Have you ever wanted to learn how to trade forex? Forex trading can be a great side hustle to supplement your income and one day you could maybe even trade professionally full time.
Starting out trading can be a little scary so we are here to help with all you need to know to dive straight in.
Forex currency pairs and going long and short
When trading forex, you trade one currency against another. For example, if you trade EURUSD, you are trading the Euro against the US Dollar or if you trade USDZAR you are trading the buck against the Rand.
When you buy a particular currency pair, otherwise known as “going long”, you are betting that the base currency (the first currency in the pair) will rise in value relative to the quote currency (the second in the pair). For example, if you buy EURUSD, you are speculating that the Euro will rise in value relative to the US Dollar.
On the other hand, if you sell a currency pair (also known as going short), you are betting that the first currency will fall in value against the second. For example, if you sold the USDZAR currency pair, you expect the Dollar to fall in value relative to ZAR.
Choosing a forex broker for your free forex demo account
Trading can often sound more technical than it is, so a great way of learning is by actually diving in and learning from experience on a free forex demo account.
All forex brokers offer free demo accounts, but it’s important to select a reputable, local broker to trade with on your demo, as you will likely continue to trade with this broker when you make the transition to live trading.
If you’re trading from South Africa, a local broker like Blackstone Futures is a great option that offer free forex demo accounts.
Trying out your new forex demo account
Before we start trading your new demo account it’s important to note that demo trading is very different from live trading – demo accounts are great for learning the MT4 platform so you don’t make any critical mistakes once you start live trading.
Once you’re into your new demo account the first thing you should do is place a trade on the EURUSD pair and then close it after 5 minutes.
Was the trade profitable?
Even if it wasn’t, try again. Place and close 10-20 trades till you are 100% comfortable with the process.
How to trade forex – buying low and selling high
After placing 10 or 20 random trades, you may be in profit, you may be in loss, or given a random walk, chances are you around breakeven
Let’s take a look at the trades you took, what you should notice is when you bought a currency pair low relative to recent price action, the trade was profitable, but when you bought it high, you lost money.
Buying low and selling high is the essence of almost any successful trading strategy – if you get this part right now, you will be a huge step in front of most traders.
Try entering a short position on a currency that is rising and closing it as soon as you are in profit or after 5m – forex markets move frequently so you should be able to get out at a small profit rather quickly.
Short term trading like this is known as scalping, this approach is likely too intense for a new trader, but keep it in your mind for once you have built up some experience.
Buying low and selling high with the help of RSI
Let’s add the RSI Indicator or Relative Strength Index to your chart and trade one of the most basic strategies.
When RSI moves below the 30 level then back above it, we will open a long position. When RSI moves above 70 and then goes back below, we will exit our long position.
How did you go?
Let's try the same thing in reverse with a short position. When we get an RSI sell signal (a cross above and back below 70), we will short, and when the buy signal occurs (below 30 and back above) we will close our short position.
To learn faster you can do this on a 1 minute or 5-minute chart, though this is not recommended for a live account until you have clocked some experience.
Once you have made 10 trades or so, take a look at your results. Chances are you performed better than when you were just taking random trades.
Leaping carefully into live trading
Now you know what you are doing, it is time to put what you’ve learnt into practice on a live trading account.
It’s a good idea to just start with your broker’s minimum deposit amount, though eventually, you will have to make a serious investment in yourself if you ever want to make serious money trading forex.
As we are now trading live with real money on the table, we will go up to a higher time frame, the 30-minute chart – this should be a good balance between too many signals and not enough, though you may have to switch pairs a bit till you find one that’s about to issue a signal/
Before you enter a trade, whether long or short, be sure you set your trade size to the smallest available 0.01 – though we are now trading live we are still learning so it’s important to limit your risk as much as possible while you practice.
Developing your strategy
How did you perform after a few days of trading the basic RSI strategy on small trade sizes?
If you made a profit, great, but how could you have made more profit?
If you made a small loss, is there any way you could skip losing trades?
A great place to start would be only taking buy signals in an uptrend and only taking sell signals in a downtrend.
You may also want to look into more advanced strategies like RSI divergence.
It’s up to you
Congratulations on learning how to trade forex. We have given you all you need to start your forex journey, how far you take it from here is up to you. Do you have the commitment and dedication required to become a professional trade?
If you don’t try, you’ll never know.