What does it take to learn to trade Forex? To learn something is easy enough when you have an abundance of information at your disposal, as is the case in the world of Forex. But what does it take to really learn to trade Forex in a way that will bring you consistent profits for the rest of your life? I will go out on a limb and assume that’s why you’re here.
Speaking of why you’re here – the fact that you’re here reading this article tells me two things.
You have an interest in learning how to trade Forex for consistent profits and;
You know by now that there is no shortage of Forex-related material that can be found on the internet
But sometimes having too much information is a bad thing. I get emails every day from traders who have fallen into the trap of information overload. They have taken on so much information at once that they aren’t sure where to begin.
Sound familiar?
If so, then you’re in the right place. In this article I’m going to talk about 5 best practices when learning to trade Forex. These best practices will help you get the most out of the learning process and get you started on the road to success.
The "Best" Way to Learn Forex TradingBefore we begin, I want to tackle a common misconception. This misconception stems from the idea that there is a right and wrong way to learn how to trade Forex. The simple truth is that there is no right or wrong, there is only the path you choose.
The way in which you learn to trade Forex is a very personal thing in that each trader needs to find his/her own path. So while you can certainly apply the strategies and techniques that others teach, you must choose those outlets based on the personality traits that define you as a trader.
There are, however, a few best practices when it comes to learning how to trade Forex.
#1 Study Price ActionNow before you think this is just a pitch coming from a price action trader, let me explain.
Most traders make the mistake of learning how to trade Forex by first studying indicators and trading systems. The truth is, all of the indicators and systems in the world won’t do you any good unless you familiarize yourself with the ways of raw price action.
All of those indicators and systems you find online wouldn’t work without price action. It’s the lifeblood of the Forex market. So trying to learn how to trade Forex without first understanding it would be like trying to build a house without first setting the foundation.
Regardless of the trading strategy or system you fancy, having a solid understanding of raw price action will undoubtedly make you a better trader in the long run.
That said, I do advocate the use of price action on its own without the use of indicators. This is because I’ve found indicators to be unnecessary when price action is used properly. But if you insist on using indicators, I highly recommend learning how to use price action first.
#2 Keep a JournalThis is perhaps one of the most overlooked keys to success when it comes to learning how to trade Forex. The journal I’m referring to here is different from the journal where you keep track of your trading performance.
This particular journal should be used to keep daily notes of market movements. It’s one thing to watch how a market moves, but it’s much more engaging and rewarding to also track your observations in a journal.
So when and what should you write in this journal?
The best time to write in your journal is when the Forex market closes at 5pm New York time (EST). This way you can easily scan through your charts and make notes about the day’s activity.
As for the content, you should focus on the significant market movements. Did a pair break support or resistance today? Did a pin bar or inside bar form? Is a market forming a technical pattern that may lead to a breakout opportunity? These are all things you should write about in your journal.
Remember to keep journal entries concise. By focusing on the important movements of the day, you will be able to easily recall the patterns and signals you observe. It will also help you to avoid becoming burnt out by making it a quick and easy chore. Do this for 21 consecutive days and it will become habit.
#3 One Strategy at a Timetest one Forex trading strategy at a time
It’s safe to say that every Forex trader, both struggling and successful, has fallen into the trap of trying to trade too many strategies at once. As human beings we thrive for instant gratification. Combine this with the myriad of Forex trading strategies available online and you have a recipe for disaster.
The only way to truly know if a strategy works is to give it 100% of your attention and allow it ample time to work in your favor. You have to learn the strategy inside and out to the point that it becomes second nature. The only way to achieve this level of proficiency is to learn, and trade, one strategy at a time.
Another common pitfall of many Forex traders is not giving the strategy enough time and/or trades to be able to make an informed decision as to its effectiveness. No matter which trading strategy you’re using, there will always be times when it feels like the market is against you.
The successful trader knows this, which is why they don’t get discouraged by a bad week or even a bad month. Becoming consistently profitable is a marathon, not a sprint. So be sure to give whatever strategy you’re testing enough time to show its merits.
The best advice I can give is to find a trading strategy that resonates with your personality. Find something you’re comfortable with, study it inside and out and then give it enough time to play out in your favor.
#4 Test the Strategy in a Demo AccountDemo trading is by far the greatest advantage you have as a Forex trader. It’s something that just about every broker offers, and something you should absolutely take advantage of before risking your hard-earned money in the market.
The advantage to demo trading is that you get to test a trading strategy with “fake” money. This also allows you to become familiar with the trading platform. Get those trade execution mistakes out of the way on a demo account so that by the time you move to a real-money account you will be well-versed on how to use your broker’s trading platform.
Here are a couple best practices when it comes to demo trading.
Treat it like real money
This is easier said than done, but if you can convince yourself that your fake money is real money, the transition to a live account will be that much easier.
The best way to do this is to keep track of your progress in a trading performance journal. This will help you to stay accountable for any positions you open.
Start with a realistic account size
If you know that you will eventually start trading real money with an account size of $5,000, don’t use a $50,000 demo account.
The idea behind using a demo account is to mimic a real trading environment, so using an unrealistic account size defeats the purpose.
#5 Set Your Expectationshourglass to set your expectations when learning forex trading
Learning how to trade Forex for consistent profits takes time. How much time depends on several factors, but regardless of your circumstances it won’t be a quick process. Therefore it’s best to convince yourself early on that it’s going to take quite a bit of time to become a great trader.
Like any endeavor in life, it’s always best to set your expectations up front. This doesn’t mean you have to set an expectation on the income potential from trading, but rather set an expectation of how long it might take you to start profiting consistently.
I hear from traders every day who are frustrated and ready to give up. After further conversation I learn that they have been trading for less than a year, or perhaps just over a year. Although there is no rule book that says it has to take more than a year to become profitable, to do so would be far from the norm.
It takes years of schooling to become a doctor or a lawyer, yet for some reason there is a belief that one can “fast track” their success as a Forex trader. That is, become profitable after a few months of trading.
This simply isn’t the case. Becoming profitable takes passion, discipline and perseverance. But above all it takes time to develop the skills necessary to pull consistent profits from the market. If it were easy, everyone would do it.
Tell yourself now that it’s going to take some time to get where you want to go as a Forex trader. But like all things in life, the most difficult and lengthy endeavors are also the most rewarding once you’ve conquered them. Becoming a profitable Forex trader is certainly no exception to this rule.
