I am assuming you have read my other post as to how to pick a Forex platform, and you have funded your Forex account and of course you have obtained the proper education. So now you are ready to dive into to the Forex market and you want to know the answer to the million dollar question. “How do I trade Forex and make money?" After all we are Forex traders to become rich and perhaps even use trading to replace your current career.
Here are my 6 steps you need to know to make a profit in Forex.
- Decided what kind of trader you most identify with. There are 4 major trading personality types: scalping, short term/long term day trader, swing trader, and position trader. Whichever trading style fits your personality will be the easiest to be able to profit from. You may have to play around with the different styles for a while to know which one suits you. This should be done with a demo account initially.Scalpers are traders that trade on lower timeframes. They typically hold positions for a few seconds to a few minutes at the most. Scalper’s goal is to grab very small amounts of pips as many times as they can throughout the busiest times of the trading session.Day traders, long or short term, usually pick an entry position whether it is to follow the trend, waiting for a reversal etc. at the beginning of the day, through market analysis. These traders will not typically hold trades overnight.Swing traders are traders that may hold trades for several days at a time. This trading style are for the trades that can’t monitor their charts throughout the day so they dedicate a couple hours analyzing the market every night they may even utilize fundamentals.Position traders are traders that hold their trades for several weeks, months, or even years. These traders know that fundamental decisions will be the predominant factor when analyzing the markets and will typically base their trading decisions on them over technical analysis.
- Be serious about money management. This point cannot be stressed enough. We all know the famous statistics 95% of all traders fail. As a trader we know those are not good odds. But this stat is primarily due to traders have poor money management skills. Within the realm of money management is also managing risk. This is the hardest concept for most traders to master, especially when you are on a winning streak. You constantly see your gains increasing so you risk more and more and more until you get that huge loss. You risk more than you should and blew out your account. The adrenaline you get when you are in a winning zone is the catalyst for disaster if you are not serious about money management. It is far better to gain profits slowly and surely with lower risk thresholds, than to succumb to greed and temptation.
- Create a strategy. Every single trader need a strategy. I’m going to say this again. EVERY single trader NEED a strategy! Your style of trading should be written out and documented so that you can visually see and think about how you trade. Answering questions such as why am I entering a trade at this price level? Why am I placing my stop at this price level? In addition to a plethora of other questions can not only help you prepare for all types of market scenario but it can also help you control your trades more effectively.
I like the way Wikipedia.com defines strategy a high-level plan to achieve one or more goals under conditions of uncertainty. And we all know that the Forex market is highly uncertain. So if a strategy helps prepare for uncertainty why wouldn’t you have a will thought out plan written or typed. The point is you need your trading thoughts organized so you will know how to act in all kinds of if the situations that occurs rapidly in the market.
- Stick to your trading plan. The whole point of your trading plan is to use it to your advantage right. So it is very important that once you create your strategy to stick to it. No really follow your trading plan and work it until you are successful. Too many times I’ve have seen trader create a plan and ditch it at the first sign of trouble. One thing to remember that your strategy may not work in every market condition. Again you need to understand your strategy to the tee to know when to implement your strategy. Part of making money in the Forex market is to know when to take a trade. Your strategy should instruct you under what conditions you will execute a trade. If those conditions aren’t met per your written strategy then you should not be in a executing a trade. You decide what market conditions you are comfortable trading in. You decide the types of trade setups are most profitable for you. It is your job as a trader to determine how you trade, recognize how you trade and stick to your trading style until you succeed at it.
- Be realistic. Understand that you will not become a millionaire overnight. While it is true that Forex can make you wealthy, this will not happen in a day, in a week, or in a month. It will take time, especially if you are a brand new trader. Just like any other skill, you have to develop it, nurture it, prefect it. Give it time your skill will increase, you will see setups clearer, you will see exits clearer, you will identify the perfect market conditions that will yield you the best chances to profit. Most importantly you will learn patience.
Trading more than anything requires patience to make money. You need to patiently wait for your trading plan rules to come to light. You need to patiently wait for the market to give you the best setups. You need to patiently wait for your trades to hit your exits. Patience is truly a virtue when it comes to Forex. So if you can learn to practice patience you will eventually become a wealthy trader in the Forex market.
I hope you understand that despite what you see on the internet, Forex is not this overnight wealth machine. Traders work very hard on their skill. I will reiterate that Forex can make you wealthy, if you understand the dynamics of the Forex market and you follow the steps above. Forex is a worthwhile financial venture and you should consider it. But give it time, give it full effort, give it full attention and you will reap BIG financial rewards. Follow these steps and be on your way to become the next millionaire Forex trader!