4 Steps to Become a Forex Trader
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Online trading platforms have opened up new ways for ordinary people to trade on international financial markets - and that brings with it incredible opportunity. But, with that opportunity comes risk.
So, how exactly do you go from someone new to the finance world, with no idea about specific currency pairs or the best tactics and strategies to employ, to a seasoned, veteran currency trader who makes money in the long term? Our Trading Education Team has gathered together the four, specific steps you need to follow on your journey towards becoming a financially successful forex trader:
1. Educate yourself
Leonardo DaVinci said, "learning never exhausts the mind". A potential Forex trader should hold that advice close to their heart. A good place to start is to familiarise yourself with some of the basics of the FX market, trading terminologies and the fundamentals of technical analysis. So, educate yourself about the most commonly traded currencies (the US Dollar, Japanese Yen, Euro etc.) and what pairs they're often traded in. There's a wealth of resources available online, including forums, FAQs, blogs, YouTube videos. Moreover, you can receive free trading education on our platform, Trading Education.
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2. Choose a method that makes sense to you - and check it works with back-testing
As you become more familiar with different trading methodology, habits, patterns and popular trading strategies, chances are some will intuitively make sense to you, and others will not. It's critical to mention, though, that waiting for a 'perfect' system is a waste of time. There isn't an entirely flawless method out there. Each has advantages and disadvantages.
Once you've picked a trading methodology you feel you can adopt you can check its efficacy with the wealth of old forex data that exists in various forms all over the internet. You want a strategy which has achieved a consistent, relatively stable profit over a long time period. A good benchmark to aim for is roughly 200 trades. Some red flags are strategies which make a large amount of profit in the short term but perform badly overall. That kind of volatility is something you want to avoid, particularly as a new trader.
3. Demo testing.
Once you've decided upon your system, the next step is to start testing it out with virtual money. These days, most online forex brokers offer unlimited virtual trading pretty much indefinitely - so just pick one with low fees (for when you start trading with actual money), and whose platform you enjoy using. Ensure you research them thoroughly before signing up.
Then, you're ready to go. Start to make trades using your selected methodology. An industry-wide recommendation is to attempt to be profitable for at least a couple of months and preferably up to half a year, before investing real income. It takes time to get used to the ebbs and flows of the financial markets. People are often impatient and under-prepared, and that can be a recipe for failure.
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4. Time to go live.
Now you're ready to enter the real world - you can finance your account with real money. Many traders fall off the wagon at this point. All their careful planning goes out the window and they start to worry, not sticking to tried and tested principles. Make sure you stay calm. Stick to the game plan - it's been profitable so far, and if you're sensible, it'll continue to be. If things don't work out the way you expected, go back to step two and select another system.
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Source material: www.earnforex.com/guides/steps-to-becoming-a-forex-trader/