To be frank, most people reading this article saw the potential to make insane money in this space. So, how exactly does a person become a forex trader?
Compared to other financial markets, the foreign exchange market has the most volume. A figure rising as high as 6 trillion dollars daily!
What is Forex?
Every country in the world has a means of purchasing power(currency). The foreign exchange market enables individuals to exchange one currency for another.
The forex market is open 24 hours, 5 days a week. This way traders don’t have to stay glued to their screens.
A forex trader can catch various trading opportunities, and part-time traders too.
The influx of volume in this market depends on the time of the day. These factions of the trading day are market sessions.
At certain times, market activity is at maximum, other times, quite low.
There are three market sessions which are the Asian, New York, and London sessions. The best sessions are the London and New York sessions, which are the best to trade.
The majority of traders open and close orders during this period so there’s an influx of liquidity. The London session opens at 7:00 AM and closes at 4:00 PM(UTC).
While the New York session opens and closes at 1:00 PM-10:00 PM respectively. Both of these sessions are active simultaneously for a few hours. In this period, the forex market is most volatile.
What is a currency pair?
As I pronounced earlier, the forex market deals with the exchange of currencies. But forex traders only deal with what is called currency pairs.
What Do Forex Traders Do?
Generally, the value of every currency in the world alters by the day, though by a minute value. Forex traders take advantage of these small changes, you could say, daily.
These fluctuations are caused by the economic condition of a country. Some of the factors are inflation, interest rate, government policies, etc.
Through speculation and analysis of price charts, forex traders can predict the future actions of the market.
Guidelines To Become a Profitable Forex Trader
There are loads of things to learn before diving into forex trading
- Learning fundamental and technical analysis
- Understanding Risk management
- Demo Trading
- Trading Psychology
Learning fundamental and technical analysis
Forex traders speculate the value of one currency will raise against the other. Once analysis is carried out, a bias is attained.
Two types of analysis are fundamental analysis and technical analysis.
Fundamental analysis involves scrutinizing economic data, interest rates, inflation, etc.
Technical analysis on the other hand prioritizes deciphering data on charts to predict the future strength of currencies. It is divided into two subcategories; price action trading and indicator trading.
Understanding Risk management
Large sums of money can be lost in the forex market. Experienced/ veteran traders inquire about losses although to a small degree.
This is only possible because their risk management skills are sound.
Risk management covers the appropriate risks for whichever account size. As well as the useful tips required to manage an open position properly.
Alternatively, another forex trader could refer to demo trading as paper trading. A demo account is a type of account offered by brokers.
It’s a chance for traders to test services like spread, fees, etc. Every feature present in a live account is available on a demo too.
At times, a demo account comes in handy when creating trading strategies. This is necessary before funding a live account and risking capital.
Truthfully, it is tough to trust your guts especially when money’s on the line. Gaining confidence in a demo account improves this aspect.
Every broker offer traders the chance to create a demo account on their website. The login and password to the account are sent via email.
A trading journal is documentation of trading activities. It is either digitally or written down your analysis of the market, the reasons why you entered a trade, and the outcome of the trade.
So, journaling will involve you stating the pair you analyzed, your entry, stop loss, the outcome of the trade, and your comments on a mistake you made to curb it early or a good decision.
Price is “fractal” is a saying that reflects the notion that the market repeats specific patterns over and over. For this reason, journaling your trades will broaden your interpretation of the market as a forex trader.
Journaling consistently for a while enables you to develop a set of rules and criteria that helps you differentiate between high-quality set-ups and whatnot.
The biggest challenge that comes with trading is managing emotions. The most common one is making bad decisions due to fear.
Newbies are advised to paper trade till accounts have been flipped over and over. Doing this clears any sort of doubt in your analysis.
Regardless of the type of investment, only an amount that can be afforded to be lost should be invested. Using life savings for forex trading will cause paranoia, which is far from ideal.
Additionally, after a few losses, step back to reevaluate. Over-trading or revenge trading to make up for losses never ends well.
It is best to stick to just one trading session instead of staring at charts all day long.
Can You Get Rich Forex Trading?
As the statistics suggest, only ten per cent of traders are profitable and this is evidence of how tough trading is. It’s certainly not impossible to be profitable, but it is difficult especially if you do not have adequate knowledge.
For a start, a set of trading principles should be created- and followed strictly.
Of course, a few solid trades will be missed but a lot of unnecessary losses are avoided.
Further, do not over leverage, use a stop loss always too as capital preservation is the primary goal.
To keep staying on top of the market, adaptability is necessary, never shy away from polishing your trading skills.
It’s definitely a possibility, but the problem is there’s a lot of forex content out there. Each claims to have a high accuracy which is unhealthy for beginners.
For that reason, I’d say find a community to grow with. There are a lot of great communities out there which provide content for free. Platforms like YouTube help a bunch for self-learning,
After learning fundamental analysis, technical analysis, and psychology management, a demo account should be opened. Preferably, a demo with a broker of your choice to develop a trading strategy and test their services while you’re at it.
Once this demo account has been flipped multiple times, an account should be funded with an amount you can afford to lose. Overinvesting will cloud trading judgments which are not ideal.
Summary: How To Become a Forex Trader
Forex trading put simply involves the analysis of various factors that determine the value of currencies.
After evaluations traders then buy one currency against the other for a possible gain.
A typical forex trader on Instagram paints forex trading as a holy grail. But it is sincerely not for everyone and that’s okay.