Top 6 best forex trading tips for beginners

In the quick-paced forex market, new traders will want to enable themselves with strategies and tools for the best chance at success.

Forex traders and analysts are constantly looking to find a strategic edge in the marketplace.

Here are some tips to help you get started:

1. The best trading hours for forex markets

2. Monitor interest rates, monetary policy and key news flow

3. The best technical analysis indicators for forex trading

4. The best time frames for forex trading

5. Manage your risk

6. Choose the right forex broker

The best trading hours for forex markets

Forex markets are tradeable 24hrs a day on weekdays. If you are in GMT+2 time zone when it is daylight savings internationally, the forex market opens with the Tokyo session at 12:00am on Monday and ends at 12:00am on Saturday with the US session. Essentially the trading hours correlate and start with equity markets in the east (Japan and Australia) and end with US markets in the west.

The currency of a country will generally be more actively traded when the region’s equity markets are open. For example, the Japanese Yen is likely to be more actively traded over its equity market hours rather than when the underlying equity markets are closed. US forex markets are more likely to see more trading activity when the country’s equity markets are open.

The highest volume trade of currency pairs is most likely to occur when market hours between regions overlap. For example, the EURO / US Dollar (EUR/USD) is likely to see more trading as European exchanges head towards close while they overlap with US markets opening.

Monitor interest rates, monetary policy, and key news flow

The path of monetary policy, set by central banks, is a key influence in currency markets. Higher interest rates and the tightening of money supply is expected to have a positive effect on the currency of the country concerned, while lower interest rates and the increasing of monetary supply is expected to have a weakening effect on a country’s domestic currency.

However, when you trade the forex market you are trading one currency against another. For example, when looking at the EUR/USD, a trader will consider the relative difference in the path of interest rates and monetary policy between Europe and the US as a determining factor for exchange rate direction.

Central bank activity is navigated by economic data which means that traders will want to pay close attention to news flow which may affect policy decisions. Key news items to watch in this regard include, but not limited to, are inflation, employment, and growth (GDP).

The release of key economic data can help with the timing of when we might see significant moves in forex. Therefore, keeping an eye on the economic calendar can be an important resource for traders.

For upcoming economic events which can affect currency markets see the IG economic calendar here.

The best technical analysis indicators for forex trading

The subject of technical analysis is very broad with a whole host of indicators to choose from. These indicators have a wide range of uses from timing entry and exits to identifying trends, volatility, and momentum (to name but a few).

When getting started in technical analysis traders might want to limit the number of indicators used to avoid duplication of work and identify key factors in the forex market concerned.

Some popular indicators to get you started are as follows:

Moving averages

Moving averages can average out the price data and help assess the general market direction. When the forex price is trading firmly above the moving average the respective trend is assumed to be up. When the forex price is trading firmly below the moving average the respective trend is assumed to be down. Trend followers will want to align their currency trades with the general market trend i.e., in a longer-term uptrend traders might look for long trades, if the market trend is down traders might prefer to look for short trades.

A long trade is a position which would benefit if the market / currency pair was to continue to rise

A short trade is a position which would benefit if the market / currency pair was to continue to fall.

Stochastic or RSI (relative Strength Index)

Stochastics and RSIs are commonly used to help identify a short-term momentum within a longer-term trend. When the value of these indicators rise to the upper percentile values the market concerned is said to be overbought. When the value of these indicators fall to the lower percentile values the market concerned is said to be oversold.

A market that is said to be overbought, suggests that the short-term rally or rise in price may have gone too far. This suggests that the rally may be coming to an end or possibly setting up to reverse course with the price falling thereafter. A forex trader might use an overbought signal to exit a long trade, or if the longer-term trend is still considered down look to open a new short position.

A market that is said to be oversold, suggests that the short-term decline in price may have gone too far. This suggests that the decline may be coming to an end or possibly setting up to reverse course with the price rallying thereafter. A forex trader might use an oversold signal to exit a short trade, or if the longer-term trend is still considered up look to open a new long position.

Price action

Traders will want to remember that you generate a profit or loss from the change in forex price, so analyzing price data becomes a key indicator in technical analysis terms. Analyzing price data can include using trend lines, identifying levels of support and resistance (major price turning points), chart patterns and candlestick patterns.

Price action studies can help forex traders identify turning points, entry points and exit points. Chart patterns might highlight when a market is no longer trending but instead moving sideways or in a rangebound fashion. Markets that are trending are considered conducive to trend following techniques, while markets that are moving sideways might see traders looking to trade between the levels (range trading) or waiting for breakouts to allude to a new trend forming.

The best time frames for forex trading

The time frame of your charts used to analyse and trade the forex market is often dependent on the type of strategy employed. Three broad categories of strategies often adopted in currency markets include day trading, swing trading and position trading.

Day trading is concerned with a higher frequency / scalping approach to the FX market, whereby positions are not held overnight but rather traded intraday. This fast-moving approach is synonymous with smaller times frames ranging from tick by tick, 5min, 10min all the way up to 1-hour charts.

Swing trading adopts a slightly slower approach whereby a trader might hold on to a position for a couple of days to a couple of weeks. In this scenario understanding the broader trend with a daily time frame chart may be used in conjunction with a smaller time frame chart i.e. 1 hour to help fine tune entry and exits into the market.

Position trading in the forex market lends itself to a longer-term view whereby traders will look to hold positions for at least a couple of weeks to a couple of months. In this scenario a weekly chart may be used to identify the bigger picture and a daily chart used to build entry points and identify longer term exits from the market.

Manage your risk

In the fast-moving forex market successful traders will want to manage their downside risk. Even the best traders aren’t going to be right every time, so when the market does move unfavorably against them, positions can be managed through a stop loss order.

A stop loss is an order to exit the market should a trading position move adversely to the desired direction. These stop loss orders can be automated with brokers such as IG, so even if you are not in front of your computer or with your mobile device, your trade in the market can have the protection of a limited risk.

Choose the right forex broker

There are a few factors to consider when choosing a broker or provider, none of which are as important as making sure that the company you choose to trade through is correctly licensed to render the financial services offered in the jurisdictions in which they are offered.

Traders will also want to make sure that their money is protected and safe-guarded. This can be done by having your trading funds segregated into regulated bank accounts, separate from the providers balance sheet. Client funds are thereby separated from the company’s day-to-day business activities and ring-fenced from creditors.

IG is authorised and regulated by the FCA (UK) and the FSCA (SA). IG South Africa also carries a ODP (over the counter derivative product) license. The company also holds these funds in segregated bank accounts with regulated commercial banks.

Once you have short listed the brokers or providers that are regulated, traders might like to look at a few other key offerings from the forex broker such as:

- Are their costs i.e., commissions or spreads competitively priced?

- Is the forex trading platform reliable and stable (i.e., minimal downtime)?

- Does the forex provider have access to research and analysis tools for macro, fundamental and technical analysis?

- Does the provider have readily available support i.e., bricks and mortar business, direct call lines, online live chat etc

How to get started with forex trading with IG

To get started with forex trading, you should follow these steps:

1. Create or log in to your account

2. Navigate to our trading platform

3. Select that market you want to trade

4. Decide whether you want to go long or short

5. Take steps to manage your risk

6. Open and monitor your trade across your desired timeframe