If I were a newcomer to Forex trading right now, all the hype will probably terrify me to no end. You’ve seen all those websites promising you that formulating a Forex strategy is very easy and simple, unlike those terribly convoluted stocks and commodities. Heck, it’s so easy even your grandmother can do it. They promise you a better return on your investment compared to what you can get from your savings account.
Looking Beneath the Hype
Generally speaking, all the hype are true in a way. Getting a handle on currencies is much simpler than stocks, but that doesn’t mean it’s easy at all. It’s a bit like calculus or art—some people get it, some people don’t.
It’s also true that you can get more out of your money than just letting it sit in a bank account. But it is also equally true that you can lose some (or even all) of your money when trading in foreign exchange. Forex is an investment, and the truth is, many investments fail.
Then there is one claim that’s perhaps the most dangerous of all. It’s the claim that Forex trading is a guaranteed way to become very rich in a very short time. While it is technically possible for you to increase your money substantially in a very short amount of time, there is absolutely no such thing as a guarantee in this industry.
The Best Forex Strategy
So what Forex strategy should you use? In general terms, you need to adopt a mindset that’s based on the old adage that . You cannot realistically think that you will become a multimillionaire virtually overnight. Although there are some people who make a million dollars in one night with Forex – but those are rare and usually apply to seasoned, big time traders.
“Winning the race”, in this case, means just making enough money for your efforts. Your profits should be more than what your money makes when you put it in a bank account, and it should justify the time and effort you spend in trading. If you calculate the number of hours and the amount of money you make in a month, the per-hour rate should be a bit more than just minimum wage!
So you should really take it slow, and you have to be steady:
- Take the time to educate yourself. Just about every responsible article will emphasize the importance of knowledge. Knowledge is power, so you need to have ample knowledge of what Forex is all about. Take the time to learn and not just read articles—if you can’t write your own article about a particular topic, then your understanding of it is insufficient.
This is a phase that never ends. Even when you do become successful, you always have to read and educate yourself.
- Practice, and then practice some more. Your demo account is there for you to use, so use it. See how your trading method holds up to real-world scenarios. Fine tune your methodology and check for improvements.
Once you think you have a winning formula, run it through the demo account some more. You need something that will give you consistent returns each month, so you need at least 3 straight months of consistent profits before you should even contemplate doing this for real.
- Master your emotions. “Steady” in this case means not letting your emotions get the better of you. You have to steady your emotions and let your brain do your thinking.
A lot of real experts have warned about the dangers of emotion, and they’re not exaggerating the dangers. Forex trading can be exhilarating and stressful. It’s one thing to calmly analyze the currency situation and formulate a trading strategy. It’s another thing to remain calm once you are actually in a trade.
There are several things you can do to help prevent stress so that you can think more clearly. Firstly, never risk money on Forex trading that can’t afford to lose. This is a high-risk business, so you need to risk only the money that you don’t need.
Then limit your exposure. Any particular trade should not involve more than 2% of your total account, and all your current trades shouldn’t be more than 10% of your account.
Finally, you can do some stress busting exercises on a regular basis. Try yoga or engage in some cardio workouts. That usually helps you manage stress and keep your mind clear.
Some experts think about Forex strategy as simply how you analyze the currency landscape so that you can make more accurate predictions about how currencies will move. But that is a rather limited concept. What you need is an overall strategy, and if you are considering Forex trading, then the core of your strategy should be self control and discipline.