4 Steps to Becoming a Forex Trader
So you want to trade the foreign exchange market. How do you actually get started? How do you become a successful Forex trader, and not just another newbie who blows his or her account? There are a few steps that you will be taking to get from where you are at (not having a clue what you are doing) to becoming a successful currency trader who can make consistent profits over the long term. Each step will take time and effort, but they are all necessary if you are going to be serious about this.
- Study. Your first step is going to be to learn everything you can about the FX market and about trading. You will want to start studying fundamental and technical analysis and familiarizing yourself with different approaches to trading. Once you have the basics down, you can start testing.
- Find a trading method and start backtesting. Do not waste a lot of time looking for the perfect system because it does not exist. Find something that feels intuitive to you and that you understand, and then start backtesting it on the old Forex data. You will need to achieve consistently profitable results over a long time period — try aiming for at least 200 trades.
- Once you have found a profitable system backtesting, you will move on to demo testing. Open up an account with a Forex broker you have researched and will fit your needs. You can then trade virtual currency for free indefinitely. You will want to be profitable for 2–6 consecutive months before you go live with real money. Why is that such a wide bracket? The two months is a bare minimum — it is better to aim for 4–6. A lot of people get impatient, though; whatever you do, do not stop before you hit at least two months.
- Go live. At this point, you will be ready to finance your account with real money and trade using the methods you have tested. Follow them to the letter and make the same decisions that you would have made during your FX backtests and demo tests. If you make different decisions because you are using real money, you will probably start losing it. Do not be afraid to go back to the drawing board if things are not working out. If you lose your profitability, you should return to demo testing until you are profitable again — however long that takes.
As you can see, these steps are fairly simple, and that is the good news. That does not mean they are easy, however, and that each step is not going to take a lot of work. Theoretically, you could go from knowing nothing about Forex to trading live successfully in under a year, but the reality is that you will probably face a lot of setbacks on your way to profitability. So be prepared for those setbacks and understand that it will probably take you longer than you think. Currency trading is a profession and not a hobby, so training up for it is a serious business. Consider it like a university education — only less expensive. What would be expensive is trying to skip it and go straight to live trading. Lots of traders make that mistake, but you do not have to be one of them.