Last Updated 1st February 2017: This is a question I get asked all the time by multiple different types of people, most of whom are on the verge of getting into trading but simply aren’t 100% sure whether it works, or even if its something they can do. I answer using the same 3 points. Forex trading really does work, but its not for everyone. Below I’ve outlined the 3 elements you need before making a single trade.
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3 Elements you need before making a single trade
Element 1 – Money
The 1st is do you have at least $5,000 / £3,000 / €3,000 you can invest into the foreign exchange markets. If the answer is no to this question then my response is simple, you aren’t ready. This isn’t due to the monetary side of things, you can gain leverage of 100:1 and suddenly have close to half a million to invest. The reason I say no is because people are not committed to it, you might have £500 but be the most dedicated person in the world, the issue is your “to close to the edge”. If you lose that £500 you can’t continue, and you will make loses, don’t be delusional and think you’ll be an expert forex trader on day 1!
Element 2 – Time.
The 2nd element is “Do you have the time?” Can you seriously dedicate 1000 hours up-front and about 2-3 hours a day into trading? The more you know about trading itself the easier it will become. For forex traders who’ve been doing this for a decade they can see patterns without the use of a software or forex robot, they don’t even need to utilise advice from forums, blogs or anything. They are the Forex Trading 1%. When you start trading you are the exact opposite. You might have been learning some tactics and forex trading tips, but you don’t really know how forex trading works.
Element 3 – Knowledge
Don’t kid yourself, you can’t be a successful trader without knowledge BUT I’m not saying that means you have to read every forex trading book ever written and be active on every forum and read every blog post on every single forex blog…. That’s just not realistic. BUT if you are smart you can learn who to follow, build a connection with people and sign up for email lists of people and companies you believe product good information or signals. For example following the experts is the easiest way to gain traction when you start trading. This is why we promote etoro as our broker, it’s so easy to set up your account to see profitable experts, take action on their trades and advice and you’re 90% there!
Bonus Element! – Mindset!
There is an element 4 and that is the mindset of a trader. Some of the most successful traders are previous business owners. This could be because the understand supply/demand and basic economic principles better. But personally I think its because they have their mindset sorted. They understand that one losing trade doesn’t make an unprofitable trading strategy. They also understand the keys of variance, regression and everything that is negatively associated with the markets. But if your mindset is correct this will not waver you. You will stay trading strong and won’t be swayed by the new shiny object. Correct mindset might just be the most important part of any business or investing venture! Our article on trading psychology is coming very soon. Keep updated and subscribe!
The Reason Why Most People Think Forex Trading Doesn’t Work
Most people do it wrong – By most people I mean probably about 95% of people I’ve spoken to who trade FX got into it this way. They heard / saw a friend or someone talking about how much money they were making. They did a couple of hours research (mistake 1) and took the dive in, but didn’t want to “risk” too much money and hence decided to only invest £500 with a 20:1 leverage. (mistake 2.) After this they took to the forums or maybe purchased a forex trading course (mistake 3), followed the so-called “experts” and lost all their money through poor decisions and simply not having enough leverage or start-up capital in the first place. They lost all their money and failed. HENCE they spread the word: “Forex Trading Doesn’t Work. It’s a scam. Avoid it”.
This is so common you probably wouldn’t even believe. I’ve heard this over 100 times, I sh*t you not. But luckily there is an easier, less risky and more long term strategy.
The first thing you should do is learn the basics of forex trading. If you don’t know them we have a free ebook you can get from: http://eliteforextrading.com/ebook/ once you know the basics you can move onto step 2 but not before!
Step 2 is signing up for the right broker. As I previously mentioned we use and recommend Etoro, if you sign up via our link you get an extra $10,000 to trade with: http://eliteforextrading.com/etoro/ once signed up you can deposit whatever you have budgeted to invest and also organise your leverage options. By this time you should know all about leverage from the ebook!
Step 3 is familiarising yourself with the platform you decide to use, there will be training videos to help you, but you need to know how to make trades, what the PIPs are and more importantly how quickly a trade will be made. Some brokers might have a 5-10 second delay on trades which is actually a long time in a market as volatile as the foreign exchange market. This isn’t that big of an issue for beginner traders but its something you should know as a news story relating to a countries economy can have drastic effects on the price of their currency and hence might cause the markets to move quickly and dramatically.
Once you have the foundation knowledge in place and you have set-up your platform fully you are ready to go onto what I call the research stage. This is researching individual currency pairs that you would like to make a trade on and profit from. Before you start this though there is one more aspect to be aware of, this is how long you are willing to wait for a profit from a trade. Generally you have 1 of 4 options. Extremely short term, such as minute or hours. Day trading where you look to make a certain amount of money per day. 3rd is medium term where you generally trade less frequently but leave your money in the market for anywhere from a couple of days to a couple of weeks. And finally long term trading which is anywhere above a month.
Personally I recommend starting with either medium term trading or day trading. Generally you will need more capital for a successful investment in day trading but if you are only looking to make £50-£500 per day your leverage should be able to cover your goals, but do some quick maths and check previous movements to see if you would make the desired amount you would like.
You can start by trading with virtual cash if you aren’t confident in your own ability BUT I don’t actually recommend this for a couple of reasons. The first is you will be frustrated when you make a profit and you will also be less annoyed or anxious when you make a loss. But the main reason I would recommend avoiding the virtual options all together is you will put less effort in, at the end of the day its just a game, so what’s the point of wasting your time? Better to invest a smaller amount and make a small profit or loss and learn through doing that to simply make a large imaginary profit.
Don’t go to fast. This is a quote from someone who worked at a famous forex broker that will remain nameless:
Over the years [he worked there for almost 3 years] I saw thousands of traders and many were sporadic, trading thousands in a few hours and then not doing anything for months. The markets are volatile but not that much! I only ever saw 8 traders consistently make over £50,000 a month. These weren’t even the biggest traders and they definitely weren’t the most active ones. They just choose their trades well and set perfect, profitable stop/losses.
Don’t try to make 50k in your first month if you have less than a million to invest in the first place. Remember the compound effect that small wins build up. Although you might be a short term trader, you should aim to have longevity in your process.
So to answer your question – Does forex trading really work = Yes, but its not for everyone. Think of your trading as a career or business and not a hobby, that’s the quick way to lose a lot of money. Listen to experts but don’t listen to everyone who claims to be one. Follow the right people and learn the basics before you start doing anything! If you follow those steps you will be able to make forex trading work for you too.
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