There are different steps one goes through when learning how to trade. They consist of roughly the same elements and traders tend to progress through these stages in a similar order. Some progress quickly through each stage while others remain stuck in a stage for months or even a year. Let's take a look at the 6 steps that a trader goes through on his path to becoming a profitable forex trader.
Step 1:
Problem - You heard about forex trading from a family member, a friend, a colleague or possibly an internet banner. It seems like a legitimate and exciting way to make money. You have pounds (or euros, or dollars!) in your eyes and dreams in your head. You can't wait to learn all about trading, open an account and watch the money pile up.
Solution - While there is nothing wrong with being excited and interested in trading, you should be cautiously optimistic at this point rather than planning to put all of your eggs in one basket while dreaming of a new lifestyle. Trading is anything but a way to get rich quickly; it takes discipline, dedication, organisation, logic and patience - if you think it's a way to make money easily, you better think again. If you want to build a long-term forex trading career, you have to be realistic and understand right now that developing good trading habits will determine whether or not you succeed.
Step 2:
Problem - You start to research the internet, there are many different trading strategies, trading platforms, training courses and seminars. You decide to learn the basics of forex by signing up for a free course for beginners. After that, everything makes sense to you, you are excited by the opportunity that forex trading seems to offer and now you just have to decide which trading strategy you're going to use. After some research and thought, you finally decide on a trading method that will help you successfully trade the foreign exchange market. The problem with this step is that many traders start by learning a trading strategy that is far too complicated. They have Elliot waves, MACD lines, stochastic indicators and other indicators all over their charts. These things aren't conducive to the development of a relaxed and confident state of mind.
Solution - Instead of learning with a bunch of different indicators or buying expensive trading software, you should start by learning to read the charts to find support/resistance lines and identify price action patterns. Start by using basic charts without any technical indicators, you can then refine your analysis with an indicator to find points of confluence between your analysis and a technical indicator.
Step 3:
Problem - The first two steps are fairly similar for most traders, but stage 3 is where their paths often diverge. At this point, most people are trying to learn a trading strategy, they have bought a trading robot or they are trying to use a bunch of different indicators. Most tend to use a demo account for very little, if at all, the first time they learn to trade. It's human nature to want to jump into the markets as soon as possible and start taking risks.
So, in step 3, most traders have spent some time learning a trading method and then, after seeing one or two examples of this method working, they open a live account and start trading with real money. In general, they make stupid trading mistakes like entering the wrong lot size or buying when they want to sell, etc. These errors are the result of a lack of rigour and not taking the time to familiarise oneself with the trading platform and its features. In step 3, traders usually either bankrupt their first trading account, or lose so much that they stop trading for a while, at least until they learn another trading system.
Solution - Many traders seem to think they don't need to learn how to trade on a demo account, or they don't do it long enough. You need at least one or two months on a demo account to master a strategy, if you don't, you're foolish! Remember, this is your hard-earned money you're risking, waiting one or two months to start trading won't hurt you, especially if you consider that it will allow you to become more familiar and more confident in your trading method, which will ultimately allow you to trade much more effectively.
Most of the time, traders blow through their first trading account because they're too excited and too anxious; they have a poor understanding of their trading method, and let's be honest, they really just want to get into the markets because it sounds like fun at first. Well, I can assure you that blowing through the funds that took you a few months to earn won't take you that long, and the thrill you feel when you start trading live will end very quickly once you realise that you have no idea what you're doing and that the market is taking your money like a hungry white shark. So make sure that you master your trading strategy with a demo account for at least one or two months before you even think about risking your money in the markets.
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