8 Uncommon Considerations For Learning About Forex Trading
Hello there! My name is Dennis.
I am a mostly irregular guy who stumbled on forex trading almost entirely by accident a little over a year ago. The more I looked at it, the more I realized there was a great opportunity right in front of me. The discipline itself didn't appear to be all that complicated. I confirmed this theory when I stumbled on the dispute between Richard Dennis and William Eckhardt in the 1980's.
Their debate was whether successful trading was an innate gift or a skill that could be taught. Richard put up a million of his own money and taught inexperienced people to trade. They turned that million dollars into over 100 million in just four years. The verdict was that trading is indeed a teachable skill.
In the beginning
I started studying forex as much as I could. I read everything I could, watched videos, and listened to analysts- even though I didn't understand half of what they're saying. I would make notes of those things and look them up later. I've spent the last year going through a mostly self-taught learning process and am just beginning to turn the corner into profitable trading after recouping what I lost while learning.
I'd like to share some things with you that I've learned in my journey that will hopefully make yours easier. I will do my best to avoid points that I've seen repeated over and over.
1. Information Overload
There is a mountain of information on forex available on the internet but only a sliver of it is going to be important for your strategy. Think of it like a set of encyclopedias. The resource is full of great information but if you only need to know about penguins then a majority of it becomes useless. Adding useless information to a strategy will cause you to interpret market conditions incorrectly and place bad trades.
2. Don’t Reinvent The Wheel
There is no need to reinvent the wheel. I do not have a college education or specialized knowledge of the financial industry. When I started learning forex I automatically concluded the most efficient way to do so was to learn from those with experience. Look at established strategies instead of trying to cobble your own together.
3. Find Your Own Way
Every strategy has unique merits and flaws. Not every strategy is going to be appropriate for every person. Scalping is a great short-term strategy but requires some focused attention on the charts for blocks of time to find opportunities. That's not really a good fit for a single parent working a job or two. Strategies that focus on holding trades open for days may not be suitable for a person that can't set it and forget it. Find the right approach for you.
4. Your Not Alone
Join a forex community that has traders who use the same strategy. I eventually settled on Price Action trading off of the New York close daily charts. I joined a forex community with other traders who do the same. It was very helpful to get other perspectives on price movements and my failed trades as I learned. You may find professionals who offer free advice to try and generate new students in some of these communities as well.
There are many forex mentor programs and “school” websites. It is very easy to learn all the mechanical aspects of forex trading on your own. What is much more difficult is applying that information effectively and confirming why something didn't work. Was it just the market or was it an error on your behalf? I subbed to a mentor website at $50 a month for a few months and it was incredibly helpful. I've seen others that I would consider viable candidates who offered prices like $300 for a lifetime membership.
If you decide to go this route, do your research about that website first. Google is your friend. There are unscrupulous individuals who advertise as a mentoring website but they actually just analyze the charts, point out potential opportunities, and offer no real interaction or teaching. These are “tipping” sites. I've noticed that most quality mentoring sites advertise very blatantly “We are not a tipping service!”
6. No Get Rich Quick Plans
There is no forex holy grail. Automation and software are tools meant to supplement ability, not replace it. The people that use these tools successfully use them to enhance their capabilities. Any person or website guaranteeing huge returns with minimal work with their product is either lying, creatively manipulating the truth, or an idiot.
Remember the adage- “If it seems too good to be true- it probably is.”
7. Support and Resistance
Support and Resistance (S/R) are drawn as lines on charts but act more like bands or zones. Most of the material I've read has mentioned this point once, often in an off-hand manner. It seems strange that more material doesn't emphasize how important it is. My theory is that it is such an important part of so many strategies that the trader is used to seeing it as a constant. It's always there so they don't give it as much thought. Breathing is a good example. It's essential that it's done but you don't really think about it because it's just part of your general processes.
Exceptions do exist with S/R levels. These are typically found around BRNs (Big Round Numbers) and VBRNs (Very Big Round Numbers). A BRN is a price level that ends in 50 (example: 1.3050, 99.50) whereas a VBRN will end in 00 (example: 1.3100, 87.00). These levels are called “psychological levels” because people tend to set stops there simply because it is a round number. Even still, we must consider the S/R level as a zone around that value even if it is much tighter.
8. Go Against The Grain
I want to preface this section by stating this is my theory and opinion that goes against typical advice. If the typical advice works for you- great! There are many roads to success in forex.
Almost every website I've read advises that you do extensive testing on a demo account. I think this is a good idea until you feel you understand the decision making processes of the strategy. However, I disagree with the “test it for 3 or 6 months until you're profitable” mentality. A demo account is just trading fake money. It won't prepare you for putting your real money out there.
Consider if I took $100 of fake money and burned it. You wouldn't care, right? What if I took $100 out of your pocket and burned it? You're probably going to have a pretty emotional response to that.
I chose to open a live account after two weeks of testing with a few hundred dollars and just trade about a dime per pip. It seemed like a waste of time and effort to spend six months on a strategy with fake money only to have to learn how to handle putting real money on the line later. This way I was already using a “safe to lose” amount of my own money and forcing my mind to deal with that prospect.
The argument could be made that you're setting yourself up to lose your money. What do you think is going to happen if you go from a demo account to a live one without being mentally prepared for that change? You're probably going to lose a lot more money that way than starting small to get acclimated to the environment and adding on to your balance later.
If you take nothing else from this article- understand that mastering your mind, doubts, and emotion is the hardest part of trading. I feel this approach would help a new trader ease into it.
Forex trading is an awesome opportunity no matter what walk of life you come from. You don't need a college education or be good at math to do it. If you want to succeed, approach it with the same respect and determination you would any other major life event. It will require work to be successful. Don't lose heart if you have a setback or two. Victory goes to the tenacious- not necessarily the best or brightest.
This post was written by Dennis Hale, a US based private part-time forex trader.