How to get into Forex and should you?

We all start trading as it seems an easy way to make money. After a couple of profitable trades, we feel as if we have discovered a money-printing machine. In reality, Forex trading is highly competitive and most novice traders lose money. Hard work, dedication, and upfront capital are what it takes to become a professional.

Usually, after a couple of blown up accounts traders change their opinion on the whole process and underestimate trading. From money printing machines, trading becomes gambling in their mind. Learning how to trade professionally is like going to a university. It takes time, tuition fees, and effort. In this guide, we’ll do our best to help you orient yourself and show you different ways to educate yourself.

Learn Forex trading from your broker

Brokerage companies usually offer an extended educational material on how to create trading accounts, use their platforms and tools. It’s important to become proficient in using trading platforms before depositing actual funds to your account to minimize the risks of technical errors.

In addition, brokers offer free of charge demo accounts. Demo trading can help you better understand how to use indicators and platforms without risking actual money. In demo trading the environment is similar to live trading, but the only difference is that your trading funds are virtual.

Learn from books, videos, articles and guides

There are plenty of great trading books out there. There are thousands of videos and high quality guides widely available. In fact, you are reading one of them at this moment. However, quantity doesn’t mean quality. The best strategy is to read, watch and listen to everything you can get your hands on about trading. The more you learn, the better you will be able to digest the information and tell the quality information from one another. When you believe something to be true not because someone has told you to, but because you have thoroughly researched the subject, you gain more confidence. And confidence is highly valued in trading. When traders are not confident, they tend to jump from strategy to strategy and change them whenever drawdown periods occur. Drawdowns are an integral part of trading. Losing is a part of the process. The key to profitability in the long run is based on having a mathematical edge and proper execution.

Learn how prices are created

Prices are created using market and limit orders. Market orders enable traders to buy or sell certain assets at current prices in the current moment. Limit orders enable traders to buy or sell assets from predetermined targets. The downside of limit orders is that they may never get filled unless the price moves towards them.

Prices move from limit orders to limit orders using the market orders. Liquidity is highly important in trading as during high liquidity there are many orders to choose the best ones from. The difference between the bid and the ask price is called spread. High liquidity guarantees the tightest market spreads.

Learn about the currency pairs you are planning to trade

Each currency pair has its own characteristics. And you should do your research before trading them. Major currencies are the most liquid ones: EUR, USD, GBP, JPY, CHF, CAD, AUD, and NZD. When Majors get paired with the US Dollar, we call the currency pair the Major currency pair. When Major currencies are paired with other Major currencies, we get Minor pairs. Major currencies are the most liquid and offer the tightest spreads. Exotic pairs such as EUR/TRY, USD/NOK and others have lower liquidity and therefore, most traders avoid trading them.

One more important topic to consider while learning about currency pairs is correlation, especially when trading forex as a beginner. Some currency pairs such as EUR and CHF (Swiss Franc) are highly correlated. The reason is simple, the economy of Sweden and European countries are codependent with each other. What’s more, some currencies are correlated with commodity prices. For example, CAD (Canadian Dollar) is highly correlated with oil prices. The reason is that Canada is the fourth largest crude oil exporter in the world.

Learn how to conduct technical and fundamental analysis

Getting started in forex is not easy and you should learn about technical and fundamental analysis prior to opening a live account. There are two major ways to analyze the markets. Technical analysis is based on the past performance and uses patterns, indicators, and other technical tools to predict the future. Fundamental analysis takes into an account the market conditions, political and economic news. Important events such as unemployment, trade deficit, interest rate decisions, etc. give the markets direction, but they move based on technical rules.

Usually technical traders avoid placing orders before important news announcements.

Even if you are planning to become a solely fundamental trader, learning technical trading can help you target the entries and exits.

There are lots of ways to make money, find yours

There are many different types of traders and many different ways to begin trading forex. Some traders use trading algorithms and automate their trading. Some traders day trade to avoid swaps. Some place 100+ orders daily to make high frequency trades. Some swing trade, while others position trade, news trade and the list goes on and on. As you can see, there’s no single way to make money on the markets. The key to success is to find the one that best suits your character. For example, if your fingers are not fast, maybe high frequency trading is a bad idea. Luckily you can try position trading, place less orders and be more selective. Or any other type of trading. It is important that whatever strategy you choose to trade, you should have a complete understanding and trust. If you don’t trust your strategies, you will stop using them the moment they underperform.

Test and backtest your strategies

Testing and backtesting trading strategies can help you gain confidence in your system and give you actual clues whether they work or not. One trading strategy might work well for certain currency pairs but completely fail to generate satisfactory results for the other.

Strategy testing occurs via demo accounts. Trader places orders according to the predetermined rules. On the other hand, backtesting is revising the historic data to see if the trading system is profitable.

Manual testing takes time and can be less precise than algorithmic testing. Backtesting using robots is incredibly efficient. However, algorithms fail to take into account market news.

Learn how to manage your emotions

As you become accustomed to trading platforms, technical and fundamental analysis, you will face another foe, which is human emotions. Greed, revenge trading, fear, hope, laziness and boredom can ruin trading accounts balances. Unfortunately demo accounts do very little to prepare traders for managing their emotions. Developing a disciple is the key to success.

• Greed makes traders open larger than usual position sizes and increases their risks. It’s a matter of time before high risks turn into high losses.
• Revenge trading occurs after losing trades. Traders are unable to accept the losses and they increase their position sizes. Usually these trades are poorly planned and result in further losses. One way to combat the need to revenge trade is to set limitations to yourself. For instance, if you lose up to 100 USD per day, stop trading that day.
• Fear freezes a trader. Usually after a couple of losing trades, traders get scared to place orders even if the perfect setup is established. To combat a fear of trading it’s a good idea to start trading using smaller positions or demo trade to regain the confidence.
• Laziness doesn’t need much explanation. If you are too lazy to scan the markets and find the best trading opportunities, you’re not gonna get very far.
• Boredom is one more challenge to overcome. Bored traders tend to overtrade and place unjustified orders. Just for fun. And it quickly turns into losses.

Develop a trading plan

Traders often say that it’s highly important to plan your trade and trade your plan. Developing a trading plan can help you manage your emotions, make the decision making process much easier and make you a consistently profitable trader.

A good trading plan should answer which assets to trade, what should be the risk to reward ratio and which methods to use for analysis. What’s more, a trading plan should make a trading edge clear and offer risk management to make that edge work in the long run.

Trading age should also include trading hours, time you are going to spend on the trading daily and your goals. Successful traders have short term, mid term and long term goals.

Your trading plan should also include guidelines on how to manage drawdowns. Professional traders often put limitations on themselves after a series of losses. For instance, if a drawdown reaches 10% of the entire trading capital, the trader stops placing orders for a month. After the losing trades you need time to make sure that you are not under the influence of your emotions.

Periodically evaluate your performance

And finally it’s important to learn from your mistakes. A great way to start analyzing and learning from them is to create a trading journal. Trading journal can help you avoid making the same mistakes and getting the same results.

The world of trading is dynamic, learning from your own mistakes can help traders adapt to the changing environments much better.

The main takeaways

To sum everything up, getting started in forex and learning how to trade consistently profitably takes time as everything else worth doing in this life. Forex trading for beginners is especially challenging. Beginner traders can learn how to use trading platforms and tools from their broker. They can learn how to conduct technical and fundamental analysis using books, videos, articles and guides. What’s more, it is important to learn how to manage human emotions, learn about currency pairs and their characteristics in detail, and find and test trading strategies that fit a certain trader’s personality.

The next step is to develop a trading plan. A well put together trading plan binds everything together and makes decision making easier. It is also highly important for traders to develop means to learn from their own mistakes efficiently.

Keep in mind that learning never stops. The world of trading is dynamic and market conditions are changing. New trading algorithms are developed everyday.

FAQs on how to get into Forex

Can beginners do forex?

Yes. What’s more, it’s important for beginners to start as its the first step towards becoming a pro. However, novice traders should take into consideration the dangers of trading and only invest the money they can afford to lose. Most novice traders blow up their accounts because they fail to manage their risks. However, some beginners are quick learners and increase their trading capital gradually.

Is forex difficult to learn?

Forex is not more difficult than any other endeavor. Trading consistently profitably requires experience and hard work. You would not expect someone with zero experience to take a guitar and start playing professionally. The same is true for Forex. Through perseverance and strong will it is possible to become successful at trading.

How to start trading forex?

There are many sources that can help novice traders to start. The best way to learn is to read, watch and practice everything you get your hands on. There is a huge amount of high and low quality information on the internet. The more you learn, the better you’ll be able to avoid scams and enhance your knowledge. In addition, demo accounts are very useful when it comes to practicing and testing trading strategies.