If you have been following this blog you may have noticed my increased interest in Forex trading. For the past month or so I have been playing around in demo account at Forex.com. I’ve also been reading a few forex books including “Japanese Candlestick Charting Techniques” by Steve Nison, “The Visual Investor” by John Murphy and “Day Trading the Currency Market” by Kathy Lien. I’m doing my best to absorb all I can regarding the ins and outs of forex trading.
There are many advantages to trading forex vs US the stock market. First, the forex market operates 24 hours a day as opposed to 9:30a – 4p EST for the US stock exchanges. Second, it is just as easy to short a currency pair as it is to go long, the same can’t be said for equity trading. Next, the forex market is much, much, much larger than the US stock market. Perhaps the most appealing aspect is the ability to use a high amount of leverage, typically as much as 50:1.
Leverage is equal parts dangerous and wildly advantageous. The high levels of leverage in forex allows traders to transform a moderate amount of capital into out sized gains. However if a trader is careless in their risk management that leverage can just as quickly swallow up all their capital.
Why I Failed at Forex Before
I attempted to get into Forex trading probably 7 or 8 years ago and I failed miserably. To my credit before venturing into the market I thoroughly read “Forex Patterns & Probabilities” by Ed Ponsi to get a basis of understanding. Still though I should have spent far more time reading and researching to better prepare myself for trading. Reading one book and some online articles was not enough.
Also, I didn’t do any real research into the fundamental drivers of currency pairs like central bank decisions, timing of market moving reports, tracking economy metrics, etc. No one can be a successful currency trader if they ignore the fundamentals.
Another mistake I made was not practicing in a demo account. I know my personality and one my weaknesses is lack of patience – I had no patience to practice. Also, I know deep down I looked at forex trading as a way to make a lot of money quickly. So why waste time reading, researching and practicing? I wrongly assumed I could just jump in and money would flow right into my account which was profoundly wrong!
I remember making a few winning trades, but like a stereotypical failed trader I closed out my winning positions with only small gains and let my loser trades ride thinking they would turnaround. Needless to say with that trading philosophy I didn’t last very long at all.
A New Start
I hope to learn from the mistakes I’ve made in the past. I’m taking my time to read and reread several books. I’m taking notes to keep a record of important points I want to implement. I’m monitoring and practicing daily in my demo account. Overall I’m really taking my time to study and gleam advice and clues from trading experts.
I do think forex trading is a way to make a lot of money, to say anything otherwise would be lying. However this thesis is the same for any trading market, if you’re not hopeful that you can make a lot of money then why trade? Now I realize that it won’t be easy money, forex trading is not a get rich quick scheme. I’ll take my time this go around and I’m confident I’ll have far better results. Hopefully my second venture into forex trading is a a successful one and can be used as an example for other individual traders.