Fundamental Steps of Starting Forex Trading
For most of us, forex is a trading place except for the banks and investment firms. Banks, investment firms and hedge funds trade forex as well as invest in currency market. They are the market maker and responsible for market acceleration (drive of currency market). The major participants of currency trading are listed below according to the priority:
interbank, commercial banks & central banks
- Hedge Funds
- Retail foreign
foreign exchange companies
Spot currency trading is not suitable for all type of investors as it has huge risk to lose you capitals. You must have to have a proper money management to trade in spot market. To me, controlling the leverage is the key to success in forex trading; definitely the risk model is also very important to trade. Depending on the investment you must design you trading strategy to get the best output as well as need to prepare you mentality for trading. If we study the history of some trader’s life, we found few traders who committed suicide because they could not tolerate the stress of losing money at the end of their life. So forex trading is only for smart people who can control their emotion when needed. Well, let’s start talking about how to trade in forex market to get long term benefits.
As I have said that forex trading is for smart people; that mean you have to study a lot to understand the market mechanisms and functionalities. It is not necessary you have to have an economics degree to understand the market. You can read related books downloading from internet.
Try to follow the market behavior and analyze using
what you have read. This will widen your interest on trading and will be an
asset for you future career. Personally I have read so many books, among them I
must mention some names: Mastering the Trade, Day Trading the Currency
Market, Trading in the zone, Technical Analysis for the Currency Markets,
Rational Analysis etc.
Trading Strategy Building:
Demo trading is must for new traders. Without demo trading one should not invest in live forex trading. During demo trading you can build your own trading strategy. This is why every broker provides free demo trading. This is the best way to tune up your strategy and money management. Remember one thing, in trading money management or risk management plays the vital role. If you strategy fails to manage your trade risk you won’t survive in long run. If you come up with a strategy I recommend back testing the success rate (win, loss ratio). This will boost up your trading performance.
Now the question is how to build
you money management! Well, if you already read the above books I recommended I
think it is not impossible for you to make your own money management or to
follow the conventional good money management systems. There are some websites
from where you can get the idea of risk management models. For newbies
babypips.com is a good resource,
Developing Trading Psychology:
Developing trading psychology is not that easy. When we see other trader’s trade we feel like this is easiest job in this world. But believe me, 90 percent of traders lose money because they cannot control their greed and deviated from trading psychology.
Let’s discuss about what is trading
psychology. Trading psychology is defined as a control of emotion over the
trade. If you are confident enough to carry a trade even if it is in negative
position indicates a strong trading psychology. Some traders take the small
profit from a trend thinking that the momentum might be lost. If you can
overcome this problem, definitely forex trading is for you. You can read some
books to know more details about developing psychology, for example: Trading for a living by Alexander Elde, Trade
Your Way to Financial Freedom by Van K Tharp, The Psychology of Trading and The
Right Side Of The Trade: Mind Mastery For Traders by Michael Ferree.
By following above three steps you can prepare yourself for forex trading. Happy trading :)