.#

The price is now 190 and the thought you should have stayed in the market is now spreading its tentacles throughout your mind, which is the exact point where everything begins to fall apart. You are unlikely to recall this moment immediately, but after incurring heavy losses you will remember.

When you will make your next trade, what will you do when you will be in a $70 profit? Stay or exit? If you stay, perhaps it will bear its fruit for some time.

Forex trading guide

However, once the market reverses against you after begin in $100 profit and you are now finding yourself with a loss of $40, will you now stay or exit? Again, if you stay and perhaps exit when you breakeven or with a little profit, it might work for a while until it stops, forcing you to incur a hefty loss.

Alternatively, if you have accepted the $40 loss and exit immediately and then witness the price rising back in your favour, what will be the first thought that will come to mind? Departing from $40 instead of ending the trade with a profit, more psychological battles that will cloud your critical decision-making in your future trades.

Accepting the Outcome

Some of you might have said through our the article that they would have accepted a profit of $70 without being “greedy” and exit the market with a loss of $40 and will not think about “what would have happened if.” Even if you have a trading strategy, when these events occur consecutively you are not bulletproof.

To clarify, if out of 15 trades you made $50 – $70 but the market continued to trade in your predicted direction, or if you constantly exit with a $40 loss when the market reverses against you but then the market quickly reversed and if you wouldn’t be in a hurry to close the trade a decent profit could have been made, you are likely to question your decisions.

When your trading strategy leads to 10 consecutive losses as the market reversed against your predicted direction every time, $400 may be troublesome for some traders.

These are the endless battles you will have with yourself each time you are placing just one trade in the market. Imagine you have 10 different trades in the market at the same time where one decision affects the next decision. This is how you will incur substantial losses in the market in your first 6 months trading.

Trading Emotions Control

The solution is not applicable to everyone, which is why not everyone can trade in the market.  Firstly, you must be confident in your decision-making. When a decision has been made, do not spend time focusing what is happening to the price after you closed you trade, move on and concentrate on the next trade.

Choosing Forex Signals

To determine whether your decisions require fine tuning, 15 and even 30 trades is insufficient due to lack of data. We believe that at least 100 trades are required before you can begin analysing your trading strategies and past decisions. Beginning to ponder in your first trades “what would have happened if” opens a door to psychological wars that will only result in losses in your future trades.

If you have invested an amount you cannot afford to lose you are literally head-diving into a pool with no water. The psychological battles with yourself will be more immense and will require a powerful character to conquer.

Trading Character

Your character also plays a key role in trading. The bigger the ego, the bigger the losses would be. You must understand you are not battling with the market but with yourself. The market does not care about you, your investment, you financial conditions and whether you have made $40 or not.

If you have a strong ego we are uncertain if trading is for you, as hard as it is to read, By all means you must soften your ego and accept the fact there will be losses as well as profits, you cannot “beat” the market and succeed on 98% of your trades.

We elaborate on the usage of leverage in the Forex market and how certain traders are able to achieve over 95% success later on. When you finish reading this article you will no desire in meeting such “successful” traders.

Becoming excessively rich from trading is a fantasy that originates from the  surface of global markets. The thought of becoming rich from the market will not welcome any losses from the market, which is of course impossible. As we said earlier, there will always be profits and losses while when you trade.

If you have made consecutive losses, which is perfectly normal, the dream of becoming rich will be dented, forcing you to make irrational decisions in order to recover the lost capital as soon as possible. In the Foreign Exchange market, also known as Forex, these actions are reflected in the usage of the leverage, which we will discuss later on.

The Order Types: Stop Loss and Take Profit

Aside executing “Buy” and “Sell” orders there are certain orders you should be aware of. Stop loss, take profit and entry orders. A stop loss is a predetermined price in which you your trade will be automatically closed. The name stop loss in free English means stop the losses.

If you placed a “Buy” trade at 150, the stop loss order can be set (for example) to 140. If the market reaches 140 your trade will be automatically closed with a loss of 10 points. If the price falls 100 points you will not incur such a loss because you will be out of the market with a loss of 10 points, hence the name stop loss.

Another way to use the stop loss order, which unfortunately not done by many is to shift the stop loss order to your entry once the trade is in a decent profit. To clarify, if a “Buy” order was executed at 150 and the current price is 160, one may shift the stop loss order to 150. If the market now drops 50 points, your loss will be zero as the stop loss order will pull you out the market at the price you have entered, breakeven.

The take profit order is a predetermined price in which you would like to exit the market with a profit. For example, if a “Buy” order was executed at 150, and take profit is 165, when the price reaches 165 the trade will automatically close and the profit will be added to your account’s balance.

It is wise to use these orders  although they are optional as one cannot monitor his or her trades 24 hours a day. The orders will remain active even if you are logged out of the  trading platform.

Forex Trader’s Nightmare

The psychological battlers we referred to earlier will take place when placing these orders. On numerous occasions, the market may trigger your stop loss order and then rebound, which would make one think if a larger stop loss would have been required.

To clarify, a “Buy” order is executed at 150, stop loss order is set at 140 The market trades lower and reaches 138, taking you out the market with a loss of 12 points and then trades higher, all the way to 170.  It is very frustrating but if you consult with experienced traders each will tell you it happened to them on countless occasions.

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New traders will often fiddle with stop loss order,  in our example shifting it from 138 to 128 , surely the market will trade higher now. When the market keeps pushing lower, a tough decision must be made, accept the loss or shove the stop loss order even lower?

Whatever decision is made there will be repercussions on future trades. Likewise with the take profit, the market may miss your take profit and immediately trade lower or it will trigger your take profit and continue to trend in your predicted direction, which may lead some traders into deciding their take profits are too small and enlarge them for no substantial reason, which then leads into the take profit orders being missed by the market.

The entry orders are future orders. You can place a “Buy” and “Sell” orders at a price that is higher/lower than the market. These orders will only be executed when the future price you determined is reached.

Trading Strategies Types

The solution is not a straight answer. Again, it is down to your character. There are several types of trading strategies in the market designed for various characters.

Scalping

We will begin in Scalping. Scalping means enter and exiting the market with a profit of several points, let’s say three as an example. The stop loss order is often several points, let’s say 6 points.

The strategy is to profit on several points but to  execute dozens of trades on a daily basis. which will eventually accumulate into a decent profit but the end of the week/month.

Some traders do not use a stop loss. Instead, the trade is manually closed. You must have a strong character to this manually as it is tough to close a trade with a loss and focus on the next trade, especially when there are consecutive losses.

Day Trading

The second strategy is day trading. Day trading means execute trades in the market, targeting 30 points (for example) with a stop loss order of 20 points (for example).

The logic for a bigger stop loss order is to give the market the required time and space to trade in your predicted direction. Based on this strategy, all trades will be closed by the end of the day.

Swing Trading

The third strategy is swig trading. In this strategy the trader will use a take profit of +100 points (for example) and a stop loss order of +35 points (for example). The strategy is to reach +100 points profit with the understanding it may not occur in one day. Instead, the trader will happily keep the trade for several days until the take profit is obtained.

Long-Term Trading

The fourth strategy is placing the trade for several months as long-term trade. The stop loss can easily be over 200 points while the take profit is at least 600 points and above. The strategy is to fully capitalize over the market and earn a decent profit rather than spending time on several points.

Holding a trade for such a lengthy time means there will be times when the trade is in 100 points profit and then in a loss of 80. To watch you trades being in a profit and then in a loss without a guarantee the market will not trigger your stop loss order can be a very disturbing experience for some.

Carry Trading

Carry trading is a variation of long-term trading. Instead of profiting over the accumulated pips, carry trading strategies are based on the interest rate differentials between the currencies in the forex pairs. Let’s take an example of a $10,000 trading account.

If the trader executes a long trade of 50,000 units (or 0.50 lots in the MetaTrader4) in EURUSD, what is actually done behind the scenes is that a loan is given to trader by the forex broker for the trade (known as the leverage) and the total amount is then converted into Euros.

When the funds are in Euros, the trader may benefit from a positive interest is given for holding Euros, which is determined by the European Central Bank (ECB).  But  bear an interest is also paid on the USD loan, which is determined by the interest rate that was set by the United States central bank, the Fed.

If the interest rate you will receive for holding Euros is higher than the interest you will be paying for the US Dollars loan, you will receive money at the end of every trading day in the trade is unsettled (if the trade is left open to the next trading and not closed).

Calculating the Interest Rate in Forex

This is how the interest you will receive or pay at the rollover is calculated. We are going to use GBP/AUD  as an example as it is a popular pair for exercising carry trading strategies.

Reserve Bank of Australia (RBA) interest rate: 2.50%
Bank of England (BOE) interest rate: 0.50%

Above is the annual interest rate. To find out the  interest rate per day we simply divide the rates by 365 as there are 365 days in a year.

RBA: 2.50% / 365 = 0.0068% per day
BOE: 0.50% / 365 = 0.0014% per day

After understanding the above, let’s say a trader with an account balance of $10,000 opens a short trade (selling) of 50,000 units (0.50 lots in the MetaTrader4) in GBP/AUD, which is trading at 1.9046.

When we are selling (shorting) GBP/AUD that means we are buying AUD and selling GBP. We will therefore expect to receive interest on buying AUD and pay interest for selling GBP.  As GBP is the base currency we will begin with it first.

0.0014% (daily interest rate for GBP) x 50,000 (the trade size) = 70
It is then divided by 100 = GBP 0.70

0.0068% (daily interest rate for AUD) x 95,230 (1.9046 x 50,000) = 647, which is then divided by 100 = AUD 6.47

We will then convert GBP 0.70 into AUD by multiplying it with GBPAUD exchange rate.

1.9046 (GBPAUD rate) x 0.70 = AUD 1.33

To summarize, the daily interest rate we will receive for holding AUD is  6.47 Australian Dollars while the daily interest rate that is paid for selling GBP is 1.33 Australian Dollars. We will deduct the amount that is paid from the amount we will receive:

6.47 – 1.33 = AUD 5.14

This is the amount that will be received at the rollover. To find out how much AUD 5.14 is in US Dollars we will multiply it by AUDUSD exchange rate, which is 0.8259:

5.14 x 0.8259 =$4.25.

At the rollover we will benefit from a positive interest rate and earn $4.25 on shorting GBPAUD with a trade size of 50,000 units (or 0.50 lots in the MetaTrader4). To find out how much is $4.25 in pips if the short trade that is executed in GBPAUD is 50,000 units:

4.25 / 50,000 (trade size) = 0.000085, which is 0.85 pips.

Carry Trading Strategy

Carry traders would look to trade currency pairs in which they will benefit from a decent interest rate at the rollover and maintain the trade for a substantial period of time.

They would look for currencies with low interest rates such as the Japanese yen (JPY) against a currency with a high interest rate such as the Australian Dollar (AUD).  That means by buying AUD/JPY a decent interest is pad. Of course, carry trades do not randomly enter the market. They make their technical analysis on the monthly chart or based on the economic projection for the countries (fundamental analysis) before executing the trade.

Rather than a 50,000 trade like the example we provided carry traders will often place large trades such as 600 million to benefit from interest rate differentials. The trade is often held for at least 9 months but carry traders may hold onto the trade for a longer or short period of time. The interest at the rollover is also referred to as the swap rates.

Certain cultures are not allowed to pay or receive interest. Some forex brokers arrange what is commonly known as Islamic trading accounts  where no interest is paid or received at the rollover (swap free).

Pick Your Trading Strategy

Scalping can found extremely intensive for some as you must be glued to your screen as long as your trades are open, constantly pondering whether to alter the take profit and stop loss orders. Day trading also has its flaws.

Unlike scalping, when you trades will be stopped out it will not be just several points, which means a greater loss is likely to be incurred during the day while maintaining the need to remain focused on the next trade. Your character holds the answer to which trading strategy you should use.

When you trading strategy is settled you must abide by its rules. You have very little say in the matter.  Understand before placing the trade what will be the loss and what would be the profit. Do not be surprised if you were stopped out as you already knew it is a possibility.

It is best not to trade under stress as it tends to deepen the psychological wars you will have with yourself regardless the fact you have a strong character. It is essential not to re-adjust the stop loss orders if the market is trading against you.

When you gain experience you will learn from the times the market moves against you if there is a real logical reason to readjust the stop loss orders. We repeat that you have very little saying when you trade. Each strategy has its rules. Disobedience will often reflect in unnecessary losses.

The Leverage

This ammunition or trading power is the main catalyst for tearing your investment apart in the market. In the Forex market,  the average leverage is 200:1. In simple words, the leverage allows you to trade with an amount that 200 x your investment. If you invested $5,000 you have up to  $1,000,000 available for trading.

The leverage is a loan given to you by the broker for the trade. You will never end owing money for the ‘loan’ you have taken. When you are trading a long position (buy) in EURUSD with a trade size of 50,000 units (0.50 lots in the MetaTrader4), you are actually taking 50,000 US Dollars and convert them into Euros. If the price does go up and as you went long (buy EURUSD), it means 1 Euro is now worth more US Dollars.

When you close the trade, the 50,000 euros are reversed back into US Dollars and your profit is the price difference from EURUSD price that was bought (let’s say it was 1.2300) and the price you closed the trade (let’s say the price when you closed the trade was 1.2320).

As you are simply converting Euros back into US Dollars, it is not a loan that is physically owned so you can never owe the broker money. In the next section we will discuss these price differences that you are expecting to profit on while trading.

Calculating the Pips

In the Foreign Exchange market (also known as Forex) you will find a numerous amount of currencies such as Euro (EUR), US Dollar (USD), Japanese yen (JPY), Canadian Dollar (CAD), Swiss Franc (CHF) and Australian Dollar (AUD). In your trading platform these currencies will be displayed as pairs such as EUR/USD, AUD/USD, CAD/JPY, EUR/CHF and more. #

The most traded pair in the Forex market is EUR/USD, pronounced as Euro-Dollar. The current exchange rate of EUR/USD is 1.2777. It means 1 EUR is worth 1.2777 US Dollars. The Forex market is active 24 hours a day, opening Sunday night (21:00 GMT) and ending on Friday  night(21:00 GMT).

The exchange rates will constantly move as traders will always be buying and selling. The profit or loss is determined by pips. If EUR/USD changes from 1.2777 to 1.2778 it said to have gained 1 pip. If EURU/USD dropped form 1.2777 to 1.2775 it said to have dropped by 2 pips. One pip equals to 0.0001.  Here are more examples:

If EUR/USD changes from 1.2777 to 1.2300 = Gained +23 pips
If EUR/USD changes from 1.2777 to 1.2730 = Dropped -47 pips
If EUR/USD changes from 1.2777 to 1.2952 = Gained +175 pips
if EUR/USD changes from 1.2777 to 1.2614 = Dropped +163 pips

1 pip is similar to the points we describer earlier. The value of each pip is determined by the trade size. The larger the trade, the larger the value of each pip.

We will provide the formula for determining the pip’s value. It is quite simple so please do not be intimidated by it. We established that each pip is equivalent to 0.0001. Let’s take a trade size of 1,000 in EUR/USD.

1,000 (trade size) x 0.0001 (1 pip) = 0.10 US Dollars = 10 cents

The reason why it is in US Dollars is because the secondary currency is USD. As guide, each currency pair that ends with /USD means each pip is worth 10 cents in a trade size of 1,000.  Let’s explore multiple trade sizes in EUR/USD. Remember that with an investment of $5,000 we can trade up to one million.

5,000 trade in EUR/USD = Each pip is worth 50 cents
10,000 trade in EUR/USD = Each pip is worth $1
50,000 trade in EUR/USD = Each pip is worth $5
100,000 trade in EUR/USD = Each pip is worth $10
$700,000 trade in EUR/USD = Each pip is worth $70
$2,000,000 trade in EUR/USD = Each pip is worth $200

And so on.

In the MetaTrader4 (MT4) the trade sizes are displayed in lots rather than units. If you have chosen the MT4 as your trading platform, please make a note of the following:

0.01 lots = 1,000 units
0.05 lots = 5,000 units
0.10 lots = 10,000 units
0.15 lots = 15,000 units
0.50 lots: 50,000 units
1.00 lots = 100,000 units
1.65 lots = 165,000 units
5.00 lots =  500,000 units
20.00 lots = 2,000,000 units

And so on.

JPY Exception

There is an exception to currency pairs that end with /JPY. The pips in those pairs are 0.01 and not 0.0001. If USD/JPY trades from 109.03 to 109.04 it said to have gained 1 pips. Calculating the pips’ value is done in the following manner. It is applicable for all /JPY pairs such as USD/JPY, GBP/JPY, AUD/JPY etc.

5,000 trade in USD/JPY: USD/JPY current exchange rate is 109.03.

(0.01 (1 pip in JPY pairs) / 109.03 (USD/JPY rate) x 5,000
= 46 cents per pip

With bigger positions (trades) all you need to change is the 5,000 that we used in our example for a 5,000 trade in USD/JPY.

Calculating Pips in FX Crosses

In the Forex market you will also find pairs such as GBP/AUD, AUD/CHF and EUR/GBP. This is how you calculate the pip’s value for those crosses.

5,000 trade in EUR/GBP

EUR/GBP current price: 0.7818  EUR/USD price: 1.2777

5,000 (trade size) x 0.0001 (1 pip) = 0.5
0.5 x 1.2777 (EUR/USD price) = 0.63885
0.63885 / 0.7818 (EUR/GBP Price)

= 82 cents per pip in a 5,000 trade in EUR/GBP.

150,000 trade in GBP/AUD

GBP/AUD current price:  1.8385 , AUD/USD current price:  0.8885

150,000 (trade size) x 0.0001 (1 pip) = 15
15 x 0.8885 (AUD/USD price) = 13.3275
13.3275 / 1.8385 (GBPAUD price)

= $7.25 per pip in a 150,000 trade in GBP/AUD.

For more information on how to calculate pips in the Forex market you may review our pips’ calculation trading guide.

Over-Leveraging Your Trades

If you profit 40 pips from the Forex market, the pip’s value will determine the value of the profit. In a 1,000 trade it will be $4 while in a 50,000 trade it will be $200.

The leverage gives you the ability to increase the pip’s value,  which will of course increase the loss if the market will trade against you, If $1,000,000 trade is executed and each pip is worth $100, if the stop loss order is 25 pips and it is triggered, the incurred loss would be $2,500, half the invested capital.

A 50% loss of your total investment in a single trade is immense, but new traders often focus on the potential profit. 10 pips would be a $1,000 profit and if there will be a big spike and the trade will be in a profit of 50 pips, the invested capital has been doubled in a single trade.

We will return to the psychological wars we discussed at the beginning of this tutorial. When consecutive losses are incurred, the notion to increase the leverage in the next trade will lead to horrific losses in the long-run if realized.

Meddling with the leverage led and is still causing numerous amount of traders to be stripped off their beloved capital. One moment of irrational thinking leads to chain reaction that is psychologically unstoppable until you hit the wall. Excessive usage of the leverage is one of the things you need to learn to avoid.

It is your character that will call the shots. A tip from our experience in forex trading is to imagine every trade that you place will be stopped out and whether this is a loss you wish to incur. If your stop loss is triggered, you have already expected it and the amount of capital it would cost you.

The Spread

Forex brokers profit from the spread, a minor mark-up to the exchange rate. In your trading platform you will see a different price for the “Buy” price (referred to ASK) and the “Sell” price (referred to as BID). For example:

EUR/USD BID: 1.2777
EUR/USD ASK: 1.2780

The price difference between the BID and ASK is 0.0003 or 3 pips for short. This is the spread, a commission that is charged upon executing your trade in the market through your trading platform.

The trade will begin with -3 pips and not breakeven (on zero).  The spread is not deducted from your account balance but from the open trade. When the market trades in your favour by 3 pips, you have covered the spread and anything from there is your profit. Certain currency pairs will have a tight spread, that is a very low spread while some may have a relatively high spread.

Spreads in Forex Crosses

Many traders, including seasoned traders refrain from currency pairs that have a large spread, known as forex crosses. If you scalping than yes, stay away from high spreads. But if you are not scalping there should be no concern. You know in advance the value if your stop loss.

If it is acceptable than we do not see the logic to refrain from such pairs. Currency pairs that are less traded (less liquidity) will often have a higher spread. Most of the times these pairs will be more volatile and could easily cover the spread in a short period of time. For example, GBP/AUD, EUR/NZD, GBP/JPY,  NZD/JPY and USD/TRY.

We have expanded on the spread in our latest forex spreads guide.

Demo Trading

Many traders strongly recommend demo trading before beginning to trade with real money or live account. Demo accounts are trading accounts with demo money (often $100,000 of demo money) where the trader can do whatever he or she wants.

According to these recommendations, demo trading will give the trader the experience of trading and once he or she feel comfortable, can be a week, a month or a year to begin trading with real money. If you have fully read our tutorial to trading you should have already spotted a major flaw in demo trading.

There are no psychological wars, As the money is not real, the trader is not exposed to the risk of his or her decisions, thus being completely protected from any critical decisions that must be made with real money.

In other words, as no risk is involved how can this be an advantage?

Trading in Fear

In many occasions, demo traders that just opened their live account trade in fear, uncertain how to act when critical decisions must be made, do not know how to deal with losses or profits and will then seek help from their broker’s account manager. Demo trading is not designed to provide a real trading experience.

The aim of demo accounts is to become familiar with the trading platform and learning its features. The charts in the trading platform can be used for technical analysis even if a trade is not executed. But based on our logic attempting to gain some kind of a real trading experience from a demo account is not possible.

forex trading guide 2021

To strengthen our point, the FX rates will work smoothly in a demo account. In a live account, due to changing market conditions there may be times your trade will not be instantly executed.

These conditions the demo trader is not exposed to will turn into a real nightmare when he or she begins to incur losses when switching to a live account, often resulting in the trader to close the real trading account due to the incurred losses and return to the demo account to gain more “experience.”

Of course, we are not suggesting to trade with real money without studying the market. Once you are familiar with the trading platform, acquainted yourself with trading strategies (when to buy/sell) you may open a live account with a regulated broker.

Most brokers will allow you to trade with a minimum of 1,000 trades, which means each pip is worth cents. You might may a few dollars and lose a few dollars but in return you gain a valuable trading experience. When you are confident you may increase the trade sizes in order to attain larger profits.

There are different views in regards to over-leveraging. For new traders, we suggest not to exceed 4:1 of the leverage at any time.

When you become more experienced you may use more of the leverage but not exceed 8:1. It is essential to highlight we are not giving instructions but guidelines. It is entirely your decision how you wish to use the above information to your trading.

95% Success Traders

We mentioned earlier on we will discus traders with a success rate of 95% and above. When you come across such a trader, it is essential to know for how long he or she have been trading.

Trading for several months and achieving such a success rate is great but insufficient to conclude the trader has a bulletproof strategy, often called “The Holy Grail” by some forex traders.

Secondly is the drawdown. The drawdown is the amount of pips the market was against the trade before it was closed, profit or loss is irrelevant. Traders that have such a high success rate will often use a large stop loss order or no stop at all.

A trade that was closed with  30 pips profit may have been in a loss of -600 pips before being closed with a profit. Who would want to incur a loss of 600 pips and then wait for months before being in a profit? Imagine there are 10 trades, each with a loss of 400 pips.

The net drawdown is 4,000 pips. But if no stop loss is used and the trades are returning to be profitable after a substantial amount of time, closing each trade with 40 pips profit means the trader can openly pride he or she made 400 pips in the market, being 100% right on all the trades, not mentioning the drawdown of course.

Thirdly, check if the trader is using a demo account or a live account. If it is a demo account, for the reasons we said earlier, it is not real trading.

If the trader would attempt to do the same on a live account we can almost guarantee you the results will be different. If the trader qualifies for all the above and tight stop loss orders are used for all trades, we take our hats off for the trader.

Automated Trading

Automated trading algorithms or Expert Advisors (EA’s) in the MetaTrader4 (MT4) is appealing to forex traders as there is an automated system that executes trades in the market without a human intervention. The EA manages the positions based on a technical strategy without any emotions.

The algorithm can be written or purchased online. There are many companies that offer their algorithm for forex trading, some claiming to have a over 90% success rate.

We will spare you the gory details of how EA’s burned trading accounts in less than 24 hours and simply suggest to take extreme caution in purchasing automated software regardless of its price.  The only expert advisors we have seen working over the course of six months are EA’s that were built by the trader himself or herself.

From our experience, the automated trading robot may work for a limited period of time (generally less than 3 months) before posting significant losses.

If you are considering to purchase an EA for trading forex please be aware of the risk involved. There are many fraudulent companies offering such automated systems with falsified results in order to lure traders into the scam, Unfortunately, there are no short cuts in global markets.

We hope that by now you know a lot more about trading than you knew before. Our goal is to ensure you are fully aware of the risks of trading and what actions are suggested to be taken to avoid heavy losses.

Remember that losses are inevitable in the market. Regarding the trading themselves, when to buy and when to sell where not specified in this article. You are likely to receive a lot of information from your broker upon opening an account or browse our education section for more information. We suggest reading stop loss trading strategies as a continuation to this article.

We wish you the best of luck in your journey through the world’s biggest financial markets.