As an educator I am often asked “What’s the most important factor to consider when trading foreign exchange or making trading decisions"?

My answer is always the same. “There is not one key important factor/ It’s the combination of a number of trading principles as well as understanding the market itself. Strict capital management and a meticulous Trading Plan are critical for your success”.

So bearing that in mind, it’s no easy task starting out trading the Forex market without experience and knowledge behind you.

To begin with, new traders to the foreign exchange market all suffer from the same debilitating emotions of fear and anxiety.

They all want to make money but just don’t know where to start, and because of this inexperience, as soon as they place a trade they run straight into their darkest fear0losing their money/

The fear of losing your money is very powerful and often leads novice traders to closing out trades as soon as they put them on. It can overwhelm you and often leave you breathless and your heart beating a hundred miles an hour/ It’s easier to close out the position than suffer the pain and anguish a second longer! But it doesn’t have to be like this. You can manage this side of trading by learning from experienced traders. 

What’s the secret? Well it isn’t a secret really- it’s just sound professional capital management. Knowing that you’re not going to go broke is a major factor in retaining composure and allowing you to make confident, rational trading decisions. Your capital management system should protect you during the bad times and benefit you when the going is good/ Once it’s been put in place it’s imperative you stick to it, otherwise you’ll literally be rolling the dice with your capital/ You’ll quickly go from being a trader to a gambler and believe me there’s a big difference, and only one outcome – big losses!

Now you have your capital management in place you’re ready to take the next step and work on your trade plan. The one key differentiating factor between a trader and a gambler is the ‘Trading Plan”/ !nyone can have a guess and be lucky every now and again, but to be successful over the course of time you need to have a specific trade plan in place which you don’t sway from/ 

Your trading plan incorporates your entry level, your stop loss (s/l) level and take profit (t/p) level. Your trade plan saves you from yourself/ If you don’t have a trade plan you will fall into the trap of running your losses twice as far as you initially expected to, and taking profit half the distance you intended on. Understand you are your worst enemy in this environment. 

The combination of your capital management and trading plan makes the whole trading process systematic. All you have to do now is identify the key entry levels. Once they are identified you simply put your trade plan into action and let the market do the work! (It’s even better to turn your computer off altogether).

“Ok that sounds easy” I hear you say/ Well it is, once you know what to look for when identifying your entry levels. A combination of technical analysis and fundamental analysis is imperative. Using just one or the other is a sure recipe for failure. They both work in tandem and if anyone tells you differently, you can be sure they have never worked for an Investment Bank trading FX! 

The Technicals are your global guide to the markets, so it’s extremely important you have a professional technical analysis package that takes out the potential for human error/ I’ve used numerous trading platforms which all offer free technical analysis software, and I can honestly say not one of them is up to the task of charting the currencies accurately and professionally. The platforms primary purpose is to get you to trade. If you’re out by 5 or 10 points it can be the difference between being success and failure, so choose wisely. Remember you’re trading as a professional now, so think like one. Spend the cash and get the best you can.

Now did I hear you say that “this is easier said than done?” Well that’s true, there is more to it/ It’s not just about buying and selling and hoping for the best. Trading successfully involves utilising a number of strategies for different occasions. The market is a living organism and thus is always evolving and changing. If you stick to one strategy you will get chopped up time and time again. Generally there are five key strategies you need to incorporate with your trading plan. The currencies give off a number of key signals and these basically lead you into the particular strategy you should use. At first you will be scratching your head as to which one you should use, but over time it will become second nature to you and you will put them into play without even thinking about it.

What are the particular strategies you may ask? Well that’s where the experience of your educator comes into play/ It’s crucial you get the right training from experienced trading professionals. Most educators in the market place these days don’t have any professional experience trading/ By ‘professional’ I mean actual experience trading on investment bank trading desks. They call themselves “professional traders” since they now do this as a profession. There is a massive difference! Bare in mind your success stems from the education you receive so be careful and check out your educator’s credentials before you sign up to any so called ‘professional courses’/ Many novice traders I have spoken to have learnt the hard way!

The last thing is, don’t expect to make millions overnight. Have realistic expectations/ By that, I don’t mean for you to lower your expectations, just remember it takes time and experience to implement your capital management system and trading plan consistently and successfully.