How You Can Master The Forex Market (Part II)

Step 5 – Test Your Skills With Virtual Money

Now that you have a good trading strategy or system it’s time to start testing your strategy.
In this step, you should test your strategy with a demo account. With this test, you will be able to know how good your strategy is and you won’t risk a dime. Visit a Forex broker and open a demo account. It’s 100% free and it will allow you to grow as a trader.

Step 6 – Keep a Trading Diary

Keeping a detailed trading diary is what makes you grow as a trader. This is what allows you to learn from your experience. Good traders usually have great trading diaries while bad traders simply don’t care about them.
On your trading diary, you should annotate all your trades as well as describe all the reasons that made you take the trade.

You should also annotate your pace of mind when you entered the trade and during the trade. Was there any economic release while you were holding a trade? If so, annotate it on your trading diary. The technical indicator that you were using gave you an exit signal, and you ignored? Well, don’t be ashamed, write it on your trading diary, and learn from your mistakes.

All traders make mistakes. The difference between winners and losers is that winners tend to learn from those mistakes. Losers prefer to forget about them…

If you want to be a winner, you’ll need to build a great trading diary and make it as much detailed as you can. You can even take some chart snapshots at the moment you entered and exited the trade and post them on your trading diary so that, in the future, you can see the reasons why you took your decision about a trade.

In the future you can read your trading diary and learn about some mistakes that you made. This will allow you to correct these mistakes on your future trades.

Step 7 – Improve Risk Management and Discipline

Risk Management is extremely important for a trader. If you want to achieve success consistently, you need to adopt a disciplined mind about trading and improve your risk management rules as much as you can.
Have you been dedicating the hours you promised yourself to the Forex market?
Are you following your strategy rules?
If your answer to these kinds of questions is “no”, you need to dedicate some of your energies to improve your discipline. The best traders in the world are disciplined. Unless you learn how to commit yourself to the Forex market and treat it like a business, you won’t achieve success.
If you can’t follow your own trading rules, you won’t achieve success. So, it’s crucial for you to improve your discipline levels. Analyze your trading diary to see if you’ve been as disciplined as you’re supposed to.
Have you noticed that just one loss took you most of the profits that you’ve been making? If so, that’s because you have poor risk management rules. Analyze your trading diary, and see if your average profit is bigger than your average loss. If your loss is bigger than your profit, than you’re using bad risk management rules.
You should trade with at least a 2:1 risk/reward ratio, which means that if you’re risking for example $100 on a trade, you should expect to make at least $200 on this trade. The bigger the risk/reward the better, but 2:1 is a good starting point.

Step 8 – Be Patient and Realistic

You need to be patient and have realistic expectations about the Forex market.
The truth is that Forex is a difficult market, and unless you work hard on it, you won’t achieve consistent results.
You need to treat Forex trading as a business and you need to be patient. In order to become a professional trader, you’ll need some time.

Don’t set unrealistic goals. If you do so, you’ll be frustrated when you realize that you weren’t able to achieve them.
When you define your goals in Forex trading, define ambitious goals but, at the same time, goals that you can accomplish. If you’re just starting in the Forex market, define as a goal achieving a profit at the end of the month. It doesn’t matter if it’s a big profit or not, but if you can start with a profit, you’re on the right track.

If you’re just starting and define goals like “I’ll make $20K at the end of the month”, you’re just dreaming. This is the kind of unrealistic expectations that destroy most beginners in Forex. Since they define unrealistic goals, they start taking huge risks in order to believe that they will achieve their goal. The worst part is when the huge risks destroy their account, and they find out that Forex trading is not a get rich quick opportunity.

Patience and realistic goals are really important for a Forex trader. If you define good goals and you have the patience to work and improve your strategy, you’re on the right track.

Step 9 – Set a budget and commit to that budget

Now that you’re almost ready to trade real money, it’s time to set a budget. You should only commit to Forex a small amount of money. You should never ever commit money that would affect your lifestyle in case of a loss.
If you start trading money that you can’t afford to lose, you’ll be nervous all the time and you’ll make more mistakes. You won’t be able to follow your strategy and you’ll get easily scared when your position goes against you.
The only way you can start trading Forex calmly is to set a budget. Set a budget and commit to that budget. So, if you define that, for example, $1000 is your budget, if you lose your money don’t deposit any cent on the account. Go back to step 1, and start the whole process again.

Step 10 – Enter the Market and Accept Responsibility

Before you trade with real money just take some minutes and ask yourself if you have completed all the previous steps. If your honest answer is yes, then you’re ready. If not, take some time to review the previous steps and to improve your skills before you put your hard earned money at risk.

Now that you’re ready to trade Forex, go to a Forex broker and open a real account. You can use the same broker where you had your demo account or a new one.

When you start trading Forex, you need to accept responsibility. When you make money you get all the credits. When you lose money, it isn’t Forex market’s fault. It is your fault. You need to constantly evaluate your strategy and decisions so that you can be a great trader.
The market is always right, and you need to remember this all the time. When you discover that you’re actions result in a positive or negative outcome, you’ll be able to spot your mistakes easier and to correct them as fast as possible.

Best of luck with your trading.