I’m a Beginner, How Do I Start Forex Trading?
QUESTION:
Adam, I’m a Beginner, How Do I Start Forex Trading?
ANSWER:
First of all, I recommend that you begin practicing trading with a risk-free demo account. Any explanation of how to trade Forex for beginners should start here. You can open demo accounts with almost any broker, and some of them allow you unlimited time before the demo account expires. You can get started right here. You should not fund the account with real money until you are both comfortable with the mechanics of trading, and have been profitable over a period of at least several months.
Once you have got this far, you can fund an account with real money if you feel ready to do so. You should keep the account small at first and only fund it with an amount that you can really afford to lose. As you begin to trade this account, you will notice that the emotional feelings involved in winning and losing real money are significantly different to how it felt trading a demo account, and your trading ability will be quite likely to suffer as a result and need time to recover.
We can answer the question “How to start trading Forex?” with the answer “In a way where you learn but lose as little money as possible right from the beginning, and maybe even make some money.” You should try to trade in a way that gives you a statistical edge of winning as you learn to become a better trader and create that edge for yourself. What this means is, start aiming for a few big winners, bet small, and be prepared to lose most of your trades. I outline how to build such a strategy in a series of four articles beginning here. The easiest edge to exploit when you are a relatively unskilled trader is the market’s tendency to produce large directional moves more often than it should. The drawback in trading like this is that it is psychologically difficult to keep going through the inevitable losing streaks. For example, if you are trading a strategy that typically ensures that about 30% of your trades are winners, remember that over a period of 50 trades it is probably you will see at least one losing streak of 11 consecutive trades. You must account for this both psychologically, and in terms of your money management (how much you risk on each trade). Keep your risk per trade small.
While you are trading such a trend-following strategy to make some money over a longer-term period, you can practice your ability to trade in a more discretionary way, relying on your own ability to pick winning entries and exits. While you are doing this, we recommend that you study our lessons carefully, and also to read external sources of information, including our links. Try to avoid websites that offer very simple material that tells you to get trading with their surefire strategy right away; there is almost certainly nothing worth learning there.
You might want to trade two separate accounts, one for the trend following trading and other for your more discretionary, short-term trading, or at least account for them separately in your own records. If you reach a point where you lose 20% of the value of your discretionary trading account from any peak, suspend trading the real account with the discretionary method and return instead to trading a demo account. Do not despair if this happens, as the greatest breakthroughs in learning how to become a consistently profitable trader often come more from failures than successes.
Finally, you should test your theories and discretionary trading ability against real historical data. You can do this fairly cheaply by purchasing a copy of Forex Tester, or by downloading one of various versions of trading simulators that have been constructed from Metatrader 4.
