Step 2: Dipping your toes into Forex Trading
There is no set amount of time you need to acquire all the skills to become a successful trader, nor should be any pressure from anyone else to leap into the real world of Forex before you are completely ready and fully understand what you are doing.
Once you have written your plan, know exactly what you want to achieve with Forex trading and prepared yourself for the many possible outcomes, then it is time to begin.
However, if you think you are going straight to the hub of the trading floor, then you have another thing coming. It’s time to play poker with matchsticks and set up your free practice account.
Your ESSENTIAL practice account
The practice account is essential if you want to become a successful Forex trader in the future. Diving foolishly into the real market if you are a complete novice will mostly end in heavy financial losses and disaster. You have been warned.
The practice account will give you a set amount of virtual money in which to trade with. It will then simulate the markets and currency pairings as if they were real, with only a few differences. You can use this to get to know how Forex trading works. Having a demo account will also get you into the routine of analysing the markets and keeping abreast of current affairs which will govern the trading decisions you make. It will also help you to formulate your own methods of trading and importantly make a plan if things start to go wrong.
Of course any money you earn in the practice account does not actually exist, but thankfully nor do any financial losses. This means you are free to make as many mistakes as you like, risk free.
Although in the practice account you are using only virtual money, it is important to get used to dealing with small, simple amounts first in order to build your trading knowledge and skills organically.
One good way of starting to trade is by choosing your home currency, e.g. UK Pound Sterling, paired with another common currency, such as the US Dollar and concentrate on making money through these first. By focusing on two stable, familiar currencies the basics of Forex trading can be learnt more easily.
While operating in “practice mode” it is also a good idea to take notes, in the form of a journal, about the things which worked and the mistakes you made during the learning process. This will help when trading for real. It might also be a good time to re-adjust your trading plan accordingly and re-assess the answers contained in it.
Get used to success and failure
Forex trading is a bit like watching a football team; there will be days when you win and days when you lose. The most successful traders operate in such a way that they are able to manage the losses comfortably but can also enhance their profits when the opportunity arises. Forex trading is about balancing probability and risk. There is no mathematical formula to determine the fluctuation of the markets. The best traders will position themselves with the odds stacked more in their favour, so there are more victories than defeats.
Once you are able to do this by acquiring the skills and knowledge in the practice account, and can make a virtual profit, then you are ready to dive into the Forex Trading Ocean for real.