By Forex4you.com
Many people start trading Forex because they have heard that you can make a lot of money relatively quickly and easily. After all trading is what all those guys on Wall Street do who drive expensive sports cars and live in luxury apartments isn’t it, and if they can make caboodle’s of cash why can’t I, right?
Well, the first thing you need to know is that forex trading isn’t easy and whilst the rewards can be high they are not generally so for beginners. As far as the guys on Wall Street go, well, whilst some may be excellent traders, most manage other people’s money and they might not be quite so wealthy if they were trading with their own accounts. Nevertheless once you have mastered the art of trading there is no better way to ensure financial security. I spoke to one successful Forex trader who described his trading experience like “owning my very own private cash machine.” When he wants some money he simply opens up the laptop, starts trading and after a while – bingo! There it is, a cool $500!
It’s a tantalizing thought being able to magic money out of thin air like a fantasy wizard but in truth where does the money actually come from? One of the things you need to be aware of is that the ‘money’ actually comes from other traders who are losing money on their positions whilst you are making money on yours.
It’s a difficult concept to grasp but all currencies are traded in ‘pairs’ like the US dollar and the Japanese yen (written USD/JPY) so when you buy dollars you buy them with yen and someone on the other side of the transaction is buying yen and selling you the dollars. If the dollar strengthens against the yen you make money but the other person has lost money.
This point is important because essentially trading Forex is a competition and in order to make money you have to consistently outwit the other participants in the market. It is this that makes trading ‘difficult’ because you will be up against seasoned pros and people who work for banks with massive research and analysis departments behind them.
So how do you compete in the Forex market? Well, obviously, at first you will start at the bottom of the pile so you may lose some money. It is important therefore to make sure that isn’t too much money. Start by trading small amounts. Many brokers such as forex4you now offer small lot sizes so you can trade in 10s or even single units of currency.
It’s probably not a good idea to chuck in the day job straight away – start by trading in your spare time. Try to trade longer term with small amounts rather than putting the mortgage on a single short term turn of the dice. Longer term trading is easier than intraday trading as the volatility is more controlled, and the beauty of Forex is that it is a 24 hour market so you can trade anytime day or night.
Secondly educate yourself in the dynamics of the market. Learn about technical analysis either from books or by taking a course. Most countries have official bodies or technical analysis societies which run excellent courses. A good grounding in the major techniques is a must.
Become an amateur economist. You need to understand at least the basics of the financial world and how it works. Learn about the factors which influence currency trading such as interest rates, central banks and economic data. Follow the news and political events as these also often influence movements in the Forex markets. Don’t believe those stories you read about it being easy to make 80% a month. Only very experienced Forex traders can hope to achieve these sorts of returns. Initially you will be looking to break even or make small wins. If you don’t have a million dollar account it is unlikely you’ll be able to start trading full time straight away. Even if you get good it helps to be well capitalized. Many traders who make it past the first hurdle and learn to profit from the market fall at the next because they can’t actually make enough. Remember it’s a slow process like fermenting wine so keep grafting away and eventually the profits will come and your account will grow but don’t put yourself under too much pressure at first.
Next and just as important learn to know yourself; understand your own particular frailties and be aware of how they affect your trading decisions. Many say discipline is important but this is only part of it, self knowledge is probably more important as it will help you become self aware of emotional extremes. Over confidence and under confidence – or put a more traditional way ‘fear and greed’ – describe the cycles of feeling that all market participants go through as they trade. Basically don’t trade when you are over confident or the chances are you will give all your winnings back to the market. After a good run of wins you need to be able to walk away from the table just at the moment when you probably feel most confident and most tempted to make another big trade. It is important to remember that no-one can be right every single time and all traders go through losing streaks. This is where you need to develop resilience. It is often the case that in the depths of despair lie the first glimmerings of hope – and glitterings of riches. You need to be able to get through a string of loses and keep trading even when you least want to, as it is often at moments like that, in the depths of despair, that the best opportunities present themselves.
The final most important piece of advice is to keep going whatever. View trading as an art which you have decided to dedicate a portion of your life to mastering not a means to quick riches. The majority of traders give up too soon or lose all their money too quickly and so miss out on the possible wealth they might have made if they had stuck at it. Remember, the longer you trade and the more experience you amass the higher up the ladder you will get. The more experienced you become the more traders there will be in the market who are less experienced than you and from whom you can make money. If you hang in there, there is more chance you will be the one on the right side of the trade not the other way round, so enjoy the ride, make trading fun, love it with a passion and you’ll get there eventually!
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Article courtesy of Forex4You.com
