Forex trading has become very popular worldwide in the last few years and many of youngsters are joining this profession for entertainment and profits. However, most new traders do not have the money, time & skills to make money and sustain the losses that forex trading can bring.
Often perceived as an easy moneymaking career, forex trading is actually very difficult and highly engaging. Most beginners quit during the initial phase, primarily because of losses suffered due to a lack of trading knowledge and a quick rich mentality.
Many well-educated and intelligent individuals also would not qualify as master traders due to a lack of knowledge and the right guidance. Here we provide some guidance and a roadmap on how to become a successful forex trader.
Initial Capital Requirements for Forex Trading
Forex Trading is just like another Business but the beauty of this business is that it does not require any major investment in the form of cash and unlike most other traditional businesses.
Because of no barrier to entry, most beginners come to the market with very low capital and they try to earn more money by taking a high risk on their investment. They get tempted to earn more money and in this process, they become gamblers instead of traders.
Most people waste their capital in the first few months of their trading career & say goodbye to trading. So it’s very important to treat trading like a business, not a quick rich scheme.
Gain Adequate Knowledge Before Live Forex Trading
Like all other professions, skill is also needed in trading. A lot of traders think that by paying a lot of money for a weekend trading course, they will become good traders in a few weeks but that is not true.
As it takes many years to become a good doctor or engineer, it also takes many years of hard work to become a skilled trader. So we need to remind ourselves that success doesn’t happen overnight. So a trader should resolve to learn & need to remain focused on learning in the initial years of a trading career.
Every beginner should read some books on technical analysis and fundamental analysis of the forex market. Apart from this, traders should also look for internships in a good trading firm or with successful traders to improve their skills.
Develop a Solid Forex Trading Strategy
Forex market sometimes stays in range and sometimes goes into trend If traders want to survive, then they need to develop strategies to trade in all kinds of market environments.
So traders should learn and understand various types of trend following and mean revision trading systems and develop different trade plans for different kinds of market conditions. This skill is very essential to generate regular income from Forex trading.
Learn Forex Risk Management
All traders are different and have different capital and risk tolerance limits. So not all traders can use a similar strategy and earn returns.
Traders should choose a trading style and make an organized trading plan according to their learned knowledge and risk tolerance limit.
Traders should do proper research and backtesting and after every strategy is back-tested, they should put their money on it. Backtesting and demo trading bring confidence and conviction to trading systems, which is very important for a trader’s success.
Apart from trading skills, traders should have sufficient capital for trading business. Being undercapitalized is a trait most often found in young traders, as they do not adequately anticipate the initial costs associated with getting a business up and running.
Most of the traders are undercapitalized and they take higher risks to earn a good income from trading. If some trading system gives 33.33% ROI per annum and if your cost of living is $50000, your trading capital must be more than $150000.
Also, traders need to consider the cost associated with trading and the tax on trading income. So traders should have enough capital to be able to live off their trading returns & sustain the drawdown period. If traders do not have sufficient capital then they should make trading a part-time business.
No trading can be done in the forex market without trading capital. That is why it is very important to save your trading capital. Traders should at least use leverage and trade by following risk management.
Trading is a risky business, so the First focus of traders should be to protect their trading capital, and then traders should focus on earning money. Most Traders lose money because they try to earn huge returns from the market.
Traders should not expect magical returns and they should follow their trade plan under all conditions. Traders should avoid trading in high volatility conditions such as news and announcements.
Sometimes due to big news, forex pairs move very fast and there is no opportunity to execute trades, which creates a big risk. So traders should avoid Hold Positions during High Impact News Announcements
To reduce their risk, traders should save their money in the initial years of their trading career. Traders should save a part of their trading income for future uncertain losses and invest the same in safe assets.
The use of a good trading computer and good software is equally important in trade execution. Also while selecting the brokers, it should be seen if they are providing good service and whether they are regulated or not.
Forex Trading Psychology
Apart from analytical and risk management skills, traders should also work on rite psychology and mindset to become successful at trading.
Many traders think that only a good trading system is needed to be successful in trading. Traders spend most of their time and energy in finding a good trading system but psychology contributes the most to successful trading.
Psychology is nothing but the mindset and emotions of traders during the trades. Emotions are the biggest enemy of the trader. Trading is a simple business in which we have to take important decisions from time to time and the emotional person can never take good decisions.
Greed, Fear, Proud, and Revenge, all are emotions that do not let traders take the right decision. So traders should work on their psychology and read good books and articles on psychology and emotional discipline. Rite mindset and psychology are very important to execute the trading plan.
Lack of consistent discipline is the major reason for failure in forex trading. Traders face many distractions like News, Opinions of Analysts, or other traders. Traders who work by living in Discipline can only avoid these distractions.
Without following the discipline, traders deviate from their trade plan and start working wrongly, which later results in damage. Traders should always rely on their research and strategy and follow their trading system and it all comes from years of Experience and Practice. One should create a solid trading routine to avoid such kind of trading mistakes.
Forex traders are completely on their own with little or no assistance. Disciplined and continuous self-directed learning is a must throughout the trading career. This skill comes after reading books, articles, and years of practice.
The other way is to improve by learning from your mistakes. Each trader should note down their trades and review them periodically. With this, traders will get to know their mistakes and they will get a chance to improve. By following this process, trading can be improved and traders can improve their edge in the market.