THE FOREX Micro-BASICS THAT YOU MUST KNOW BEFORE YOU START YOUR TRADING CAREER...

I've been told by some of my close colleagues that most of my postings are too technical for beginners to understand... Is that true? I thought I myself is a beginner... ;) Mmmm... Anyway...

Ok, so now why not we talk about something basic about forex that I personally believe each and every aspiring traders should know, base from my own experience in live trading. I just share the keypoints here but of course, I would recommend you to visit babypips.com if you wish to learn in detail. It's free... really.

Let's begin.

MUST KNOW NO 1 - You must know that FOREX is the biggest market in the world, even after you combine the total turnover of all the Stock Exchange around the globe, still forex is a clear winner with over USD3,000,000,000,000 traded daily (yes, that is trillion with 12 zeros). That is HUGE bro...

MUST KNOW NO 2 - Currencies are traded in pairs. The majors are EUR/USD, GBP/USD, USD/JPY and USD/CHF. First currency (ie EUR in EUR/USD) referred as base currency where the second one is referred as counter currency. The value shown for each pair, say bid price for EUR/USD is 1.5000, meaning that every 1 base currency (Euro) equals to 1.5000 of the counter currency (USD). Same goes to any other pair.

MUST KNOW NO 3 - Most of us can access and trade forex because we have leverage offered by brokers. If no leverage is offered, I myself will not have the financial capability to start this trading career. Leverage is the power to control bigger amount of money by using small amount of capital deposited with your broker. You must understand what leverage means so that you can control your risk exposures to the market by not putting a too-big position that minimize your free margin. Read more about forex leverage here.

MUST KNOW NO 4 - To become really good at trading, or perhaps anything, there is NO SHORTCUT. I'm not saying that trading forex is too difficult, but you just have to follow certain typical procedures for you to success. Ask someone who already earned millions from forex and I can guarantee you he would tell you the same thing. Regardless of what or where you might read about trading forex is easy, do not trust them as those claims are DEFINITELY NOT TRUE, especially if you receive emails from so-called the insiders who have put it all together after trading the market for over 20 years bla bla bla... I tell you most (if not all) of these emails are purely B***S**T. Why? I have bought them, try them, no results, email them to ask why and I didn't even get a reply. Even if they reply, they would ask you to check this and that setting and so on, especially when you buy EAs or forex robots. The point is, if you look for quick-rich-method with forex, trading is not for you. Chances are you will get the quick-poor-method instead. If you want to success in trading, just learn & do what the successful traders have done. This is indeed the real holy-grail in trading... work harder but smarter by duplicating the successful traders.

MUST KNOW NO 5 - You must understand both the technical and fundamental aspect of the market. Just learn them one at a time. Don't overwhelmed yourself with too many things so that you could keep your motivation high. Imagine you are driving a car. Though technically the car is designed to take corners at 120km/h (for example), you don't have and prefer not to do it due to other considerations like weather, road conditions and the passengers in your car that may feel unsafe, which could exemplify the fundamental part of your driving. That is why though I am using a lot of technical analysis, I still balance them with market's fundamental and sentiment outlooks prior to taking any trade decision. This doesn't mean that you have to complicate matters, it's just that the better you know who your opponents are and what they are doing, the brighter the chances for you to play and defeat them. To me, trading is just like a big game that one must know all the tips and tricks in order to success. It is not a fair game after all and that is the main reason why most lose their money.

MUST KNOW NO 6 - Risk Management Techniques. Ok, when someone told you that never risk more than 3% of your account equity in any single trade, do you really understand what he is saying? The fact is most of you probably have heard this before but chances are you have no idea on how to translate this 3% into your trading decision and position sizing. Let's take one simple example - a straight forward one. Imagine you have a USD1000 account. 3% of 1000 = 30 dollars. It means you should not risk anything more than 30 dollars per trade with this account size. From this 30 dollars, you should decide at how big is your stop loss is going to be. If you wish to trade with 30 pips as your SL, then simple formula = 30 dollars/ 30 pips = 1 dollar per pip. Considering you have either a mini or micro account, You can have a 10,000 (with mini lot position) position comfortably. But, say if you wish to risk 50 pips instead of 30 as your stop loss, just do the same by dividing 30dollars/50 pips = 60 cents per pip, thus telling you that you can have a 6k micro position. Simple right? Try it... you'd feel safe all the time. What if you wish to risk 10%? Go ahead, it's your money. Only one thing, just like driving, remember that unsafe driving habits is just an accident waiting to happen. If you develop a bad trading habit, chances are you could make money, but it is only a matter of time before you crash your account into flames. Get the point?

MUST KNOW NO 7 - When you're right, stay. When you're wrong, get out. You need to understand the fact that indicators are just helpers for you to take your trading decisions. These indicators are lagging indicators and only show you the trend that has happened. What lies on the next corner, no indicator could tell you exactly what would happen, NONE. The fact is, the market is made of people who are dynamic (keep changing) and somehow unpredictable at times. Most of the time, they are predictable and this is where technical indicators are designed to be used in the trading world, in order to predict the next move base on the patterns develop by the price actions. So, it's just a matter of getting into the right trade and reap the profit or get out from a bad trade before it's too late. Remember what I told you about George Soros? Check out my previous post.

Ok gentlemen. Of course there are many others as well. If you are really a beginner, focus on this 7 first and we'll talk about some advance topic later on this month. As per my normal disclaimer, I am genuinely sharing what I knew to those who have the interest to read and develop themselves into becoming a good trader who make money most of the time.

Just remember that a good forex guru will always tell you that he only provide the means and methods to trade successfuly base on what he knows and his personal experience, but it is you who is ultimately responsible towards your own success or failure as a trader.

Contrarily, if someone ever came to you claiming that he is a forex master, telling you that he has a secret system to beat the market all the time but you have to pay him 100 dollars with money back guarantee, chances are he is lying, or just like a shovel seller. I've seen too many of these "gurus" and I tell you they are no better than any salesmen. They just want to get you to buy their system. Whether you make or lose money, it is your problem, not theirs...

Till then, safe trade for next week.

p/s: By the way, the dollar is showing signs of comeback since the NFP release last Friday. Watch out as I could probably shorting the EU for the rest of the month.

;)