In our previous blog post, we explained the basics of Forex trading, and noted that it can be a viable option for individuals looking to supplement their income. We discussed what it is, how it works, as well as some of its inherent advantages and disadvantages.
In this post, we’d like to delve a little deeper into the mechanics of the Forex market, and outline some of the most crucial steps required in order to becoming a success.
Step One: Learn the Basics
Just like any other learned skill, such as riding a bike or driving a car, a firm grasp on the fundamentals of Forex trading are essential if you want to avoid a painful crash down the road.
- Understand the terminology – In order to know what you’re doing, you need to speak the language. Babypips.com is a solid resource for learning basic Forex terminology, how to read technical analyses, and much, much more.
- Study, study, and then study some more – When learning Forex trading skills, there is a direct relationship between the amount of time you spend studying the fundamentals, and the level of success you’ll achieve. This requires time and discipline, which is not always easy to come by. However, is not optional.
Step Two: Practice Makes Perfect
“Practice makes perfect” may be an overused phrase, but that’s because it’s true. You can study Forex trading basics until you’re blue in the face, but you need a real-world platform on which to practice your newfound skills.
- Start with a demo account – The vast majority of Forex trading sites offer demo accounts to new users, which can be an ideal way of using real time data within the actual Forex market to test different techniques and strategies, without the fear of losing real money. It might be a good idea to open demo accounts through more than one site, as each will operate using its own trading platform (e.g. software), though two of the most popular are TD Ameritrade and Forex.com. Find one that works the best for you, because just like any other software program, some will have features you enjoy, while others may be less intuitive. This software will act as your “window” into the world of Forex trading, so it’s important to find one that you enjoy using.
- Learn to accept risk – While it’s important to formulate a trading strategy that is ideal for your specific situation, all of them involve risk. Many new Forex traders find they’re successful during the demo period, but lose money after transitioning to a live account, primarily due to “analysis paralysis.” New investors may find themselves overanalyzing prospective trades in order to eliminate risk, which is not possible. Trust that you’ve completed an adequate amount of research, accept the risk, and move forward.
Step Three: Rinse and Repeat
After you’ve completed your first trade, it’s time to start back at square one. Investigate new markets, research and learn new trading techniques, and apply your knowledge.
- Never stop learning – As human beings, it’s easy to become complacent and rest on our laurels. However, within the ever-changing Forex trading market, forging your path to success depends on constant innovation. This market changes rapidly, so it’s doubly important to stay abreast of the newest trends and techniques by attending seminars, interacting with other Forex traders, and pouring through the news. Failing to do so could cause your account to stagnate, and then to suffer losses.
- If you don’t know, ask – The internet is chock full of tried and true Forex trading information, which can be accessed in only a few clicks. Read about what works (and doesn’t), the latest and greatest trends, as well as the most effective books, seminars, and other resources. And if you don’t understand something, don’t be shy to ask questions. Failing to do so could cost you a lot of money, so why chance it? Many Forex forums have beginner sections, which can be great places to skip over some of the more advanced information, and get right to the basics.
- Apply liberally – Remember that knowledge will only take you so far; action is required to be successful. Apply what you learn, and expand your moneymaking potential.
- Stay in contact – It's always important to stay in contact with other Forex Traders in order to exchange knowledge, share mistakes and gain experience.
Remember, hard work and consistency are the name of the game when trading on the Forex market. If you’re serious about your future and take the necessary time to build a solid foundation of study and practice, Forex trading could be your key to financial freedom.
Later in this series, we’ll be delving into specific techniques that will hone your Forex trading skills, and will move you one step closer to success. Stay tuned…
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