So, you are interested in becoming a forex trader, and enjoying all the benefits that it brings? Here at Forex Mentorpro we thought we would help you out by putting together a series of articles focusing on how to trade forex for beginners.
We are passionate about helping you have realistic expectations and avoiding some of the many pitfalls that beginner traders can fall into. As you progress through the content of this website we will show you how to trade forex successfully.
What is Forex Trading?
Firstly, let’s talk about what forex trading isn’t. Forex trading isn’t a get rich quick scheme. Nor is it a quick route to unimaginable wealth and Lamborghini sports cars. Forex trading can be extremely rewarding ‘if done correctly’, but it is these 3 words (where are the three words?) that determines the success of a forex trader. Much like everything in life, what you get out depends on what you put in. A good analogy is that you can’t expect to pick up a tennis racket and win the U.S. Open! Just like you would need to learn how to play tennis; you have to learn how to trade forex, and it takes time and effort just like every other skill.
There are very few barriers to entering the forex market, especially with many retail brokers offering live accounts without any significant investment. They also offer high leverage accounts to entice people to trade with little capital. There is a plethora of trading tools available, the most common being Metatrader 4. This is the most popular trading platform and is used by professionals and amateurs alike. It’s because of the very low entry cost that some people feel they can become a trader and be rich overnight.
Anyway, back to the question in hand, what is forex trading? Forex is short for the foreign exchange. Essentially when you are trading forex, you are trading currencies which are listed on the foreign exchange. Without sounding too simplistic, when you go on holiday you might exchange US dollars for Euros if you are travelling to Europe, this is fundamentally what you are doing.
However, the intention is rather than spend the euros on Spanish hats and margaritas, you are intending to buy back your original currency once the exchange rate changes. The goal is to get more of your US dollars back than what you started with.
With forex trading you are doing this many times over, often using leverage which we will discuss later. Principally, you are borrowing money to trade so you can get higher returns, although that comes with significantly more risk.
Learn How to Trade Forex
This may sound obvious, but the only way to learn how to trade forex successfully is to actually learn how to trade the forex. Many spend hours not to mention $1000’s looking for the holy Grail or that one indicator that turns green for buy and red for sell that ultimately is going to make you rich. I can tell you from personal experience, as someone who spent at least the first year of their trading career doing exactly that, it doesn’t exist. The market isn’t a static beast. It isn’t predictable, it is a function of millions of individual psyches reacting simultaneously under different circumstances. Be those based on price, fundamentals, even what mood people are in. It is impossible to develop a system that can read and interact with all these variables.
Now that doesn’t mean indicators and other EA’s don’t have their place, they do. Very much so in some circumstances, but they can’t be used in isolation of everything else. You need to know how the market works, you need to know what makes it tick. Understand the bigger picture around order flow, fundamentals and technical analysis. This will give you that edge, so that when an indicator says something you know how to react and what it means.
So, before you take a trade it’s important that you spend the time and effort learning how to trade forex. Don’t have an expectation that something or someone is going to do it for you.
Trading is a business, just like any other business that you might think about setting up. If you were going to start a shoe shop, a toy store or pet grooming parlour you would do your due diligence around competition. You would find out what the market looks like for that service and how you can define an edge to your business. Doing this would ensure that you have the best opportunity of success. Trading is no different, and yet we continue to see people simply download software, open an account and start trading.
The Risks Involved with Forex Trading
Following on from the above, people who do not learn how to trade forex ultimately become victims of the industry. It’s often said that 95% of traders fail although I have a slightly different view. I think 95% of people who try trading fail, not because they trade, but because they gamble. That’s to say that they open an account, maybe use $200 to start with, 500:1 leverage and simply bet on whether a currency is going up or down. That’s not trading, that’s gambling. This is why of the 95% of people who fail, 95% of those are probably gamblers.
If you are a gambler the risks are huge. Whenever you enter the financial markets you are battling against some of the most intelligent, highly experienced and hugely funded people and organisations in the world. How can you expect to beat these people at their own game if you don’t put in the effort?
Brokers have learned this over the years, and many don’t even bother actioning your trade beyond their own dealing desk. They simply take the opposite position of the trade, knowing that the chances are you haven’t done your due diligence and you are going to lose. The principal works similar to those used in casinos, the house bets on you being a loser.
With all of these stacked against you, it’s quite easy to see that the risks of trading are high. What’s even worse is that brokers capitalize on this by providing leveraged accounts. For example, if you have a leveraged account of 200:1, that means for every 1 unit of currency you deposit into your account they are going to give you the equivalent of 200 to spend. Now this is great when you’re winning. It really makes you feel good to see that profit in the far right-hand corner of the screen. However, as discussed earlier, with the vast majority of traders losing, that leverage quickly wipes out an account on poorly executed trades.
When it comes to risk, a fundamental part of forex trading is risk management. You shouldn’t think of forex trading as a way of increasing profit, but think of it as a way of protecting capital – your initial account deposit. With proper risk management it is possible to have a win rate of less than 50% but still be profitable in this business. It just takes discipline and patience.
We at Forex mentor pro have a philosophy that you shouldn’t trade with any money that you can’t afford to lose. With all these odds stacked against you it is likely that you are going to lose. Even the most successful traders have losing streaks, and through these you need to be able to maintain emotional resilience. If you are trading money that you cannot afford to lose, then you become emotional about your trading. That is a surefire way to blow up an account very quickly.
What You Need to Trade Forex Successfully
From a technical perspective, very little. The beauty with Forex trading is you can trade anywhere there is an Internet connection. Depending on brokers, even if you don’t have an Internet connection, you can sometimes trade by telephone.
You need a computer or laptop. However, don’t get caught up with the idea that you need 14 monitors to be successful, you don’t. In the adage of size doesn’t matter, number of monitors doesn’t either! It’s what you do with those monitors that makes the difference. You can trade just as well on one and just as badly on 14. Once you get more professional then yes, absolutely having a couple of monitors is useful but not at this stage.
The second most important thing you need is money. As mentioned above, you should only trade with money you can afford to lose. Think of losing money as a cost of doing business, don’t think of it as a loss. If you opened a shop you would have to buy stock before you sold anything and made a profit, that’s effectively what you’re doing here.
Finally, if you can find yourself a mentor, whether it’s us at Forex Mentorpro, or somebody else, it’s really important to have someone who you can talk to about trading. I lost a lot of money during my first year of trading, making the common mistake of trying to find a ‘get rich quick’ option. I wasn’t entirely sure what I was doing, and made trades that any expert would have advised against. It wasn’t until I found a mentor to guide me in my trading, that I became the successful forex trader I am today. Discuss ideas, losses, profits, and have someone who you can chat to will have a huge impact on your performance.
Personality Traits of a Successful Forex Trader
As mentioned before, a key to how to trade forex successfully is patience. Patience while you learn, patience while you practice and patience while you wait for that perfect setup before you take the trade.
New traders often get caught up in the adrenaline rush of being in trades, whereas more experienced and successful traders have already learned that it’s the other way around. It’s not the number of trades you are in. Remember that every trade presents a risk to your capital, therefore you could argue that trades are a bad thing. It’s being able to identify the good trades, with the highest probability of a positive outcome. That is what makes you successful in this business. Some of the most successful traders only take a handful of trades each month.
Another key element of being a successful forex trader is emotional resilience. You need to be able to remove the emotions from trading. Emotions lead to over-trading, revenge trading, chasing trades and numerous other actions which ultimately lead to blowing up accounts. Again, this comes back to the philosophy of only trading money you can afford to lose, or even a demo account.
Finally, I would say the third element you need is determination and willingness to put in the many hours that you will need to become a truly successful trader. I’m sure there are some people out there who get lucky and start trading and never looked back. But for the majority, it takes many hundreds or thousands of hours of studying, demo trading and learning before we become successful. That brings me back really to the first point I made in this article, forex trading is not a get rich quick scheme. You must be in it for the longer term and have realistic expectations. You see many adverts on Facebook and Twitter talking about multiplying an account by many hundreds of times in a short period of time. Don’t you think that if they existed, the banks would be using them? Most hedge funds would fall over themselves to find a trader who can consistently increase their capital by 2% per month while maintaining a very low drawdown on the account. Try not to get hooked up on the get rich quick scheme mentality that many pedal.
The Benefits of Having a Mentor
Right, assuming you have read all the above and you have got to this stage we assume that you are still interested in becoming a forex trader. That is what Forex mentor pro is all about. We are here for the purpose of helping you achieve your desires while helping you avoid many of the pitfalls we have discussed above. Trading can be a very lonely hobby/career and probably one of the biggest benefits of having a mentor is having someone who has been there, made the same mistakes as you and can help you avoid making silly decisions.
Many of our previous clients have also said that having someone holding them to account for their performance has had a huge impact. It’s very easy when you’re sitting in front of your computer and something isn’t going right to blame the markets, the fundamentals, Donald Trump or Brexit. Very rarely do we hold ourselves accountable. A mentor watching over our shoulder takes away the ability to blame everything else and makes us think about how we could have done things differently. Accepting, and learning from your mistakes is key to becoming a successful forex trader.
Learning from a forex mentor, means that you are being taught how to successfully trade forex by someone in the 5% that actually make it.
Basic Strategy to use for Successful Forex Trading
This is one of the most asked questions in forex trading: What’s the best strategy or system to use when you are starting out?
The reality is there isn’t one. Remember any strategy or system is just that. It’s the interpretation of that system that is important, and ultimately that’s down to you, the trader. In essence, any strategy and/or system is you as an individual trader.
Yes, there are strategies using moving average crosses, oscillators and oscillator divergences. Another is Fibonacci, not to mention a plethora of what I like to call “red and green black box systems” that you can buy off the Internet, where you have absolutely no idea what they are doing.
However, the best strategy to use for successful forex trading is you. To use you, it is important that you learn all aspects of the market and how it works. Tools like Fibonacci, trendlines, support and resistance are all very important, but unless you put the time in to develop you, they are pointless because you won’t know how to get the best out of them.
Another thing I will say is that many people will encourage you to use demo accounts. While I won’t discourage you from doing so, there is a certain mentality behind demo accounts that you generate which you don’t have with real accounts. With demo accounts, there are no consequences to your actions. You just click a button and your money comes back. You don’t have that luxury with real accounts.
While we have already discussed not trading money you can’t afford to lose, and using demo accounts, personally I would try to move away from demo accounts as soon as possible. Even if it is into very small live accounts, where you can trade micro lots. The sooner you learn to manage risk and your emotions trading with real money the better.
Hopefully, you have found this article of use, and it has provided some food for thought about firstly whether forex trading is right for you, and secondly, the next steps in how to become successful. Forex trading can be extremely rewarding. It can give you a lifestyle that most people will never have the benefit of experiencing. Work and live anywhere, lots of free time to spend with friends and family and a sense of freedom that very few other careers can give you.
But with so many benefits you cannot expect it to happen easily. Otherwise, everybody would be doing it.
Here at Forex mentor pro we are committed to helping you succeed. We are a team of traders who have all been exactly where you are right now and have been able to successfully navigate the pitfalls to become successful.
So why not give us a try, we are running a special offer, full 7 day access for just $1, sign up, risk-free, to start that journey on the right foot.