Table of Contents
- 1 Introduction:
- 2 The Forex Trading Basics
- 3 Understand Quotes, Currency Pairs and the PIP
- 4 PIPs & The Spread (IMPORTANT)
- 5 The Forex Toolbox
- 6 Online Forex Trading For Beginners – Learn How To Trade Profitably From Day 1!
- 7 Fundamentals vs Technical Analysis
- 8 Types of Traders
- 9 Trading Psychology & Mindset
- 10 Forex Myths
- 11 6 Key points to remember – Key Forex Trading Tips For Beginners
- 12 Strategies & Systems – The Real Stuff (Newbie Friendly)
- 13 Basic Formations
- 14 Advanced Formations
- 15 Reason(s) for Entry
- 16 Beginner Trading Traps
- 17 Creating Your Own Strategy
- 18 Back Testing a Forex Trading Theory
- 19 How To Build Strategies to Back Test?
- 20 What Next? – Join The Movement!
- 21 Conclusion
Elite Forex Trading is a website geared to teaching beginners how to learn forex trading and become profitable from day 1.
Put simply we create hundreds of long term profitable traders through our free training and for the more experienced traders out there a real time paid video “over the shoulder” tutorials.
If you are brand new to forex trading this WILL be the most important article you read this year.
If you want to make 7-10% a year this is NOT for you.
Go and have fun in the stock market or get into real estate and deal with tenants for the rest of your life.
But if you want to learn how I’ve personally made 5% a MONTH for the past 3 years then please continue reading.
If you want to learn how to trade forex profitability but don’t know where to start you’ve come to the right place.
In this post we will be talking about everything you need to started from starting capital, psychology, mindset, systems, tools, strategies and more. This is hugely in-depth post but after reading this and our ebook (on the right) you will have a clear understanding of how to trade profitable. All 100% for free! So let’s dive in!
The Forex Trading Basics
This post is all about currency trading for beginners, some of you may already know some of this information, but as we progress through the guide you might find new pointers and techniques you had no idea about!
So let’s get started!
The currency market or Foreign exchange market is one of the most rapidly changing investing markets in the world, with over 5 trillon USD traded everyday!
FX can be highly profitable to individuals and companies that can predict even minimal changes in currency pairs. Banks, governments and even entire countries participate in Forex trading, but you are probably hear as an individual trader looking to earn financial freedom through the markets.
Let me tell you something right now, it is possible.
But the issue is most new traders rush into the markets without having the correct knowledge and lose a lot of money.
In fact stats show that 95% of traders LOSE money in the markets whilst only 5% actually make money.
It is also the most volatile market in the world but does go through periods of consolidation where for weeks at a time to the average individual no price changes will be happening, although on shorter time periods there will still be movement and volatility these price movements are what professional fx traders profit from.
Time Periods & Chat Types
There are many time periods on which to trade forex.
First there are different types of charts and graphs that show the same currency pairs but on different time frames.
For example one chart may show the movement on 5 minute intervals. This means that one entire candle shows 5 minutes worth of data. This is called the 5 minute chart. Below is a screenshot from my account which shows each candle as 4 hours worth of data.
Other common examples are the 15 min, 30 min, 1 hour, 4 hour, 8 hour, 1 day, weekly and monthly charts. Although my personal favourite is the 4 hourly, we will talk about why later in this guide.
Generally the type of trader you are will depend on the time period that you study the most. The strategy you build will depend on a number of elements:
- Your starting capital.
- How much time you have to trade.
- How much you want to make (% account growth per month)
But do not worry about this yet we talk about all of these later in the guide.
As a general rule I like to only look between 15min and the daily with my primary focus on the 4 hour chart.
Currencies tend to only change minimally on a daily basis, but as explained in the what is forex article, with leverage you can create high percentage profits daily, if not hourly, on minimal currency changes.
Currencies or positions (when you buy or sell a currency) can be held for minutes all the way up to years and the frequency at which you trade is entirely dependent on what you are trying to accomplish both long and short term, and the strategy you have established.
Leverage is a method by which individuals can deposit a set amount (say $10,000 for example) and trade with a larger amount utilising leverage. For example; a 10:1 leverage level would let this individual trade with $100,000 of funds. A 50:1 leverage would allow this individual to trade with half a million dollars worth of funds.
Leverage can either be very profitable or very dangerous.
But at the end of the day it only does 1 thing.
That is speed up wherever you are going.
If you were going to lose your entire account then leverage helps you get their faster.
If you were going to make a substantial profit, leverage helps you get their faster.
This is also incredibly important when we get to the starting capital part & margin.
To not complicate this too much now (as you really don’t need to) just remember the following:
- Leverage is IMPORTANT but can be dangerous if abused.
- This makes bankroll management that much more important & Risk to Reward Ratios and stop losses essential (again don’t worry we cover all of this later.)
The currency markets are extremely stable, as currency prices are based off supply and demand, which cannot be easily manipulated, even millions invested by banks cannot move prices very much. As a result the markets can provide both long and short term sources of profits, but there are a number of basics that individuals should know before starting trading in the currency markets.
As a general rule remember the following: larger corporations (banks, countries etc) tend to hold currency pairs for longer periods of time as they are moving such large amounts of money (100s of millions) and hence are less concerned with smaller fluctuations in the markets.
It takes them a lot longer to enter and exit positions unless a massive piece of news comes out.
Understand Quotes, Currency Pairs and the PIP
When you first consider starting to trade Forex, especially if you are a complete beginner, the quotes and graphs and mountains of data can look pretty daunting.
Every currency quote will be valued against another currency. Hence the price will always be displayed as: Currency1/Currency2 = Price. For example most platforms or brokers will generally display prices similar to below, (image source).
The base currency is always equal to 1 unit, in this case you can sell 1 euro for 1.4745 USD.
There are a number of major currency pairs. These are the larger currencies that are traded against one another. image source.
Direct vs Indirect Quotes
Currency pairs can either be quoted directly or indirectly.
A direct quote is simply where the domestic currency is quoted first, whereas an indirect quote is simply where the domestic currency is the quoted figure.
Generally it will be pretty obvious which currency is generally stronger. For example if you see 1.30 on a pound dollar currency pair you will know this is in reference to £1 = $1.30 and not vis versa, barring any economic meltdowns this will not change.
Next we are going to outline the metric by which success is measured in forex trading.
PIPs & The Spread (IMPORTANT)
The difference between the bid and ask prices is called the spread.
Most forex brokers don’t tend to take commissions or charge to trade in the fx markets. Instead they make their money by the spread on a currency.
The spread is measured in points or PIPS. In the above example the 4th decimal point indicates the spread and the difference is 3 pips (52 to 55) and hence the spread is 3 Pips.
The pip itself is the smallest measurable fraction by which a currency can move (Technically there is also another smaller movement called a tick this is 1/10th of a pip but we don’t measure movement in ticks as it’s like measuring earnings in points of a cent, it doesn’t matter!)
Spreads can vary for different currencies but most pips tend to be the 4th decimal place of a currency pair. In the major currency pairs the spreads will be tighter, but in less traded currency pairs the spreads will be larger to mitigate the risk of the broker.
All this really means is the following: If you are looking to make a high volume of trades, make sure you stick to the major pairs otherwise you will be paying a premium spread on all trades (think of it as a tax.)
Forex Markets Opening Times
In the opening hour of the day the forex markets are incredibly active and the majority of large trades by big companies, governments, banks, financial corporations are done. This is not the ideal time to invest if you are a newbie to fx trading.
I’d recommend waiting and trading throughout the day when the fluctuations are less violent but you DO NEED some movement in the markets happening especially if you are looking to take profits on a daily basis.
In a market where prices aren’t changing, there is no way to make a profit….
The forex market opening times are below (image source)
The Forex Toolbox
Forex trading is done online instantaneously (or close enough anyway.) So its important to have the most efficient tools to allow you to get every advantage on the information and signals or systems you research.
Saying that there are generally only 2 things you need:
- A Broker – We have a full post on what brokers we recommend HERE.
- A strategy – This is a broad way of saying “how you are going to trade.” It’s difficult to know what strategy to use especially if you are a beginner trader, but we get onto this later so do not worry yet.
Don’t worry about any additional tools.
Anything that “experts” say you have to have is a lie! There are a couple more elements I recommend such as leverage, professional training, signals software and back-tested strategies but reading this post and getting our free ebook will give you all the information you need to get started.
One thing I would recommend is to surround yourself with like minded successful people and not nay Sayers. If I had listened to the naysayers I would not be where I am today.
We are currently building one at EFT but it is only for advanced traders as of September 2017. But watch the space we are looking to build a newbie focused one in the near future!
Now that the baseline information is out of the way its time to get into the real methods, techniques, systems and strategies we use to profit from the market.
Let’s get started.
Online Forex Trading For Beginners – Learn How To Trade Profitably From Day 1!
Fundamentals vs Technical Analysis
When trading fx there are a couple of methods that when combined lead to highly profitable long term traders.
One of the keys to learn forex trading is to understand there are 2 core elements to trading; fundamentals and technical analysis.
Technical analysis is what you here most of the time when you search for beginner forex tips and the like.
These are the techniques that involve Fibonacci, retracement, basic and advanced pattern formations, support and resistance and any kind of mathematical analysis, this is what makes all the difference, the most profitable traders in the world are the ones with the best technical analysis skills.
All our trading strategies are primarily based on technical analysis with an emphasis on structure, momentum and price action.
More on these absolute goldmines later.
Fundamentals on the other hand are the larger fluctuations generally caused by pieces of news.
For example, this can be interest rate changes, political announcements, economic indicators, inflation and even things like war or the threat of war for a country.
All these elements have a massive impact on the country and hence have a very large impact on the price of a currency.
These are what cause massive drops and rises in a currency pair. For example the below screenshots show the daily chart when Brexit happened in the UK in 2016.
When put together, fundamentals and technical analysis can give you a very concrete trading strategy. Relying on either/or will likely still make you a profit, but understanding why a market is moving in the way it is will help you get an idea of what needs to happen for it to move the other way.
The more you know about the fundamentals, the easier the technical analysis will become.
This is a very important point:
You only need to be AWARE of the fundamentals.
Below is my actual strategy on staying aware of fundamentals…..
It involves looking at the forex calendar at forexfactory and then simply saying – Oh will keep an eye on that for 5 minutes….
At EFT we do not trade fundamental trading strategies! I would advice you not to either.
Larger financial networks will trade more based on fundamental data as there is a larger impact on their bottom line.
Individual traders such as myself (and likely you reading this post) may look at shorter time frames (15 min – 1 day) where fundamentals have less of an impact in our trading strategies.
Remember that generally there is not news coming out every hour that will affect a currency, but understanding what certain announcements will do to a currency is essential even if you trade on a low time chart as you do not want to be stopped out on a piece of news that will have no relevance the day after (this is called a spike out.)
If you trade less than $200,000 in each individual trade we shouldn’t read into news and fundamentals too much.
Who are you?
Want to find out what type of trader you are? Read on.
Types of Traders
There are hundreds of types of traders. The biggest differences come in the time chart you use for your trading. If you are holding positions for multiple days or weeks at a time, generally you are called a swing trader.
This is someone who is looking at fundamentals as well as technical analysis but is looking to make fewer trades but earn a higher amount of PIPs per trade as they are giving the market more time to move and hence want a “higher profit margin.”
On the other side of the scale you can have a 15min-1hour intraday trader, these are individuals who look to get in and out of the market inside the same day, usually looking at the 15 minute or 1 hour time charts.
Then there are traders who are in the middle who look to hold positions for anywhere from a few hours to a few days. This is generally called day trading but sometimes gets confused with intra-day trading.
This is what I recommend for most traders to either look at day trading or swing trading especially if you have a full time job or a business to run and don’t have the time to look at the charts and look for set-ups, structure and perform your technical analysis.
Once you become more efficient it will take you less time to analyse the market and hence you may be able to reduce the time frame you trade but for an absolute newbie I would recommend sticking to the higher time frames.
When I first started I said to myself I’d start with this and move to intra-day trading…. Because it seems more glamorous, faster profits, in and out etc etc. But I never did. Nowadays I rarely look at the 15 minute chart and the 4HR is my best friend.
Another way to categorise a trader is by the strategy they trade.
For example some individuals may only trade counter-trends, meaning they are looking for the point at which a market will turn round. E.G. If a bullish market starts to turn they will look to get into the market and take out a sell position.
Whereas other traders may only trade with the trend, so looking for reasons why a price will continue to increase/decrease. (These are creatively named trend continuation traders….)
Quick note: A bullish market is simply a market where the currency chart is heading upwards, a bearish market is where the currency chart is going downwards. This is often just called an uptrend or a downtrend and is just the general direction the market is heading. [image source]
Again, another style of trading is to trade patterns (although beware of this). I prefer to use price action for this.
For example, some traders will look for specific set-ups across different currency pairs and look for “reasons for entry” all this means is they are looking for a specific actions to happen to get into a trade.
This is very common in intra-day and day trading. Generally, these patterns and strategies are based on seeing support and resistance levels and making educated decisions (with correct risk to reward ratios.) But we will cover all the different types of trading and how to get started on each of them later in the guide.
Trading Psychology & Mindset
Trading psychology is something that kills 99% of new traders.
This is the single most important paragraph in this entire guide. So if you take nothing else from here, then take the following!
It’s not their strategies or systems and in some cases it’s not even their bankroll management (more on that in a second) but its how they act when they go through a “bad streak” or even good streaks in some circumstances.
Mindset is so key to success that it deserved an entire post on it’s own…. (which is here.)
Tom Personal Note: This is so important I actually hired and worked with a mindset coach for 3 months. In this time my profitability, productivity and actually general happiness increased drastically. It’s that important!
When we talk about psychology and forex mindset we are not just talking about being a “positive person” that’s a very basic and poor understanding of what psychology actually is.
Instead we are talking about the deeper level of what happens when you make a mistake, or even when you follow your proven, back-tested strategy but go on to make 10 losing trades in a row! I’ve done it, I’ve made 12 losses in a row and I’m sure some of the greatest traders in the world have made more than this!
But how you react and deal with this is incredible essential, and if your mind is in the wrong place, you WILL NOT be a successful trader. I recommend you read the full article linked here but the basics of it are below.
Bankroll management – Don’t put more than 2% of your bankroll on a trade. Anything more is a quick way to lose all your money. Staking only 2% (I actually teach 1% maximum) is a way to keep your bankroll ticking up and even to avoid large losses if you do go through a bad stage. We have a full guide on bankroll management here.
Tom Personal note: Please please please understand the importance of that previous statement. Bankroll management is the difference between successful traders and people who simply throw their money away. It’s the difference between if you are going to make forex trading your life and live how you’ve probably only dreamt of, or if you just gamble all your money away. Remember gamblers also win in the short term, but does their lifestyle ever change…..?
The stoic principle – The stoic principle states (I’m paraphrasing here): It’s not the result that matters but the action. For example when it comes to forex trading – It’s not whether your trade was profitable or a loss but it was the reason(s) why you made that trade in the first place. Distance yourself from the trades as much as possible and do not get emotionally involved in any position you have, regardless of how strong it may have seemed at first.
It’s also important to remember that we are not rational creatures. So markets can move based on irrational data. The market price is not always “right”, in fact most of the time it is extremely over-valued or under-sold.
This is just how it is, so don’t worry if you make a few bad trades or even some mistakes in your strategy. Keep your mind clear and the correct forex psychology and you will be fine!
Remember the following!
OK now that mindset section is out the way let’s take a look into a couple of myths about forex.
- You can get rich fast/easy – You’ve probably heard this a million times before but “when something seems too good to be true, it likely is.” Now that’s likely, not always, a very important distinction in forex trading. But remember it takes 10,000 hours to become an expert in anything. Chances are if you are reading an article on forex trading for beginners you have not yet invested 10,000 hours. (More on this principle here.)
- You CAN’T get rich – This is the exact opposite situation. Don’t under-estimate yourself. If you stay disciplined you WILL make money trading. I see too many people settling for 7% a year with their stocks or 10% a year in the real estate markets. You can make a lot of money trading forex. Utilising correct bankroll management, strategies, following the right people, learning as you go and utilising leverage there is no reason why you can’t make 50% a year with a low risk strategy. I’ve actually done the maths on this (a lot), check out our “how much capital do I need to get started” post for more on this.
6 Key points to remember – Key Forex Trading Tips For Beginners
Before we get into the real technicals of fx trading I want to go through some of the key points I believe you should know. (We’re not technical yet! — Don’t run away it’s OK stay with me!)
This is something I will update on a regular basis and something that if you don’t know a specific word/phrase or theory, you need to go out and research it further straight away. Just Google it, read for 30 seconds and you’ll be good!
It’s likely you already know what stop losses are but for anyone that doesn’t; A stop loss is a trading indicator you place when you are starting a trade.
Let’s say you buy EUR/USD expecting the price to increase by 50 PIPs.
But what happens if the price starts to go down? What do you do then?
Well this is why putting in stop losses is so important.
Stop losses enable you to automatically be “stopped” out of a trade (for a loss of course) when the price has gone to a certain point.
So say you purchased at 1.09355, and you set a stop loss at 1.09255. If the price reached this 1.09255 figure you would be stopped out of the trade for a 10 pip loss.
Always always always use stop losses. If you don’t you will not be allowed in any future trading training we produce. (Seriously we’ve kicked people out of paid training’s for not using stop losses)
The tricky part of course is setting your stop losses correctly, as with many trades as soon as you are stopped out the price turns around and hits the targets we set…. So setting stop losses at the right points is incredibly important.
The points at which you set them though will depend on the following:
- Your Trading Strategy.
Generally you want to ensure a risk to reward of at least 1:1 this is my personal risk to reward ratio but I would recommend this to everyone, especially new beginner traders (more on risk vs reward later on.)
Tom Personal note: Risk vs reward is just your stop losses in proportion to your take profits. For example if I had a stop loss of 50 pips and a take profit goal of 50 pips that would be a 1:1 risk vs reward ratio. If I had a stop loss at 50 pips and a take profit at 100 pips that would be a 1:2 risk:reward. Generally speaking the better the risk to reward the better the trade will look. (That’s 1 risk per X reward. Make sure X is greater than 1 in every case.)
Moving stop losses
Another very important concept.
When a trade begins to move up to a certain position (the position of course depends on your strategy) you will want to move your stop losses with it. So, if the market does turn around before you have hit your profit targets then you will not make a loss on the trade.
Moving and re-setting stop losses, when and why to do this is a very difficult strategy and will generally only come with time or education. It is one of the skills it’s tough to teach without experience.
Below gives you an idea of how risk vs reward works on a pulback entry.
You should never move your stop losses LOWER than what you first initially put them at, if you are stopped out, don’t worry just look for another trade set-up and stick to your plan!
When we enter trades we will know our stop losses and take profits before we get in.
This is how we calculate risk to reward ratios and how we calculate our 1% account risk.
Moving stop losses downwards breaks all of those rules and hence WE DON’T FRECKIN DO IT! Got it punk!?
Take Profits (Targets)
So now we know why we set stop losses (to ensure we exit a market at the correct point), but what happens when the price goes the way we want it to go?
When do we exit the market at a profit?
I call these “take profits” but they are also just called targets.
Generally, when you get into a trade you will have an idea of where the price will go, usually this is based on your technical analysis and the previous structure of a price chart.
When you are looking to take profits remember you can have multiple targets.
For example, if you think a price is going to rise to point X, but you also think there will be a high chance that it might rise to an even higher price point “Y”, then you can look at taking first targets at point X (for 50% of your position) and second targets at point “Y” for the remaining 50%.
In the below example if we shorted the market (sell) from the red arrow points and looked to have 2 take profit or targets we would put them in the highlighted range.
The key when it comes to targets is to establish them (as well as stop losses) before you even enter a trade.
For example, if I am looking to get into a trade when price action reaches point X. I want to know my stop losses and my take profits before I even consider opening that position.
In the above example I used structure for these positions and (this is a trade we actually took) we managed to hit both take profit 1 and 2 for a healthy profit.
The difference between your opening position and your stop losses is the maximum amount you are willing to risk.
In our trading strategy this will equal exactly 1% of your trading account. So if we have a trading account of $100,000, our stop loss should equal -$1,000 if hit.
And of course this figure should change slightly for each new trade.
For example if you profit from a trade your next stop loss will be slightly “more” but if you lose a trade then the next will be slightly “less”.
The difference between your stop loss, let’s call this “X” in this case. And the amount you want to profit (the difference between what price you purchased and your take profit level) is “Y”. Your Risk vs reward is then: X/Y.
You always want X/Y to always equal 1 or above, I like actually having a 1.2+ Risk vs reward as this means I only need to be “correct” 50% of the time to make a large profit each month.
Risk vs reward
Forex trading in general a huge game of risk vs reward. If you assume for a minute that forex trading was 100% random and that regardless of analysis there was a 50% chance the market would go up and a 50% chance it would go down (AKA flipping a coin.)
Now if you constantly had a 1:1 risk vs reward, this would mean that you would never make a profit and also you would never make a loss. Because (over time) all trades would even out.
Note: I’m ignoring the spread of your broker for the time being to make this example newbie friendly.
Continuing with our coin flip example, what if you could suddenly make 2 units of profit whilst only risking 1 unit?
So a 2:1 reward ratio? On a market that is totally random (AKA 50% either way) suddenly you have a HUGE edge in the market and would be an incredibly rich and successful trader.
This example outlines 2 things:
- Bankroll management is incredibly important – Because even with a huge edge of 2:1 you would still go broke and blow your entire bankroll if when you went through a bad stretch.
- You make a lot more money with a larger risk vs reward ratio (everything else equal.) So this is generally what I personally look for and what I teach people to look for too.
This means that we have a high reward and a low risk! It’s a great mix when we have great technical analysis processes too!
This is also how traders can lose 60, 70 even 80% of their trades but still make money!
Because when they do correctly predict the market movement they might have a 10:1 ratio.
Meaning they only need to be “right” 10% of the time to break-even on their trading and anything more than 10% and they make money!
Personally I don’t like looking for 10:1 positions but I want to see at least 1.2:1 in most of my positions. Or at least a 1:1 for 1st targets.
Variance & Reversion to the Mean
Variance and reversion to the mean are 2 very important elements to remember in fx trading.
Variance is simply a fancy word for saying “luck” if you were to flip a coin 50 times then you’d expect 25 heads and 25 tails, but as we know you are likely not to have this, you may even have 35 heads and only 15 tails and this wouldn’t be considered too “odd” as there is such a small sample of data.
The percentage of heads in this case is 70%. But if you flipped a coin 5,000 times. Then the data is more likely to equal out to 50% each, this is a principle called reversion to the mean. This can be seen in almost everything in life not just trading.
Although its something that beginners don’t need to worry about too much, you should be aware of it as reversion to the mean has the ability to make “amazing” traders think they are unable to make a losing trade, but just remember luck will even out (variance) and when it does you need to ensure you still have your edge. If you have a 1.5:1 reward:risk and you make 10 profitable trades in a row that’s great!
But what happens when you lose the next 10 in a row?
If you are disciplined and understand bankroll management and reversion to the mean then you won’t be worried as you will still be making a profit!
Keeping the discipline is incredibly important when up and down swings happen, which to successful traders is simply called variance.
Next we will get onto the GOLDEN question.
How much capital do you need to get started?
Another question I get asked a lot is “how much do I need to get started.” I’ve written an entire post on this too but I wanted to answer this quickly here.
Assuming the following: You understand the markets, you understand technical analysis and fundamentals, you have a good back-tested strategy, you are disciplined, you understand why the markets move and you have correct bankroll management and mindset – Then the answer is simple, as much as you possibly can.
Most people (poor people generally) never take big enough risks.
They don’t go all in so they always have a way out in case it goes wrong.
You might think this is good but its actually the quick way to stay poor because you will never be 100% committed to something you do – Burn the boats principle.
If you had your entire life savings, all credit you’ve ever had, all future earnings, your kids college funds and your car in a trading account, I’m guessing you would be more careful, disciplined and profitable than if you only had a few thousand.
The reason for this is simply because you don’t have a way out!
If you lose all your capital in example 1 then you have nothing, if you lose it in example 2, although a few thousand dollars/pounds might be a lot of money for you, it’s not going to change your day to day life that much. And that is the major issue most people face – They don’t trust themselves enough.
Personally, if you have anything less than $10k to invest then you need to go get a job first and hustle until you have this $10k figure. I like starting with this and when we start our forex training we will be starting with a $10k figure. So if you need to go out and get $10k to invest go and do it.
BUT – I also recommend starting with only $500 when you want to do one thing – Confirm theories and build confidence.
Tom Personal Note: You may think this is contradicting and counter intuitive BUT it’s actually the perfect strategy. Deposit $500 in an account today. Educate yourself, learn, test, fail, back-test, succeed. That might take 2-3 months. And build confidence. When you have consistently built a strategy to earn 5% a month. Deposit your starting amount.
But here’s the kicker – In this time you can also be saving and hustling to get this money together. Work as hard as you possibly can, overtime or in business. Get to a point where you can invest $10k. It will be the single greatest decision of your life and will (in time) give you true financial freedom.
All coaching clients are required to start a new trading account with $500 in, no more and no less. These are the same people that have paid $5,000+ for the one on one coaching.
They usually look at me like I’m crazy but it removes one thing – emotion!
You want to be emotionless in trading, if you lose a trade – cool, if you win a trade – cool, if you lose 10 in a row – cool, if you win 100 in a row – cool. Zero emotion.
With such a low amount of money you can look at technical analysis in a different way and make a higher amount of money. If anyone is interested in one on one coaching you can fill out an application form here.
I also recommend you never put more into an account than you can afford to lose. If you do then you are asking for trouble, but you also remove the compound effect.
Let’s do some mathS.
This is not boring maths, this is money maths! (Yes I say maths because I’m British)
If you can make 50% profit per year from trading (which is the low end you should be aiming for). Then you can be a millionaire in about 12 years with $10k starting balance assuming you don’t touch your money. And that’s not net worth of 1 million that’s 1 million in the bank! (Well trading account but its cash that you can take out and use whenever you want!) (This is excluding tax though.)
If you do the maths based on more what we aim for on a month to month basis of 5% (which we actually did in a full article over here) then you’d be looking at roughly a million in year 7-8 based on a starting investment of £10,000 (or dollars or AUD or whatever currency you want!) – The maths is very interesting, I’d recommend checking out that post.
Strategies & Systems – The Real Stuff (Newbie Friendly)
So now that all the introduction stuff is out of the way we can look into the actual strategies and systems that we can use to generate a profit from the markets.
A few notes before we get started: There are thousands of methods to make profitable trades but we are always looking for causation, what causes a market to produce a specific result.
In the next few chapters I am going to be talking about not only the methods that I recommend and a few basic trading strategies to get started, but I am also going to be talking about how to build your own strategy which is where you can build massive amounts of wealth.
Method 1 – Follow the Experts
This method is very very simple, all you are going to do is trade when your specific “expert” says to trade. Now this is the easiest way to make a profit through fx and let me explain why.
Most people think that when an expert does a live trading room or an over-the-shoulder trading session that they aren’t going to be implementing the techniques they use themselves. This is utter BS.
The issue arises when beginners follow individuals who claims to make “1000% ROI in a month” – They draw the imaginary line to “If I can just make 1/10th of that then I can double my money.”
And hence people pay to follow these “experts” who are in fact scammers and eventually lose all their capital.
Instead you need to follow experts that have a proven track record and look for around 5% ROI a month. This is what we are personally developing in the coming months, a trading room for beginners, where they can actually make money from simply following our personal trades!
Tom Personal Update: Hey guys, we still aren’t here yet but getting closer by the day. By 2018 this could be a real possibility. Instead we built the First Forex Profits guide but will talk about that later in this post.
It’s a win-win for us and the trader! Once they see they can actually make money from fx the hope is they will go onto method 2/3/4 and create their own strategies and really scale their trading. This is coming very soon, watch the space!
But until then you need to start from strategies that already exist and follow guides (such as this one) that explain exactly how to trade forex.
What you will need:
- An expert you trust.
- Correct bankroll management.
- Time to follow these experts on daily basis.
- Starting capital.
But there is a huge huge drawback to this and it’s probably obvious…. You aren’t learning that much and your wealth is based on someone else.
If they stopped tomorrow then you would have no way to make any additional income, that’s a massive problem and one of the reasons I actually don’t recommend this strategy to everyone. Some people it works great for, others it’s better to do it yourself!
Method 2 – Fundamental strategies
If you remember our earlier notes on forex trading strategies for beginners we talked about the difference between fundamental trading strategies and technical analysis.
Method 2 we are going to look into is the fundamental strategies. This is when you look for pieces of news that will affect the currency prices.
Now I’ll come out and say I do not have any fundamental only trading strategies.
I personally think it is quite difficult to trade as you need to judge how the market will move based on specific pieces of news.
Personally I wouldn’t recommend this to beginners but if you are interested then there is a good article on fundamental strategies here.
But if you want to learn forex trading FAST and make profits quicker fundamentals are not actually the way, instead look into structured trading and learn to trade forex based on technical analysis.
Method 3 – Structure Trading (This is the Way I started Making 5% a Month)
This is my personal favourite strategy (although our systems actually involve multiple variations including mixing structure trading, price action, psychology, momentum and reasons for entry.)
Structure trading is identifying the points on a currency pair that are structure. This means where support and resistance are.
Resistance is where the market is having a tough time in breaking through (to the buy/bullish side) and Support is where the market is having a tough time breaking through the sell side or bearish side. The image below explains this very well, it’s from babypips.
The below image shows what it looks like in the market (again image from the same source)
Support and resistance levels are constantly moving.
This means that when you are looking to draw these into the market they will be constantly changing.
Support and resistance levels are generally the best places to sell or buy a currency as they usually provide a solid foundation for the market to move.
Mix this with “reasons for entry” (which we will get onto later) and you have a very strong and very simple trading strategy that is the entire basis for our First Forex Profits students.
When a support or resistance level is broken it is usually broken by a single large candle. This means that it took a lot of buyers/sellers to break through this level properly and this shows the support level was legitimate.
There are also certain levels of strength when it comes to support and resistance.
There can be weak levels that don’t need as much velocity to be broken through and stronger levels that usually need an extreme amount to be broken.
When you draw these levels correctly onto a price chart it will give you a great idea on what is going to happen in a market.
Below is an example for the basics of support/resistance. We can see the very strong levels in the yellow box where despite the market touching this level multiple times it cannot break through and close lower, as a result after trying on 3 separate occasions it then start to move up. This is a trade we actually took in 2017 on the GBP/USD.
So how can we make money from this? Well I want to keep everything very simple but I will outline a very simple theory you can use below, we go more in-depth into this with our First Forex Profits students but the basic outlined version is below.
I decided to actually embed a video below from the First Forex Profits course to show you just how effective this is. (This might not make sense just yet, do not worry it is only used as an example once you understand the entire course and process, which can be found here for anyone interested.)
Structure Trading Strategy – An Example
First you need to identify potential support and resistance. In this example [below] we are looking at the GBP/USD on the hourly, the screenshot below. (All screenshots from: https://www.dailyfx.com/gbp-usd)
As you can see when we saw our huge bullish movement on the 18th/19th April 2017 we had a slight stop followed by a large candle. Interesting but no support yet. But looking across when the market re-tests this level we see the market test it once on the 20th and again on the 22nd and 23rd. And the market has not broken this level, which makes it a very strong support level. This means we now have a basic theory – We will buy (bullish) when the price comes down into this zone AND we have a reason for entry.
Now a quick note on reason for entries, these can vary for everyone but in this example, I’m going to use something very simple, I’m simply going to look for double test or double bottom. Now we actually took this trade as I mentioned above on the red dot, as you can see we timed this nicely to follow the move back up. But you could have got in at about 5 other points after we were in this trade!
Another reason why we entered this trade is because the fundamentals were on our side and the overall long term trade movement. The GBP is very oversold at the moment. By the end of 2017 this will be back over 1.33 against the dollar and hence the overall movement is to the buy side.
This is why just being aware of the fundamentals (even if you don’t trade them) is pretty important.
The screenshot above shows where we got into this trade (the red spot) after a second test, we got it at: 1.2765 at about 15.00 on 21st. And we almost hit first profit targets 7 hours later but ended up just missing out. On Monday 24th we again almost hit our target 1 (Stop losses were set at 1.2735 (30 pips below our initial entry). And then eventually we hit target 1 at 1.2840 on Tuesday 25th (This is the red line) When this happened we moved our stop losses up slightly on the remaining position (to the position we entered on originally.)
RE-READ THE ABOVE and UNDERSTAND THIS!
Second targets were set at the top of the previous high (green line on chart) which we hit again a few days later for a nice profit on both target 1 and target 2.
- Target 1s: 1.2735 to 1.2840 = 95 Pips
- Target 2s 1.2735 to 1.2900 = 165 Pips
Now not all trades are going to go as well as this but remember what we said earlier in the article about risk vs reward. In this case our risk (stop losses) was 30 pips and our reward was 90+ Pips. That’s a 3:1 reward:risk. Once we hit our first targets we moved our stop losses back up to even protecting the profit we had made already meaning if the price did go down then we would have closed out where we entered at 1.2765.
This is the essence behind the First Forex Profits structured trading course, you want to look for positions where you expect support and resistance to hold and bounce back to one another.
Momentum is another key element to a successful trade. If a pair goes up (buy/long) very fast, this shows a lot of strength and momentum. If we then see a pullback by this pair that takes a long time and is very slow and shallow (if the initial move is 100% and the pullback only 20%) then we know the strength is still with the buy side and we should be looking to get a long.
You also want to understand the way the market is going generally too though. If you can catch the larger move, instead of having a 1.5:1 or 2:1 reward to risk, you can get a 5:1 or even a 7/8:1.
If you are looking at the GBP vs USD we think the GBP will get stronger over time and hence taking buy positions is generally better but this does depend on how long you are looking to hold the position for.
If it is only for a few hours or even a day then the overall fundamental direction of the currency isn’t going to have much of an impact on your decision.
But in this case we were looking to hold this position for a lot longer, in-fact we are still holding it at this current point in time, the profit in PIPs is currently sitting at 382. Not a bad Risk to reward…..
I’m not a huge fan of pattern trading. Although patterns are semi-effective trading mediums they seriously limit your ability to grow your account.
For example a basic ABCD pattern formation requires 4 elements to be in place before you pull the trigger on a trade. This means the market must (roughly) follow your specific guidelines, as soon as you are waiting for the market to do something before anticipating you are in trouble.
Instead looking for basic formations with support, resistance and structure is the way to go if you are specifically interested in that trading method, but I’m not going to teach it in this guide as I do not fully believe in it.
“Learn how to trade forex like a pro” – The advanced formations. I say formations as calling these patterns is a very dangerous way to look at trading. Sure you might be able to make 20-30% a year from knowing patterns but you won’t be able to generate that exponential wealth, the type of wealth that gives you true freedom. Advanced formations are great when they align with structure (as are basic pattern formulations [image from profitf.com]
Advanced formations are things such as the Cipher and Gartley. BUT they have one main issue. They are still patterns.
Which means they are incredibly ineffective in the market.
Instead you should be looking to build strategies that are evergreen (meaning you can profit from them forever) this can only be done by using your analysis of a price chart.
If it could be automated people would have built robots to allow them to trade (they have tried) but this simply is not possible (not yet anyway.)
Reason(s) for Entry
There are a number of reasons for entry into a trade.
Remember reasons for entry should be things that add strength to a position and not just to get in if your reason for entry occurs. These should be add-ons only!
The first is the confirmation of a theory. As previously mentioned this could be a double top or double bottom.
That’s a nice mini formation that helps people time their trades better. I like to look for these on the 15 minute or hourly charts as waiting for a double top or bottom on a 4 hours chart can take days (literally). When you have a strong position or theory you should be looking for confirmation NOT reasons to avoid the trade.
Tom Personal Note: Nowadays I actually don’t look on lower time-frames for entries unless I’m really really interested in a trade that might explode at any second. Missing a potentially profitable trade is better than getting in too many trades and OVER-TRADING (Which is something we’ll get onto later too.
Another reason for entry that I love is simply a lower low, lower close candle (or higher high, higher close candle) this is simply where you are waiting for the smaller time-frame to show you the market has started moving in this direction. [image from fxstreet]
Another reason for entry is using a specific type of candle. I like looking for different types of candles on the one hour or four hour time frame.
These should only be used when all other analysis points to this direction of movement and not just solely on their own.
The strongest types of candles are hammers and shooting stars. Without getting too complicated into exactly when and how these should look just know that they look like the below image [from stockcharts]
When you merge a number of these reasons for entry that’s when you get the strongest signal to trade. For example a double top mixed with an inverted hammer for example.
Don’t worry if this is getting complicated so far just re-read and remember to research around the site for specific principles that you think will be helpful to you.
Also do not forget to get our forex basics ebook in the sidebar, it’s 100% free and will put you on the right course to being a successful trader from day 1. And if you have the basic knowledge already pick up the First Forex Profits course and starting earning 5%/month today!
I don’t want to get too technical in this beginner post, but there is something called currency correlation.
This is where currencies tend to do similar things to one another. For example if one currency decreases the other might also decrease, or if one increases another might decrease as a direct result.
Without over-complicating this, it is possible to earn 5-7 times more on trades simply by using currency correlation. There is a good tool on Oanda that shows you the currency correlation elements. It should look like the below image.
Not sure why it’s spelt “currensee” but whatever.
In the above example we use the heatmap settings and are selected to use EUR/USD as our baseline currency. So for example if EUR/USD is strong and increasing (EUR getting stronger against USD and the market moving up) then we can see that EUR/JPY would also move up. As would EUR/CHF. But GBP/CHF would be a slight decrease and we can see the time differences and the strength of correlation too.
The deeper the red the stronger the correlation.
Beginner Trading Traps
Trap 1 – Over Trading
When you first start trading you will have the forex bug.
Everything will look like a potential trade and the worst part is you’l take all of these trades too. The fear of missing out on one of these opportunities will lead to overtrading.
It’s the FOMO of trading!
This is easily the biggest trap most beginners fall into.
Remember we are looking for only the best trading opportunities. The ones that can make us 5-10% ROI on our money each and every month!
Missing a potentially unprofitable trade actually is a skill in itself.
If anything seems off about a trade then DON’T TAKE THAT TRADE!
It’s as simple as that
I know that probably sounds over dramatic but it’s the truth.
There is a technique I really like called the 3 and out technique.
This was initially designed for micro pace trading and more geared towards intra-day trading but the principles can be applied to us too as day traders.
This involves having a maximum of 3 trades a day. We are only allowed to enter 3 trades That’s not 3 trades across 1 currency pair, that’s 3 total.
You’d make pretty sure each trade was a potential winner in both profitability and risk and reward ratios if that were the case.
Trap 2 – Trading Too Big (Or Small)
Another trap I see all the time is ignoring your personal bankroll management because “your just getting started” or “I’ll take it seriously when I deposit the real money”
This is a really bad habit to get into for a number of reasons but they should all be pretty clear.
Trading too big and you’ll blow your account.
Trading too small and your not fully committed to your strategy.
This is wealth building we’re talking about now! Not some game.
Trap 3 – Looking for the “perfect system”
Looking for the golden strategy that if only I could earn 40% a month or if only I could make 20 trades a day. These do not exist. If they did then you wouldn’t be hearing about them!
This trap comes in many forms.
The most common is “perfect systems” – Usually promoted by someone who doesn’t know what they are talking about.
These are the ads you probably see promising 50% ROI in a day with a very low risk trading strategy.
The funny thing is these can be proven. I can go into a new trading account and double my money on the first day, it’s actually possible, especially with leverage and short time-frame trading. But the next day I can try to do the same and lose everything.
That’s not trading, that’s just gambling!
I don’t gamble. I bet on sure things or as close as I can get to sure things.
When my trades align I’m all in on them (well 1% of bankroll all in)
Don’t fall for these trading traps.
Don’t fall prey to the hype either. If you can make 50% a year forever you will be an incredibly successful and rich trader.
That’s about 4% a month by the way. Very possible.
Creating Your Own Strategy
Above are the major technical analysis elements involved in successful forex trading for beginners. But of course, there is always more to learn and creating your own strategy is the pinnacle to successful trading.
That’s what we aim to teach at Elite Forex Trading and what we hope individuals implement as soon as possible. There are a few ways to do this that are very simple.
One of the most effective (this is assuming you have all the basic knowledge of forex trading, including finding support and resistance levels) is to mix multiple theories and a reason for entry to create a single system. For example if we look at support and resistance we have our basic principles of trading.
We can then only trade these when they align with Fibonacci or a certain type of pattern. When all 3 elements are in place a.) Fib, b.) Structure and c.) Pattern then we can look for our 4th element, which is of course a reason for entry. Although I hate Fib and patterns so don’t personally do this!
This is the best technique for traders who are making too many trades. For example if you are looking at all trading types and systems and trying to make each one you will likely have too many opportunities, leading to making mistakes or even just poor bankroll management.
Too much information is a bad thing. Simple theories work best, but if you can keep your theory simple but ensure it meets 2/3/4 criteria this is how you develop a very powerful and profitable trading strategy.
Let’s assume you have your trading strategy, you think it’s all good and you’re ready to start trading. Should you just dive in?…. NO!
Of course not.
You need to back-test your strategy or system. You should do this for any “expert” that claims to have a great strategy too.
Let’s say they specialise in trend reversal theories, when 3 elements are in place that includes a double bottom (the theory itself doesn’t matter at this point), the next step before you ever start trading this strategy is to back-test whether the results they are claiming (usually involves making a lot of money) are true.
This is very easy to do, but it does take time. Below is the process.
Back Testing a Forex Trading Theory
Below are the exact processes I use when I have a new theory that potentially can be profitable.
Remember theories can be for one specific currency pair, or for a group, the key element is that you are disciplined when you are looking back through previous data and do not MISTAKE correlation for causation.
The tools I recommend to back test a strategy are excel and tradingview.
I decided to record a separate video for the process of back-testing. This is below.
Once you have your theories you will likely have a lot that either work or do not. There are 3 key elements that you 100% have to ensure in all successful theories.
1.) Better than 1 to 1 Risk Reward
This should be a given by now before you even start back testing a theory. You never want to lose more than you win when its 50/50.
If you are then you have to get into Kelly criterion on how much you should place per trade and that’s when things start to get very very complicated. If you are a beginner forex trader you should try to keep everything as simple as possible.
2.) The 100 or 1,000 trade set-up Test
That sounds time consuming, right?
But it’s the truth, you need to go through 100 all the way up to 1,000 trade set-ups to have a real qualified theory.
I like to do 1,000 over the last 2 years and across 5 major currency pairs.
All pairs act and react differently which means you should individually track each one and if you find 4 were profitable and 1 was a loss, then only dig into the data from the 4 profitable ones and look for correlating pairs.
For example, if you noticed EUR/USD was potentially a very profitable pair with your selected theory you would want to also test EUR/JPY to confirm this.
Do not assume though and do a small number of set-up test checks, this is confirmation bias and is the quickest way to lose thousands in your trading.
3.) The Understanding That Past Results Do Not Equal Future Profits.
Just because you’ve found a strategy that can potentially profit 3-5% a month or 50-100% a year doesn’t mean that you are guaranteed these results.
Nor does it mean that the theory is going to revert to the mean either (go back the other way completely.)
Understand that sometimes correlation is not caused by the causation you thought it was. In each of your specific examples or theories they may have been other aspects at play in the market.
Meaning the conclusion that you drew MAY not actually be the correct one.
But generally speaking if you have element 1 and 2 in place this will drastically decrease any potential loses and in most cases you will likely make a small profit just not as large as you initially thought.
How To Build Strategies to Back Test?
So how do you know what to look for?
What strategies to build and back test? – That’s the golden question.
The answer is you can build them yourself but honestly, it’s very time consuming and difficult to do especially if you are a beginner.
Instead what I would recommend is you sign up to one of our training webinars or mini courses to allow you to make your first few profitable trades.
Once you have those under your belt you can start to look into building your own.
What Next? – Join The Movement!
This is the sole reason why we build First Forex Profits to help people profit from forex trading from day 1. Even if you are an absolute beginner. If you have understood everything so far, this is the next step for you!
If you haven’t understood some of the information here its time to-evaluate, but don’t worry, we have you covered! We’ve built a free ebook that goes through the most basic of forex in even more detail than I’ve gone through in this forex guide, from what forex actually means and stands for, all the way through to the terminology used by traders. This will give you the platform you need to start your forex journey.
“First Forex Profits is the single greatest investment I ever made in my forex investment journey. I took a shot as I really like EliteForex’s and Tom’s approach to trading, 3 months later and I hit my SECOND 5%+ ROI month. This course delivers what it promises. I have no idea what Tom and the team will charge in the future but if it’s anything under $5,000 then pick up a copy now! – Dino Santis.
Luckily it is quite a bit under $5,000, coming in at only $97. The price of a nice meal out. Is financial freedom worth that? If it is then pick up the course HERE and I’ll see you on the inside!
Forex trading is not easy when you first start. If you are looking to make 100% a month on your money then this is not for you.
If you are looking to slowly improve your trading skills and utilise knowledge and leverage correctly to make 5-10 and even 20% a month on your money then we can teach you how to do this. Join the Elite Forex Trading team today and take action on your financial future. The next step is the First Forex Profits Course – Click here to sign up.
Thanks for reading and I look forward to seeing you.