Is forex trading one of the skills you promised to learn and master this year?
I’ve rounded up a simple guide to help you get started and stay on track!
Many who are interested in trading currencies usually get flooded with trading signals and even offers of mentoring and brokering services even before they knew what a “pip” is.
Trading (especially with real money) without sufficient knowledge is like jumping into a deep pool without a warm-up and any knowledge of swimming and expecting to finish a lap.
Some end up drowning while many realize their mistakes early and head fast for the nearest exit. A lucky few would finish that lap but often won’t know how they did it.
Success in trading is more than spotting patterns and using the right indicators.
Trading is a performance skill, one you have to sharpen and be consistent with every single trade.
While there is no Holy Grail or formula to being consistently profitable (it depends on the trader’s personality, discipline, and ability to learn), I can walk you through a process that you could follow:
1. Learn the basics of forex trading.
A boxer doesn’t score a knockout with just his fighting spirit. He studies the scoring system, how his opponent moves, the punch combos, and strategies available to him, which all combined, gives him better opportunities to win the match.School of Pipsology for the basics then test your skills with the School quizzes.
2. Learn to recognize patterns.
Just like athletes recognize patterns by watching tons of tape, you should also look at A LOT of forex price action to develop the skill of recognizing patterns.
Remember that trading is NOT a get-rich-quick scheme. You need to invest time, effort, and yes, a bit of moolah if you want to be consistently good at a high-performance endeavor.
3. Develop a trading system.
This is the part where you start designing your own combos. Try trading different currency pairs, technical indicators, time frames, and risk management strategies to find the ones that fit your trading personality and resources.You can try others’ strategies as well but remember that just because a strategy worked well for one trader doesn’t mean that it will work for you.
Once you identify the factors that give you more wins than losses, you can piece together your own trading system.
4. Trade on demo.
I know a lot of profitable traders who skipped the demo part and proceeded to live trading. After all, trading becomes a whole new ball game when real money is at risk.
However, demo trading allows you to not only test your trading system for profitability but also hone your skills without the pressure of making profits.
This is where you learn to identify the weaknesses of your system as well as the major trading issues you need to work on. If you can’t make money while trading demo, then you definitely shouldn’t move on to live trading.
5. Learn to think like a trader.
In trading, you don’t get extra points for having the most unique take on the markets. Being right won’t automatically translate to being profitable either.
What’s more important is accurately anticipating how other traders will price in new catalysts and identifying sentiment shifts when (or before) they happen.This skill requires you to think like a trader. You can start by visiting popular trading blogs and forex news sites. Listen to trading podcasts and watch live trading videos. Participate in trading communities and don’t be afraid to ask if you have any questions.
Learn what’s important to forex traders like you and you’ll soon anticipate their reactions.
6. Track your progress.
This is the hardest but most important part of the process. This is where you work on your system’s consistency in profit-making.
Establish goals, targets, and performance metrics so you can measure how effective your system is and how effectively you execute it.
A trading journal is highly recommended at this point because it shows you which factors work and which ones don’t.
Deliberate practice further speeds up the process. You have to stick to your original rules long enough to give it a chance but don’t hesitate to fine-tune it if the data supports a change.
Currency trading is not a life hack that makes you instantly rich. It’s also not a game with universal cheat codes to make the game easier.
Trading is a business and, like any other business, it requires time, money, a little bit of luck, and most importantly, consistent preparation to be successful.