In the Beginning
So you have discovered foreign exchange trading and you are really excited about the possibilities that lie before you. The chance to work from home and put a very nice income in your pocket for what you might think will be little effort seems very appealing. The thought of ditching the 9-5 with the hour long commute every morning and night is just too tempting to not give forex trading a go.
But before you rush into the forex market all guns blazing there are somethings that you need to understand and accept. You are going to have to do some work here if you want to even give yourself a chance of becoming a successful forex trader. Now I could be really negative here and say that there is a 95% chance that you will fail! But I am not, because if you go about this the right way you have a good chance of success. 95% of traders fail because they simply don't put in the effort necessary to give themselves a chance of success. If you are willing to do a lot of hard work and are willing to take the time to learn properly and turn yourself into a trader, then you are way ahead of most already.
Most people give up after a short time trading, they will have lost money in the market and can't be bothered to do the work that is required. Trading forex is not a way of making a "quick buck" or a "get rich quick" type of job that many seem to believe it is. I myself used to think I would be rich in no time, but this is not the case. Trading is an art or craft that is going to take time to learn. You will probably find that the majority of successful forex traders took 1-4 years to find their feet in the market.
If you think "oh I can't be bothered to wait 2 years to become a successful trader" then trading is not for you. But if you look at this as a long term project, and have the ability to take some knocks along the way (and you will!), then embrace this challenge, take your time and you should see results in the long run.
There is no way that you're first trade should be anything other than a demo. A demo trade is a trade where there is no financial risk to you whatsoever! Most brokers these days offer demo accounts for free, and signing up for one usually only takes a few minutes. They offer these accounts for free because they want you to open a real one in the end, and trade through them.
So the best thing to do first is just open one or more of these accounts, and play around with them, learn how to place orders and navigate their platform. DO NOT enter the market with real money yet, you are far from ready. After a few weeks familiarising yourself with trading platforms you are ready to start learning about trading.
Most traders these days use charting or technical analysis to decide when they trade. Trading based solely on fundamental data (news and economic reports), is all but gone. You should now go and read a few books on technical analysis. There are thousands on the market today and if you go to Amazon you can see which ones are getting the best ratings. Don't go crazy on technical analysis books, there is no point because the market is not 100% predictable, spending a fortune and a lifetime looking for some full proof technical trading method is futile. The basics- support and resistance, trend lines and moving averages are the first thing to learn.
The most important things to learn though are trading psychology and building a trading plan. I am genuinely unsure if one can ever learn about trading psychology until one as actually experienced live trading and taken loses of real money. I have lost money, but thankfully I did not endanger my lifestyle by doing so. So DO NOT trade with money you can't afford to lose, if I said would you be ok with losing your whole account and you said no, then it is too big. However you should not put yourself in a position where you can lose your whole account, but you are likely going to lose a fair bit while learning with real money.
If you have never traded forex live before, you may not fully grasp what this is about but I will try my best to explain.
When you are trading you are going to be subjected to a plethora of emotions- fear, greed and euphoria are the usual suspects. Fear is the fear of losing money or being wrong. Some people don't like being wrong, especially if they have a big ego. But you are going to be wrong many times while trading, it's just a fact that you cannot predict the market 100% of the time.
The fear of losing money is just that, you are not going to understand this without trading forex live, but this will be one of your biggest enemy's. It's going to cause you to make silly mistakes, like jumping out of a trade when it moves against you, because you are scared of losing money. But you will find that nearly every trade is going to move against you, and you have to learn to deal with this so that it does not ruin your trading results.
Greed is also self describing. You can get into a situation where you just want more and more profit. As a result you will hold positions for far too long and if you are not careful the trade will retrace against you and can leave you with very little. You will need to come up with an exit strategy and you will just have to come to terms with the fact, that you will rarely exit a trade where you could not have made more, had you left it on. This is just a market FACT. You are going to leave money on the table, just remember you won't go bust taking profit so when in doubt get out.
Euphoria is the exact opposite of fear, if you experience a winning streak it is very hard not to become overconfident and think that you can do no wrong. This is a highly dangerous state of mind to be in, it will cause you to trade more than you should and take massive positions in the market. And when you lose (and you will), it is going to hurt big time.
Like I say you are probably not going to understand this until you have traded for real. A book that you must read is "trading in the zone" by Mark Douglas. This is an excellent book on trading psychology that is easy to understand even for the beginner.
To overcome some of these problems you are going to have to put together a trading plan.
A trading plan is a written document of how you intend to tackle the markets. It will set out what type of trader you want to be what techniques you will use to enter trades, ie. Technical analysis. And the specific rules you will use to manage you're trades and you're money. Setting stop losses is a big part of trading and by creating a set of rules to go by, to manage you're trades, will remove some of the emotion from your trading.
You're trading plan should set out a routine for when you will be at the market. The less time you spend looking at you're positions moving the better. For example you may enter a trade and it nearly stops you out before moving into a profit. If you sit and watch this it is going to be a roller coaster of emotions. You are very likely going to make an emotional mistake and bail from the trade. And then when it does move into profit you will become even more frustrated as you are now missing out. This again may force an emotional mistake like entering the trade again after it is too late and has moved way past you're original entry point.
What you need is a routine. What I do is when I place the trade I just walk away. My style of trading is more long term and allows me to only check the market every 4 hours. If I'm not at the computer I can't mess up the trade! And I avoid all this emotion.
I am aware that many people are in and out of trades in a short space of time, and I appreciate that you need to watch your position and exit manually. You just need to be disciplined enough to follow you're plan correctly and sit through the rough patches.
So you have now learned a little bit about real world trading, I hope I have helped you in some small way. You must realise that trading is just like any other job, it will take work and time to get right. But as long as you are willing to go the extra mile and put the in the effort, you have a chance of success.
You now need to develop a trading strategy to be able to approach the markets in a consistent manner. I use classic TA and price action. This is candle stick formations and breakouts ect. It's not hard to find this information on the internet or in books. Applying it in the real world with discipline is the hard part. If you are really stuck don't hesitate to contact me and I can make some suggestions of where to learn, it's not something I'm teaching.
If you enjoyed this article please visit my website where I cover these aspects in detail. Go to www.forex-trading-uncut.com. I do not sell any fancy system or trading course, I have simply laid out what I have learned about the forex markets. If it stops one person from blowing out their account I think it was worth while making. Feel free to join if you wish!
Until next time,