Can Forex make you rich?
For many people, forex trading seems like an easy way to generate significant income. However that is only possible if you educate yourself first in order to avoid the forex markets potential pitfalls.
To be frank, most traders fail before getting rich, because they do not take the time to learn or create profitable forex trading strategies. People who see trading forex as a get rich quick scheme will unlikely succeed. A good income can be made just as easily as it is lost. Before you start trading, make sure to test strategies on a demo account and read every possible resource.
Forex heavily depends on economic conditions (even more than option, futures trading or the stock market). Make sure to have a good comprehension of economic terms. Examples are current account deficits, interest rates, monetary policy and fiscal policy before trading Forex. You should also know how fiscal and monetary policy affects the markets when trading forex.
But regardless if you want to supplement your income or replace it entirely is up to you. It depends on how good of a trader you wish to be. In order to achieve this success, you must focus on learning how to properly trade.
How Traders Get Rich
While it is possible to trade forex on a small scale alongside a day job or other commitments, if you want to make significant trading profits you will need to devote more of your time to the markets.
A professional forex trader is generally considered to be someone whose primary income is derived from trading on the forex market. They may work for themselves, investing their own capital, or they might work for hedge funds or international banks , trading with clients’ money.
Those working for an employer receive a salary which can range from around £45,000 to upwards of £150,000.
The average income of someone trading on their own behalf is harder to quantify because forex is so decentralised and trading budgets vary widely. As a rough guide, a professional forex trader would consider themselves successful if they were achieving a steady return on their capital.
Different forex traders will have different definitions of success, so you must understand what you want to achieve from your trading and set yourself realistic goals.
If you can consistently generate a monthly profit trading forex then you are doing well. However, if you want to get rich, it is worth looking to those individuals who have achieved the most remarkable forex returns:
Now that you know what a trader is, how can you become a trader? And then, how do you become successful at it?
When starting to trade, it is important to understand what you want to achieve from it, and how you define success.
This is something professional trader and coach Markus Gabel discusses in detail in our free webinar about becoming a successful trader below.
Set yourself a realistic and quantifiable goal. This could be something along the lines of, achieving a 20% annual return on your investment, earning 5000 USD of profit or getting a total of 100 pips per month. Whatever you decide, your goal should also be easy to measure. Something else which is important, is to set a goal that can be achieved over a long time frame – it is recommended to set an annual goal to achieve rather than a monthly goal.
Once you have set your main trading goal for the year, it is now time to start learning how to achieve it. The best way is to identify what resources are available to you. How much money are you able to use as a starting deposit? Do you want to become a full time Forex trader? Or are you just looking to trade on the weekends? These are some of the questions you should be asking yourself.
Once you have a clear vision, it is time to make your action plan. This plan should include the currency pairs you are planning to trade and the number of daily trades you are going to commit to.
This can feel a bit overwhelming for new traders, so the good news is that in this article we share our top 10 tips to help you become a successful trader.
1) Manage Your Expectations
As a new trader it can be easy to become obsessed with chasing profits and this will almost definitely lead to problems. The anxiety which surrounds chasing profits can cloud your judgement and lead to mistakes which will cause losses.
Therefore, our first bit of advice in your journey to becoming a master Forex trader, is to dispense with any unrealistic objectives. The prospect of becoming rich in just a few sessions of trading Forex is extremely unlikely and, believing any differently, may cause you to operate with greater risk, jeopardising your capital.
2) Do Not Overtrade on a Demo Account
Many people want to become Forex traders, but many never move beyond trading on a demo account. The truth is that, in order to become a successful trader, your trades should consistently be making you money. And the only way they will make money is if you are trading with real money on a live account For this reason, it is vital to switch to a live trading account as soon as you are ready. If you are going to use a demo account, your goal should be to use the demo account to learn the ropes, with the intention of switching to a live account once you understand how to trade.
For new traders who are trading consistently using their demo accounts, usually a month is enough time to understand the mechanics of the trading platform and to begin your journey to becoming a successful trader.
It is advisable that traders should not postpone live trading for more than three months after they have started trading on a demo account.
3) Choose a Trading Strategy
Once you have chosen to become a trader, the next step is to devise a trading strategy. There is no right or wrong way to trade per se, what really matters is that you define the strategy you will use.
Sometimes you will see that a particular strategy works well for a currency pair in a given market, whilst another strategy is more suitable for the same pair in a different market.
In order to become a successful Forex trader, try to focus on creating your trading strategy in line with your individual risk profile. Research trading tool, study techniques and think how they can be implemented in your strategy. Study how the market behaves and learn how the trading industry works.
Once you have a set strategy, don’t forget to do extensive tests by backtesting your favourite markets until you feel secure in your strategy.
4) Control Your Emotions
Emotions can be the worst enemy for people who want to become Forex traders. To become a successful trader, you must understand the mechanics of the Forex market, trust your analysis and follow the rules of your trading strategy.
When trading, make sure you have a clear head and are making informed and rational decisions. Try to manage your stress levels. Of course, this is easier said than done, but it can be the difference between a successful trader and an unsuccessful one.
If you are down on capital, do not trade. The same goes for being excessively confident and excited after a winning streak – refrain from trading or make sure you are knowledgable about your mental state. Overconfidence can lead to great losses.
Trade Risk Free With an Admiral Markets Demo Account One of the best ways to prepare yourself for the emotions of trading is by testing your skills on a free demo account.
Instead of heading straight to the live markets and putting your capital at risk, you can avoid the risk altogether and simply practice until you are ready to transition to live trading. Take control of your trading experience, click the banner below to open your FREE demo account today!
5) Use Stop Losses and Take Profits
No matter your trading style or strategy, you should always set a stop loss when trading. Both a stop loss and a take profit allow you to set a pre-determined closing price of your trade. Your trade will close automatically once the price reaches this point, even if you are not present at your trading terminal.
A stop loss can give you peace of mind that, if the market moves against you, you will not lose more than the limit which you have defined. A take profit, on the other hand, ensures that you exit a trade once you reach your desired profit level.
It is important to note, that stop losses are not a guarantee. There are occasions where the market behaves erratically and presents price gaps. If this happens, the stop loss will not be executed at the predetermined level but will be activated the next time the price reaches this level. This phenomenon is called slippage.
Depicted: Admiral Markets MetaTrader 5 – GBPUSD H4 Chart. Date Range: 3 August 2020 – 4 September 2020. Captured: 4 September 2020. Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
In the video below, you can learn how to set stop losses and take profits in both MetaTrader 4 and 5:
6) Keep Up With the Markets
Staying up to date with market news is vital! Many market movements are driven by news, central bank announcements, political events or the expectation of any of these. This is what’s called fundamental trading.
Even if you are a technical trader , meaning someone who makes trades based on chart analysis of a market instrument, you should still pay close attention to fundamental news, since such events are a key factor in market movements. For example, if you have a reliable trading strategy and several technical indicators that indicate a long trade, check the forex calendar to make sure there are no upcoming events which could negatively impact your trade. Even if your technical trading strategy works perfectly, fundamental news can change everything!
7) Do Not Overtrade
Overtrading is the result of seeing opportunities to make money trading where there are not any. Some people who want to be traders and become profitable in as short a time as possible, look for as many opportunities as possible to reach their goal and may deceive themselves into putting their money at risk.
There are two common types of overtrading:
Trading too frequently
Trading with too much volume
Trading too frequently, outside of scalping strategies, is a sure way to lose more money than you make.
In this Warren Buffett speech entitled ” How to stay out of debt “, Buffett espouses the need for strict discipline when investing:
“In investments, you have to wait until the opportunity is clear, because the markets are not a game. In baseball, sometimes you have to swing at many balls that you don’t expect to hit, but this is not necessary in the financial markets.
There is no harm in waiting for more than a day for an opportunity to arise. You can simply wait until favourable price action arrives, and this shows that you really know what you are doing, and that is when you enter the game. You just need a couple of trades.” As a trader, it makes sense to follow this same principle in the Forex and CFD market. The lesson is clear: a trader does not have to make a lot of trades to be successful, they just need to make the correct trades.
When you are trading on a live account, you must have a strategy with specific, pre-established conditions for the entry and exit of trades. Follow your plan and do not trade on impulse.
The other type for overtrading, as stated above, is operating with too much volume. For many people, leverage is the culprit.
8) You Are Going to Lose Eventually
Being a successful trader does not mean that you are going to win every trade. Closing each and every trade with a profit is simply not possible. Some professional traders may be consistently profitable, but there are none who can produce a trading statement which does not show a single losing trade. A successful Forex trader is merely someone who, in the end, wins more money than they lose.
Therefore, if, or more accurately, when, you lose a trade, do not despair! Even the most successful traders with decades of experience have confessed that less than 40% of all their trades are profitable, and some even cite less than 20%.
The trick to being a successful trader is for the winning trades are profitable enough that they produce enough profit to cover their losses and maintain a net positive.
It takes a lot of mental strength to admit ones mistakes in decision making and to close an order with a small early loss. But sometimes this is an absolutely necessary approach. On the other hand, it also takes a lot of strength to trust oneself and not close an operation with benefits too soon.
9) Develop a Trading Plan
You need to have a strict trading plan that covers most of your trading activity. This will help you reduce risk from unforeseen shifts in the market.
Many beginning traders develop negative trading habits. One example is the aforementioned overtrading, in which once a trader starts getting lucky and they continue to trade until they overdraw their account.
On many occasions, some traders have good trades due to chance or luck, which ends up reinforcing the negative habits in trading, resulting in it being nearly impossible to break these bad habits. How can this person become a successful trader if they repeatedly leave the result of their trades to luck?
Many traders believe that luck will not abandon them, but as everyone knows, luck is not infinite and when it runs out, it will create losses. Therefore, it is important to reinforce healthy trading habits, as these will help you achieve your goal of becoming a successful Forex trader.
10) Choose the Right Broker
Choosing the right broker is very important. If you are worried about the financial security or reputation of your Forex broker, it can be difficult to focus your attention on your trading. If, on the other hand, you have confidence in your Forex broker, this will free up mental space for you to devote more time and attention to analysis and developing Forex strategies.
Doing your research prior to committing yourself to a specific broker can go a long way and can help improve your odds of becoming a successful trader.
So how do you choose the right broker?
Here are some of the questions you should ask:
- Are they licensed and regulated by any government entity?
- Will your money be protected and insured?
- How will the customer service be once you open an account with them?
- Are they a good Forex broker for beginner traders?
- Do they have a good trading platform?
You should take time to research the best broker for you. To make your life easier, you can use our forex broker comparison and find the best forex broker.