Forex Trading for Beginners
The Definitive Guide
Last Updated on November 10, 2020 by Alphaex Capital
You may already know that forex trading could be a lucrative choice to grow your money compared to the alternatives of investing and savings accounts.
But how do you learn about it and take advantage of it?
For forex trading to work you need to have a solid understanding of the markets, how to trade them and a strategy in place… and then have the guts to actually risk your money on a live account.
In this guide I’m going to help you overcome all of these forex trading obstacles (and more).
Forex Trading 101
Here’s What You Must Know
This is your first (and best) step forward into understanding how forex trading works.
There are many questions for beginners.
Thankfully, there is a simple way to introduce what forex is and I’ll cover the information below:
What is forex trading and how does it work?
What is forex trading and how does it work?
Forex trading, also known as foreign exchange, FX, or currency trading is the speculation of currency pairs’ price going up or down.
Over $6.1 trillion is traded on a daily basis…
And around 90% of that is from traders!
The rest is international payments made by businesses, banks and institutions.
Here’s how you can succeed in fx trading:
By generating a profit on your speculation.
Just like the stock market – you can make money from buying low and selling high.
But that’s not the only way to make money.
We’ll explain how in Chapter 5.
You see, when people stumble upon foreign exchange trading for the first time – it’s because they are looking to grow their money.
Long before fx trading became cheaper and more accessible to retail traders (thanks to the Internet) investing through the stock market was the #1 choice.
Investing is still #1 – due to its simplicity in comparison to trading.
Currency trading involves a more hands on approach, deciphering fundamental & technical analysis – which leaves most civilians panic and run to the nearest Stockbroker.
For those brave enough, trading fx can be a game changer on many levels.
Is Forex Trading A Scam?
Here’s The Truth
Let’s be honest – there is a high chance you discovered forex through someone bragging how much they make per day.
Or seen them talk about how easy it is, just buy their simple service and you too can buy that Ferrari.
So is Forex Trading really a scam?
Find out below…
The issue with forex scams
The issue is:
Beginners are susceptible to believing these charlatans because there is a whole lot of information out there, that is incorrect.
Here’s the deal:
Forex trading is most certainly not a scam.
Now here’s the truth:
Most beginners call trading a scam because they lose their money straight away.
Or they trusted a service that guaranteed them returns.
They call it a scam because they have had a bad experience with it.
In fact, whenever you read discussions about forex online — outside of the trading community — you see a swarm of people listing it as a scam with pure hatred.
But not you – you are doing your own research into the subject.
Is a skill required to become a good trader:
– Doing your own research
– Being inquisitive
So, the good news is you have already some of the traits to becoming a trader!
Just for your protection:
Here are my 3 top tips for you to avoid these scams:
#3 – Be Careful of Payments Being Free
Most signal providers actually make money from commissions generated brokers.
These agreements are for the signal provider to refer their prospective clients and get them to open a trading account.
In return, the signal provider would earn a commission – normally around $500.
What you get in return is a free signal service.
They need you to trade their signals so you can generate enough trades so the brokers can payout the $500.
So the signal providers interest is NOT aligned with yours.
They need you to trade and no matter what happens, they can walk away $500 better off – whilst you could lose out.
#2 – Avoid Anyone Who Guarantees a Return
Under financial promotions, guaranteed is a serious no-no term.
It’s completely illegal to do in Tier 1 regulated countries.
The markets fluctuate, that is the only certainty one can say.
The promotion may be good, but if they are guaranteeing four-figure pips generated per month – be very wary.
#1 – Avoid Signal Providers All Together (No hate).
Not all signal providers are bad, some are regulated which is a MASSIVE PLUS in my book.
This is a blanket statement with zero prejudice.
But you aren’t looking to piggyback off someone else.
Trading is a skill and if the signal provider dissolves/stops trading, there goes your prospects to growing your money through forex.
Instead, it is much better to learn how to currency trade yourself.
Is Forex Trading For Beginners?
The Good & Bad
So you have done your research and you are excited about the prospect of beginning your currency trading journey.
But is this path the right one to take if you are a complete beginner?
It’s a tough question and an even tougher fact to face in reality, which I’ll cover below:
I’m going to be straight with you:
For most people, trading the foreign exchange markets is just too difficult for them.
There is a lot of info. To take in, but most of all – you have to be prepared for something.
And this something most humans cannot psychologically get to terms with.
This something is:
You will LOSE money from time to time.
No one wants to lose money, but this is a game of risk and reward.
You can’t get the reward without the risk.
And if you cannot take the losses, you can close this guide right now.
Don;t worry, with the correct risk management and strategy, when a loss happens it’s already calculated for.
When you first start out, losing a trade will make you feel a little upset.
By the time you’ve traded 1,000s of times it becomes a minor inconvenience like stubbing your toe.
With that being said, beginners can truly thrive in the forex markets.
Again, education and discipline is needed.
But here’s the thing:
Trading (and investing) is NOT rocket science.
Everything can be learned, and transferred into live markets.
There are a lot of free resources out there, but take them all with a pinch of salt.
Trading is a style that is your own.
Say for example, you may learn about scalping because you think it would be fun trading all day.
But after 3 days, you’re pulling your hair out thinking it’s impossible to chase the pips.
This doesn’t mean scalping doesn’t work.
This is why as a beginner, you should try out different styles and strategies until one works for YOU.
How Forex Trading Can Get You Better Results Than Investing
Forex Trading vs. Investing
Still with us?
Determined to become a forex trader? Good.
The previous chapter was to turn away those who aren’t yet at the right level.
So now we go into the good stuff, and in this chapter I’ll go over how trading the currency markets can outperform other investments.
Firstly, let’s clarify the difference between trading vs. investing (in stocks):
Trading vs. Investing
Trading is where you take a shorter term view on the markets, looking to get in and out of them, for a profit in a small time frame.
This timeframe could be minutes, it could be days.
Where as investing is where you have a long term view on an asset with the view it would go up over time. This can yield steadier returns, over time vs. trading for most beginners (in theory of just buying and holding an asset).
In addition, with investing there is an opportunity to earn dividends from shares that will generate an annual income.
This is why investing in stocks is popular because you can not only gain capital appreciation but also potential dividends.
Again, this depends on your financial goals.
The core risk is that traders are exposed to short-term news announcements that can take them out of their trades early.
You have to be more precise whilst entering a trade in comparison to investing.
Trading, especially in retail, involves leverage in order to control a larger trade size for a small deposit.
This can be a great thing if you are profitable – it can make the ROI insane.
Here’s a brief and simplified example:
If you had a leverage of 1:10 – you would deposit £1 for every £10 borrowed.
So if you wanted to borrow £1,000 for a trade – you would give £100 as a deposit, or margin.
If the markets went in your favour – for every £1 the asset has risen, you would have made £10 profit.
Equally, for every £1 the asset fell, you would have lost £10.
The rewards don’t have to be all monetary.
Although they play the largest part – it is possible, through leverage, that you can generate a high ROI on your trades vs. investments.
However, as discussed previously – it does bring more risk.
Trading the markets can award instant gratification for some times of traders such as scalpers (learn more about these in Chapter 6).
In addition, thanks to the markets being open 24 hours a day during the week – you are not confined to trading between a set period of time.
Meaning if you want to come back from work and trade, you can do so.
Finally, trading the foreign exchange markets can be cheaper as you do not pay any commission or taxes on transactions from most brokers.
How to Make Money With Forex Trading
The whole point behind speculating in the markets is to grow your money.
By trading the currency markets, you really do have an abundance of opportunities available to you each week day.
Remember in Chapter 1 I discussed how there are more ways than one to make money in these markets?
In the next chapter I will go through the exact ways you can make money by trading forex.
Going Long In The Markets
-By going long (buying) earning the difference from the buy and sell price
You know about the most common way of profiting when speculating and that is to buy low & selling high.
Most people have visions of people on phones shouting:
“BUY BUY BUY” then…
“SELL SELL SELL”.
This is called going “Long” in the markets with the theory that the price will increase in value based on your analysis.
Going Short In The Markets
However, more commonly in forex you can go “Short” in the markets.
This is where you can make a profit from the price falling in value.
(You can do this in the stock market too).
Going short in the forex markets is what attracts traders to this arena in comparison to the stock markets.
You Can Profit In Any Market Direction
As you can profit in any market direction.
It doesn’t matter if the markets are going up, down, or sideways.
The fundamental difference between trading and investing is this:
Traders never love or hate an asset – they see it as a vehicle to turn a profit.
Investing (investors) tend to do so much research behind their choices, they tend to fall in love with an asset – thus making it difficult to make… difficult choices such as taking a loss.
By becoming a forex trader – you will naturally eliminate this “loving an asset” mentality.
Which in turn, will make you a better trader over time.
How Choosing The Right Trading Style Is Important For Beginners
The Style That Sets The Future
To make things more complicated, there are different trading styles for you to choose from.
As a beginner, it is best to find one that suits you in terms of:
– Time you want to dedicate to trading
– Your approach to the markets
I’ll go through the different trading styles to whet your appetite and put the right questions in front of you so you can discover which path to take.
Some traders only focus on taking tiny bites out of the market that are quick profits.
Think like piranha’s feasting.
The goal as a scalper is to be in and out of a trade within minutes to hours of a trade. Anything longer, the trade is cut.
– Scalping is ideal for beginners who want to take a very active role in trading.
– Those that want to use technical analysis and take advantage of small market movements.
Scalpers tend to take advantage of small market movements and use leverage to elevate their profits into something meaningful.
The downside of scalping is their risk:reward is usually low – this is due to the nature of going for small, but frequent trades.
One really bad trade could reverse 2-3 trades worth of profits.
Scalping is generally by nature more difficult to begin with.
This brings me on to another type of trading:
Swing trading is the opposite, to a degree, as scalping.
Although it looks to take chunks out the market (like a great white shark).
Swing trading can be done in any timeframe, so can overlap into scalping.
This is because swing trading revolves around capturing reversals in the market and riding the trend.
Swing trading is easier for most beginners because you can take your time more often than not.
Not only that, the risk:reward is naturally better due to trading market reversals.
On top of a style of trading, it also depends on how you want to interpret the markets.
Through technical analysis, you can follow price and predict future market movements through a multitude of ways.
This is the most popular form of hunting for trading opportunities and works for both scalpers and swing traders alike.
It’s also the easiest to learn and interpret for beginners in comparison to fundamental analysis.
Fundamental analysis doesn’t interest most people.
Which is absurd because it’s 90% of the puzzle to becoming a successful trader.
Follow economies, how they are manoeuvring and what they are doing will give you great insight into whether or not you should be buying or selling a currency pair.
Most of the time, people are not aware they are going against the markets general direction – because they are not following the data!
Luckily, there are smarter people that track all of this stuff and declare it in the Commitment of Traders report.
Lucky for you, it’s reported each week and you can just follow the smart money.
Combining All Four
The bottom line here is:
There is no right or wrong way to trading.
That is the beauty of trading.
You can combine ALL 4 and be fluid like water to trade in any environment.
That is key.
I don’t recommend forcing yourself into one style.
The markets are not the same each day – although similar opportunities may arise – it is best to be able to exploit as many opportunities as possible.
6 Lessons I Learnt From Trading Forex
To Help You Progress Faster
Okay, I’ve gone through some of the most common and natural areas of learning to trade the markets as a beginner but it’s time for me to share some of the lessons I learnt whilst grasping the basics.
This could be the platform to give you the confidence to get started straight away.
Here I’ll share 6 lessons I learnt over the past 12 years of trader, that are beginner friendly:
#6 “You have to lose often to learn…”
No, losing isn’t because you are bad at trading.
I was fearful of losing at the start.
But losing is part of the game.
No one has a 100% success record in trading.
Losing becomes something that you accept and move on.
Kinda like when you spend an hour cooking dinner, for it to fall on the floor whilst taking it to the table.
Annoying, but nothing you won’t overcome.
#5 “It takes 3-5 years to become profitable”
I read this online when I first started.
Get the right education – you can be up and running in a month or so (with intense practise).
Also, we have to stop normalising blowing up accounts.
Yes this can happen, but if you are on your 3rd account blow up streak it means three things:
– You are terrible at risk management – your risk is not in proportion to your account size.
– You are not ready to trade. So stop it.
– You are depositing little funds as possible. If you think £50 will turn to £10,000 in a week – you’ll be better playing the lottery.
#4 Non-Farm Payroll is a complete joke
Every broker, and wannabe trader makes a massive hype over the NFP.
The market in EURUSD can move 100 pips in 1 minute.
This excites beginners as an opportunity like this would be cool to profit from.
This excites brokers because most beginners would be tapped out from the 1 minute swing.
This excites wanna be traders because they can say how much money you can make in 1 minute just by trading the NFP.
The move in the NFP is from institutions taking their profits and re-aligning the trade ideas.
Do not become liquidity for other traders by trading the NFP.
#3 It’s okay to not trade every day
Trading for a living would make people think you trade 12 hours a day, 5 days a week.
Although this is possible, I’d advise against it completely.
In fact, I find Monday’s a day to avoid.
Instead focusing on Tuesday-Friday.
Now here’s a fact:
Sometimes, there are no opportunities for you every day.
Just like going fishing – sometimes you won’t catch a fish – and that is okay!
As long as you stick to your trading style/strategy.
#2 Never listen to any advice
I know this one is a little… Ironic.
Everyone wants to tell you their great idea/trade.
Everyone has an opinion and thinks they are correct.
Avoid this, make your own trades.
If you make a loss, it’s on you and you’ll learn for next time.
#1 The Bodyguard Method
The Bodyguard Method is my go-to entry mechanism for entering a trade.
– It’s stopped me from entering trades too early;
– It’s stopped me from false signals;
– It’s also got me in at perfect entries.
The Bodyguard Method is really simple to implement, and is perfect for any trader – beginners included.
I’ll be sharing my Bodyguard Method in a post very soon.
How To Get Started With Forex Trading Step by Step
Follow this plan to succeed early
You’ve made it towards the end of this guide, so let’s reward you.
It’s time to learn how to start forex trading for beginners:
In this next section, you can use this as a framework to begin your very foundations of your journey to trading the currency markets.
Without further ado, let’s get you going step-by-step:
Step 1: Open a trading platform account
You want to be visualising the markets early, you won’t be trading yet but it’s good to be able learn something and go review it in the markets.
I can’t think of a better way than setting up these charts first.
You have access to “live charts” on demo accounts – meaning you don’t have to put a penny to use these services and you can also trade “as if” you had the money.
Tradingview is a very good service based online.
It has access to most assets and a very user friendly charting package.
Great for picking up the basics.
This is an idea for forex trading for beginners that don’t want to open a trading account yet.
Alternatively, if you want access to the markets a paper trade whilst you learn you should check out below:
Use the MT4 platform and you’ll get access to everything.
Step 2: Grab a fresh notebook/journal
Depending on how you learn – it is wise to have a notepad without to note down the key part of a subject.
– You can be old-fashioned and use a pen and paper; or
– You can use a free service such as Evernote to record your notes instead.
Evernote makes things easier, in my opinion as you can reference them and search for the info quick.
But writing on paper would mean the information is more memorable.
Step 3: Go learn forex trading at a basic level
Depending on your learning style, I suggest either of these three methods:
Babypips is great, but basic.
Good for all types of learning and teaches with a good sense of humour.
However, the lessons are more like a glossary than something that is actionable.
Many traders start here and wonder why they are not profitable yet.
Babypips do explain some tough topics very well though. So if you want to learn how to trade in the “forex trading for dummies” kinda way – this is it.
However, if you want a no BS – actionable method, we got that for you here:
We provide a forex trading course that not only delivers actionable lessons, but gives you the absolute low-down on how to trade… completely free.
Within this course, within this course you will find a forex trading tutorial within our in-depth lessons that are actionable and crafted to give you the best info. possible.
Alternatively, if you are a bit more old-fashioned (or want to use wisdom from the past):
Many successful traders have downloaded their knowledge to books in the past.
It would do you a disservice for you not to pick up a few books and follow their teachings.
There is not just one forex trading for beginners book, there are a few to help build your trading foundations.
You can find some of the best forex trading books here
Step 4: You must learn about these daily price action opportunities
Learn about Supply and Demand trading:
Simply put, learning about supply and demand in forex will expose the way the market moves and you will find high-probability opportunities to trade with this skill.
Learn about Support and Resistance Levels
Like supply and demand, but focusing on other significant levels of interest. Great to learn about and monitor with market movements.
Support and resistance levels will become part of your everyday tool to monitor market movements.
Learn about Chart Patterns
Chart patterns recur frequently and knowing how to trade them can be the difference of entering a trade at the right time, or missing the pattern and potentially getting slaughtered.
Learn about Candlestick Patterns
There are a lot of variations of these candlestick patterns, each show a potential of a reversal or continuation in the markets.
Learning a handful of these patterns can seriously improve your edge when it comes to trading.
Step 5: Learn about key macroeconomic data
Learn about the key fundamental data points that have a high impact level on the markets.
You can use this knowledge to either better your understanding of the markets; or
Avoid trading during the announcement times – preventing the announcement from reversing your trading idea (if it does).
Don’t want to learn them?
You can use these free Forex Factory tools to monitor the calendar for these events.
Best thing you can do is monitor them each day when loading the computer.
Step 6: Practise on your forex trading demo account until you have made some profit
The demo account is the stabilisers to your 2 wheel bike.
Learn to trade in the markets in real-time, without the fear of losing your hard-earned money.
Get to a point where your trading strategy is easily replicated from memory and you’ve placed a few trades – so you are used to the platform too.
Step 7: Go live
Now you’ve placed a few trades, made a few losses (on paper) and few wins you should be at a point where you are almost certain about your trading decisions.
Certain as in – you know what you are doing and that it works.
Not certain that you will be 100% correct on your trades.
When you go live for the first time, make sure for the first week or month you trade with the lowest amount possible.
This way you trade with way less risk, but with real funds.
Then gradually scale it up until you are comfortable trading 10 lots at a time :).
There you go, if you loosely follow this to learn forex trading step by step – you should, by the end of it, become a competent trader and ready for the foreign exchange markets.
Top FAQs About Forex Trading
Is forex trading good for beginners?
Yes, forex trading is good for beginners because it allows versatility for anyone to become a forex trader. With the right education and mentality, you can go from beginner to trader in no time.
Can I teach myself to trade forex?
You can teach yourself how to trade forex. As long as you have the right education that gives you actionable lessons – you can learn it all by yourself. There is a plethora of information out there for free.
Can you get rich by trading forex?
Forex trading can make you rich if you understand how the markets work. You also need a lot of trading capital to reach these levels. You will not become rich overnight. Instead it is a long, drawn out process.
Congratulations, you’ve not only completed the Forex Trading for Beginners: The Definitive Guide – but you have taken one step closer to becoming a trader.
With this new founded knowledge, I hope it spurs you on to starting your own journey.
Now I want to turn it over to you:
What did you think about this guide? Maybe there was something I missed?
It’s been a while since I was a beginner…
Let me know by leaving a comment below.