What is a Forex Trader?
A forex trader is someone who places orders on the forex (foreign exchange) market. A trader can trade for themself or on behalf of a bank, broker or financial institution. This article is for those that want to be a trader or are just starting out.
Why Become a Forex Trader
Before we get into the details of trading, I’d like you to think about why you want to become a forex trader? What is the real reason? I’ve written more about this here. Finding your “why” is crucial and I suggest you read the article now before continuing.
For those of you very new to this forex trading world, check out this great Investopedia article too. This has all the basics and background of forex trading.
The 3 P’s Of How To Become a Forex Trader
Today I am going to introduce you to the Three P’s of forex trading. Actually, these can be applied to just about any type of trading.
I developed the Three P’s to help those very new traders get used to the ideas and concepts of becoming a trader without spending a cent.
Trading is very risky and I have seen way too many traders blow up their account by rushing into the markets with real money.
Even worse, some traders end up blowing through their account and owing the broker money! Ouch!
I’ve also seen many traders spend thousands of dollars on online courses. There are some great, honest teachers out there, but there’s a lot of rubbish too! Do your homework if you choose to go down this path.
I believe you don’t need courses. There is more than enough free, solid information out there to teach you what you need. I’m hoping this article will lead you to it and start you off down the right path. Enjoy.
Welcome To The Three P’s (3P’s)
The aim of The Three P’s is to give you a basic framework for becoming a forex trader. No fluff, just honest forex advice that will help you on your journey.
1. Prepare To Become a Forex Trader
Educate yourself and absorb facts. Everyone learns differently. I like reading. Many like watching videos. Either way, I am a huge Mark Douglas fan. My favorite book on trading is “Trading In The Zone” & I believe it’s a must-read before attempting any type of trading. You can find it here.
Another great book is Market Wizards by Jack D.Schwager. This book has so many pearls of wisdom about trading. Jack interviews the most impressive forex traders and many other types of traders from around the globe. It is a very inspiring read and can be found here.
The above books will help you with mindset and inspiration. Now it is time to get the finer technical details. For those of you who are just starting out forex trading, head over to DailyFX. Daily FX offers such great free education. It is simple, straight to the point and will help educate you on how to become a forex trader, without charging you a cent.
Prepare – Action Steps
- Buy the books above, take notes, educate yourself.
- Immerse yourself in factual education that is not trying to sell you anything.
- Really think about your “Why” and make sure you’re mentally prepared to become a forex trader.
2. Practice To Be a Forex Trader
Ok, so you’ve read a few books and spent hours online getting thrown from trading websites to youtube clips and all in between. What’s next? It is time to practice.
So, when I started forex trading we used to “paper trade”. We actually used to literally write on paper, buy 100k usd/jpy at 104.56, add the date, time and that was it. Then we’d have a friend check our trades and keep us accountable.
These days all brokers offer demo accounts, the modern day paper trading option. This has 2 major benefits. Firstly, you can access live pricing and test your strategies. Secondly, you can get a feel for the functionality of the software.
Trading can be challenging enough. So getting used to your software before you trade live is absolutely essential. When you’re tired, busy and distracted with life, it is very easy to press the wrong button! Hitting buy instead of sell can have dire consequences & yes i’ve made this mistake before.
Three Steps To Proper Practice
Warning: This is not a joke. If you want to make it in the markets you need to treat your demo account like real money. Some traders say demo trading is a waste of time and that there are no emotions involved. I beg to differ. Think of demo trading as the practise before you practise. Treat it like real money, respect the platform and get used to its functionality. Why? So when you trade live, you’ve mastered the platform and can focus on trading.
I’m not going into forex strategies in this post, again DailyFx has a nice little overview of some strategies here. Once you’ve found a strategy or developed a strategy I want you to use the following simple formula for your demo trading. It’s a simple three-step process. Commit, Record, Review.
Commit, Record, Review
1 – Commit – stick to the strategy for a set period of time eg.3 months, or 6 months (depending on the timeframe you’re trading). Create a trading plan and stick to it. Don’t chop and change strategies.
2 – Record – Record your trade details & reason for entering and exiting every single trade. I like to record my trades in Google Sheets and then all other details including screenshots of charts in Notion. Record your entries and exits at the time of execution.
3 – Review – Set a time in your diary ( I do this on a Saturday) to review all the trades from the week. Ask yourself, What have I done well? What can I learn from my last trading week? How can I improve my performance? Have I followed my plan?
So many new traders are rushing to trade with live money & they haven’t developed the foundations of a successful forex trader. Successful habits will be your pillars of strength for a profitable forex trading career.
Once you’ve got into a successful trading routine and your strategy is becoming consistently profitable. It’s time to go live.
Practice – Action Steps
1 – Sign up for Google Sheets and start recording your trades.
2 – Create an account at Notion and start your trading journal.
3 – Create a demo account at a regulated broker. Research brokers further here.
3. Perform to Be a Forex Trader
Now it’s time to put your money where your mouth is. So you’re in a successful demo trading routine, you’ve found your feet in the market and your strategy is performing. You’ve selected a broker that is regulated and trustworthy and you’re ready to make a deposit.
Before you do another thing, only commit money that you can afford to lose. Nobody expects to lose, but 70-80% of people do, it’s a fact.
Once you’ve made your deposit and you’re ready to trade on your live account, there are 3 rules you must promise me you will abide by:
1 – Always use a stop loss when placing the trade.
2 – Only ever risk a maximum of 1% risk per trade (or less).
3 – Never break the above two rules!
Three simple rules. That is it. Start with these and they will protect you from blowing up your account. You will have the best chance of survival and the best chance of becoming a successful forex trader.
Disobey these rules and you might be lucky for a while, but there will be the one time that the market doesn’t come back. Then your broker will stop you out and you are back to square one with belted self-confidence.
Many people say all great traders blow up their accounts at least once. I believe you have a choice.
There are easier, cheaper ways to learn good lessons out there in the markets. Using solid risk management will teach you great lessons and keep you in the game to trade another day.
Perform – Action Steps
1 – Sign up for a real account with a regulated and trustworthy forex broker
2 – Always place a stop in the system at the same time as you open a position.
3 – Risk a maximum of 1% of your account balance per trade. You can use this risk calculator here.
Becoming a consistently profitable forex trader is not easy. You really need to dig deep and find out your “Why” as you have a long road ahead. Starting on a demo account and creating and practicing good habits is crucial to success. Religiously recording all of your trades & performing daily & weekly reviews will greatly increase your chance of success.
We live in a world where everyone is time poor and wants everything yesterday. Forex trading is something you can’t and shouldn’t try to rush.
It is a journey and a very fulfilling one if you build the correct foundations. I wish you the best of luck, start small, risk little and focus on learning and refining your skills each week.
Also, remember there is no Holy Grail in forex trading, so if you see something that looks too good to be true, then it is! Good luck!