Forex trading is attracting a lot of interest among people who are looking for a route to financial independence. Once it was shrouded in mystery and mainly accessible only to investment bankers, but now it’s relatively easy to learn forex trading for free and trade via an online platform with a funded prop firm account.
However, these lowered barriers to entry do not mean that everyone can be a successful trader: making consistent profits takes a combination of knowledge, technical aptitude and emotional intelligence. Many people are taken by surprise at the investment of time and degree of discipline required, which leads them to ask: ‘is trading the hardest skill to learn?’
Here’s a look at the various aspects of learning forex trading that need to be considered in order to answer this question.
The unique challenge of forex trading
Forex trading at its core is simple enough: it involves the exchange of one currency for another in order to profit from the difference in market value. However, the sheer size and complexity of the forex markets, and the high volume of trades that are made every day mean that being a successful trader requires a specific set of skills.
In order to carry out workable market analysis, traders need to be aware of the different elements involved. Technical analysis is the use of tools such as charts, graphs and indicators to identify trends and make market predictions based on historical data and the balance of probabilities. This will help you to make sound trading decisions.
Frequently used indicators include moving averages, candlestick charts, Fibonacci retracements, and Bollinger Bands. It is not necessary to have a degree in mathematics or economics to be able to master these techniques, but you will need to have a logical mind and the ability to grasp abstract concepts.
Some traders rely on technical tools alone, but most also have a good understanding of fundamental analysis and use it to guide their decisions. This involves keeping up with the economic news and geopolitical events that affect the movement of the forex markets.
Fundamental factors include central bank policies such as interest rate changes; unemployment figures; inflation rates; and consumer price indexes. Events such as elections, wars and natural disasters also impact the forex markets, causing fluctuations in currency price that traders should aim to profit from.
Sentiment analysis involves being able to gauge the overall mood of the markets in order to anticipate which way prices will move in order to take profits, and to avoid being caught out by sudden crashes or rebounds.
This is a skill that can only be acquired through time and experience, and it’s important to become confident in making independent and well-researched decisions rather than following the herd.
Understanding the importance of risk management
One of the most important and difficult aspects of trading for some people to grasp is the importance of good risk management. Successful trading is about taking a series of well-managed risks rather than huge gambles. Effective risk management is essential for preventing damaging losses.
If you are able to secure a funded trading account, any losses that you make will be covered by the prop firm, but you’ll still need to operate within their risk management rules and meet other requirements, or you may incur penalties or even face the closure of your account.
The basics of risk management include setting stop-loss orders; calculating the risk:reward ratio of each trade to justify your leverage; and diversifying your trades. Most prop firms want to work with traders who make well-informed decisions and who don’t take big risks with their money.
Trading psychology
So far, we have discussed all the knowledge and technical skills you will need to sustain your forex trading career. However, this is only one half of the equation: the other half is how you put all these elements together when you are actually making live trading decisions.
This requires you to understand your personality type, think clearly even when under pressure, and be mentally and emotionally strong and resilient. This is referred to as trading psychology, or the trading mindset. It’s not a skillset that most people are born with, but will need to develop and cultivate over time.
There is no fixed way of learning these skills, because we are all unique and have different personalities and strengths and weaknesses. The best strategy is to be honest with yourself about your personality traits and work with your best points, rather than try to suppress your character traits or try to fit yourself into a mold.
For example, if you are naturally impatient and intuitive, you will probably be suited to a faster pace such as scalping or intraday trading. If you are more of a thinker and an analyser, then you will be better suited to swing trading or position trading, which will allow you more time to make methodical decisions.
Why managing your emotions matters
Whatever your personality type, it is important to learn how to manage your emotions well. This may seem to be a trivial matter to an inexperienced trader, but it is an issue that the most successful traders take seriously and continually work on.
This is because when we are dealing with the loss and gain of something so fundamental to our survival and status as money, it brings out deep and powerful emotions. These have a basis in the psyche of primitive humans, who were hardwired to be greedy for the kill and to fear loss of reserves: it could literally mean the difference between life and death.
The modern day equivalent to this scenario is the prospect of gaining or losing money on the financial markets: inexperienced traders can allow greed and fear to cloud their judgement. Other emotions such as panic, overconfidence, excitement, impatience and a desire to avenge a loss or hurt pride can also lead to biased and irrational decisions.
These emotions are intensified by the volatile nature of the forex markets, which can cause psychologically unprepared traders to abandon their strategy and make rash decisions that are driven by emotions rather than logic. It’s therefore essential that traders develop an awareness of their emotions and learn how to manage them intelligently.
It is unrealistic to attempt to completely divorce yourself from your emotions, but rather to recognise when they are impacting your behaviour. Develop some strategies for stress management, such as sticking to a schedule and taking regular breaks; and maintaining a balanced lifestyle that includes getting enough sleep, exercising, and a balanced diet.
Some people find that meditation techniques such as mindfulness are useful for focusing their minds at the start of a trading session, to reduce mental noise and get into the calm and neutral headspace needed to make good trading decisions.
The importance of market experience
One of the most frustrating aspects of becoming a successful trader is that you actually need to spend a lot of time trading and make some mistakes along the way in order to become proficient. This is known as qualitative experience. It is a bit like becoming good at sport: to be a great tennis player you need to play a lot of matches.
Only this way will you develop the mental reflexes, technical proficiency and psychological insight required to become a professional, whether in sport or trading. You’ll also need to be prepared to learn from your mistakes: keep a journal to record the details of each trade, and justify your reasons for making it.
Over time, this will become a valuable asset, as you can use it to review your progress and identify patterns in your least and most successful trades. This will enable you to refine your trading strategy and will prevent you from repeating the same mistakes.
If you have no previous trading experience, the best way to begin is by taking advantage of a free trial with a prop firm. This will give you access to simulated live trading conditions for 14 days, without the prospect of losing any real money. You will be able to test out different trading strategies and understand better how well you perform under pressure.
So, is forex trading really hard to learn?
For those with the aptitude, determination and emotional resilience, forex trading offers a flexible career choice that can be carried out from any location and at any time. It requires low investment of personal capital and offers potentially very high financial returns.
The forex markets are highly liquid, which means that payments are usually fulfilled quickly with little price deviation. Therefore, it’s a very attractive career choice for those who are prepared to put in the hard work and overcome the inevitable challenges and setbacks that will occur along the way.
It is undoubtedly difficult to learn, and it involves developing the right mindset as well as mastering the technical skills. However, if you are aware of what will be required of you and prepared to step up to the challenge, you will in time reap the rewards of your efforts.