Let’s start with a quote from Conor McGregor, an athlete: “There is no talent here; this is pure hard work. It is an obsession. Talent does not exist here; we are all equals as human beings. You could be anyone if you put in the time; you will reach the top, and that’s that. I am not talented; I am obsessed.” What McGregor said is also true for forex trading — to learn forex trading and reach the top, you need to have a passion for it.
Trading is like athletic competitions — some will win and some will lose, and everyone is battling with everyone hoping to come out on top. While everyone cannot become successful at the same time, anyone can succeed in the forex market if she/he puts in the hard work to learn forex trading in its entirety. But this requires extensive studies and practice.
In this post, we will discuss the different methods to learn forex trading, and then, narrow down to the best method and finally provide a guide for developing your forex trading skill. But first, let’s discuss the key things you need to learn forex trading.
What you need to learn forex trading: the key things to learn about trading the forex market
We want to believe that you already know what forex trading is. But if you don’t, here’s the basic thing to know: Forex trading is the act of buying or selling currencies. In actual sense, we are selling one currency and buying another in every trade.
While banks and big corporations engage in currency trading for business reasons, retail traders, like us, trade the forex market just to make profits from price changes. To succeed in this speculative trading, you need to learn the cardinal elements in forex trading, such as the following:
Your broker’s trading platform
As a retail trader, you gain access to the forex market through a forex broker. Every broker provides a trading platform where you can place your trades for the broker to link them with the available liquidity provider. So, the trading platform is the channel between you, your broker, and the counterparty in the trade.
To efficiently trade the forex market, you need to learn the features of the platform and how they function. This helps you to become faster when placing and managing your trades. For example, if you know about the one-click panel for placing a trade with a single click on your broker’s MT4 trading platform, you won’t need to go through the multi-step process of placing your order via the ‘New Order’ section. Similarly, if you know that you can drag your stop loss and take profit orders to adjust them directly on the chart, you won’t need to go through a long process of trying to retype the values.
Apart from hastening your trading activities, knowing the features of the trading platform you’re using helps you to avoid silly mistakes like placing a bigger lot size than your trading capital can comfortably carry — a mistake that can potentially decimate our account.
Technical and fundamental analysis
Forex market analysis is what everyone focuses on when they want to learn forex trading, but this is just one aspect of it — other elements of trading matter too and may even be more important than analysis. There are two approaches to forex market analysis: technical analysis and fundamental analysis.
Technical analysis focuses on using the current and previous price data to predict where the price might go next, while fundamental analysis uses economic data and political events to forecast how a country’s currency is likely going to perform in the foreseeable future. Most new traders focus on technical analysis because they don’t have adequate knowledge of economics to effectively interpret the data, but a few, especially those with an economics background, go with fundamental analysis. It is good to learn both if you can.
Risk and money management
This is one of the most important factors to learn in retail forex trading because succeeding in the forex market as a retail trader is all about managing risks and preserving your trading capital. In the forex trading world, risk management is used to describe how you manage your stop loss orders — the type of stop loss (time-based or price-based), the number of pips you risk, and when you move your stop loss to breakeven.
Money management, on the other hand, is used to describe how you manage your trading capital — what percentage of your capital you risk per trade and how many trades you can place at a time. If you can’t preserve your trading capital, you will be out of the game before it’s even started.
The last but not the least is trading psychology. This is the aspect that teaches you how to develop your trading mind to think like a trader. What this means is accepting the risk in every trade, knowing that each trade can be a winner or a loser, so that you don’t get emotionally attached to the outcome.
What matters is that you have an edge in the market, such that over a series of trades, you win more trades than you lose or you make more pips from all your winning trades than from all your losing trades. This kind of mindset is what the legendary Mark Douglas called ‘Thinking in Probabilities’ because trading, for you, becomes a game of probabilities where you have the higher odds. Developing the traders’ mindset is very vital in managing your trading emotions — fear, greed, hope, anger, and others — and executing your trades properly.
The different ways to learn forex trading
There are different ways you can learn forex trading, and each comes with a different learning curve. Some may take you a long time, while some may require a shorter learning duration. Another thing is your passion for trading.
Although your passion may keep you going when the journey becomes though, it may do very little in hastening your learning curve, so the learning approach you choose matters. Here are some of the available options you can use to learn forex trading.
Although tedious and with a longer learning curve, self-education is a possible option for learning how to play the forex market. You just have to put in the hard work. There are a lot of resources you can lay your hands on, both in the print and electronic media. You can get some basic trading books and start from there. With such books, you can learn some of the trading terminologies, such as spread, pips, ask and buy prices, lot, margin, leverage, and more.
After that, you may graduate to more advanced books and also read your favorite trading blog. In addition, you should watch all the trading videos you can lay your hands on and take notes of the things that correspond with what you’ve been learning so far. Next, you try to implement what you’re learning with a demo account to see how they work.
As you would expect, one of the drawbacks of this method is that it takes a longer time, and the learning is not formally structured, and as a newbie, you may not know which materials are suitable for you at that stage and whether the information is sound. Here’s the thing, start with basic stuff and progress and make sure you use materials from authors with a track record of success in the forex market.
Attend your broker’s online and offline forex training
Another option is to make use of the forex training sessions organized by your broker. The training may be in the form of offline seminars or online webinars and may be free or paid. Whatever the case, avail yourself of the opportunity and learn what they have to offer. Generally, such training sessions only teach the basic stuff for free, but that too can help.
Some brokers offer specialized training for a fee or to people who have a certain amount in their trading accounts. If your account balance qualifies you for the opportunity, make sure you use it, but if it doesn’t, you have to determine whether to pay the training fee or raise your trading capital — it may depend on how well you trust the broker and what they’re offering and the availability of the funds.
The good thing is that you can combine what you get from such training with what you learn from your personal studies and practice — self-education and training can be complementary if you know what you’re doing.
Make use of social media groups
There are lots of self-acclaimed trading gurus that teach forex trading for free on different social media platforms, such as Telegram and YouTube, but if you’re able to find a knowledgeable one, you can learn a lot in a short time.
There are more like the trading room of the early 2000s — some just show trade signals without showing the analysis behind the signals, while others carry their subscribers along with the analysis process so that they can learn how the signals come about. Don’t just subscribe to any channel; be sure they can help you learn.
Join trading forums
There are lots of trading forums on the internet. Many websites that focus on the financial markets, especially the forex market, have forums where traders interact and share ideas. New traders like you can learn a lot from experienced traders on the forum. Some of the sites you can find quality traders’ forums are the MQL5 Community and Forex Factory.
The good thing is that you can join the forums without paying any fees. However, the knowledge is not structured, and there will traders with different conflicting trading styles — scalpers, day traders, swing traders, and position traders —dropping their own ideas. You will only get to pick useful ideas here and there, which you can develop further with your personal studies and practice. Interestingly, some of those experienced traders are very welcoming to newbies and are always eager to answer their questions and explain things to them.
Enroll in a trading school
The last but obviously not the least is enrolling in a special trading academy. This, obviously, has many advantages, one of which is that the lessons are structured from introductory lessons to advanced courses, making it easy for you to follow a steady learning curve.
Such trading schools provide comprehensive trading education with practical trading sessions, and after completing the program, you may get to take certification exams and will be provided with a professional certificate of proficiency when you graduate. A third interesting thing about such schools is that you will be taught how to develop your own trading ideas and strategies. However, there are few such schools.
The best way to learn forex trading
Obviously, the best way to learn forex trading is to enroll in a trading school, apply yourself fully and learn everything you can from the training, and also do your own research to develop your trading ideas. In other words, you learn from the experts and expand on what you’ve learned with your own research findings.
For instance, if the school teaches you to trade London breakout strategies and you notice that breakout strategies work better when they occur in line with the prevailing trend, you can modify the London breakout strategy you learned such that you trade only when the breakout occurs in line with the trend.
As your knowledge and trading skills improve, you can join some good trading forums and share trading ideas with other like-minded traders. By like-minded, we mean traders with the same trading styles — if you’re a swing trader, you can share ideas with swing traders and not scalpers. Whatever you do, back-test and front-test every idea or strategy in a demo setting first. More on that later.
A guide for developing your forex trading skills
Now that you have seen how to learn forex trading, let’s consider the steps you can take to start your trading journey and make a career out of it. These are the main steps:
1. Basic training
So, you are interested in forex trading but don’t know what is involved and how to go about it. Why not start with getting the basic training by enrolling in a trading course with a trading academy like the Pro Trading School. In a trading school, you will be taught the basics about the forex market, trading terminologies, the players in the forex market, and how the market works.
When you have learned the basics, you will progress to learning advanced stuff like how to use the common trading platforms, technical and fundamental analysis, risk and money management, and how to develop the traders’ mindset and be able to control your emotions while trading. With all these, you have what it takes to build your own trading knowledge and skills.
2. Personal study
After getting the basic training, you’re more exposed to the trading world, so you can now read any trading book, understand it, and be able to pick the valuable information in it. It is then time to select some useful books written by trading legend. While other aspects of trading knowledge are important, you can focus on books that deal with trading psychology, such as Mark Douglas’ Disciplined Trader and Trading in the Zone.
You can also find trading blogs of some seasoned traders. Read them and see if you can pick one or two trading ideas from there, especially as regards risk and money management. Some YouTube videos can also help you improve your technical analysis skills.
3. Formulating your own strategies
With your basic training and extensive study and research, you may have already started developing a preference for a certain style of trading. It is now time to formulate your own strategies for the preferred trading style. Your strategy can be based solely on price action, indicators, or a combination of indicators and price action.
There are many different strategies you can create. It can be a trend-following strategy, a contrarian strategy, or a range market strategy, such as spring and upthrust. Whatever the strategy you create, put it to test by back-testing it first. That is, you go back in time on your charts and look for where your trading signal occurred to see how well the strategy performed.
4. Demo trading
The next thing is to practice extensively on a demo account. This helps you achieve, at least, three things. Firstly, you will be able to learn the features and functionality of the trading platform you will be using to trade. Having a mastery of your trading platform makes things a lot easier and faster, with lower chances of making silly mistakes.
Also, demo trading helps you practice how to execute your trading strategy in real-time, as the market is moving and the chart is printing more bars. But most importantly, demo trading is where you front-test your strategy to see how well it performs. As you trade the strategy, you keep a record of your trades, the entry and exit prices, and whether they are winners or losers.
5. Analyzing your results
After you must have executed enough trades — say a sample size of 20 or 50, for example — with your strategy, you will have to analyze your trades to see how well the strategy performed. The aim is to know whether you have an edge in the market or you should create another strategy.
In addition to a good win rate and reward/risk ratio, one factor to look for is a positive expectancy. Trading expectancy is the average profit/loss expected from each trade. It is calculated by multiplying the win rate with the average amount won from the winning trades and then subtracting, from it, the product of loss rate and average loss size. E = [Win% x Average Win Size] – [Loss% x Average Loss Size]
A positive value indicates that the strategy can make money, so it has an edge in the market. But a negative value shows that the strategy will lose money. If you are not comfortable with the result of your analysis, you can tweak the strategy and trade another sample size and perform another analysis until you get a result you’re comfortable with.
6. Testing the waters with a Micro or Nano account
If you have a strategy you’re comfortable with the expectancy, you can open a real trading account to test how well you can execute the strategy when your money is on the line. In other words, you’re trying to learn trading psychology.
To limit your risk at this early period of your live trading journey, you should start with a Nano or Micro account where you trade Nano or Micro lot sizes and risk cents or a few dollars in a trade. Live trading is where you verify how well your edge works when executed under pressure.
7. Modifying your strategy
After trading a good sample size, you will have to analyze your strategy to see how well it has performed. Just like you did before, you analyze the win and loss rates and the average win and loss sizes. Then, use the data to compute the expectancy. If you have a good positive expectancy, you can continue using the strategy.
But if you’re not happy with the result, find out where the issue is from and rectify it. It could be from poor execution due to trading emotions or that the market condition has changed. If it’s the former, try some mindfulness exercises, such as deep breathing, when executing your trades. In case it’s the latter, try to tweak the strategy to reflect the current market condition.
You may have to repeat this process several times. The ultimate trading process involves a cycle:
8. Stepping up your game
If you are comfortable with the performance of your trading strategy, you can open a standard account and trade bigger lot sizes that reflect your intended trading capital. But remember, you don’t trade more than 1% of your trading capital in each trade.
As you trade, it is necessary you review and analyze your trades from time to time to be sure that your strategy is still performing well. It basically follows the cycle described above: trade – analyze – tweak when necessary.
There are many ways to learn forex trading, including self-education, training organized by brokers, social media groups, trading forums, and enrolling in a trading course. But the best way to learn is by combining all of them, especially self-education and a trading course organized by a reputable trading school.