Forex trading is notoriously advertised as easy money but as soon as newbies enter the Forex marketing and start trading, they quickly find out that it’s more of a ticket to blow your trading account rather than actually make money.
Still, there are the 5% of traders out there who do make good returns in Forex trading, so that begs the question: how long does it take to learn Forex trading?
Forex trading is a combination of learning technical analysis and fundamental analysis, which you can grasp in 2-3 months. What you need to master before becoming a successful trader is trading psychology, which can take anywhere between 3 months to many years depending on your mental fortitude.
Learning technical analysis
The first part of learning to trade Forex is technical analysis. Indeed most retail traders(and even institutional traders to a certain extent) base their trading strategies on technical analysis.
Technical analysis involves looking at the movements of prices in the Forex market and analyzing which levels price tends to respect or bounce off from. This is also known as support and resistance.
You first develop an understanding of how price moves between these levels in the Forex market and then you can start building trading strategies around your analysis.
This type of analysis also may include using indicators to help you formulate a trading strategy.
Building a strategy
After getting a basic idea of technical analysis, the next step for Forex traders is to start building a trading strategy and test it on a demo account.
A good trading strategy will include the following:
When to analyze the charts
Even though the Forex market is 24/5, there are certain times of the day when there is a lot more volume in the market as opposed to others.
The best way to take advantage of price movements is to trade when there is a lot of volume if you’re day trading, or right before volume comes in if you are swing trading.
How to enter a trade
The next step to becoming a profitable trader is to develop rules for entering trades. This is a key element of any strategy, and these rules can be as complicated or simple as you like.
It also depends on your trading psychology: if you don’t have a cool head, you may need to develop mechanical rules that depend on certain factors and indicators aligning in order to give you an entry.
If you can analyze currency pairs with a cool head, you may also be able to take trades based on your discretion. Even then, you’ll still need some type of rules and conditions to be met before you open a trade.
How to exit a trade
In addition to knowing when to enter a trade, successful Forex trading involves also having strict rules for when to exit a trade.
Indeed, this is the harder part of Forex trading!
Human tendencies make us keep losers running for too long in the hope that the market will turn, and we cut winners too short or let them run too far only to lose our gains.
That’s why you need to develop strict exit rules both for when you’re in a losing trade and in a profitable trade.
Personally, I am not good at handling drawdowns, so I tend to exit part or most of the trade as soon as I am up by 15-20 pips. If the market is really moving, I’ll push it to 30 at the most.
I also try to keep my losers less than what I originally planned to lose.
For example, if I place a trade at a high volume time and the trade is not going my way, I may remove half the position to reduce my overall risk. If the trade starts going my way, I can always add that much back into the position.
How to read Japanese candlesticks
So how long does it take?
You will have to develop a system and backtest/forward test it on a demo account to see whether your entry/exit rules make sense and they work.
While you can speed up the process by using a simulator, simulations are not quite the same as real-word market conditions.
So you don’t have to trade a demo for 6 months because you can simulate 6 months of data in a few weeks, but you do need to trade live to see how well it performs.
The last part of a good strategy: understanding how the market moves
Finally, an experienced Forex trader has a significant edge over an inexperienced trader because of one key element: time.
The more you sit and watch the market move at specific times of the day, the more you will understand how the market and your particular currency pair moves.
When I started out, there were times when I would be convinced that the market is setting up for a particular move, only for the exact opposite thing to happen. Other traders I knew were kind of expecting that, and I could not wrap my head around how they got than intuition.
The only way you will develop that intuition is TIME.
What separates a successful forex trader from an unsuccessful trader?
There are a few key elements that separate professional traders from retail forex traders and developing these traits in yourself is the key to master trading forex.
A professional trader uses sound risk management and only trades with money he or she is willing to lose.
One of the very unfortunate truths of Forex trading is that every trade you place has greater potential to lose money than to make money.
That’s where money management and your trading plan come into play.
Not applying risk management is a recipe for losing money rapidly. Even if you do make some money, you’ll probably end up giving it back to the market.
In fact, some traders are so strict with money management that they stop trading altogether after they hit a specific target for the month.
Keeping a cool head
Keeping your cool is very important in order to trade successfully. This is one of those trading skills that is the hardest to develop but they’re the most important to your trading career.
Remember, the market does not owe you anything. It’s not supposed to go this way or that, it just does what it wants.
All we’re doing as traders is using historical data and experience to try to correctly guess the direction of the market.
So when a trade goes against you, don’t get angry, and when a trade goes in your favor, don’t get too cocky.
Getting angry after a losing trade will make you want to revenge trade and lose even more money, and getting cocky will make you overtrade and lose all of your gains.
Learning to control yourself takes time, and if you want to learn trading Forex, this is one of the things that you’ll have to master.
One of the keys to not getting angry or happy in Forex trading is to only trade with money you can afford to lose.
If you’re using rent money to trade, you’re not going to be able to handle drawdowns and losses.
Remember, it will take time to succeed.
Letting your edge play out over time
A mistake that new forex traders make is assuming that Forex is a get-rich-quick scheme. In fact, Forex is actually a get-rich-but-steadily scheme.
It’s next to impossible to turn $1000 into $100,000 in a month, but if you utilize the power of compounding, you can turn $1,000 of trading capital into $100,000 in two years.
The way this would work is if you started with $1,000, made 10% every month, and added an extra $1,000 at the end of every month.
If you were to continue this process for three years, you’d end up with $330,000.
In four years, you’d have $1,000,000.
Becoming a millionaire in 4 years doesn’t sound all that bad, does it?
By year 5, you’d have $3.3 million.
As your capital grows, your compounding gets more and more powerful. The numbers above are assuming you’d make 10% every month, which may or may not be realistic, depending on your trading style.
The lesson to be learned here is don’t focus on getting rich quick.
Should you take a trading course?
Since we’re talking about how long does it take to learn forex trading, it’s worth exploring whether or not you should take a trading course.
In my opinion, taking a course is VERY beneficial under two conditions:
- The developer of the course and students have verifiable track records
- You only take a SINGLE course
Trading courses will help you eliminate many of the steps required in between to learn how to trade. With a good course, you’ll be able to learn from the mistakes of more experienced traders so you don’t waste time and money making those mistakes yourself.
Finally, good courses also have communities that you can participate in and share your trading plans.
Forex trading is a lonely job, so it’s nice to have people to chat with!
Every forex trading journey starts with a few blown accounts, so be prepared to lose money before you start making some.
However, when done right and with patience, Forex trading can be an incredible tool towards financial freedom.
It will take time to learn Forex trading, but the eventual payoff will be significant.
Don’t focus on making money right away: instead, focus on building up your edge and proving that you can consistently make a number of pips or a certain percentage on your account.
Once you’re consistent, account size doesn’t matter anymore: if you can make 10% per month on a $100 account, you’ll be able to do the same on a $100,000 account as well.