The following is a guest post by Michael Trinkle of ForexTraders.com.
The popularity of foreign exchange trading over the past five years has been nothing short of phenomenal. Flexibility and ease of use have been the hallmarks of this investment vehicle, drawing countless throngs of beginners to forex trading platforms eager to trade their way to wealth and prosperity. Unfortunately, these “newbies” fail in abundance and fail quickly due to their impatience and inexperience. Like any other performance-driven skill, there are no shortcuts to success. You must invest the time if you want any chance at making money at this art form. Following a disciplined approach to the market is key at all times when trading in these volatile waters.
Your instruction regimen should be just as disciplined as when you eventually trade. Here is a structured outline to follow:
1) Awareness: Immerse yourself in everything having to do with Forex. Read as much as you can on the Internet, at the bookstore, or at your local library. Review a forex glossary. The goal here is to become familiar with the language of foreign exchange so that you make the most effective use of your time going forward.
2) Tutorial: Accept that you are an amateur. No need for ego at this stage. You must enroll in a class and learn your skills from a mentor who will teach you the field, technical and fundamental analysis, where to find the right information, how to trade and develop a winning system, how to recognize patterns and trends, how to avoid fraud, and how to mitigate risk of loss.
3) Broker: There are many out there. How do you choose? Check reviews on the Internet, talk to other traders, and stay onshore. Do not choose your business partner because of the amount of leverage or the special deal he is offering. The potential for fraud is high in those cases, so be safe, rather than sorry.
4) Trading Platform: Your broker will most likely have his own or allow you to hook up with your own. The “Metatrader 4” forex trading platform is the most popular around, downloadable from a variety of sites, and supported by the best brokers. You must become adept at using all the tools necessary to review the forex market, to trade, and to protect your downside.
5) Forex Demo Account: VERY IMPORTANT!!! Practice is the only way to get experience before you put your real money at risk. Successful traders have admitted in surveys that they practiced from 3-6 months, some even a year, to gain the confidence and achieve the level of consistency that they needed to profit from forex trading. Your objectives here are multi-fold:
- You must develop your personal trading system whereby you determine your entry and exit points BEFORE you place a position in the market. You must assess your potential risk AND place stop loss orders or trailing stops to prevent the market from wiping you out.
- Forex trading is not about winning every time. You will lose on trades, as well as win, but your objective is to have consistent gains, or net profits, over time. Stay on your demo system until you are satisfied with your level of consistency;
- Psychology plays a huge role in trading. To be successful, you must prevent your emotions from entering the game, or you will hold on to losers and cut your winners before they have a chance to run. Many of the reasons for a disciplined approach is to preclude your mind from undoing your best laid plans. Do it by the numbers!
6) Real-time Trading Intro: Real-time trading may appear different than your demo system. Since this transition to putting your real money on the line can upset your balance, it is recommended to start with mini-lots of $100 to get accustomed to the new environment. Orders may take longer to execute. Your mind may play tricks on you since real money is at stake. Caution is your friend. Never bet the bank at this stage.
7) Trading for Real: OK! You have invested your time wisely to get to this point. You have perfected your trading skills. You will approach the market every time with a well conceived plan beforehand. Forex trading is not about gambling – it is a profession where skill is used to your advantage. Now that you have honed your skill, do as Nike says, “Just do it!”
Success at any investment activity requires knowledge, experience, and the ability to control one’s emotions. There are no shortcuts to achieving all three requirements. You must invest the time first before you can have any chance at earning the title of “forex trader”. Practice until your trading approach becomes second nature. Follow the outline above, and don’t forget to have fun, too!
Hi, I’m Cathy! I’m a former career-driven professional turned stay-at-home mom. Living on one salary has its challenges, but it is possible to live the good life while spending less. Cool to be Frugal is all about how we’re thriving, not just surviving, on a single income.
{ 9 comments… read them below or add one }
I was looking into this a while back, and could not really find a good answer. How much does it cost to get started, I noticed that you said mini lots of $100, but how many mini lots should one invest with?
Good read though, interesting considering I’m thinking about possibly getting into this!
myfinancialobjectives´s last [type] ..New Philadelphia Blogger Tax
Some brokers will let you get started with as little as $250. I don’t recommend that though. A general rule of thumb is that you should never risk more than 2-5% of your account at any given time. If you trade 1 mini lot, which roughly equates to $1 per pip and you risk a max of 100 pips on a trade (always using a stop) that means you want to start with at least $2000 in your account.
But demo or practice accounts are free. You can go to FXCM or IBFX or Oanda and sign up for one pretty easily.
awesome thanks a lot Mrs.Frugal. You without a doubt answered my question.. I’ve been looking for that answer for some time now actually
myfinancialobjectives´s last [type] ..Yakezie Link Rally!
Absolutely take advantage of the free and trial accounts. I mean you can read strat’s and guides all day but I am a big believer that forex is something to be experienced. It get’s to be a little addicting too
Great guest post!
Nunzio Bruno´s last [type] ..Back to School How to Avoid a Financial Crisis
I completely agree. I traded a demo account for 6 months before I put any real money at risk.
any debutant trader should consider it as a good advice, i really enjoyed it reading and quite comprehensive!!!
I agree with most of these, though when you get to the Demo step you need to make sure to watch your emotion because your gonna need to trade like that when you get to real money as well.
Randy Rodenhouse´s last [type] ..Trading Forex News- Retail
The article is pretty spot on, as are the comments. The aspiring Forex trader should, without a doubt, get a good, quality education. There are many to choose from, but most are over priced. Look for a good education without the high price tag. Paying more doesn’t always mean getting more.
Mike´s last [type] ..China Raises Interest Rates Again to Cool Inflation
I recommend 5th point to the new traders a lot. All new traders should demo trade first for at least 6 months. Then only they will know how to deal with forex. As mentioned in this article, every trader should develop his/her own strategy. This can be done only by demo trading a lot. Then only they will know what is working and what is not and it will help them to develop their own strategy.
Raj´s last [type] ..Accumulation Swing Index Trading Results – Week 1
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