Do you want to earn your first million in two weeks of trading from a $5 investment? Well, snap out of that fantasy, it’s not going to happen. Period.
See, while it is theoretically possible to achieve such a feat, true trading success comes after a lot of learning and patience.
It is a serious business investment rather than a gambling game or some get rich quick scheme.
If you want to attain true long term continuous trading success, you need to set up your trading the right way.
The following steps are mandatory for a right start.
1. Learn Forex Basics
The first thing you need to learn is how to talk to other traders and brokers and understand them. You need to know forex terminologies. You can find a list of some of them by clicking here.
Learn what a currency quote is and how to interpret one. Learn what pips are and how they are used to calculate spreads, commissions, profits, and losses.
Learn what letters stand for which currencies and how each currency performs in the forex market.
They each have distinct and unique characteristics and react differently to economical and political events.
Learn what a base currency is and what a quote currency is. Learn how to check exchange rates and how to read price charts.
Learn what a short position is and what a long position is and where to apply each.
Learn what the bid price, ask price, and spread are and how each relates to the others.
2. Ignore the Myths
The first myth you will hear is that forex trading is easy and you can come in fresh and make a great fortune from a tiny investment.
That is a gambler’s mentality and does not work in trading. Trading requires patience and success is achieved by accruing small profits over time while accepting losses and learning from them.
Another popular myth is that day trading is a beginner’s best start. Sure, day trading has been popularized by online trading and the existence of high leverage.
But that does not mean it is a good starting point for a beginner. Longer-term trades are afar much better bet especially for novices.
Another popular myth is that the market is rigged to favor a select few. The forex market is not controlled by any authority, government, or broker. Price changes occur due to market factors of demand and supply.
The hundreds of thousands (or even millions) of transactions daily dictate market trends.
3. Find a Currency Pair
Most countries or territories in the world trade using one form of currency or another. Most of these currencies can be traded on the open forex market though some countries impose restrictions on trading their currencies.
While there is a potential for profit in trading any currency, your chances of success are better if you trade the major currencies.
To trade in currency you need a pair. One currency you will use for buying, the other for selling.
The most traded currency pairs are known as the majors and they are EUR/USD, GBP/USD, USD/JPY, and EUR/JPY.
4. Find a Broker
To actively participate in the forex market you need to connect with other traders. A broker is your link to this lucrative global market.
Your broker is your first point of assistance, education, and financing and for this reason you need to make a very wise choice.
Find a broker who accepts payments in a form convenient for you. There are many scam brokers so please do your due diligence and avoid any suspicious brokers.
Check your potential broker’s withdrawal policies to know when and how you can get your investments, profits, and bonuses.
Additionally, check that your broker is well regulated and licensed with an authority that plays a role in dispute resolution.
Ensure that your broker offers leverage that is favorable to you. Click here for a list of a list of some best brokers in the market.
5. Start With a Demo Account
Once armed with all this knowledge it may be tempting to dive in and get those profits already. Remember, patience pays, especially in trading.
Go to your broker’s site and open a demo/practice account.
This will give you some practical training on how the market works and how each tool is used. Use your demo account for as long as you need.
Do not invest your money until you are sure of what you are doing.
6. Start Small, Build Slow
Once your time with the practice account has built your confidence and knowledge, it is time to graduate to a live account.
This is a very different ball game since now your own real money is at stake.
Your emotions will come into play and most times they will sabotage your well-designed trading strategy. Therefore, start by investing small amounts then slowly but steadily grow.
Start with a micro account, and then move to a mini account, a standard account, then a VIP or premium account.
Increase your lot sizes slowly and avoid reckless or greedy trade decisions.
7. Manage Your Risks
A big part of your trading plan should include a risk management strategy. Trading is a very risky endeavor and that is why it is also highly profitable. You can make it all or lose it all in an instant.
For the shrewd investor, living to fight another day is more glorious than making mad profits today only to lose it all tomorrow. Manage all your risks and protect your capital.
8. Avoid Scalping and Day Trading
Any professional soldier will tell you that jumping into a war zone with a machine gun and blasting away at everything in sight is less effective than a sniper who takes time to accurately take each shot at an enemy.
The sniper will achieve more hits using fewer bullets and most important, is most likely to come out alive. The same applies with trading.
A day trader will spend half the day on the computer jumping in and out of short term trade setups.
These are very susceptible to high unpredictable price fluctuations. It is better to trade longer periods where you can achieve more accurate market analyses using reliable fundamental and technical techniques.
9. Forget Robots
There are automated trading systems that promise you untold treasures pouring in while you sip daiquiris at your own private beach.
Automated trading systems, robots (bots), and expert advisors can only be successful for very limited periods and under very specific parameters.
When the market is facing high volatility as it usually does, no automated system can produce consistent positive results.
You will go to bed happy and wake up very broke.
10. Have a Trading Plan
You can choose to take a guess and go with your gut feelings and even make money out of it.
But that will not be professional trading, that will be gambling. Take time to construct a profitable trading plan that works for your chosen currency pair.
Make sure your plan incorporates all your desired risk management and money management rules. Remember, it is never enough to just have a trading plan.And, always follow it to the latter.
