How To Become A Forex Trader
Foreign exchange (Forex) is the conversion of one currency into another. The average daily trading volume is $6.6 trillion worldwide.
The vast majority of currency conversion is undertaken with the aim of earning a profit. The amount converted everyday can make movements of some currencies extremely volatile. This volatility makes forex trading attractive, bringing with it an element of risk and profits.
What is the role of a forex trader?
A forex trader seeks to earn a return by taking long or short positions on currency pairs, by understanding currency pairing’s behaviour and putting up profitable trades. This is done in a disciplined and strategic fashion, continuously looking out for market opportunities. If you are new to this and would like to understand how all these works you can select a suitable stock trading app here.
How to develop a trading career and help ensure success
1. Educating yourself about forex
With the necessary details on how the forex market operates, honing your skills and polishing the trading strategy are the goals to increase your chances of winning trades and staying in the game. With a demo account, one gets to feel how a real scenario works while dealing with real data but trading with virtual money. Forex experts recommend one to do demo trading (participating in a simulated market using virtual money) for at least 3 to 6 months.
2. Building a Successful Forex Trading Plan
This will involve the following steps:
- Do your homework before you begin to trade – learn about what is going on in other markets around the world.
- Skills assessment – self-awareness of one’s skill set will enable one to set a clear plan, so as not to lose money.
- Set risk level – no matter how strong an individual trade setup looks, successful traders will only risk a small percentage of their overall account on it. Limiting the amount of risk on each trade allows winning traders to let the law of large numbers work in their favour.
- Be mentally prepared – while the rest of the market is trying to figure out what to make of an event, redrawing trend lines and checking charts, the forward looking-trader has a game ready in place and is ready to trade.
- Set trading plans and goals – Important points should be determined and these include minor & major support, resistance levels, alerts for entry and exit signals. Otherwise one will find themselves losing money quickly.
- Keep your trading records – this will provide a reference point for future trades to see what worked in different market scenarios and what did not. Analyzing these records will show your profits and losses, what was the average time per trade, the drawdowns, and the lessons learnt.
- After every trading day, write down your profit/loss, make notes of your trades and the conclusions, and make important notes for the next trading day.
3. Building a Helpful Risk Management Plan
Since the trader has no control over the market, he/she must cultivate discipline and control emotions while placing stop loss and take-profit signals.
- Increase your position slowly – traders may want to start from a small position and increase the size as the market moves in the right directions.
- Unexpected news – Events such as central bank interventions, political upheavals, and natural disasters, will occur and a trader will need to have a plan to deal with those situations. Document the outcome, and if there was a change in the course of action. This will create a powerful tool to help in future similar situations.
- Traders may want to keep leverage at a minimum – in forex, leverage is a quite easy to access. However, in cases of a large loss, it can be difficult to recover.
- Use software programs – this will help in risk management.
Use them, they can make your life easier and make you a better trader.
4. Making a Daily Routine
- Know your daily target – check your goals for the next day, what needs to be done to achieve them. Check what significant events have happened during the day that can affect the markets.
- Analyse the charts – check for opportunities when you open the graphs and what scenarios you should be prepared for.
- Market hours – at the beginning of the trading session, professional traders watch the graphs to understand the market’s behaviour for the first half hour. After that, they start trading according to their trading plan.
- After the trading day – review trades to see what worked and what did not. Preparation for the next day begins, mark where you have opportunities, how to act and how to respond to unexpected scenarios.
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