This section is a guide for the Forex trader on how to start becoming a professional Forex trader. The following steps are essential for anyone that is seriously considering getting in the business. These steps will get you ready to trade and get you ready to have the right approach towards the Forex trading business, so that you can avoid big losses, understand what does it take to profit from the markets and start making good money.
1. Learn to be patience, Control your fear and greed
2. Set Goals
Set goals four yourself, realistic ones, have a plan when you start trading. For example, my personal goal is to make 24% of my account at the end of the month, take the profits out, donate 6% of the profits and enjoy life. That is a goal, and it is a realistic one for me.
I am not suggesting you should have the same goals, but just think about it, it has to make sense. You are getting into Forex trading for a reason, whatever that reason may be. One can get into this because of the financial freedom that it offers, or the flexible trading hours offered by the markets. Find out why you want to trade forex and then make a plan on how to get where you are saying you want to get. Some traders I know are very happy to get 5-10% at the end of the month and I think that should be the minimum to look for if you are dedicating your time into actively trading the markets.
3. What about Capital?
It takes money to make money! True, you need money to invest in anything, here you will have to find your comfort zone, and that will change in time, along with your experience. Forex trading is trading on leverage so many brokers will let you start with as little as $1 to play around.
4. Use of a Stop Loss
Stop Loss – Should we use a physical stop loss? Should we be using a mental stop loss? Where should the stop loss be placed?
What is a Stop Loss ? SL is an order that gets executed as a safety net for us and basically means that if price reaches that point, we need to immediately get out of the trade, or close the position we are in. Of course that will lead to a loss. Now this loss is a calculated number before we got in the trade and it depends on money management, strategy and of course the risk amount that we are capable to handle.
The reason a stop loss should be determined before we get in a trade and respected, is that when we are in the trade and emotions, fear and greed kick in, it will be harder to determine and a lot of times can make us ride a loss for too long. So, where do we place the stop loss?
•Stop loss should be placed at the point where our strategy is no longer valid. Otherwise just having a stop based on money management and maybe we should not be in this trade if it requires a bigger stop loss that our account can handle Or maybe we need to get in with less position so that we are safe and have the stop placed accordingly.
•During volatile times, a hard stop loss will hurt us more than it will help. A stop makes no sense if it is too tight. Why take a 20 pip loss just to watch the trade go your way after that. Of course this takes training and market observation and remember that the market acts like an elastic, a major spike that happened during a few seconds (that may get your stop if you have it in place), will usually pull back to give you an opportunity to close the position, if indeed it’s justified. You don’t want to keep letting it go against you hoping it will reverse (that is how people blow up their accounts) but you want to be smart about it and don’t get spiked out if you don’t have to be. Some brokers will hunt your stops as well, but that is another story.
•Use a Stop loss after your trade starts developing and you can safely place it at support area and this way if your Stop Loss and Target Price is in place you can easily leave your desk and enjoy life.
•Trailing Stops – Automated or not, they can work for you or against you . They will sometimes help you ride the trend but most of the times if used with a wrong amount will just cut into your profit at the retracement time, so be careful how you use them and adapt them to the particular pair you are trading.
5. Get into a Making money Mentality
I know it sounds very simple but the first step in becoming profitable in your trading is to stop losing money! Stop taking low wining probability trades and start controlling yourself. There is no need to overtrade just to be involved in every move that happens.
This market is so liquid that if you manage the risk and don’t lose more money that you have to in a particular trade, you will profit!
Also, if you have a strategy that works for you and you are making money with that , stick with it , you don’t need to find new trades , some traders consistently make money using a strategy and give it back to the market experimenting on other strategies. That is wrong! When bulls and bears are figting, Stay on the sidelines, see who is winning (determining the trend) and then go in and take your profits.
5. Risk Management
To make money from Forex Trading you have to have a good money management system, there is no way around it. Forex trading depends on money management probably more than any other type of trading because of the leverage and the many factors involved in the movement if markets, that make the price action very hard to predict. You have to remember that a price action can be justified or not and it depends on many factors. Sometimes the news and all fundamentals can be favorable for a currency and still that currency will drop like there is no tomorrow. If we are caught in one of those we can loose a lot of money. There is no need to always understand the market, or even worse, to try to fight it.
Money Management, in my opinion you should take couple minutes and analyze a trade before you enter, decide how much you are willing to risk in that trade and here I recommend no more then 1% - 4% of your account. That means, if the market goes against you and reaches your stop loss, the most you can lose out of your money should be that amount. Also you should have your desired profit in place, see what obstacles will the price have to pass to get there and make sure that the risk/reward ratio makes sense for you to even take this trade.
My point here is that trading can be very profitable no matter what capital you are trading with, but it needs to be treated in a serious way, responsible and with the right trading/money management
1. Learn to be patience, Control your fear and greed
2. Set Goals
Set goals four yourself, realistic ones, have a plan when you start trading. For example, my personal goal is to make 24% of my account at the end of the month, take the profits out, donate 6% of the profits and enjoy life. That is a goal, and it is a realistic one for me.
I am not suggesting you should have the same goals, but just think about it, it has to make sense. You are getting into Forex trading for a reason, whatever that reason may be. One can get into this because of the financial freedom that it offers, or the flexible trading hours offered by the markets. Find out why you want to trade forex and then make a plan on how to get where you are saying you want to get. Some traders I know are very happy to get 5-10% at the end of the month and I think that should be the minimum to look for if you are dedicating your time into actively trading the markets.
3. What about Capital?
It takes money to make money! True, you need money to invest in anything, here you will have to find your comfort zone, and that will change in time, along with your experience. Forex trading is trading on leverage so many brokers will let you start with as little as $1 to play around.
4. Use of a Stop Loss
Stop Loss – Should we use a physical stop loss? Should we be using a mental stop loss? Where should the stop loss be placed?
What is a Stop Loss ? SL is an order that gets executed as a safety net for us and basically means that if price reaches that point, we need to immediately get out of the trade, or close the position we are in. Of course that will lead to a loss. Now this loss is a calculated number before we got in the trade and it depends on money management, strategy and of course the risk amount that we are capable to handle.
The reason a stop loss should be determined before we get in a trade and respected, is that when we are in the trade and emotions, fear and greed kick in, it will be harder to determine and a lot of times can make us ride a loss for too long. So, where do we place the stop loss?
•Stop loss should be placed at the point where our strategy is no longer valid. Otherwise just having a stop based on money management and maybe we should not be in this trade if it requires a bigger stop loss that our account can handle Or maybe we need to get in with less position so that we are safe and have the stop placed accordingly.
•During volatile times, a hard stop loss will hurt us more than it will help. A stop makes no sense if it is too tight. Why take a 20 pip loss just to watch the trade go your way after that. Of course this takes training and market observation and remember that the market acts like an elastic, a major spike that happened during a few seconds (that may get your stop if you have it in place), will usually pull back to give you an opportunity to close the position, if indeed it’s justified. You don’t want to keep letting it go against you hoping it will reverse (that is how people blow up their accounts) but you want to be smart about it and don’t get spiked out if you don’t have to be. Some brokers will hunt your stops as well, but that is another story.
•Use a Stop loss after your trade starts developing and you can safely place it at support area and this way if your Stop Loss and Target Price is in place you can easily leave your desk and enjoy life.
•Trailing Stops – Automated or not, they can work for you or against you . They will sometimes help you ride the trend but most of the times if used with a wrong amount will just cut into your profit at the retracement time, so be careful how you use them and adapt them to the particular pair you are trading.
5. Get into a Making money Mentality
I know it sounds very simple but the first step in becoming profitable in your trading is to stop losing money! Stop taking low wining probability trades and start controlling yourself. There is no need to overtrade just to be involved in every move that happens.
This market is so liquid that if you manage the risk and don’t lose more money that you have to in a particular trade, you will profit!
Also, if you have a strategy that works for you and you are making money with that , stick with it , you don’t need to find new trades , some traders consistently make money using a strategy and give it back to the market experimenting on other strategies. That is wrong! When bulls and bears are figting, Stay on the sidelines, see who is winning (determining the trend) and then go in and take your profits.
5. Risk Management
To make money from Forex Trading you have to have a good money management system, there is no way around it. Forex trading depends on money management probably more than any other type of trading because of the leverage and the many factors involved in the movement if markets, that make the price action very hard to predict. You have to remember that a price action can be justified or not and it depends on many factors. Sometimes the news and all fundamentals can be favorable for a currency and still that currency will drop like there is no tomorrow. If we are caught in one of those we can loose a lot of money. There is no need to always understand the market, or even worse, to try to fight it.
Money Management, in my opinion you should take couple minutes and analyze a trade before you enter, decide how much you are willing to risk in that trade and here I recommend no more then 1% - 4% of your account. That means, if the market goes against you and reaches your stop loss, the most you can lose out of your money should be that amount. Also you should have your desired profit in place, see what obstacles will the price have to pass to get there and make sure that the risk/reward ratio makes sense for you to even take this trade.
My point here is that trading can be very profitable no matter what capital you are trading with, but it needs to be treated in a serious way, responsible and with the right trading/money management
Saar Pilosof
ReplyDeleteGreat blog on Forex investment... Very nicely written and useful tip of trading in Forex. Thanks for sharing