Learn Forex Trading

Anybody who has been around the forex market for more than a couple of minutes knows that you always need to test forex systems before you go live with them. Even if the system comes with guarantees, even if you got it from a top trader who makes millions with it, you have to know that it will work for you.

So why do systems work for some people and not others? Many people actually find this quite hard to believe. They imagine there is one perfect system out there that fits everybody and could make us all into millionaires if only we knew how to get a hold of it. But that idea is a complete fantasy.

There are many reasons why a system might suit some people and not others. It could involve some skill such as interpreting a complex mix of indicators that some people will handle with no trouble while others cannot get their heads around it no matter how hard they try. It could be to do with risk: the system could involve going to a level of risk which would be way outside some people’s comfort zones, leading them to either subvert the system or make mistakes because of the level of stress.

So you do need to test and you can do this in more than one way. The best option is to perform at least two types of testing which you can do at the same time.

First you can use backtesting. Here you take your system and figure out on paper how well it would have done on the recent historical market, i.e. the last six months or whatever period you choose. This does not take too long because you can quickly scroll through historical charts looking for the signals that would have led you to make a trade if you had been operating your system live at that time.

Backtesting should give you an idea of whether a system has potential. Of course the market is not going to repeat in exactly the same way so you do need to take into account the fact that you might have struck lucky or unlucky and picked a time when the system performed unusually well or badly.

For this reason, it is best to backtest over the longest possible time and perhaps split your tests so that instead of testing, for example, one whole year when the market might have been particularly strong or weak, take the first quarter of year 1, the second quarter of year 2, etc so that you test one 3-month period from each year of four years. This gives you a good period spread without requiring you to cover four whole years.

The second way to test forex systems is in a demo account. Here you are dealing with the live market but not using real money. This method is slower because you have to wait for your signals to come up for real. On the other hand, it emulates real live trading methods with the possibility of slippage and other factors which are not gong to show up in back testing.

Remember that you can test several systems at the same time in a demo account, provided you keep separate records of their performance. Or you can use several demo accounts. In this way you have a better chance of ending up with at least one profitable system at the end of your period of testing.

Forex demo accounts also have the advantage that you are developing your live trading skills and familiarity with a software platform and charting service at the same time as you are running your tests. This gives you solid real time training to prepare you for the moment when you go live with real money. Most forex brokers will provide free demo accounts which you can use to test forex systems.

The main point of any forex course is to help you make money with foreign exchange trading. You do need some understanding of the forex market and the risks involved in speculative trading even if you want to use a hands off method of trading.

Hands off methods of forex trading include forex robots or automated trading systems, also known as expert advisors. These are programs that you download and install on your computer. They will communicate with a forex broker platform to trade for you automatically any time that your computer is switched on.

The second easy way to get into forex trading is through signing up for a forex alerts or signals service. These guys will watch the market for you and tell you when to trade. Messages will come in by email and/or SMS signalling the moment to open a trade, close a trade, and sometimes they will advise on the stop loss position to manage your risk.

Thirdly you can opt for a managed account. Here somebody else will manage your funds for you. Many of the best forex managers will only deal with large accounts, so this option may not be ideal if you only have a small amount of capital. Also, you should do your due diligence very carefully and check whether the management company is a member of any regulatory bodies that might protect you against loss or fraud.

You should be aware of course that forex trading is risky, like all speculative investment. Even if you are paying for one of these services there is no guarantee that it will be profitable at any particular time. All you can say is that it probably has a better chance of being profitable than you would if you went in as a beginner and tried to trade for yourself.

It is true that there are advantages in learning to trade for yourself. It does take time and you will need to use a demo account probably for several months, so you will not have any chance of making real money for a long time, but it has the advantage that you are not reliant on anybody else’s service or system. Once you have mastered the art of trading for yourself, you should be able to adapt your skills and always be able to manage your own account.

Many beginners start out with a forex robot or expert advisor and if you can pick up one of the best ones and set it up right, this can be a good option. However, you do need to be familiar with the basics of forex trading just to understand the settings and manage your risk. Risk management is one of the most important aspects of currency trading – get this wrong and you can go broke even with a profitable system, because you will not make enough allowance for the inevitable losing runs. So when you are looking for a forex course, make sure you get one that covers risk management in detail.

Is it even possible to have forex made easy for you? You might not think so if you look at some of the websites online. You can get completely lost in charts, indicators, software platforms, fundamental analysis, commodity currencies and so on until you hardly know where to begin. But the principles of forex trading are really quite simple.

Currency trading is available to anybody with a high speed internet connection. It is a very special type of investment opportunity that offers the possibility of making a lot of money and becoming financially free. At the same time, it is very risky. People who are drawn in to start trading before they know what they are doing are likely to lose money.

Whether you are a beginner or a successful trader, you will need to take account of these 5 golden rules to increase your profits from forex trading.

1. Understand your forex system

You will need a profitable system to start trading on the currency markets. This is simply a set of rules that tell you when the market conditions are right for opening and closing a trade, what your position size should be, etc. There are many systems available online through ebooks and videos, or you can develop your own by trial and error using tips that you can pick up on websites such as ours.

But whether you figure out your own forex trading system or invest in one that is known to make money, you must test it for yourself in a demo account before you go live. This will ensure that you can make it work for you and it will give you a chance to fully understand how it works. You should not be risking real money until you are sure that your system works.

2. Be consistent

Once you know that your system is going to be profitable for you in the real market, you should have confidence in it and not be discouraged by the occasional loss or diverted by advertising for other systems. If you keep switching systems, opening trades based on your intuition or changing the rules of your system after you go live, you will only lose money.

3. Cut your losses

All systems will have a proportion of losing trades and you better be ready for them. The way to do this is to always have a stop loss that will be triggered to minimize your loss when things go against you. Never hold on, hoping that a bad trade will come good. Get out fast and wait for a better trading opportunity.

4. Learn from your mistakes

We all make mistakes and there is no point beating yourself up over them. However, make sure you learn from them before you forgive, forget and move on. Whether it was a distraction that made you enter the wrong figure in a box or a temptation that you gave into, it is worth making a note of what happened in your trading records.

5. Do not get excited

Forex trading can be an exciting business but it is very important to stay calm when you are trading. Early success may lead you to become over confident and start risking too much. Avoid that temptation. Early failures can discourage you and make you give up too soon. Do not let your feelings dictate your trading.

If you put our golden rules into practice in your own trading, you will soon see how you can overcome the complexities of the market to find forex made easy for you.

Financial forex or foreign exchange trading is a way of making money that you may have seen advertised on TV, in magazines or online. Forex and FX are simply short ways of referring to foreign exchange which involves buying and selling currencies on the world’s financial markets.

Of course, exchanging currencies is something that people do all the time when they go on vacation or on a business trip overseas. You simultaneously sell your own country’s currency and buy the currency of the country that you are visiting. Businesses are also involved in currency transactions when they import or export goods.

However, foreign currency trading is very different from this. It is a speculative investment, which means that the trader does not really want the currency that he is buying. He is just investing in it with the hope that it will increase in price. Later, he will trade it back.

Access to the global market is provided by forex brokers who allow the small time trader to find somebody to exchange with. This is all done online and almost instantly. Just about anybody with a computer and a broadband connection can become involved. The market is even open 24 hours a day Monday to Friday so you do not have to be online during the daytime if you have other commitments.

All currency transactions involve an exchange, because you have to give one currency in order to get another. This means that you are always dealing in two currencies. These are known as currency pairs. Each currency has a three letter code, for example USD for US dollar, EUR for euro, GBP for British pound. The most traded pair is EUR/USD, the euro and US dollar.

Traders are able to control much more money than they actually have themselves. This is called leverage or trading on margins. It works through a broker. You would invest a certain amount in your forex trading account with the broker. Let’s say you invested $1,000 in a mini forex trading account. When you wanted to open a trade, you might put up $100 of that. If you used 100 times leverage, which is pretty low for the forex market, you could control a trade of 100 x $100, i.e. $10,000.

The broker guarantees the remaining $9,900 but he does not have to risk losing his money because he can close the trade if things go against you and you lose what is in your account. Of course, you would not want to risk all of your money, so you would put in place what is called a stop loss that would close your trade automatically if you started to have a loss beyond a certain point. In this way you could limit your risk to $50 or less. You would not want to risk more than 5% of your funds which would be $50 on a balance of $1,000.

Most experienced traders recommend risking less than this, say 2%. This is a very important question because risk management done well or badly can make or break the forex trader. If you are thinking of getting into financial forex trading you will understand that it is risky and not all of your trades will be successful. You could have several losses in a row or a slowly decreasing fund balance. It is vital that your risk per trade is low enough that a good part of your funds will remain intact through a situation like that, so that you can recover the balance later if things begin to go well again. It is also important to be able to remain calm under pressure so that you do not make mistakes at critical moments.

The advantage of leverage is that it allows a successful trader to make a lot of money in a short time. However, it is important to remember that money can be lost quickly too. Fortunately, most brokers offer a demo account facility so that you can try out the system and practice your financial forex trading skills without risking any real money.