More than $4 trillion dollar worth of currency is traded every day in foreign exchange market. This is the largest financial market in the world and it is not hard to make money in forex if traders have the essential experience and a good forex trading strategy. Experience comes through time and a good trading strategy emerges from the mistakes, trial and errors, perseverance and curiosity of the trader.
According to a Bloomberg study and a research conducted by National Futures Association (NFA), more than 80% of the retail forex traders lose money. This suggests that trading in leveraged forex market is not for everyone and self-improvement is necessary.
In theory, the concept of forex trading is not very complicated, since there is only one simple decision that trader has to make; whether to buy or sell a currency pair. If the trader believes that EURUSD will go up and buys and EURUSD moves higher, a profit is made.
On the other hand if EURUSD declines, the trader suffers a loss. But in practice, forex trading is not that plain. Human psychology comes into play and meddles with the trader’s decision. Even the best-devised trading strategies and experienced forex traders are vulnerable to the tricky games of human emotions. In this article, I am going to present some useful approaches that are going to improve your odds of making profit in forex market.
Following a Trading Plan
Investors who make a living from forex trading has developed a daily trading plan and this is by far the first step to take if you are convinced that trading forex market is what you want to do in the long run. Following a trading plan with persistent discipline and patient is going to flourish sound trading habits for you. So what are those habits? Keep reading…
Learn Before Going Live
Forex is very easy to start with. You register with a forex broker, submit the required documents, fund your account and you are good to start trading. This whole process may take between one to three business days. However, just because forex is easy to get into, it doesn’t mean that becoming a profitable forex trader is likewise.
Well, of course, you could get lucky and make money in forex from your first trades however it is for sure that you are going to blow up your trading account eventually if you don’t train yourself. Learning is an ongoing process as the market dynamics could change frequently and traders have to be prepared to accommodate to new market conditions. A successful trader is obliged to know everything that affects the forex pairs, including economic data, central bank policies, technical analysis, political and geopolitical developments.
A significant portion of training comes through trading live account. Since you are trading with your hard-earned money and manipulative emotions are included, you are to get the most efficient and genuine lessons and experience by trading live. However, applying your trading strategy on a practice account before going live is still very helpful and saves you from the risk of losing real money in the case the trading strategy fails.
My conviction is that you have to apply a strategy on a demo account at least for three months with at least fifty executed trades in order to be able to conclude whether it is a profitable or losing one. A good alternative to practice account is a nano account (named cent account on some brokers) where you can trade as low as 10 contracts, compared to standard accounts where the minimum transaction size is 1000 contracts.
Find a Reliable Forex Broker
The training and experience are two essential factors on the way to make money in forex. Say, you have been trading forex market for several years, you have the enough experience. Besides, you are very well synched with the markets. You are following the economic calendar, political developments and central bank policies in a timely manner.
However, the forex broker that you are working with is a not regulated and reliable one. You are not sure if you will be able to get it into your bank account when you profit on your trades. Does it matter if you have ten years of trading experience and discovered the holy grail of forex market but you can’t withdraw your profit to your bank account or the broker doesn’t allow you profit by applying shady practices on its trading platform?
Therefore traders should only open forex trading account with a broker that is regulated by a reputable regulator such as FCA in the UK, ASIC in Australia, NFA and CFTC in the US, CySEC in Cyprus and FINMA in Switzerland. All those regulators impose strict standards and oversee them to ensure the safety of client deposits and the overall credibility of a forex broker. Please check my list for the reviews and ranking of forex brokers from all around the world.
Choose a Trading Style That Fits
Every trader has their own trading style and strategy that is suitable to their personality, experience and knowledge. Some traders like trading based on technical analysis and some others on fundamental analysis. Some traders prefer using multiple technical indicators that ara offered on the trading platform whereas only one indicator could be good enough to see where the market will move next for some other traders.
How about me? I can say that I am a trader who predominantly utilizes fundamental analysis for predicting the markets with keeping an eye open on technical indicators and chart formations. I strongly believe that major moves are triggered by fundamental differences between two currencies such as divergence of monetary policy, economic growth, employment and inflation outlook. However, technical factors such as support and resistance may shape the short term or intraday price action thus should never be ignored.
Establish Realistic Goals
Too many eager traders join to the forex market with a fantasy of making thousands of dollars every month with a limited amount of capital. Do you think that this is an objective and feasible goal? This market is the wildest that you could ever see and makes a lot of fake moves such as bear traps and bull traps. Thus setting hundreds of pips as daily target or ten thousand dollars per month with a starting capital of few hundred dollars are not realistic.
Beginner forex traders are inclined to lose their nerve fast if the trade that they executed does not go their way immediately. On the other hand if the trade earns little profit, they get excited to pull the plug early and get out of the market with a small profit. Patience is a great personality trait and this could not be proven more correct than when trading forex. Emotions and human psychology is the key here and every trader should remember that all human beings are exposed to the same feelings.
I also used to fear for being on the wrong side of the market, blowing up my trading account, getting margin call, etc during early days of my trading career. After all, forex trading is about learning yourself, making mistakes and improving yourself on the lessons you get from your losing trades. This whole process takes time and you have to be patient enough to endure the losses, fears and frustrations in order to be able to bring out the forex trader within yourself.