Updated: June 28, 2023
Let me take a short break from talking about the current series on portfolio management and share with you today a quick post regarding forex trading.
This article has been in my inbox for some time now and I felt the need to publish it already as I know Richard, the post’s writer, has been patient and eager to share these with you.
I’ve been trading currencies on a live account for almost six months now and all I can say is that it really takes a lot of focus and discipline to be successful.
I’ve experienced large drawdowns and losing streaks, but I’m glad that I still end up profitable, thanks to the strict risk management that I apply to my trades.
Below, Richard shares with us three practical steps on how to achieve success as a forex trader.
If you plan to trade currencies in the future, then I’m sure this would be a lot of help.
The forex market is a fascinating and hugely popular trading environment and one which has the potential to challenge even experienced investors.
That said, it is also one of the most lucrative financial markets, as traders can make margin-based investments with the capability to deliver significant returns on their initial investment.
Given the corresponding levels of volatility and liquidity present within the forex market, however, it is an entity that must be approached with caution by aspiring traders.
Those who misunderstand the nature of the market or fail to learn its fundamental principles are likely to experience failure and potentially huge financial losses in the process.
Becoming a Forex Trader: Three Key Aspects of Preparation
So with this in mind, how should an aspiring forex trader prepare for entering such a unique and challenging market? Well, there are several key things to bear in mind, each of which can provide the foundation for a long term trading strategy. Consider the following:
Learn the Fundamental Principles of the Forex Market
As strange as it may sound, it is not the complexities of trading that pose the most problems within the forex market? Instead, it is a lack of attention to detail, or more specifically an unwillingness to learn the fundamental principles of trading, that prevents traders from realizing their potential.
You must take the time to research the market thoroughly, taking into account everything from its history and evolution to the factors that distinguish it from stock and commodities based investment options.
Once you understand the nature and the daily practicalities of trading in the forex market, then you can begin plotting a route towards profitability.
Secure a Suitable and Easy to Use Trading Platform
Technology has played a pivotal role in making forex trading a more accessible practice, with the development of evolved online trading platforms particularly significant.
Essentially cloud-based or downloaded software applications, can be accessed either through a desktop PC or smartphone and equip traders with a comprehensive suite of technical indicators and analytical tools.
With most of these platforms also offering users to chance to create a customized display that relays market information in real-time and an easy to comprehend manner, they perform a critical function in helping traders to maximize their investments.
Practice and Cultivate a Practical Trading Strategy
Even when equipped with in-depth market knowledge and highly evolved technology and analytical tools, you should still tread carefully when first entering the forex market.
Through your trading platform or an associated online broker, you should be able to access a demo account that provides practical experience of developing strategy and executing transactions.
By gaining experience in a live and yet entirely risk-free market environment, you can gain a greater understanding of how to succeed while establishing suitable and risk-reducing exit strategies.
Whether you are an inexperienced trader or someone who is simply new to the forex market, these steps can provide a gentle and necessary induction. After all, the forex market remains the most volatile of its type, and as a margin-based investment method, it can incur significant losses that are far greater than you may be able to absorb.
So adopt an organized and considered approach to your preparation, and equip yourself with all the knowledge, tools, and practical experience that you need to achieve success.
Richard Benedict resides in London and trades currencies for a living.