Breaking into Forex Trading for Forex Novices

Submitted by Craig Strzelecki on 15 January, 2006 - 21:18

Trading the forex markets can be daunting for beginners and novices. Be prepared for an interesting ride of profits and losses: I haven't been participating in the market for about 6 months. Other circumstances pulled me away from the markets that I love. So my skills are a bit scratchy - you can call me a forex novice for the time being. I tried playing the fluctations in the recent movements in AUD/USD in the forex markets and I made 8 percent of $500 so thats $40 in one day.

I was still *fresh* so this is what I watched happening right in front of me. I put in a trade at 1am Aussie time. I went to bed and woke up to find the dollar stronger by 10 pips. Lunchtime came and it was up about 25 points. This strength gave me a paper profit of about $250. At night it fell weaker... back to a 10 pips spread. Sometime during the day I moved my stop above break even to gain 5 pips profit.

The market moved and my AUD/USD dollar trade closed due to the stop loss. Hey - at least I walked away with a profit!

So what's to learn from this? Psychologically, it's always better to walk away with a small profit than any loss. But here in share trading land our goal is to trade well. In my opinion my entry was perfect enough. A little late but I still was exposed to a tidy profit. But I didn't take the tidy profit at 25 pips - I held on. Was this wishful thinking for larger profits (as I've seen my money double or even triple over night before on the forex market) - or the lack of a trading plan specifically made for the forex market? I prefer to think it was because of the latter reason why I made a loss.

I didn't have an exit plan. Plain and simple. Well, actually I did - I set it at a 5 pip profit. But do I want to always walk away from a trade with a measely 5 pip profit? NO! so let me sharpen my trading plan. See this is what I did on that day - I saw the market rise 25 pips and then inched up my stop loss at a 5 pip profit. In actual fact - I should have moved it to 20 pips.

But this is when your trading plan needs to be flexible. What if the market is volatile... and the trade closes at your stop loss at 20 pips, as it is volatile and skips a beat for a while but in an hours time it keeps trending in the direction you wanted it to? What then?

This is when you need to make a decision and not be too emotional. Be happy with a 20 pip profit. But you should also analyse and reflect on the signs why you should have stayed in and also find out if this is another opportunity that ou should go into.