Trading in Forex markets reached an eye-popping $6.6 trillion per day in April 2019, up from $5.1 trillion three years earlier. Ranked as the largest financial market in the world, its mammoth size, easy accessibility, and high level of liquidity offer the opportunity to those willing to step out of their comfort zone and learn new skills.
The definition of a trader, either independent or on behalf of a financial institution, is, in simple terms, someone who engages in the buying and selling of financial assets, such as shares, bonds, commodities and currencies. This can be through an organised exchange, like the New York Stock Exchange (NYSE), or over-the-counter (OTC) CFDs (contract for differences) through a network of brokers.
If you possess an analytical mind, unyielding resolve, and determination to succeed you may excel as a trader.
Before anything else, to achieve success as a Forex trader, or anything in life, you’ll need determination – and lots of it.
Trading is a never-ending journey, a process that will unearth many obstacles.
Without the will power to overcome these stumbling blocks, trading will be an exasperating endeavour, ending with most throwing in the towel.
An investment in knowledge pays the best interest – Benjamin Franklin
It is essential new traders take the necessary steps to educate themselves. It is the key component.
Sadly, some overlook the basics (and even the intermediate stage) and begin formulating a trading strategy, reasoning that success in the markets is straightforward.
To be a successful Forex trader a solid foundation is needed. It’s akin to learning a new language.
To become proficient in any skill, introductory concepts must be understood.
Understanding what the foreign exchange market is and who the main participants are is key learning in the beginning phase. Other basic concepts are how currency markets compare to other financial markets and their history.
To speed up the learning process, feel free to check out our Trader’s Hub, the trading information centre. The Hub delivers daily and weekly technical and fundamental analysis from our team of industry experts, as well as a wide range of articles, eBooks, webinars, and videos.
An understanding of the basics provides a stepping stone to progress to more intermediate concepts.
Intermediate traders will begin learning the skills required to function as a trader.
Knowing how to read a currency pair quotation is mandatory learning at this step. Other things that must be acknowledged are the difference between direct and indirect quotes, what base and quote currencies represent, what the bid/ask prices (and spread) signify, what constitutes a pip and what a long and short position means.
Additional areas covered will be the different chart types available as well as the process behind margin and leverage. The latter is exceedingly important to have a thorough understanding of.
Another important theory intermediate traders will likely explore is trading psychology. It cannot be stressed enough how significant this element is. Without it, trading success is practically impossible. A trader’s psychological make-up is ultimately influenced by emotions and pre-determined biases.
In addition to the above, traders will cover the different trading styles available, such as scalping, day trading, swing, and position trading. Following this, establishing an overall trading plan may be the next chapter, which will require substantial research.
Included within the trading plan is the development of a trading system (a document detailing the trade setups and associated entry and exit rules), employing either fundamental or technical analysis, or both. For example, a trading system may follow a price-action based approach, with one or two additional technical indicators for confirmation purposes, such as the MACD or Bollinger bands. Also included in the trading plan are risk- management and money-management strategies.
Lastly, in order to become a well-rounded Forex trader at this stage, extensive testing is needed, by way of backtests and forward tests.
It’s recommended to demo trade. This provides the freedom to develop trading systems and experience different market conditions, in a risk-free environment. It also allows traders to familiarise themselves with the trading platform’s functions. The debate concerning the length of time a trader should remain on a demo is ongoing. Nevertheless, consistent results for at least 3-6 months is a good rule of thumb to follow before considering live trading.
It is at the advanced stage traders begin seeing results from testing. To reach this phase is an incredible achievement.
This is only half the battle, though.
The next step, the real challenge, is switching to a live trading account. Many traders find this a difficult transition.
Trading psychology tends to become an issue at this point. Losses inflict emotional strain, particularly when consecutive losses are encountered. Demo trading often neutralises the emotional challenges traders face when handling real money. How a trader manages emotions during trading can mean the difference between a consistently successful trader and one that struggles to breakeven.
Professional traders trust their analysis, trust their testing, and follow their rules set out in the overall trading plan.
When real money enters the equation, traders very often feel the pressure.
Shifting from demo to a live account requires a structured approach.
The fundamental difference between trading a demo account and trading live funds, as touched on above, is emotion.
To make the transition from demo to live easier, start trading with a small live account. Find comfort trading small positions and build from this. For example, some traders may feel $1,000 is a sufficient starting account, risking only $10 each trade (1%). Once comfortable at this level, moving to a $2,000 account is an option, then $4,000, and so on.
The key message in this article is if you’re just beginning your trading career, don’t rush. Educate yourself and work through the obstacles.
Becoming a profitable trader, a successful Forex trader, is possible if you’re willing to put in the hard work and time.
Remember why you started – successful Forex trading is a slow process, but quitting won’t speed things up.
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