Building a Foundation for your Forex Trading Career
This week, I am starting a 4-part blog series on “How to Become a Professional Forex Trader”. It will be laid out in a step-by-step easy-to-follow manner. However, before we get started I must issue a note of caution; simply reading this 4-part series alone is not going to make you a pro trader. You have to actually use the information provided within this series and understand that there is no “quick-fix” to trading the market for a living.
Becoming a pro trader is going to take time and effort on your behalf, and you will probably experience some ups and downs along the way. However, you should not be discouraged, because the sooner you accept this reality, the sooner you can get on the path to becoming a professional currency trader. Now, let’s get cracking…
Step 1: Be honest with yourself
First off, let me clarify something; becoming a professional trader is the result of first being a consistently successful trader and building up your trading account and trading skills over time. Thus, your aim as you begin your Forex trading journey should be to FIRST become a consistently successful Forex trader, but that does not necessarily mean you will become a “professional” or full-time trader right away. As I mentioned in the opening paragraph, becoming a pro trader is probably going to take a good deal of time if you are starting from a small trading account, but that does not mean you can’t make consistent money each month in the meantime.
Consistently successful trading and professional trading might sound like the same thing, but they are not. Your aim should first be set on making consistent money each month relative to your account size, not on becoming a pro trader right out of the gate.
You see, if you have a $1,000 trading account for example, you will not be able to make enough money each month to live off of, and if you try to trade your $1,000 account like it’s a bigger account, you’ll end up blowing it out.
So, if you eventually want to be a full-time professional Forex trader, you have to first aim a little bit lower; you need to aim to make consistent money each month while simultaneously implementing effective Forex money management. This is called being honest with yourself about what is really possible given your current financial situation, and many traders simply don’t do this.
You need to think about your trading in terms of dollars risked vs. dollars gained, not in terms of “how much money do I need to make to quit my job and buy a Ferrari”, which is how most beginning traders think. Pretend that you are trading a 1 million dollar account even if your account is only 1 thousand dollars. If you can consistently average a 3R reward each month (meaning a reward of 3 times your overall risk) then that means you are making 3 x 12 = 36R per year. Now, if your per-trade risk on a $1,000 account is $25, that would be $25 x 36 = $900 in a year, or a 90% yearly return; a very very good performance by any professional’s standards. Now, take that 36R and imagine you are trading a $100,000 account; it would equal $90,000 over a year if you risked $2,500 per trade. The return would be $900,000 on a million dollar account if you risked $25,000 per trade.
Do you see my point here? Sure, $900 a year might not seem like a life-changing amount of money, but what you need to understand is that if you are consistently making 36R per year on a $1,000 account for example, the exact same processes and thinking that resulted in that $900 and 90% return WOULD result in a life-changing amount on a $100,000 account. So, the point is that focusing on the actual process and mechanics of trading is far more important than trying to make a lot of money on a small account. If you are pulling a number like 36R or even 15 or 20R a year, you will have no problem finding funding for your account or getting a job with a prop trading firm.
Before you begin learning how to trade or before you open a demo account, you need to sit down with a pen and paper and make a monthly budget. You need to list all the expenses you have each month and then subtract them from your monthly after-tax income, if you have any 100% disposable income left over then it’s OK to use that money to trade with. If you find you don’t have any disposable income left over each month, you’re better off saving your money or finding a different job until you are able to make some money to trade with.
The reason why I am telling you this is because most traders never do this; instead they end up trading with money they really should not be trading with, and also because if you truly trade with only 100% disposable income you will significantly reduce the potential of becoming emotional on any one trade. So, if you really think you have what it takes to become a Forex trader, and you are going to be honest with yourself about what is possible given the amount of starting disposable income you have, then it’s time to move on to the next step of learning the basics of Forex trading…
Step 2: Learn the basics of Forex trading
Next, if you have fully accepted that you need to focus on the process of trading rather than the money, and you know you aren’t going to get rich quick on a small trading account, you should focus on actually learning to trade.
Now, it might seem obvious that you should learn the basics first, but most beginning Forex traders simply have no clue what they are doing as they learn to trade. Many of them ignore the basics of Forex trading and of learning how to trade; this is a big mistake because if you really want to become a professional at something you have to start by understanding and building a foundation on the introductory concepts. You should first get a solid education in the foundational concepts of Forex by taking my free beginners Forex course. After you have done this and you thoroughly understand what the Forex market is, why it exists, and how to make sense of it, then you should move on to learning a real-world trading strategy like price action.
I can assure you that if you take this one extra step of learning the basics before you start buying trading systems and strategies, it will save you a lot of frustration, time and money, as well as put you far ahead of most beginning traders who simply dive-in head first without first building a solid foundation to trade off of.
Step 3: Learning to trade with an effective strategy
After you have completed steps 1 and 2, it’s time to learn some real-world trading strategies and really start getting into the “meat” of Forex trading. Now, there are thousands of different ways to trade the market out there, but if you want to learn how to read the raw and natural price dynamics of a market, I suggest you learn to trade forex price action strategies. By making price action trading your primary trading strategy, you will develop chart-reading skills that will last a lifetime and make any other strategy or system you use even more effective. As you probably know by now, I am a huge proponent of “pure” price action trading, and I really feel that it’s the best way to trade the Forex market.
The price action strategies and methods that I trade with and teach my students have served me well for many years now, and it’s because there is nothing complicated about them. I simply use my ability to read and interpret the overall market structure to find high-probability price action setups, and I watch for these obvious price action setups forming at key chart levels. Thus, there is no confusion or uncleanliness to my trading approach; it’s all about taking advantage of high-probability price action events in the market and knowing how to make sense of and read the ever-changing market conditions.
In Part 2 of this mini series (click here) – I am going to share with you guys the importance of testing your trading strategy as well as how to track your progress and develop a trading plan. These next steps are critical in refining your trading approach and developing an organized and structured trading routine that will guide you when you switch to real money trading and help you avoid becoming an emotional trader. If you want to learn more about my price action trading strategies after finishing steps 1 and 2 in today’s article, check out my Forex price action trading course and members’ community.