I originally posted this in reply to someone looking to pay for FX mentoring. I strongly feel that learning to trade is a personal journey which doesn’t have to be expensive, the material is already out there available to find free of charge. In fact any monies you are considering to pay a forex coach or mentor could be put to better use buying books on the subject or in the form of a savings account to fund your initial grub stake (trading balance).
The below is a condensed account of a journey to becoming a part time profitable currency trader that I’ve personally taken. I have written this short guide broken into stages in an effort to provide a clear route/syllabus for aspiring traders to follow. This is not a 6 week crash course, in fact I expect it to take at least 1-2 years (as it did me) before you consider yourself graduated. Remember this will give you a FOUNDATION to work from, maybe a better chance than most at making it to profitable. The subject of currency trading can be quite difficult to study in a sequential manner, most people approach it as a ‘Get Rich Quick’ pursuit which it most definitely is not… instead for these people it quickly becomes an exasperating experience ending up more like a ‘Get Poor Quick’ pursuit. The time frame required to get to a point where you are sufficiently confident enough in your execution & knowledge to be consistently profitable will be down to the effort you put in and the desire you have to reach it. Remember the markets aren’t going anywhere soon… so you have the luxury of time to learn at your own pace, don’t rush it.
I’m aware there aren’t many articles like this on the various forex forums specifically outlining what to study and in what order… I know I’m opening myself up to potential criticism and scrutiny which I fully accept but if you feel the need to offer negative feedback all I ask if you message me privately as not to spam the thread when it’s intention is to help people and not distract them with arguements. Please consider others before posting.
Anyway enough of me, here is the original post.
Becoming a currency trader in 10 steps
Starting Out - Step 1
Read: Currency Trading For Dummies (the full book, not free forex.com download, IMO The best entry level book on the subject)
Do: Sign up for a demo account, download either MT4 or the brokers own platform. Become familiar with placing test orders, understanding charts and how the platforms work. Learn about market orders, limit orders, stop orders. Look into the differences between ECN & Market Makers.
Do: Start a trading fund (anything you can spare).
Step 2
Do: Look into indicators, MACD, MA’s, RSI, Stoch, Bollinger, Fibonacci and all the others. Read about strategies on here which use them, try your own. (IMO trading with indicators and ratios is flawed BUT you need to understand how they work and why people use them before you can decide whether they have value or not - this will come later in your development as a trader)
Read: Trading for a Living (You will get an authentic overview of how the markets work from this book)
Read: Liars poker (You will get an understanding of how brokers work from this book - this is important)
Do: Continue adding to your savings fund.
Step 3
Do: Start demo trading and journalling your success/failures and observations on the market, either trade with a strategy or just using your gut instinct… it doesn’t matter your aim is to gain skills in execution. Don’t worry we’ve all hit Sell when we meant to hit Buy.
Do: Continue adding to your savings fund.
Read: Reminiscences of a Stock Operator (The best book you can read on the subject… the trading bible IMO - you won’t understand fully on your first read. You will read this many times - each read you will learn something new)
Read: Millionaire Traders: How Everyday People are Beating Wall Street at Its Own Game (Interviews with people who successfully trade - don’t worry about how much they make just try to take in their thought processes and notice how each trader has a different story/strategy)
Psychology - Step 4
Watch/Download: How To Think Like a Professional Trader, Mark Douglas (if you can’t download it… buy it from www.MarkDouglas.com. I can’t emphasise how important this workshop is if you want to be successful and evolve your thinking to become a successful trader)
Read: Trading in the Zone (Again by Mark Douglas, it’s a difficult book to finish but stick with it as some of the examples and empirical evidence discussed will cause you to experience many “Aha moments”.)
Do: Shift your demo trading over to trading in a series, instead of ad-hoc entries. Record your trades in groups of 20. Aim to break even over each series of 20 trades with your demo money. Move away from focusing on individual trades and focus on them in a series.
Do: Start a trading journal (I use excel and just date each entry), record your thoughts and notes.
Do: Continue adding to your savings fund.
First Strategy - Step 5
Watch: Trading Strategies Webinars on FXStreet Archives (search through and pick any that catch your eye - just filter on the left by ‘Trading Strategies’)
Do: Using your experience to this point, come up with a trading strategy to trial… you can use someone else’s or you can make up your own. It must incorporate money management (define your risk & reward upfront, place these as stop loss orders and take profit orders ON EVERY TRADE).
Read: Google the following subjects (Money Management, Position Sizing, Risk/Reward, Compounding Interest)
Economics & Financial Markets - Step 6
Watch: Open Yale Courses | Financial Markets (2011) (Open Yale Economics College Course - you need to understand the economic landscape and how it impacts your trading)
Read: What You Need to Know about Economics (excellent economics primer)
Read: Pitbull (autobiography of one of the greatest traders ever - full of insight)
Read: Market Wizard (accounts of great traders)
Do: Start reading about the different types of financial instruments available to trade and their corresponding markets… including bonds, stocks, derivatives(forwards/futures/options). Understand their uses in our economy and who trades them and why. Wikipedia & investopedia are good resources for this information.
Do: Continue adding to your savings fund.
Trading real money!!! - Step 7
Do: Open a micro account with whatever broker you have faith in at this point (don’t worry we all thought they were crooks at one point). Put no more than £100/$100 in it (you’re likely going to lose this money). Using your tested strategy or strategies and your trading in a series of trades approach, start trading with real money risking no more than 1% of your account on each trade (that’s $20 max loss per 20 trade series - you have as much chance of losing 20 trades in a row as you do winning 20 trades in a row). Set your R:R to 1:1. This task is to give you TRADING SKILLS, not to make money. There is a huge psychological shift when trading live money compared to demo trading. You need to experience this and risk as little as possible while experiencing it. Think of this as paid education. Try not to scalp (don’t worry we all did it when bored), keep disciplined and try to stick to your strategy.
Do: Record all your trades in your journal (excel is good for this), accompanied with the following information
(Pair, price, date/time, risk(SL), target(TP), profit/loss result, notes). Analyse each batch of trades, write down your thoughts, highlight your mistakes and come up with solutions for yourself. Write it all down (you will read this many times and grow from it)
Do: Continue adding to your savings fund.
Read: How to Trade In Stocks (Jesse Livermoore - you should know who he is by now. Ignore the fact it’s a stocks book, the material is priceless for all traders alike)
Read: Re-read Trading for a Living (do you wanna be a bull, bear, sheep or a hog? ;])
Financial Planning - Step 8
Do: Using everything you have learnt up to now, bring it all together and come up with your PLAN. I’m not talking about just how to enter the market. I’m talking about planning how much you can save in the next 12-60 months, how much of a return per month you need to be satisfied (remember 6% a month compounded is 100% over 12 months… slow and steady always wins here). Write your plan down, keep a journal, analyse you past performance, admit your previous mistakes, set yourself goals. I imagine around this point the market has taught you a lot about yourself… it really is the best psychologist. Use these experiences to put down a mature and realistic plan. Factor in your lifestyle, your loved ones and your aims in life. Once you have your plan you are ready to try and execute it (I say try because it’s still hard).
Do: Continue adding to your savings fund.
Read: Re-read any of the books above you enjoyed most, read everything and anything recommended, read when you have spare time.
Preparation - Step 9
Do: You need to trade your above plan successfully for at least 3 months on your micro account. Do not fast track or do yourself a disservice by trading this any less than 3 months. You need to accept losses are a normal part of the process, remember the coin toss example Mark Douglas gave you? Individual trades don’t matter. Stick to you plan. Analyse each trading series, keep writing in your journal, look back and see how you have grown as a trader. Remember 3 months at least.
If you can’t trade successfully and consistently profitable overall for 3 months straight, revisit the above stages to reinforce your knowledge and trading skills.The learning process is a continual cycle and you may not take it all in on the first run. Just keep repeating the stages until your happy… then start your 3 months again
Do: Continue adding to your savings fund.
If you’re struggling, ask yourself the following…
- Is my edge reliable? (if not, try something else)
- Am I executing my plan without conflict or hesitation?
- Am I keeping a journal of my thoughts to learn from and recording my trades and reason for entry?
- is my R:R realistic?
- Do I need a break? (if you’re burnt out take some time off - the markets aren’t going anywhere)
Step 10
Do: If you have completed the above stages in your own time frame and have successfully traded your own plan consistently and profitable for 3 months you can now start thinking about upping your stake/capital. I want you to take whatever balance you have saved and divide it by 4 so if you’ve saved $10,0000 you’re going to fund an account with $2,500 (put the rest in a high interest account - you will use it later). You’re going to carry out the EXACT SAME PLAN that you have traded profitably for the previous months using the exact same rules. Remember there is a significant psychological shift when you have significant money on the line, you’re responsible for your own actions here and if you stick to you pre-determined plan you should be okay. If you struggle, revisit the points in stage 9. If you are slowly building your balance and executing your plan without emotion or hesitation… you’re doing well. I’d advise you stay at this stage for a couple of months. Prove to yourself you are ready to increase the stakes, by now you should have learnt enough lessons to know that being honest to yourself is the only way to survive in this game.
Read: Re-read the above books (yes again - you always learn more the 2nd, 3rd, 4th time round and you know it ;])
You’re now a part time trader - Graduation
Mindset: You should now be at the stage where your thinking “trading is a lonely unexciting business”, reading over the forums seeing people like yourself prior to working through the above stages, you know you couldn’t possibly explain all you’ve learnt to them in one post on a forum but maybe an article like this from you may point them in the right direction. It’s good to give back.
Do: Top up your account with the money you’ve saved and have determined you can risk. Plan your trades & trade your plan, it should be second nature and even boring at this point… don’t worry the excitement is your return every month and lifestyle trading permits. Best of luck to you friend!
Read: Anything you like, you can even recommend it to me if it was good
Useful Quotes to put on your wall or whiteboard:
“The market doesn’t care about you… it’s doesn’t even know you exist”
“You have no idea what is going to happen next”
“If you want to be here for the good days… you need to be here for all the days”
“A bad trade is not a losing trade, it’s a trade placed that did not meet your entry criteria”
Misc:
Forums: babypips, forexfactory, trade2win
Avoid: Paid courses, trading guru’s (you will learn to spot them), following other peoples trades and judging peoples knowledge by their post count on a forum.
Always: Be inquisitive but sceptical.
========= Disclaimer ==============
The above is advice only, I guarantee it will not suit everyone… in fact only a minority will find it useful. Everyone is different so if you take or have taken a different route that’s fine. There is no wrong route to being a successful trader as long as you get there. Good luck to you all.