How To Become A Forex Trader
Key Steps To Succeed In Forex Trading
Anyone can start trading Forex. All you need is a little knowledge, relatively small capital and determination to learn and improve continually. It will help you if you develop patience and fortitude. You will make multiple mistakes as a beginner, and that's OK.
Forex trading is a skill, and whilst we say anyone can get started, there's a difference between getting started and being successful in Forex trading. This article will outline the steps that will benefit you in succeeding as a Forex trader.
Forex trades $6.3 trillion a day, so it's a massive financial industry. With practice, you can learn how to swipe some of these profits. But, before you can do so, there are a few things you need to know.
In this article, we are going to cover the foundations for becoming a Forex trader. We will explore whether you need an education, a little know-how on opening a broker account and whether you are best to start with a demo account. Then we will look at when to go live, how much trading capital you need and how to set up a trading plan. Finally, we explore Forex strategies and how to practice trading Forex.
By the end of this article, you will have a clear idea of the steps you need to take to become a successful Forex trader.
The First Steps to Becoming a Forex Trader
- Take a Forex Course
- Open a Broker Account
- How Much Trading Capital Do I Need to Trade Forex?
- Choose a Couple of Successful Forex Strategies
- How to Practice Forex Trading
1. Take a Forex Course
Without any doubt, committing to a Forex education is a pre-requisite for success. Jumping into Forex without any knowledge is a cast-iron way to flush your money away and fast.
A Forex trader has to learn about price action, how the market moves. At first, when you look at the charts, you will discover how baffling and confusing it can appear to a novice trader.
With a good Forex education, you will learn how and why the price moves. You'll learn how to create a trading plan and work out which strategies suit your trading style. You'll understand leverage and the types of orders available. You will want to know the difference between a pip, a point and a tick.
A good Forex course will teach you how to use an economic calendar and the difference between Fundamental Analysis and Technical Analysis. You'll understand technical indicators, how they work and when best to use them, if indeed whether you need to use them at all.
There are many things to learn. An understanding of Forex's basic structure will make a significant difference in your success or failure as a trader.
2. Open a Broker Account
Not all brokers are created equal.
It's crucial to understand what to look for when choosing a broker. We advise opening an account with a regulated broker. What this means is that your preferred broker is regulated by the Governing Financial body of your country.
A regulated broker must follow the Governing Financial Body's rules, which means you get the protection of your money against potential unscrupulous practices. Sadly, novice traders keen to jump into Forex don't know this information. They rush in and get a nasty surprise when they can't get their capital out of their account, or worse, their money disappears. You can find many horror stories online of novice traders who deposited their money with an unregulated broker.
Is It Best to Start With a Demo Trading Account?
At first, you won't know what you are doing, and that's normal, of course. So, yes, it is best to start with a demo trading account. Choose your regulated broker and download their trading platform.
It's good practice to treat this demo account as it if was a live account. This means you work with the equivalent demo capital that you will deposit when you go live. Trade with 1-2% of your capital and trade lot sizes appropriate to your balance and keep your risks to a minimum.
Some novice traders open a demo account with a £50k balance, and they trade colossal lot sizes. So their wins and losses are in the thousands. If you get lucky and have significant wins in a demo account, it can be difficult when you go live, and your wins are a measly few pounds.
Trading a demo account as a live Forex account prepares you mentally. Because when you go live, your emotions make their presence known. You are trading real money, and it's a whole different ball game to trading with a demo account.
In a demo Forex account, you can test trading with different currency pairs. They don't all behave in the same way. There are the Major pairs, the Minor pairs and the Exotic pairs. When you begin, you may find it easier to trade with the major pairs as they tend to be less volatile than some of the minors. The problem with the exotic pairs is they tend to lack liquidity. So they are not popular pairs to trade.
When Should I Start Trading Forex With a Live Account?
There is no set time to switch to trading live Forex. But, as a rule of thumb, most professional Forex traders suggest it is when you have doubled your demo account. The caveat is that you have done it sensibly, NOT by taking huge lots to create false figures of success.
The general rule is between 3-6 months of successful trading in a demo account.
Much depends on your patience and skill and how much self-study you have done to further your Forex education. By the time you go live, you will have established the following:
- You have at least doubled your demo account
- You have established a routine for the time of day to trade
- You know which timeframes & currency pairs you like to trade
- You have created a trading plan
- You have at least two Forex strategies
- You have thoroughly back tested your strategies
- You understand the basics of Forex like price action, trends, support and resistance and how an economic calendar affects the price action
When you can confidently tick off the above list, you are as ready as you will ever be to get started with a live Forex trading account.
3. How Much Trading Capital Do I Need to Trade Forex?
Not as much as you'd think. Most brokers let you start with a minimum of £100 - £300. Realistically, capital as low as this makes it harder for you to progress. If possible, it's better to start with a minimum of £1000 and up to £2000.
Having a larger trading bank gives you a bit of a buffer. However, it's still preferable to trade micro-lots with a small percentage of your capital. Good money management also reduces your risk of a margin call if your balance gets too low and you have open trades that are losing.
Create a Trading Plan
For anything you want to succeed at, you need a plan. As a Forex trader, jumping into the market without a plan is borderline crazy. It's like taking your first driving lesson at the Arc de Triomphe roundabout in Paris. Utter chaos, even for experienced drivers and utterly comparable to your first hesitant steps into the Forex market.
Your trading plan will depend on some or all of the following:
- What time you have available to trade – if you have little time, your trading plan will likely align with the daily timeframe
- What timeframe you prefer – are you a scalper or a trader preferring to wait for the big market moves
- Your attitude to risk – being hesitant is as challenging as being impulsive
- Your strategies – you have backtested your strategy and know what price action occurs in the market that triggers a signal for your strategy
- Your mindset – whether you are a patient or impulsive trader and how you react to losses
Every Forex trading plan MUST have two fundamental rules:
- Rule One – Every position MUST have a stop loss
- Rule Two – The maximum loss on any position must be 1-2% of your trading capital
4. Choose a Couple of Successful Forex Strategies
Without a strategy, you may as well wear a blindfold or drop a pin into the market. You must know 100% what you are looking for on the charts and apply the following:
- You don't trade if you don't see the signal for the strategy
- You enter a trade when you see the signal for the strategy
It may seem like common sense. Of course, you think I will do both of those things. But, in the heat of the moment, impulse takes over. Later, you look at the charts and ask yourself, 'what was I thinking?'
On the opposite side, you wait too long, waiting for the secondary confirmation of your strategy signal. Then you look at the charts and say, 'what was I thinking?' Do you see a pattern here?
You'll think this won't happen to you. It will. But, have that solid trading plan in place, and you increase your chances of never having to ask the question from hindsight.
Check Out: Devising A Profitable Forex Trading Strategy
5. How to Practice Forex Trading
We advise getting as much time practising with Forex as possible. In your demo account, try every aspect of trading. Work with all of the timeframes, from one minute to daily or even weekly charts. Develop the curiosity of a child, unafraid to test things out. Add various technical indicators and learn what they do and whether they complement your trading strategies.
Select a handful of Forex strategies and back test them all. Which ones caused frustration or were hard to identify a clear signal on the charts.
Experiment with trendlines and channels and even the Fibonacci retracement tool. Add moving averages to your chart and see which ones to which the price action responds.
As you practice with all the tools available, you will eliminate many technical indicators. Some Forex traders use no technical indicators at all. They learn to read price action. There is something to be said for a clean chart, after all.
Practice and practice and then practice some more. Forex can appear baffling at times to a novice trader. The more time you put in, the greater the potential benefits.
Key Points – Conclusion
You know that, yes, anyone can get started as a Forex trader. But we hope you now realise that to become successful at Forex trading is a journey and a process. It takes patience, discipline and commitment.
It takes dogged determination to keep going when sometimes you can't seem to get ahead with your trading. And, there's something to be said if you can stay standing when all other novice traders have sat down, given up, burnt out and sore from the daily thrashing from the Forex market.
If you stick at it and always learn from your mistakes, you have an excellent chance of succeeding at Forex. You can get started with a bit of capital, and all of the decisions are yours. You decide how much risk and leverage to take on your account. You choose which currencies to trade and when to trade.
Success or failure is in your hands.
If you commit to your progress as a Forex trader, always seeking education and improvement, there is no reason for you to fail. That said, you will make many mistakes, and that's perfectly normal. Don't allow mistakes to derail or frustrate you.
Keep a daily Forex journal so you can identify your trading and behaviour patterns. Seeing it written down, you might be surprised at the things you are doing unconsciously.
Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.
Forex may not be suitable for all investors as it does involve risk and the possibility of possible loss of capital.
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