Many people expect to end up swimming through mountains of money in their own private vault like Scrooge McDuck when they start trading Forex. This is most likely not the case. It takes beginning investors years to develop the skills necessary to excel as a Forex trader.
As with any career, it takes dedication and hard work in order to succeed at trading currency. The old Japanese proverb, “fall down seven times, stand up eight” is very applicable as you start out in Forex trading.
The three main things to consider as you establish a career as a Forex trader are education, responsibility, and expectations. If you are able to manage these three areas effectively then you will eventually do well in currency trading.
Seek Ye Knowledge
In order to survive as a beginning Forex trader, you must learn all you can about foreign exchange markets. Simple, right? Not so fast. So, how do you go about tackling this daunting task?
The first thing to do is start learning about the fundamentals of currency trading – which we assume you’ve started since you are visiting this site. It would also be wise to familiarize yourself with the basic principles of macroeconomics and to understand the current foreign policies affecting currency markets.
It is important to educate yourself about key economic indicators such as interest rates, employment rates, gross domestic product (GDP), gross national product (GNP), etc. In a sense, you must learn the lingo so you start to know what to look for when you are trading.
Another area of expertise you should look to develop is a keen understanding of technical analysis. This will give you the ability to analyze charts, identify trends, and forecast results. Much of Forex trading involves crunching numbers and trying to make sense out of mounds of data. Technical analysis skills will give you a distinct advantage as a beginning trader.
Buckle Your Seat Belt and Check Your Rearview Mirror
The Forex market is a relatively new market involving many speculators – all hoping to strike it rich. Since it has only been within the last few decades that the general public has access to currency trading, it has created an atmosphere which is somewhat akin to the gold rush of the 1840s and the dotcom hysteria of the late 1990s.
It is your responsibility as a new Forex investor not to get caught up in the hype. We strongly recommend that you open a demo account and set aside a long period of time – at least 6 months – during which you promise only to trade fake money. This should give you time to go through a few waves of different world and economic events in which you can see how the currency market reacts.
You must also be responsible not to exceed your financial limitations when you start trading. Forex offers unprecedented margin or leverage for an investing vehicle, and while this can eventually help you rack up big profits, it will also cause you to rack up big losses when you are first starting off.
Set aside an amount of money that you know you can lose – some people recommend saving the money you would have invested during your demo period – and do not put yourself in a position to trade more than that. Consider it a less glamorous Las Vegas trip when you tell yourself that you’ll only spend $500, no matter how quickly you lose it at the craps table.
Many people say that money doesn’t buy happiness, but from our experience we’ve learned that it makes a great down payment. Most investors don’t start trading Forex because they’re bored or enjoy crunching mountains of numbers just for the fun of it. Most Forex traders start investing for one reason – to make money, lots of money.
It is vital that as you begin trading currency you keep your expectations reasonable. Don’t turn in your two weeks’ notice the day you place your first trade, and don’t take out a second mortgage on your house to fund your investments.
Most beginning Forex traders LOSE money. This is one of the main reasons we recommend opening a demo account first. Expect to lose money on the majority of your trades as you begin; however, make sure you evaluate why you were wrong and identify what you can do differently. For example, did you buy too early or sell too late? Or did you misread the impact a certain economic indicator was going to have?
Reasonable expectations will help you not to get discouraged as you start trading currency. This will allow you to avoid getting frustrated and instead learn from your mistakes and keep improving. If you are able to do this, than you can expect to become a very successful Forex trader.
It’s time to get your feet wet and prepare to dive in. The first step is to open a demo account with a credible broker and start practicing. The second step is to keep learning as much as you can while you are not using any of your own money and then start using advanced techniques such as technical analysis.
The world of a Forex trader is fast-paced and exciting, but just like most NBA players had to start playing high school and college ball before earning big bucks as a professional, you will also need to put in the hours first. Once you start, though, you will discover how profitable the Forex market is and will learn how to take advantage of it with a great deal of success.