Is forex trading one of the things you said you’d learn and get good at this year?
I’ve put together a simple guide to help you get going and keep going!
Before they even know what a “pip” is, many people who are interested in trading currencies are inundated with trading signals and even offers of mentoring and brokering services.
Trading without enough knowledge is like jumping into a deep pool without warming up or knowing how to swim and then expecting to complete a lap.
Some people end up drowning, while others quickly realize they made a mistake and run for the nearest exit. Few people will be lucky enough to finish that lap, but they often won’t know how they did it.
Finding patterns and using the right indicators are not the only ways to do well in trading.
Trading is a skill that you have to practice and get better at with every trade.
Even though there is no Holy Grail or magic formula for always making money (it depends on the trader’s personality, discipline, and ability to learn), I can show you a process you could follow:
Get to know the basics of trading currencies.
A boxer can’t get a knockout just by having a strong will to fight. He studies how the match is scored, how his opponent moves, the punch combinations and strategies he can use, which gives him a better chance of winning.
At the very least, you should know what pips, leverage, and risk management are and how they affect your trades, as well as how broker execution and spreads work.
Learn to recognize patterns.
Like how athletes learn to spot patterns by watching a lot of tapes, you should look at A LOT of forex price action to learn how to spot patterns.
Depending on how long you want to look at charts, you might have to look at charts for months or even years before you can easily spot simple patterns like breakouts, trends, and ranges.
Don’t forget that trading is NOT a way to get rich quickly. If you want to be consistently good at a high-performance task, you have to put in time, work, and yes, money.
Come up with a way to trade.
Here is where you start coming up with your own combos. Try trading with different currency pairs, technical indicators, time frames, and risk management strategies to find the ones that fit your trading style and resources.
You can also use the strategies of other traders, but keep in mind that just because a strategy worked for one trader doesn’t mean it will work for you.
Once you know what makes you more likely to win than lose, you can put together your own system for trading.
It can be as simple as entering and leaving trades at major levels or as complicated as entering trades only when a SMA crosses a Bollinger Band while your cat dances to YouTube videos.
Trade on demo.
I know a lot of successful traders who skipped the demo phase and went straight to trading for real money. When real money is at stake, trading changes into a whole new ball game.
Demo trading, on the other hand, lets you not only see if your trading system is profitable, but also improve your skills without having to worry about making money.
This is where you learn to find the flaws in your trading system and the most important things you need to work on. If you can’t make money trading demo, don’t try trading for real.
Figure out how traders think.
You don’t get extra credit in trading if you have the most unique view of the markets. Even if you are right, that doesn’t mean you will make money.
What’s more important is to be able to accurately predict how other traders will price in new catalysts and to be able to spot shifts in sentiment when they happen (or before they do).
You have to think like a trader to get good at this skill. You can start by going to trading blogs and forex news sites that are well-known. You can listen to podcasts about trading and watch videos of live trading. Join trading groups, and if you have any questions, don’t be afraid to ask.
Learn what forex traders like you care about, and you’ll soon be able to guess how they’ll react.
Write down how you’re doing.
This is the hardest part of the process, but it is also the most important. This is where you work on making sure your system always makes money.
Set goals, targets, and performance metrics so that you can measure how well your system works and how well you use it.
At this point, you should keep a trading journal because it will show you what works and what doesn’t.
Practice helps speed up the process even more. Stick to your original rules for a while to give them a chance, but don’t be afraid to tweak them if the data supports a change.
Trading currencies is not a magic trick that will make you rich right away. It’s also not a game with cheat codes that everyone can use to make it easier.
Trading is a business, and just like any other business, it needs time, money, a little luck, and, most importantly, constant preparation to be successful.
“If you don't find a way to make money while you sleep, you will work until you die.”
- Warren Buffett
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