10 First Steps in Forex
A currency trading beginners guide
Know what stage you re at, get help from those you trust while you learn about risk, enjoy the journey…
They’d seen another website advertising a system for day trading stocks. They’d been impressed by that site (it’s a slick sales page I must say) and wanted my feedback before committing any money to the course being sold.
I won’t go into my reply, except to note that I advised general caution when starting out. However, the fact they were only looking at one approach kicks off the first of our 10 crucial first steps in forex for the beginner:
1) Attitude: Cast Your Net Wide…
There are so many ways to get involved in the financial markets it boggles the mind! You will find there are many options to enter the trading game – stocks, forex, futures, options etc. – and the first thing you should do is gain at least an elementary understanding of each.
AuthenticFX is devoted to retail forex trading, because I believe it offers the best, safest and fairest avenue for new traders, as long as they find a good mentor to guide them along the path.
That’s what AuthenticFX is designed to be. These days I am too busy with my own trading and other commitments to be able to offer one-on-one mentoring, but if you devote yourself to studying what is on this site, it is my hope and belief that you will be well prepared for your trading career.
2) The Kiss Principle
I often refer to the KISS principle: Keep It Simple Stupid! I don’t believe in calling anyone stupid however, so I shorten it to just KIS
Look, every beginning trader gets overwhelmed by the complexities they encounter. That’s understandable, it is a complex subject and it takes time to become comfortable with all the new knowledge. The mistake newbies make is to think that they must try to incorporate everything into their trading, learn absolutely everything at once, and most especially pile every tool and indicator and other resource available to them into their trading arsenal.
The best thing you can do when starting out is to narrow your field down to one or two things you feel comfortable with, and add to those one at a time until you have a repertoire of acquired knowledge areas and skills. Don’t believe that you have to do it all overnight. Climb the mountain one step at a time, taking regular rests.
3) Have or Get Realistic Expectations
What do you expect to achieve in the first three months, six months, year, two years and so on? It’s a good idea to write down what your goals are and where you plan to be in your trading at the end of those periods.
Don’t expect to do a course in forex trading and then go out and trade for a living! It won’t work, at least not for you although your broker will be happy with all the commissions on your losing trades.
Don’t expect to start trading and be able to pay the bills and raise your family after six months. It doesn’t work that way, just ask any trader who actually made it to the consistent level. It takes longer than that, usually much longer.
Expect to spend money at some time on education (not straight up, see above), and to lose money when you actually begin live trading. Even if you start out winning there will be the inevitable string of losses that will puncture your ego and shake your resolve. Be prepared for that.
The truth is that the path to forex success is like any other journey: punctuated with failures, characterised by varying levels of hardship, plagued with doubt, fear and greed. Yes, there are triumphs along the way and that pot of gold at the end of the rainbow might exist, but it will take you a while to get there. Which brings us to the next step…
4) Study Your Profession. HARD!
I’ve already mentioned the fact that it will take a while and that you will have to work hard. Don’t think you can make it in forex – no matter how much money you have saved in your account – in a short space of time like 3 to 6 months. I almost want to cry when I hear people say they are going to leave their day job because they’ve saved up $10,000 to begin trading, without having done any homework regarding the markets they will be trading.
I’m not very good at trading manually: it took me about 6 to 7 years of horrendous losses before I finally stabilised! And seriously, I’m not such an extreme case. Most of traders I know who are successful will tell you that it took them several years before they started to enjoy consistent success. Be prepared to study your subject. HARD. And LONG.
Refer to the other areas of this site that cover recommended books, trading resources, interesting sites and educational resources for a start…
5) Be Prepared To Fight. HARD!
You’ve seen the advertisement: the lucky sod reclining on some gorgeous beach somewhere as a bikini clad twenty-something wafts up to serve him some exotic cocktail in a glass frosted with ice nestled on a silver platter while seagulls drift in the sun-drenched haze yada yada yada yada yada…
The truth is that lucky sod (if he’s real) spent his time in the trenches earning that reward. Every successful trader I know can recount nights spent tossing and turning, walls punched in frustration, shameful days when stupid mistakes wiped out accounts and so on. Keep your eye on the prize by all means, but keep your mind on the job at hand.
You will lose, get used to it. At some point in your trading, even if you start out on a winning streak, the forex market is going to give you an awful belting. And it won’t stop there. Trading forex will test your resolve like nothing else can. It’s not for dilettantes, so conduct an honest appraisal of yourself now. You will need stamina and courage in abundance. Don’t have them? Save yourself pain and money: exit now!
6) Identify the Lions, Sharks and Other Predators
As I’ve said elsewhere the Internet is swamped with so-called forex guns & gurus pushing their expensive systems and claiming to be able to turn absolutely anyone into overnight millionaires. Most of these guys are scams to be avoided at all costs. How can you tell if they are a scam? Simple:
If It Sounds Too Good to Be True It Is!
A real mentor will be honest and upfront about the risks and the costs, and especially about the effort involved to achieve success. Look for a sales pitch that incorporates these realities while at the same time showing the benefits that can be enjoyed employing whatever it is they are selling.
The flip side of learning to identify forex scams is learning to identify those folk you can trust. For the most part this comes with experience, as you learn more and see more of the market. Until then I hope that you will come to trust AuthenticFX as an honest resource, pointing you in the direction of people with integrity.
Time to get your feet wet…
Having done your home work in the preceding steps it’s time to start trading, but only using a demo account. Never risk real money until you are consistently profitable over a meaningful period of time, e.g. at least 3 to 6 months.
Opening a demo account with the Metatrader platform can be done with most forex brokers these days, at no cost to you.
8) Go Live!
Start small: open a real account with the minimum amount (this can be anywhere from $100 to $1000 or more depending on broker) and trade according to the knowledge of risk procedures and parameters you will have now acquired by following the steps above.
Evaluate your performance according to the principles of system verification and backtesting which you should also have now acquired in study as outlined above.
Fine tune your system and increase your risk exposure as your performance and confidence increase.
9) Don’t Go It Alone
No one makes it alone as a trader. Every successful trader at some stage associates with trader mentors and other traders of like mind in order to increase learning possibilities and get positive feedback for their ideas. Be prepared at this stage to pay some money to join quality forums, trading schools etc that will increase your knowledge, skills and confidence.
On the other hand, be selective in the associations and friendships you form. Some free forums are great in small doses. Others can be a trap, nothing more than time wasters where you are likely to get swamped by negativity from losers. It is a sad fact that many of these forums are largely frequented by unsuccessful traders with a very bad outlook. Avoid these people and these facilities; they will at best cloud your head, at worst put you in the frame of mind where you yourself become a loser.
10) Enforce Patience
Some of the best traders and some of the best systems/strategies hardly ever trade, compared with what your expectations probably are.
Be patient with the market, and above all be patient with yourself. Don’t let lack of signals force you into sub-optimal trades; you will only lose money over the longer term.
It’s often said because it’s always right:
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