7 Steps to Getting Started In Forex Trading

Last Updated : Monday 15th August 2016

Written By Tim Baudin
Forex Trading Instructor

Forex trading can be a serious career or business opportunity.

You can make decent full time or part time income working online from the comfort of your home and being your own boss!

But like any other thing in life, there are many things to learn before you start seeing positive results.

Taking some time to educating yourself can help you in preventing big mistakes in future.

Is Forex Trading For Me?

Is it easy to trade forex?

There must be so many questions in any beginner’s mind like
- how to get started?
- which broker do I need to open an account with?
- Should I demo trade?
- Is day trading better than swing trading? etc.

But the first question you must ask is,  "is Forex trading for me?" Not everyone can be a Forex trader like not everyone can be an artist or musician.

It can be really tempting to trade in the forex market. Forex has a relatively low barrier to entry and sometimes you hear about people making ridiculous amounts of money on just one trade.

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Even if you think Forex trading is for you then also you must require patience, discipline, courage and experience to really be good at it.

Don't rush but try to make a slow steady progress with your trading journey. Initially, your focus should be improving knowledge and money will follow later on.

I suggest following 7 steps to getting started. Though we have covered many things on this site for educating traders, I am presenting here a step by step guide for beginners.

1

Understanding Forex Basics

forex trading basic concepts

You must have a solid grasp on Forex basics before you learn advanced trading strategies or open your account with any broker.

We have tried to cover most of the important basics topics here in Forex trading basics course for beginners. Going through it thoroughly will help to create a solid base.

Having a professional trader as a mentor or being part of any forex traders community can really help you move faster than learning just your own.

2

Start With Demo Trading

forex demo and micro account

Like most other things in life, the best way to learn is by practicing and getting stuck in!

Fortunately with forex trading, you don't need to risk your hard earned real money for that.

Start with demo trading with a good reliable Forex broker.

Purposes of Forex Demo Account:

There are several purposes of opening a demo account.

These are,

  • Practices trading without risking any real money before you start real trading
  • Know about the trading platform provided by your broker
  • Developing new trading strategies and backtest them
  • Measure the performance of different trading strategies to choose the best one among them
  • Practice trading in different time frames to know which suits you most

Most of the forex brokers offer a free demo account, but some of these demo accounts are usable for a limited time. There are some forex brokers who offer an unlimited demo account.

First, just learnmechanical execution aspects of trading (don't think about if you winning or losing at this time). Just try executing trades without making errors. Understand trading platform environment.

You can demo trade for 1 or 2 weeks but if you do it for too long then it can kill your mood. Better move trade with a micro account as soon as you feel comfortable.

It'll help you to learn about psychological effects of winning and losing as you are trading with your real money. But as same time if you blow your micro account and it's not as damaging as blowing a real account with big money in it.

social trading network

eToro's social trading network is a one of the great ways to start for any beginners.

It's free to join and in addition to demo trading, it also allow you to be part of large community of Forex traders.

You can read opinions of other traders and also discuss with them which can provide you first-hand knowledge of their strategies, trading style, and experience.

You can actively participate in learning by asking questions or reading questions asked by others.

3

Learn Advanced Concepts and Strategies

fundamental and technical analysis when trading forex

Once having a solid grasp on basics, it's time to get more advanced with getting ideas about various forex trading strategies and concepts like fundamental analysis and technical analysis.

  • Combining both of them to develop your own strategy can be a good way to start

You can also read books and articles written by expert traders and try to learn from their trading style.

4

Finding Your Trading Style

what is your trading style

Now it's time to fine trading style. It can be based on various things like your behavioral, emotional and personality traits.

It also depends upon your lifestyle!

So for example, if you are doingfull-time job than it doesn't make sense to be a day trader.

You must have tested various strategies on demo or micro account by now. So look into what appeals to you so far and what fits in with your trading personality as well as current lifestyle.

If you still not sure then read a very this very good book Market Wizards. This book has many interviews with successful professional traders with various trading style.

Once you decided your trading style, find everything you could on it through books, Google, Youtube etc. You can also follow try to find and follow other successful traders on twitter who are trading with your style.

Trading Styles:

Different trading styles are as follows,

  • Scalping
  • Day Trading
  • Swing Trading
  • Position Trading or Long Term Trading

Scalping:

If you like excitement and want quick profits then, this trading style will be suitable for you. This is a profitable trading style for those who are impatient, and can think and react faster than many other traders. Scalpers aim to make small profits (1 to 2%) every day.

In this way, they gather reasonable profit in few days or a week.

Advantages :

  • Higher accuracy or winning rate.
  • Capable of generating faster profits than any other trading styles.

Disadvantages :

  • Require a high level of experience and understanding about Forex market.
  • A trader should be active and focused for several hours.
  • Any mechanical error such as internet interruption, slow execution might lead the investment to a large drawdown.

Day Trading:

Day traders do not hold any position to the next day. If you are afraid of holding an overnight position and not a scalper then you should try this trading style.

In this trading style a trader open and close positions anytime before the end of the trading day.

Advantages :

  • Lower trades per day
  • Less trading commissions
  • No overnight position
  • Less trading stress
  • Neither very short term, nor long term

Disadvantages :

  • A trader should have sound knowledge and wide understanding about technical analysis.
  • A trader needs to monitor the market whole day.

Swing Trading:

Swing trading is a longer term trading style than day trading. Swing trading is suitable for those who do not have time to trade or monitor the market whole day but can spend some time every day to analyze the market.

The holding period in this style may vary from a couple of hours to a couple of days. This trading style requires patience and larger stop loss level.

Advantages:

  • Easy to understand and easy to follow for beginners.
  • Profits are larger so the lower winning ratio is not a problem.
  • Flexible trading style and a trader get some time to think before entering into a trade.
  • The lower number of trades so lower trading commissions.

Disadvantages:

  • Required larger stop loss.
  • Chance of overnight positions.
  • Profitability is lower than scalping and day trading.

Position Trading/Long Term Trading:

Position trading or long term trading is suitable for those traders, who have the patience to hold the positions for a long term. A position trader might hold a position for a couple weeks to months.

Position traders use long term charts such as daily, weekly or monthly charts. Position trading requires patience and calmness. Position traders often focus on fundamentals as long-term trends are a reflection of fundamental impacts.

Advantages:

  • Very low transaction cost as only a few trades per week or month.
  • Profits are large enough to cover up many small losses.
  • Highly flexible and carries less trading stress.

Disadvantages:

  • Require a high level of patience.
  • Low profitability in the short term.
  • Stop losses are larger.

Every trading style has both advantages and disadvantages. A trader should know advantages and disadvantages of these trading styles before choosing one.

5

Developing Your Trading Plan

Now it's time to make a plan and follow it. Plan your trade, trade your plan.

As human beings, we are prone to emotions. We trade on hope and fear.

Having a trading plan helps to eliminate at least some of the emotions that are inherent in a risky activity like trading. Logical traders who plan their trades are successful traders.

  • Trading is nothing but a set of guidelines or a structure that defines your trading

So, how to develop a good trading plan? It can be based on following factors

  1. You must know time frame (lower time frames like 5 mins. or higher time frames like 4hr or daily) & markets you'll be trading
  2. You must know what % of your account you are putting on risk for each trade
  3. You must know exact market condition requires to put a trade and how exactly you will enter a trade
  4. You must know how exactly you'll exit a trade in case of either you are right or wrong. At which point on a chart you exit if you are losing? If you winning, would you trail your stops or set a profit target ahead of time? Are you going to book partial profit or full ?

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6

Executing & Recording Your Trading Plan

Executing & Recording Your Trading Plan

Once your trading plan is ready it's good to forward test it in the live markets. Back testing generally doesn't provide you a very clear picture.

You can forward test on either demo or small live account.

I suggest you trading withmicro account as it help can you understand how psychology of winning or losing affects your trading behavior.

This is where your discipline will be tested to stick with your training setups.

  • Just executing your trades is not enough. All trades must be recorded to collect relevant statistical data. It can be easily done with excel sheet by recording all relevant metrics.

This helps you make an objective conclusion on performance of your trading plan.

7

Reviewing Your Trading Plan

After collecting sample size of 100 trades, it's time to review statistics to see how your trading plan performing.

Sadly, there is no one size fits all as different trades faces different issues. It's your duty to find out issues with your trading plan and fix it.

Once you come up with solution, just repeat entire process over again

Develop >> Execute >> Record >> Review

As a novice trader, some of the facts you must know are : "over trading" and "over leveraging" are two fastest ways to lose all your funds.

Simple forex trading strategies are the best to follow and removing of emotional trading is necessary to succeed in currency trading.

You should have a clear idea about proper ways to deal with your losses as you can't be winning 100% of your trades.

It's better to take a break from trading for a while if you feeling too stressed from series of loses.

5 Forex Trading Mistakes to Avoid


1. Over Leveraging

By far the most common and most deadly of the trading sins. The massive amount of leverage offered by forex brokers can range from 100:1 or 200:1. to as high as 2,000:1 or 3,000:1. At 3,000:1 leverage you only need around 333$ to take a 1 Million dollars position.

Don’t get me wrong, leverage is a right not an obligation. Just because your broker offers you 3,000:1 leverage doesn’t mean that you have to take a 1 Million dollar position with your 500$ account.

But it does mean being responsible. Keep your risk per trade low, never risk more then 1 or 2% of your account.

2. Not having a Trading Strategy

Most traders especially beginner traders trade without a trading strategy. They trade blind, often changing up their methods on a daily basis depending on what works in the moment.

Always have a formulated trading plan. A good forex trading plan should have the following elements:

– An Entry Point

A trading strategy should always have a well defined entry point. Write down the rules for entering a position and post them on your monitor where you can see them. If you trading strategy is not fully automatic just write down the main rules and stick to them!

– An Exit Point

Where do you get out of a bad trade? Do you cross your fingers and hope for the best? Hope is not a strategy, always have a predefined exit point and write it down right next to your entry point rules.

– Trading Size

Do you know what will be your position size before you get the entry signal? Or do you vary your size based on how you feel once you get the alert to enter? The size of your trades should be directly related to your trading strategy. In general, a good rule of thumb for new traders is the 1-2% limit I talked about earlier

3. Not Following Your Trading Strategy

This trap is as common as number 2. Once you have formulated your forex trading strategy than stick to it! After you enter a trade don’t forget to put in the Stoploss and Take profit orders.

What’s the point of going through the trouble of creating a trading strategy and then abandoning it once you start trading?

4. Using a Trading Method Not Suitable for You

Your trading method should be suitable for your lifestyle. If you work and don’t have the time to watch 1 minute charts don’t try to create a scalping strategy. Pick a daily or 4 hour strategy instead.

5. Not keeping a Trading Journal

Is your trading strategy working? Does the entry need to be tweaked or does the take profit level need changing? The only way to know if any changes are needed is to keep a trading journal.

Write down your wins and losses, as well as your reasons for entering and exiting a trade. Review your journal on a regular basis, at least once a week. It will do wonders for your trading.

Popular Forex Trading Myths and Realities

Forex is the largest marketplace in the world as it is the largest financial market. Financial markets react with the mass trader’s psychology.

This is why financial markets are full of rumors, news and myths.

Whatever how long you are trading in forex market, these rumors and myths are always around you. 

These myths can lead a trader to unnecessary fear, greed, pride and excitement.

To keep your mind safe from these psychological impacts, you should know about these forex myths.

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7 Golden Forex Trading Tips for Beginners


To be successful in this market, you have to follow some golden tips without which you can not be able to make money here.

1 – Plan your trade, trade your plan

The first rule to follow is to develop a trading plan and then stick with the plan. A trading plan should consist of entry, exit, and stop loss rules with sound money management strategy.

Without a trading plan, it is almost impossible to be successful in the forex market or forex trading.

2 – Trend is your friend

The trend is your friend and you should be with the trend to be successful in forex trading. The trend is a projection of financial or economic change in the chart. This long lasting one-sided direction gives us the opportunity to enter and pull out profits in the short term.

This major movement is called as a trend. To follow the trend, you should go long in the uptrend and go short in the downtrend.

3 – Preserve your trading capital

In forex trading, you cannot win every time, so if you do not have money to invest then you will miss many opportunities to make profits. To protect your trading capital, you should not invest all money in a single pair.

If you invest all of your money in one pair, then you will be out of the market very soon. If you use a sound position sizing strategy and sound money management then your investment carries less risk.

4 – Cut your losses in short

Small losses are the best losses. It reduces the risk of getting ruined or getting a margin call. If you do not take a small loss, then you will have to take bigger losses soon.

A stop loss strategy should be used to avoid getting a large loss or a margin call.

5 – Let your profits run

A large profit can cover up many small losses. A traders’ exit plan should be able to catch or trail large profits so that he can recover his small losses and be on the winning side.

An exit strategy is very beneficial due to this reason. The risk to Reward ratio can be helpful to set up the profit target.

6 – Trade your own analysis

In forex trading, you should avoid others suggestions and your trades should be based on your own analysis. Many traders do not have confidence in their own analysis, and thus, they often trade the suggestions of other traders.

This is not going to bring profit for you in the long run. A trader should have to rely on his own analysis with confidence.

7 – When in doubt, stay aside

Standing aside is the best solution when you are confused to make any decision. It is also one kind of position in trading. When you are confused about the market or pair, then there is no point to increase the risk.

In this kind of situation, a trade should stand aside and should wait for next complete entry signal.

These tips mentioned above are the most important tips for beginners to follow among all the trading rules.