Becoming a forex trader entails experiencing the thrill, risk, and reward of trading in the world’s largest and most liquid market. Do you think you’ve got what it takes? In this article, we’ll look at how to become a forex trader, including the attributes you’ll need and the steps you’ll need to do to get started and stay consistent.
WHAT DOES A FOREX TRADER DO?
The purpose of a forex trader is to make money by taking long or short bets on currency pairs. A forex trader is strategic, disciplined, and continuously alert to market conditions. He or she will be aiming to gain a better grasp of currency pairings’ behavior and put up lucrative trades, whether using a technical or fundamental approach, or both.
Trading never sleeps in the 24-hour currency market, which means there will always be activity, even if forex liquidity levels will peak and trough at different times during the day. Some traders may prefer to work at odd hours in order to take advantage of global markets.
WHAT IT TAKES TO BE AN EFFECTIVE FOREX TRADER
So what does it take to be an effective forex trader? From possessing a passion for the markets to having unshakeable discipline and more;
1) Discover your passion in Trading
When trading the foreign exchange markets, you must have a real interest and understanding of monetary policy, one of the main movers of price action. For example, if you are trading GBP/USD you need to be fully in tune with all Bank of England and US Federal Reserve policy moves and speeches – both drive the market. So aim to be on the same wavelength as the central bank/s, but don’t bet against them – they have big pockets and nearly always win.
2) Recognize the big picture (Macro Drivers)
The Australian Dollar is a primary example of a currency driven by a range of macro factors. It is often thought of as a ‘growth’ or ‘risk’ correlated unit – one which is likely to gain when the world feels better about global growth and struggle when the reverse is the case. While this is often true, there are a huge number of other possible drivers. Major commodity prices, Australian monetary policy prospects and localized political risk can all see it move against the general market grain at times.
In these days of highly correlated markets it’s tempting to separate currencies into ‘risk on’ and ‘risk off’ camps but this is far too simplistic.
3) Keep in mind: It takes two to forex Tango
When trading currencies, a trader needs to understand what is happening in both relevant territories. For example, when trading GBP/USD, it’s advisable to keep up with the most recent Brexit news in addition to the latest on the US/China trade war. More generally, though, a good understanding of market trading is important, from stop losses to chart patterns; from market psychology to the role of central banks.
4) Exercise proper money management
Sound money management is the key difference between the hobbyist and the expert trader. To wit, real data from a major FX broker showed that its clients closed EUR/USD trades out at a gain 61% of the time, and yet lost money because the average winning trade was 48 pips while the average loser was 83 pips. That’s no way to make money, and that’s exactly why money management is the difference-maker between a hobbyist and a successful professional.
5) Have the right mindset
You have to be a self-starter, able to hold yourself accountable and learn from your mistakes; there will plenty of them. A love of markets and the process of trading, not just money, is extremely important – it will get you through the challenging times. Strong self-discipline is needed to follow a clear-cut game-plan, but also the flexibility to adapt to changing circumstances as market conditions are always evolving.
6) Show grit
Trading can be difficult. It can only appear easy from the outside because clicking a few buttons to buy or sell isn’t very difficult. But it’s not easy to consistently beat the crowd, and almost anyone on this path will, at some point, face challenges. Grit is what enables success in those challenges, and a lack of grit is what makes it easy to quit for whatever reason.