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    3 Key Concepts of Forex Trading

    If you’re a beginner to the Forex world you might be feeling overwhelmed by the complexity of indicators, trends and economic releases. It’s worth remembering, however, that trading essentially revolves around three core concepts: identifying the direction of your chosen market, choosing your entry point and managing risk. Let’s take a closer look at each of these factors.
     
    Core concept #1: Direction
    Price direction drives the decisions, strategies and profits of Forex traders, so how do you decide which way a currency value is going to go next? One effective way is to combine fundamental and technical analysis, as the former often reflects causes for change and the latter often reflects the expected effects of those changes. Here’s what you should be paying attention to:
    ●        Fundamental
    o    Inflation echoes the economic growth within an economy and often drives monetary policy within that economy.
    o    Interest rates are typically adjusted by an economy’s central bank to control inflation. An interest rate hike tends to mean the currency of that economy is going to increase in price.
    o    Employment and wage growth are major components of an economy’s inflation rate as they usually mirror consumer confidence. An increase in both tends to lead to inflation.
    ●        Technical
    o    Trend analysis shows the historical behaviour of currency prices and volume to help predict future behaviour of these factors. There are a number of analytical tools at your disposal including moving averages, MACD, RSI, stochastics and Fibonacci retracement.
     
    Core concept #2: Entry
    Gut instinct is usually not a reliable or successful trading technique, so it’s important to refine when and where to enter your trades by keeping a trading journal and researching various trading strategies. While some traders will look for one or two large candles as a signal to enter a trade, others will look to specific indicators to buy at the bottom of the range and sell at the top. This decision should be tailored to your own account and strategy.
     
    Core concept #3: Risk
    Risk management is absolutely key to any level of Forex trading, because at the end of the day you’re trying to predict the future. There are a number of ways to mitigate your trading risks, including:
    ●        Setting a small amount for every trade, for example 1-5% of your total account. Using leverage of up to 1:200 can help you to maximise returns with minimal deposits. 
    ●        Always using stop losses for every trade to minimise the fallout from any sudden and undesired changes in the market. ForexCT includes these for all trades through our platforms.
     
    Risk Warning: Investing in Margin FX products carries a high degree of risk and is not suitable for all investors.
     
    For more tips ranging from beginner explanations to advanced strategies, register for ForexCT webinars that are available for free with every live account.