With the advent of the internet, the number of people entering the Forex market has increased exponentially. This was not the case 20 years ago. The main participants of the Forex market at that time were the Central Banks, Multi-National Companies, Investment Management Firms, etc. Also, since the Forex market offers great liquidity and has significant advantages over the Stock Market, it has created a lot of interest among the retail traders. But only high net worth individuals were able to trade the Forex market as it was extremely expensive.
But at the end of the 20th century, we have seen the internet revolution and the world has changed in the ways we couldn’t imagine. This revolution has impacted the Forex market trading positively. As the Forex market is decentralized, a lot of online Forex brokers have emerged to provide brokerage services for traders across the world. Currently, trading the Forex market has become extremely simple and cost-effective. On average, more than five million retail traders are participating in this market, and that number is increasing with time.
People from different backgrounds and qualifications are considering Forex trading as a potential source of income. The Forex market provides flexibility for traders to create wealth in a practical manner. Having said that, trading is not for everyone. It is not a get-rich-quick scheme where one can reap the profits without any effort. It needs a lot of commitment and determination to succeed in this field. Not to mention the significance of awareness and education that is required to become a successful Forex trader. So, in this article, we will discuss why one should learn to trade before making their investments in the Forex market.
Learn to Trade - Basic Statistics
Have you ever heard of the percentage of people that succeed in the Forex market? The ratio is at 95:5. That means 95% of all the retail traders in the Forex market tend to fail, and the percentage of winners is only at 5%. Shocking, isn’t it?
Many of the experts across the industry say the reason for this is the unawareness and lack of education. The top 5% who see constant success in the field of trading are the ones who learned how to trade the market. They know what to do when and that matters a lot in the world of trading. Hence, if you want to be in the top 5%, make sure you learn to trade.
There’s one more rule known as the 90/90/90 rule, ever heard of it? This rule essentially means that 90% of novice traders tend to lose 90% of their entire capital in the first 90 days of their Forex trading journey. Even this is because of the lack of education novice traders have. If at all, they knew how to wisely utilize their capital by using concepts like hedging, diversification, etc. they wouldn’t be losing almost all of their money in that short period.
Also, psychology gurus believe that traders with the wrong state of mind can easily fail in this market. Negative psychological factors like greed, anxiety, fear, etc. hold back the traders from succeeding. Hence traders need to learn how to control their emotions and stick to their strategy instead of succumbing to them. The point we are trying to make is that education is involved here as well. Learn to trade psychologically because that is what differentiates winners and losers in the Forex market.
Learn to trade the forex market in 2020!
Learning to trade in the forex markets? Some important points:
We have discussed the importance of education to succeed in this market. But what should one learn to consider themselves as educated? Let’s see.
Understand the Fundamentals of Asset Classes
It is crucial to know the basic fundamentals of the currency pair you are willing to trade. Without knowing the fundamental factors that drive the value of the currency, it is not advisable to trade them. Also, various other aspects of the currency, such as volatility, pip movement, liquidity, etc. must be considered before trading that currency. Learn to trade the currencies that have maximum volatility and also know when to trade them. The best time to trade any currency is when there is an overlap between the two market sessions. For instance, most of the currencies have maximum volatility when there is an overlap between the London & New York market sessions.
Learn to Trade the Markets with Technical Analysis
Technical Analysis has the most logical approach to trade the financial markets. It involves price action trading, which helps you in understanding the reason why the price is moving the way it is moving. Technical Analysis also involves using various charting tools such as candlestick patterns, indicators, oscillators, trend lines, etc. Learning these trading techniques helps you in generating accurate trading signals, which will eventually contribute to your trading success.
Mastering Risk Management
Trading is less about making profits, and more about mitigating risks and protecting your capital. So, anyone willing to succeed in the trading business should master risk management principles. Some of the risk management strategies involve choosing optimal Position Sizing, portfolio diversification, etc. There are many other best practices one should follow to mitigate the risks, such as trading with the trend, hedging your positions, and limiting the usage of leverage. Learn to trade with stop-loss orders for all the trades you take. Trading without stop-loss orders is like driving a car with no breaks at all. No matter how sure you are about the trades you take, make sure to place the stop-loss order accurately. These practices will ensure that you won’t lose much of your account in case of a negative outcome.
Control Your Emotions
Learning to control your toxic emotions like fear and greed is essential to ace the markets. Many of the experienced traders still find it difficult to trade without the influence of their emotions. The only way to do this is to have complete confidence in your trading strategy. If you are sure about your strategy, no amount of fear or greed will affect you because you will be playing the game according to your own rules. You will predetermine your entries and exits, and no matter how the market responds, you will be acting according to the plan. Also, self-care techniques like meditation will help you in having greater control over your emotions. So, it is advisable to practice those techniques to become a better trader.
Experience Is Everything
It is a well-known fact that experience is the best teacher ever. So, it is important to get your hands dirty while you are at zero risks. This is possible by trading in the demo account. Most of the premium Forex brokers have a demo account facility. You can always signup with them and access their demo account for free. You will be provided with some virtual dummy cash using which you can trade the live market. In this account, you can backtest your strategies and see if they are working for you or not. While you are at it, make sure to trade like you are trading the live market and consider the dummy cash there as your own money. Only then this should be useful.
Bottom Line
To succeed in any business, one needs to educate themselves about everything that is involved in it. Trading is no less than a business, and complete knowledge on all the related aspects is essential to prosper in it. Also, unlike any traditional business, Forex trading is extremely rewarding if done correctly. With the right education, one can completely take control of their trading future and become financially free. Build a strong foundation for your trading career by getting the right education to grow and safeguard your investments. There has never been a better time than now to learn to trade.
Hopefully, you have enjoyed today’s article. Thanks for reading!
Have a fantastic day!
Nisha Patel
Live from the Platinum Trading Floor.