As I talk about my Forex trading activity to friends and family, occasionally I do get asked questions on how to start Forex trading.
I tried Forex trading for the first time few years ago, tried to work everything out myself, and eventually lost my whole account, coming to the conclusion that it was not possible to make money trading Forex. I now know it is very possible to make a living Forex trading as a retail trader (i.e. trading for yourself, not working as a professional trader for a bank etc), and there are actually some massive advantages you have as a retail trader compared to a professional managing billions of dollars.
So if I were to go back in time and advise myself how to start Forex trading in order to become successful at it as quickly as possible, my advise would be
1. Understand Forex Trading Terminology
Learn what it means to be Long, Short, Flat. What is a Stop Loss, What is a Limit Order etc. Every time you watch a trading video or read an article and don’t understand a term, Google it and you will soon learn these.
2. Open a Demo Account
Google “Best Forex Brokers” and pick a broker whose platform also offers and Demo account and where you can use the Metatrader 4 trading platform. It is good to open a Demo account with a Broker and trading on a platform for which you will also use when you trade live as everything will be familiar.
3. Decide On Currency Pairs To Focus On
If you start off trying to follow 20 currency pairs, you will get overwhelmed very quickly and may even stop your Forex trading journey at this point. So don’t do this, always keep things simple and easy by deciding on just three currency pairs to start off with.
I recommend because they are major pairs:
GBP / USD
EUR / USD
USD / JPY
As you become more confident, add more pairs. If getting overwhelmed, reduce the number of pairs you are watching.
4. Practise Using The Metatrader 4 Trading Platform
Metatrader 4 is a free trading platform that you can download from almost all Forex broker websites. If the Forex broker you have chosen doesn’t offer this, choose another one.
A screenshot of the platform is below.
5. Understand How To Place Trades And Set Stops
As my virtual mentors on the Trading Academy membership site I am a member of, risk management is of vital importance.
When you open a trade you need to understand how much you are willing to risk, and place a Stop Loss to ensure you cannot lose more than that amount. You can be losing over 50% of your trades and still be making money because you losses are small and you winners cover your losses and give you your profit.
When learning how to start Forex trading, risk management is the most important thing.
6. Watch You Tube Videos On Trading Strategies
Initially it doesn’t hugely matter what you learn, but rather get an overview of some of the strategies available and maybe some will resonate with you. Then the strategies you like can be the ones you try your trading with (in your Demo account).
7. Read Trading Books
Books are another great source of information on both trading strategies, but also in building your belief that it is possible to be a consistently profitable trader.
Have a look at what are the best sellers with the highest ratings on Amazon.
8. Get Into The News Habit
Read the headlines on financial sites (see my Resources page for my favourites) every day. It does not take long and will keep you informed of what is driving the financial markets.
For example a headline like “Iran in Talks With Saudi Arabia” in the current climate of oil over supply started to drive the oil price higher recently on hopes a cut in production could be agreed, hence giving people a more risk on attitude, hence driving equities higher, safe havens like the JPY and EUR started to weaken, etc. Without watching the headlines, you can’t understand why markets are reacting the way they are.
Another reason I joined the Trading Academy membership site is for the weekly Fundamental analysis webinars to learn about this.
9. Document Your Trades
When you try to analyse why you entered a trade two weeks after the event, it can be very hard to understand why if you haven’t documented this.
Also it is a very good exercise to analyse every month your winning and losing trades to try to improve.
10. Create A Weekly Trading Plan
Every Sunday, create a trading plan.
If you trade without a plan you will be taking knee jerk trades, your trading will be stressful as you will have no conviction, and you will go mad trying to watch loads of charts at multiple times of the day.
My most successful period trading so far has been in a 2 week period where I placed a single trade each Monday morning. Then because of my trading plan, I would spend a couple of minutes early morning, lunch time and evening checking for setups. With those two trades in that two week period I was up over 9%.
Also very important to mention (again). Ensure your money management rules are part of your plan (I discuss this further below).
An example of part of my current plan is:
Be long the USD CAD
- CAD dependent on oil exports, and I think the recent rally in the oil price is based on hope but eventually the reality of over supply will correct this.
- The US is currently the worlds strongest economy with it’s interest rates (very slowly) rising
- Chart at long term support level (weekly chart below)
- If oil price starts to fall (correct) and USD CAD price showing clear rejection north of support, then go long. As confirmation, also look for falling stock markets in reaction to oil price falling.
11. Start Trading Live
Once you have made a few trades and understand how to use the platform, you may find (as I did) that you become lazy with documenting your practise trades, or start to make some lazy bad trades. This will be because you now need to start trading with real money, which will feel completely different to trading on your demo account. If you have ever played poker, you will know the difference between playing risking no money, and playing even with a small amount (e.g. $10).
Do not do this though until you are 100% happy on your risk management. My rules are:
- Do not risk more than 1% a trade
- If you are 3% down at any point in the week, stop trading until the following week.
- If you are 6% down in a given month, stop trading until the following month.
12. Get Professional Training / Mentorship
Once you have the basics, and really want to accelerate your success, I strongly recommend you finding a way to be mentored by a professional trader.
The way I have achieved this is through a membership site (see Trading Academy on my resources page for more details) where I get to attend (or watch recording afterwards) three webinars a week where I get to see the fundamental and technical analysis of a professional. I have learned more in the last few weeks about trading than I have in years previously.
A good example of how useful this is happened this week.
I had been short the EUR USD for over two weeks, and then on a Thursday it started heading north and I was stopped out. There was no news to trigger this change in direction.
On the webinar on Friday, the professional had closed his position before this happened because the S&P 500 had rallied recently and had reached a resistance level, and because of Non farm Payroll on Friday. Did he know the market had reached a bottom, no (anything can happen). But the risk and probability of the trade had changed hence he was happy to bank his profit.
So understanding what other people are thinking and subsequently doing is also important. Sometimes it feels like most price action is reactive following news releases, but this is an example of it being pro-active.
EUR USD Four Hour Chart
How To Start Forex Trading Conclusion
If you are wondering how to start Forex trading, I hope you have found this article helpful.
I firmly believe that anyone serious starting their Forex trading journey will eventually be successful as long as they never stop.
The question then becomes how long it will take. Of course that depends on the person and how much effort they put in into increasing their knowledge and experience, but there are ways to make this journey as short as possible.
Never give up, and see what professionals are doing week in week out to stay continually learning and keep your belief high.
I almost ended this article by saying good luck, but successful Forex trading has nothing to do with luck.