Top 10 Steps: Learn to Trade Forex
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Becoming a profitable Forex trader does not happen overnight. There are of course certain things that the top Forex traders in the world do to trade Forex successfully. However, if you want to learn to trade forex it begins with some very simple steps:
1. Decide Why You Want To Learn to Trade Forex - It is important to understand why you want to learn Forex trading in the first place. You might say that everyone wants to learn to trade Forex because they want to make money, but that is too simplistic. More compelling reasons may include quitting your day job or having the freedom to travel the world while still earning an income. The more compelling your reasons are to you, the more likely you are to stick with it over the long term.
Just keep in mind that you are not likely to achieve these goals overnight. You need to develop your strategies with free practice accounts and then move up to small and then eventually to larger trades, which leads to the second point…
2. Have Realistic Expectations - Please don’t fall for the exaggerated, atypical earnings claims are often touted in the Forex trading industry. As a result of this many beginning traders abandon perfectly good Forex trading strategies because they may compare their returns with unrealistic returns they see elsewhere.
Have realistic expectations of your Forex trading and realize that every journey begins with a single step. In the end it is about lifestyle. So if you can develop strategies that take care of smaller items like your monthly phone bill, then your groceries, then your rent or mortgage, you will eventually have a viable business model that may allow you to quit your day job if that is your goal. Just don’t quit your day job until you learn to trade forex in a manner that you feel comfortable with and doesn’t risk all that you have worked for in your life.
3. Ensure Sufficient Capital - Very little funds are needed for opening an account and to commence Forex trading. A minimum of $25 is enough to open a micro account. $400 would be enough to open a mini account.
A smaller account is advisable while formulating your trading system and developing your concepts. However, if your intent is to make a living out of being a day trader then a $25 account would certainly be insufficient. Several things must be taken into consideration when establishing what level of funding is needed. A couple of these factors are:
Profit goals: For example, if you have a goal of making $100,000 in trading profits, then a method which generates an annual rate of return of 100% will call for starting capital of $100,0000.
Maximum drawdown: Maximum drawdown must be considered when formulating your trading system. This is simply the largest peak to valley equity dip recorded on your trading history. To wit:
A maximum historical drawdown of $50,000 means that you should have more than $50,000 in your foreign exchange trading account. The rational being that having only $50,000 will not allow you much movement. Should you experience a $50,000 drawdown then you essentially have to suspend trading. Thus after you reach your drawdown level, you miss out on any trading opportunities that may come your way.
4. A Business Plan for Foreign Exchange Trading is a must - To ensure success in any business, a business plan must be present before operations commence. Forex trading is no different. Maintaining your focus and reducing ambiguity are prime benefits of planning. Effective Forex trading does not necessarily call for elaborate trading plans, but consistency is key.
5. Currency Trading Strategy Development - Most would consider this a given but a good number of traders engage in trading on impulse. The ability to determine market behavior may be a gift of some select traders. But for most regular people, a competent and proven trading system is the way to successful trading.
Use a demo or micro account first to evaluate strategies and methods of trading. Do not give in to the all too human weakness of just rushing headlong into the thick of it and commence your trades with substantial amounts of actual funds. Forex demo accounts are there to hone your skills before you play for keeps. Consider these demo accounts as a test of your worthiness to trade real money. After all, failure in your demo account will probably mean failure in your real money account given the same trading strategies.
Each new Forex trading strategy should be finalized in a demo account. Practice makes perfect should be your guiding principle.
6. Actually “Learn To Trade Forex” - Buying a Forex robot and letting it do your trading is not a good idea as a way to get you feet wet in the forex market, although they can be quite helpful later on in terms of automating the execution of your (well-tested) strategy. If you learn to trade forex by yourself, you are much more likely to get to a point where you can day trade forex consistently and successfully. Read up, browse the web, sign up for Foreign Exchange trading courses and use your demo account to try out your ideas.
7. Use only Risk Capital for Trading - Money you can afford to lose is another more popular term for risk capital. These are your speculative funds, if you lose all this money it will not significantly impact your life.
If you are using money you cannot lose then you are using scared money for your trading. Its the money that when in danger of dissipation, will create undue stress in the trader.
You are playing with fire if you trade with scared money. After all, even the greatest trading methods cannot always deliver the profit at exactly the time you need it, in the amount that you need.
8. Ability to Let go of a Losing Trade - A number of people fall in to this trap. Of course no one is happy about losing money. But losing is a part of Forex trading and even the most accomplished traders still take a loss every now and then.
Throwing good money after bad is justified by newbies on the grounds that it creates a better average price to their position. The logic here is that once things turn around then they will be able to break even more quickly. The problem is that things usually don’t turn around quickly enough and the market just increases their losses. This can create a large, disastrous loss out of a situation which started as just an minor loss.
The lesson here is plain to see. Don’t ever add to a losing trade if you intend to trade Forex successfully for a living.
9. Control Your Risk - Risk control equals reward control. When dealing with unknown risk levels, don’t trade. And until you have established an exit value to deal with market contingencies, the prudent move is not to trade.
Controlling your risk preserves your capital and extends your trading by way of eliminating unnecessary losses. For instance.
Given a $10,000 account and a risk of $5000 per trade, this allows you how many losing trades? Obviously, having merely two opportunities to profit is not advisable and one is well advised to look at alternatives that will allow for more opportunities to profit.
10. Be Disciplined with Your Trading - Quite a lot of information is available about trading discipline and the psychology of Forex trading. Disciplined trading is essential for success, a fact that is known to most accomplished traders. Forex trading tools will be rendered ineffective in the absence of discipline in your trades and mindset.
The ability to focus and keep to your trading methods amidst adversity is the prime benefit of discipline. In the long run, when you stay with a competent trading system it will help you profit and accumulate wealth in the Forex market. When rationality prevails over strong emotions, it will allow you to trade more effectively.
Ok, that’s it for our top 10 list. Keep these 10 Critical steps in mind as you learn to trade forex.
These rules are very important for anyone that intends to day trade forex for a living, and indeed for anyone planning to learn Forex trading even if it is only part time. Get all your ducks in a row before you submit your first trade, and increase your odds of success by a hundred fold!
Ok, time to get started. It costs nothing to signup for a forex trading account and begin trading with a demo account. This is the only way to really learn to trade forex, just get in there and try some things out. Day trade forex with play money to get a feel for how it works.
Here are a couple of reviews of forex trading sites to get you started:
1. Easy Forex Trading
2. ForexYard
We recommend trying out a couple of trading platforms to see which one works best for you, and these two will get you started.
However, before you begin trading with real money, we highly recommend you get some professional training. This doesn’t have to cost a lot.
Here are some of the top training resources currently available:
1. Forex Trading Made EZ (Easy)
2. Forex Mentor by Peter Bain
3. Forex Profit Accelerator by Bill Poulos
