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How Do I Make Money In Forex?

How do I start making money in Forex?

Steps you will have to go through to reach the stage where you can say Forex is for me and I can make money trading:

1. Learn
You need to learn and at least know enough to know your limitations and be able to not take on unnecessary risks. Desperation and fool hardiness will not lead you to success. You do not necessarily have to pay a large amount of money to learn and there are plenty offree resources available out there some of which I will cover during the course of this series of articles.

2. Practice
Open a demo or practice account after you have learnt the basics. Most brokers will offer you a free demo account. Some of the brokers are FXCM, Fx Solutions, etc. (see note below).

At this stage of the game it does not matter which broker you choose as you just want to get a feel for trading. You want to learn how to place a few trades and it also does not matter whether your trades are successful or not. At this stage you are just getting used to buying and selling currencies. Most brokers will have free training on their platform and some also offer web based solutions where you do not have to download software on your PC. Though I would suggest you do both.

3. Back test
After the initial stages of your learning you want to start back testing and learning how to back test your trading strategies and systems. As I explain the various chart patterns, candlestick formations and other methods you should open the charts in the demo account that you should have already opened with a broker of your choice. Try to recognize these in the actual charts and back test by going back in time on the charts to ensure validation and understanding of the patterns. This would reinforce what you are learning. Please make sure that any system you are about to trade whether it is in a practice account or a real account that you have back tested the method. Please, please, please never ever trade without having tested your approach.

4. Forward test
This is a misnomer, because what I really mean here is that you place your practice trades based on the systems that you have already back tested in time. As you’ll learn the rules of creating systems you will use these rules to place your practice trades. This way you will learn not to deviate from your rules which will enforce discipline in your trading style. This will also ensure you keep emotions in check under real market conditions. You need to profitably trade the methods in the real markets in a practice account before you attempt any real trading.

5. Formulate a plan
Once you have successfully back tested and forward tested your systems you will start to feel comfortable in using these systems in your trading portfolio. Once you have a set of systems, you want to make sure you have a plan that you will use in meeting your objective.  You could end up adapting the system to suit your trading style.

6. Keep a journal
As you develop and adopt successful systems please maintain a journal. This will help you to track your progress, refine your trading rules, enforce discipline and make you conscious of your limitations.

7.Practice
Once you have learned the basics, backed tested and forward tested the systems that you want to use for your live trading, formulated a plan and learnt how to keep a journal, you are now ready to trade in a practice account as if it were a live account. When you have achieved consistency in making profits at this stage you will then be ready to trade live. I would suggest that you have at least three months of consistent profitability before considering going live.

8. Open a real / live account
You are now ready to open a live account and do real trading. Based on the amount of money you have and keeping in mind money management principles and also your trading plan in mind you will open an account with an appropriate sum of money. Also based on your lifestyle and whether you are in a position to be in front of your computer or not you may want to open an account with a broker that allows you to trade via the web. FOREX comprises of points called pips. Approximately, one pip = 10¢ in a micro account or $1.00 in a mini account or $10.00 in a regular account. I would highly recommend that you first trade using micro lots and hence you would open an account with a broker that allows you to trade micro lots.

9. Trade with micro lots
Now that you have a real account you will place your trades following your trading plan, sticking to your system rules and start trading using micro lots. You need to make sure you adopt the rules exactly as you had them in your practice trading where you were successful consistently. Once you have achieved three months of consistent successful trading in a live account you may consider either increasing the number of lots you trade or moving to a mini account.

10. Trade with mini lots
Having achieved consistent success trading micro lots, you are now ready to trade mini lots. Applying the same principles you need to achieve at least three months of consistent success trading mini lots. You can now either increase the number of lots you trade or move to a regular account. At this stage of the game you are now ready to create more systems and go for advanced trading.

11. Consider trading with regular lots
Having achieved consistent success trading many lots you are ready to trade on your own. Go forth and master the universe!!

Remember on one can guarantee your success and you need to take personal responsibility to learn this profession. Currency trading is very risky and you could lose a lot of money including your principal and more than your principal.

This article is meant to be a general guide for you to learn and see if trading currencies is right for you or not. The learning does not stop here nor should it start here. There are a lot of excellent resources you could get, some free some very expensive and a lot in the middle as well.

note: Anyone entering any investment needs to know that all licensed and legal brokers are required to state company name, address and contact information in addition to their brokerage license number clearly on their site in public pages so this information can be investigated prior to anyone signing up or investing any money. Any site offering a investment opportunity and not bearing this information is already acting in violation of international exchange laws. This article does not provide Financial, Tax, Legal, Accounting or Investment advice.