First of all I want to say that there are many ways to profit (or lose) from Forex market trading. The following is written in my humble opinion :)
Unfortunately most of the traders still believe that you must know what the market is going to do in order to profit from it. Nothing could be further from the truth than this statement.
There are just too many variables that make up for market movement to be able to "know" what the market is going to do. Instead, you should see the markets as an endless stream of opportunities from which we can profit if we have a solid plan and the right mindset. Our trading plan provides us with an edge in the markets, just like a casino. We don't know the outcome of any particular trade, but we do know that over a numbers of trades made we are able to make a profit.
Really simply said, you need a risk/reward of at least 1:1 on every trade and be right 50% of the time. This sure makes it sound really simple, but following your rules isn't always that easy.
Anyone can enter a winning trade, or maybe even a series of winners. But doing so on a consistent basis with profitable outcome requires a back tested plan. With a plan i mean a set of rules which tells you when to buy or sell, where to put your stop losses and profit targets. Only when you have such a set of rules you will be able to start back testing your plan. Back testing is nothing more than applying your plan to historical graphs, and recording those outcomes over a period of time. One of the reasons most traders lose money is because they are not willing to put in the effort and energy it takes to make and back test a plan. Failing to do so will make trading a guessing game with a most likely negative outcome. A profitable back tested plan gives confidence to the mind, which you will surely need during the drawdowns that every traders has to withstand.
Demo VS Live trading
Almost every Broker these days, provides the possibility to trade for free on a demo account. Although this is great for inexperienced traders who need to understand the process of entering and exiting trades at their broker and want to practice with their platform. There are some profound differences between trading on a demo or a live account.
Probably the biggest difference is your own mindset as it comes to entering and exiting trades. A lot of traders start out making some money on a demo account, and believe they can get the same results when funding their first account with hard earned money and good hopes.
When trading on a demo account there is hardly any emotional struggle to enter or exit a trade, because the virtual money has no real value. Making the same decisions on your live account is much harder, because of the emotions that come into play when losing real money. A lot of traders start letting their losses run in the hope the market will return in their favor, or cutting their profits short because of fear that the market will turn against them. Fear and hope makes you susceptible to breaking your own rules and start making those deadly errors. Errors like, jumping the gun, taking profits early, and letting calculated losses turn into account blowing losses.
This is a path to self-destruction. Hoping and fearing shows us the lack of confidence in a trading strategy if such even exists. Personally I would say it’s best to start trading on a live account, but making sure you start with low leverage micro-lots account. Forget making money for at least the first year, the most important thing is that you learn where your strengths and weaknesses are in following your plan over a period of time. This is what you should focus on, the money will follow.
If you came this far, thank you for reading. This was one of my first attempts to write a little bit about the things I am passionate about, if you liked it or have any suggestions feel free to comment.