No, not a lot of people actually earn a living from Forex trading, or any trading for that matter. In fact, most people are not consistently profitable traders. A common figure that’s thrown around is that 95% are not consistently making money in trading. Only 5% have figured it out. Keep this is mind the whole time. It is NOT easy to beat the market. You are up against a lot of people all of whom are trying to steal money from you and from each other. Expect to spend a few years studying, learning, and practicing (that’s right, YEARS!).
Just use your common sense: If it were easy to do, and anyone could just pick it up after a few months of studying and practicing, then everyone would do it; everyone would be getting rich from the forex. Doctors and lawyers make a lot of money, but they spend many years studying and practicing to get to where they are. Trading is a profession where you could potentially make a LOT more money than any doctor or lawyer. Why should it be any easier for a professional trader to achieve that level of success than a doctor or lawyer? It is very difficult. There are a lot of obstacles (you, yourself, will be one of the biggest obstacles, trust me), but it is not impossible. There are people who can, and do, consistently make money trading. Some even do it as their only means of income. These people are rare, though.
Honestly, this site, babypips.com is a very good guide to learn the basics. Go through their whole “school.” I will give you some more resources in a reply to your second post.
That is a very tricky question. Here’s the deal:
[li]Most people don’t know of a profitable system. Some might claim to, but they actually don’t. Their lying; they might even be lying to themselves.
[/li][li]Most people who do have a profitable system don’t like sharing it. It is one of the most valuable pieces of information to them. They are afraid that if people know about it, then it will stop working.
[/li][li]A system that might be profitable for one trader, might not be profitable for you. This is a concept that might be hard to understand at first, but it has to do with the psychological aspect of trading. Do not underestimate the psychology of trading; it is one of the biggest obstacles you will encounter.
The truth is, you should develop your own system. Now you can get ideas from others, but you will probably want to start customizing it a bit. That’s ok, in fact, that’s good. You might hear some people saying that you have to “match the trading system to your personality.” Those people are wise. There are two very important things about a good trading system:
It must be a profitable system.
You must follow the system’s rules.
Both of these things are easier said than done. It’s not easy to find a profitable system. Maybe you will read someone’s rules online. You should test those rules. Get a lot of accurate historical price data. Setup your indicators (tools that help you analyze the market). Go through the historical data and apply the rules perfectly. See what kind of trade the system would have given you. Was it profitable? Doing all of this is called “backtesting” (because you are using PAST data). Maybe the rules worked for the person who posted them, but will they work for the particular currency pairs, and time frames you will be trading? Is it still profitable if you subtract the spread that your broker/dealer charges?
You buy and sell at slightly different prices. The difference in these prices is called the “spread.” This is how your broker makes his money. If the spread for EUR/USD is 1-pip and you have a trade that moves 10 pips in your favor, you only get to keep 9 pips of profit. If a trade moves 7 pips against you, you will lose 8 pips. The broker charges you the spread on every trade. They don’t care if you win or lose.
If you do have a system that is profitable based on some backtesting, you should then try to test it in the live market using a demo account. This is called “forward testing” because you are using real data as is moves forward through time. Why should you forward test if a system proved to be profitable in backtesting? The reason is that it is much different trading in real time than it is scrolling through a historical chart. There is a lot more psychological pressure when you are really trading. In fact, even live-trading a demo account isn’t a perfect test because your emotions will not be the same with fake money as they will be with real money. Nevertheless, you should still start with a demo account. Use a demo account so you don’t lose any real money if it doesn’t work. If it does work, don’t feel bad that you didn’t make that money. If you have those feelings, that is your greed showing itself. Sometimes you will also experience fear. You will have to combat these emotions every day; they make you lose money.
Once you have finally found/developped a system that is profitable in both backtesting and forward testing, you have done something that so many traders have not done. In fact, a lot of traders lose money because they don’t have any system at all! They just jump in and our of trades based on their emotions. These traders fail. Always. If your system is good, do not deviate from it. Do not try to outsmart your system. In the heat of the moment, you will make very bad decisions if you don’t follow your system. Your system will help you control your emotions. If you follow your system, you will be following rules that have proven to be profitable while you were thinking clearly, while you were logical and calm. If you don’t follow your system, you will be trading based on decisions you make while you are scared, nervous, excited, or depressed. Those tend to be bad decisions.
As you can see, I emphasized the psychological/emotional aspect of trading a lot. Do not ignore it. It is very real and very important. Most traders never pay attention to their own psychology and emotions. Most traders also fail. This is not just a coincidence. Most traders spend all of their time trying to find the perfect system, the so-called “holy grail.” There is no perfect system. Every system will have losses. You cannot predict market movements perfectly. You have to think about it like a casino. Your profitable trading system is like a gambling game where you are the house. You don’t win every game. You win some. You lose some. It’s random, but in the long run, you come out ahead. In this sense, your system has to have an “edge.” Think about the roulette table. Some people will bet on red or black, but their odds are slightly less than 50% because there are the green pieces, the 0 and 00. That’s what gives the house the edge. The house has a slightly better than 50% chance. Sometimes the house has to pay a player because the play wins, but in the long run, the house makes more money than it loses. That’s what you have to be like. Don’t be afraid of losing. Stick to your system because it has an edge.
I use OANDA as my broker. One of the main reasons why I like it is because you can trade any size position. You do not have to trade in blocks of 100,000 or even 10,000. Even in “mini” lots of 10,000 units, a small account can easily get blown out after a few hundred pips against you. With OANDA, you can place a trade of 1000 units or even smaller is you want. This way you can practice on a very small account and risk only pennies per trade.
There are a lot of big egos roaming around the trading forums. Everyone wants to show you that they’re the smartest, richest, most profitable, etc. I am not ashamed to admit that I started with only $500 in my first live account. Some people laugh at such a small account, but I’m proud that I started with a small risk because all of that money is gone now. Imagine if I had started with thousands of dollars…it would all be gone now.
By the way, most traders, even the good ones who eventually make it, most traders lose all of the money in their account at least once before they start to trade profitably. Many professionals have lost their entire accounts a few times before they really figured out how to trade. There is no reason to start with a lot of money. Rememer, no matter how much you learn, when you first start trading, you are going to be very bad at it. Some people say you need a big account so you can survive a “drawdown” (that means a string of losses). Well, if you use OANDA, you can start with a very small account and trade in extremely small sizes, so effectively, it’s the same as having a large account and trading larger position sizes. (No, I do not work for OANDA. I am not paid by them. I am just giving you some honest advice.)
Some people say it takes money to make money. You can’t start with such a small amount because you’ll barely make any money. Well, just start with a small account anyway. If you can prove to yourself that you’re profitable with a small account, then you can try trading a larger account. Now that’s just common sense.
Some Information Resources:
Books: Here are some books that I really liked. These guys will tell you a lot about the psychological aspect of trading. Listen to them.
[li]Getting Started In Technical Analysis, by Jack D. Schwager
[/li][li]Trading For A Living, by Dr. Alexander Elder
[/li][li]Trading In the Zone, by Mark Douglas
[/li][li]Beat the Odds in Forex by Igor Toshchakov
[/li][li]Emotion Free Trading, by Larry Levin (you can get that here for free: earnforex.com/forex_e-books/trading_psychology/EmotionFreeTradingBook.pdf)
[li]babypips.com- Go through their whole “school”
[/li][li]investopedia.com- Go to the articles section, there is a subsection for forex
[/li][li]fxstreet.com- Go to the education section, there are some good articles. They are also working on creating an extensive learning center. Find a couple videos by Rob Booker: “Trading for a living − ITC Presentation” and “How to create a trading plan - ITC Presentation.” I found it very helpful to listen to his advice.
[/li][li]forexfactory.com - A very large and popular forex forum. It’s generally more advanced than babypips, but watch out. There are a lot of “trolls” roaming around, i.e. a lot of guys with big egos who love to argue and criticize. These people are probably not profitable traders; they don’t have the right attitude. Still, there are a lot of good ideas in the forums there.
[/li][li]trading-naked.com - A very ugly and poorly designed website, but it has some good information. Go to the “library” section for a lot of good, free books/articles.
Some people will sell you their amazing, highly profitable trading system for only a few hundred/thousand dollars. Don’t buy any of this crap. It’s almost certainly a scam. Once again, use your common sense: If it’s such a good trading system, then why don’t they just use it and get rich? Why do they have to make money by selling it?
First of all go through the babypips school once. Then read over the parts again you had a hard time digesting. Then about a few demo accounts and play with them WHILE at the same time playing with each section in the babypips school.
THEN go through a dozen of the ABSOLUTELY FREE systems here on babypips. Many of them are as good or better than anything you’d get out a course. From there you’ll find a system you like and if trading is for you.
DO NOT waste money on ANY course. They are just a waste and ANYTHING they teach can be found here for FREE or in a much cheaper book on amazon.com
When starting our you’ll be very excited and anxious to start. All the sales sites feed off of this with their sales pitches. You’ll notice that the pitches are written to push very specific psychological buttons. At least if the web author knows how to write a decent sales pitch. They will tell you everything you want to hear and make it sound logical and convining. Save your money. You’ve found babypips and wellspring of information if you just take your time and drink from the fountain…lol.