How to trade forex—13 step guide 1
First thing to do is to clarify what is your goal with forex trading. It can be a hobby or it can provide a supplementary income. Most of the people’s goal is to make a living from it or to make a fortune from it.
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Commercials are full with promises how easy it is to make money from forex. And most of the retail traders are dreaming they can 10/20/30 fold their account in a year. The reality is you can double or triple your account size in a good year.
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After you faced reality it is time to make a financial plan for the whole year. Summarize your incomes and expenses and make sure you have enough money even if you lose money on forex trading and burn your account. Safety is the number one priority.
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Personality check. Clarify your strengths and weaknesses. It is very important to get to know yourself. After you know the positive and negative side of your personality it will be much easier to control yourself, and here comes the next step.
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Learn to control emotions. Most of the decision that are based on emotions will result losses on the long term. Forex trading is a constant emotional roller coaster ride.
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Get to know the forex market. It is a global decentralized market which means it doesn’t have a central exchange (like the NYSE) instead it has several trading hubs around the globe. It is the largest market on the globe (around 5 trillion USD turnover/day). It is open 0-24h on weekdays. And it has many more attributes you need to learn before you start trading. 2
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Get to know the forex expressions. For example: Pip (A measure of change in a currency pair in the forex market, usually the fourth decimal point), Lot (it refers to the size of a trade) etc. And you have to learn the order types as well (stop loss, take profit etc.)
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Choose a forex strategy. There are thousands of strategies available but most of them only focus on technical analysis. We here at Forex Behind The Scenes combined Technical Analysis, Fundamental Analysis, News Trading, and Market Psychology.
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Market Psychology. Probably this is one of the most important and unfortunately the most ignored element of forex trading. Without understanding market psychology you will never be able to trade the forex market profitably on the long run. You have to understand that the market is a living creature and it consists of human beings.
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Choose a money management method. There are several kind of money management methods (e.g. riskreward ratio/using trailing stop etc.). Choose the one that suits your personality the best. 3
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Choose broker. There are four major types of brokers. Market Makers, ECNs, STPs and MTFs. There are lots of factors to consider before choosing a broker. These are for example: account size, trading strategy, your time zone, number of liquidity providers of the broker etc. Do not be afraid to contact with the broker and ask them about their trading conditions.
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Open a demo account with the chosen broker and practice your trading strategy. It will take time until you become consistently profitable, but do not move to the next step until you can show up a sustained return.
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After you are consistently profitable you can open a live account. Live account is different from many aspects compared to demo account. In live environment you can easily get a slippage or re quote while in demo these things never happen. First you have to get used to the live environment so start with the smallest amount of risk. After you are consistently profitable you can raise your risk level.
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