What Do You Need to Start Forex Trading?

The beauty of modern trading is how easy it is to set up and get started trading Forex online. You can start right now this very minute. But there’s a lot to learn before you hit the buy button. In this chapter, you will learn the basics of what you need to get started trading Forex.

In the beginning, you may be afraid of making mistakes. You will be getting it wrong a lot which is perfectly normal. But of course, you’ll be working with a demo account, so you will have zero risks. This is the time to find out how everything works AND mess up your trades so you learn what NOT to do.

Decide Where You Will Trade

You will need a laptop, PC, or Mac to install the trading software. Make sure you have enough RAM and anti-virus software installed. When you go live, your trading platform is where your balance shows for your account. Protect this at all times. It's a good idea to log out of your account when you have finished trading for the day.

You may be thinking of trading from your mobile phone. There is an MT4 or MT5 phone app available on Google Play. But from experience, mobile trading can become addictive. Trading Forex on the phone seems more like a game than a real process involving money.

You will need a quiet place in the house. Trading Forex takes concentration and focus. So, you need to be away from distractions as much as possible. Set up a home office or corner of the house where you can limit distractions. If you are living with a family or roommates let them know that they cannot disturb you. When you disappear into your den to start your trading day, this is your private time.

Close down all other tabs and notifications on your phone. This reduces the temptation to check your social media accounts or see what all the phone beeps are about. You’ll soon see how easy it is to make a mistake if your mind isn’t 100% on the task of trading. At first, you may find it quite tiring. But you will get used to it in time.

Find an Online Broker

It’s important to find a reputable broker. Some unregulated brokers won’t do their best to look out for your interests. You need a good broker to give you confidence in the quick resolution of issues that may occur with your account. You need to know your money is protected when it's held with your broker. 

To help you get started, you can find a list of regulated brokers at https://trading-education.com/brokers

Open a Trading Account

Once you have selected your broker, spend some time getting to know how they work. Select a demo account to get started. At this stage, make your trading experience as realistic as possible. Trade the amount of demo money you are likely to start with when you go live. If you have a £500.00 starting bank, your lot sizes will be the smallest available. This keeps the risk low for your capital. Trading huge lot sizes in a demo account will not prepare you for live trading.

Download The Trading Software From Your Broker

Your trading platform is likely to be MT4 or MT5, depending on what your broker is offering. Get familiar with this platform. At first, you may feel overwhelmed by how much there is to learn. Find out what all the buttons do. Learn the settings and spend as much time as possible learning how the platform works.

In chapter 15, you will learn how to install, set up, and use the MT4 platform.

Commit to Your Ongoing Education

It will take time for you to become confident in all aspects of Forex. There is much to learn before you can trade with a good chance of being successful.

Below is a list of subjects you will need to understand before you get started.

Technical and Fundamental Analysis

You will learn how to read charts using analytical skills. And you will gain a deep understanding of market sentiment. Some traders like using technical analysis. Others prefer fundamental analysis. But some traders use both to gather information on the market.

Technical Indicators

There are hundreds of technical indicators available. Some are on the chart and some indicators are external to the chart. Over time, you will find indicators to suit your style of analysis and trading. It’s important to learn about the typical indicators used. This is so you can work out which indicators to use when you are planning to take trades from your analysis.

Types of Orders

You can take an instant live trade or set a pre-planned buy or sell stop or buy or sell limit. New traders often find this complicated but it is quite simple. You must know where you plan to take your trade, at what point in the market.

In chapter 12 you will learn everything you need to know about market orders and how simple they are to execute.

Understanding Leverage

Your broker will offer you a selection of leverage options. This means you can trade with more money than your balance. Kind of. But it’s not that simple. It’s important to understand leverage before you decide whether to use it or at what level to choose.

In Chapter 5 we will discuss leverage in some detail.

Timeframes

You will need to learn how timeframes work on the charts. Some traders work well with jumping into the market super quick and then making an exit as fast. They may trade on the 5 minute or 15-minute timeframe.

Intraday traders may work with the 30-minute or one-hour timeframe. And longer-term traders may work with the four hourly or daily timeframe. The day trader may hold a trade for a few days or even longer. You can also analyse the weekly and monthly timeframes.

Your choice in what timeframe you trade will depend on your ability and aptitude. The shorter timeframes move fast. So your analysis needs to be sound or your money can rapidly disappear. The way to learn your preferred timeframe is by testing in your demo account to see which suits your style.

Having a Strategy

You’ll soon discover the vast array of strategies available to the Forex trader. Some of them are simple and easily implemented. Others may appear complicated. To get started, pick one or two strategies that you understand. You will then know the market conditions needed to use your strategy. And you'll know where your strategy calls for the exit.

In Chapter 16 you will learn 5 of the most popular trading strategies and how to use them.

Forex Terminology

What is a pip? What is a point? What are Elliot Waves? What are simple and exponential averages? At first, it’s easy to feel baffled by the sheer volume of Forex terminology. But don’t worry, we have this covered in Chapter 3

Creating a Trading Plan

The adage of ‘Fail to plan and you plan to fail’ is never more relevant than in Forex. Without a plan, you will find yourself staring at the charts not knowing what you are looking for. Your brain will get over-stimulated and tired.  You end up taking trades you should never have taken. Before you start trading Forex, you need a clear idea of what you are looking for. You also need to have a clear entry and exit point for the trade.

Chapter 11 covers this subject in detail.

Deciding which pairs to trade

Not all currency pairs are created equal. Some pairs are more volatile than others which increases your risk. At first, it can be tempting to scroll through the currency pairs looking for a trade. But this is a road to nowhere fast or a path to chaotic trading. In time, you will find one or two pairs that you enjoy trading. Familiarity gives you an edge as you study how one currency pair moves. What are its quirks? What happens to this currency pair following economic news? This familiarity gives you a better chance of effecting a successful trade.

In Chapter 7 you will learn what currency pairs are and how they work. We will explain in detail the information you need to make an informed choice on which pair to trade.

Stop Loss & Take Profit areas

As part of your trading plan, you must know where to set your stop loss. This means the level of risk you are prepared to accept. Imagine you have a buy trade live in the market. Suddenly the market drops, the price hits your stop loss and takes your trade out of the market for a loss. But, as part of your risk management plan, you know EXACTLY what that loss will be before it happens.

Equally important is setting your desired profit zone. When you place your trade, you set this target so when the market price reaches it, your trade will close in profit.

In Chapter 13 you will learn everything you need to know about stop loss and take profit.

Creating a Risk Management Plan

How you manage your risk will determine your success. Many novice traders fail to treat risk with the importance it deserves. For instance, a sensible approach for a novice would be to risk 1-2% of their trading bank on an individual trade. If you start risking say 10% of your account, you are taking huge risks. This is more of a gambling mindset NOT the mindset of a professional Forex trader.

In Chapter 10 you will learn exactly how to manage your risk.

Economic News and Data Release

News and data relating to the economy can have a significant impact on the Forex market. Market movement can be confusing after news announcements. Seek to understand what is likely to happen. This gives you a better chance of not having a weak market position.

There is more on this subject in chapter 14 where you will learn how to use an economic calendar.

Build a Trading Mindset

It may surprise you to learn that a lot of top Forex traders commit to daily meditation practice. The brain is twice as responsive to losses as it is to gains. This is valuable information to know because most novice traders fixate on avoiding losses. The professional trader understands that loss is part of the process.

To become a successful trader, your mind needs to be calm and unattached to the outcome. You learn to do your analysis, place the trade, and then let go of whatever happens next. The trade will either win or lose. Once you have placed the trade, you cannot influence the result.

You may become excellent at chart analysis. But if your losses cause an emotional meltdown, your balance will reflect your state of mind.

Before placing any trades, make sure you are calm and relaxed. If you have just had a row with your spouse or you are stressed about something, walk away from your trading station. And don’t come back until you are certain your emotions are back in balance. This time-out will teach you one of the positive steps to become a disciplined trader.

Many novice traders believe they are going to be the next Forex multi-millionaire. They believe they won’t need to discipline their mind. This is arrogance and will lead to poor results. They think they have control of their emotional responses. But every trader gets caught out by the limbic system. Your emotional response is so fast. You won’t have any idea what happened until it’s all over and your money has slithered down the drain. You’ll think you will learn from your mistakes. Many don’t. You end up feeling baffled by your erratic behaviour and wondering if you will ever master your trading mind.

Disciplining the mind is a prerequisite to successful trading. Ignore it at your own risk.  Commit to learning about the psychology of trading. Spend equally as much time as spent learning about what happens on the chart. This, in the long-term, will reap your rewards.

So, as you can see, it is relatively easy to get started trading Forex. You now know the education and the tools you need to help you to get started with a greater chance of success as a Forex trader.

In the next chapter, you are going to learn the lingo of Forex.

Next: Learn Forex Lingo