To be successful and trade forex for profit is like any other profitable business. You must have a trading plan. You need a goal and a strategy for achieving that goal. This is particularly important in the forex investment market which is fast moving with many twists and turns which, for the unprepared can lead to financial disaster. The advertising you see, particularly on the internet, gives the impression of rich pickings and dreams being fulfilled overnight. Ok, some people can be lucky but the same applies to gambling. If you liken forex trading to gambling then you will lose money. So how do we establish our goal and develop a strategy to achieve it?
First you need to establish the correct mindset. You must be devoid of emotions such as euphoria, greed, fear and above all panic. By creating a trading plan in advance and being determined to stick to it you are less likely to be tempted to make emotional decisions.
Be realistic with your goal. Don't set out to make a fortune overnight or even over a few days, weeks or months. The higher the goal, the bigger the risks you will take to try and achieve it. Like any business, plan for a slow level of increasing profits over time.
Establish your boundaries. The most basic being how much money will you set aside for trading. Do not expect to win on every trade. To be successful and trade forex for profit it is simply a matter of winning more often than losing. Do not trade with money you cannot afford to lose. Your position size for each trade must be calculated within this boundary.
Your strategy or trading plan needs to be based around a tried and tested system and your position size will relate to your system. Some systems go for a high number of winning trades but the losses when they inevitably occur are big. At the other end of the extreme, some systems allow for a high number of losing trades where the losses are small but can expect several losses in a row. Most traders will settle for something between those extremes.
Finally, choose your indicators. This is the information and advice you will use with your system. Always use at least 2 or 3 different indicators and only trade when they all point in the same direction.
Ok, so how do we develop our strategy? My advice is to paper trade using a demo account for as long as it is necessary to establish a system, trading style or preference which will achieve your goal. Once you are trading profitably with your demo account, you will move into real money trading with a lot more confidence and a lot less likely to be influenced by emotion.
Be prepared to modify or fine tune your strategy over time to increase your level of profitability as you gain more experience and acquire more knowledge but NEVER EVER change anything during an open trade. You must open and close a trade on the same strategy.
I sometimes liken forex trading to playing poker. Poker is one of the few 'gambling' games which can be profitable if the player has a rigid game plan. A successful player will expect to lose sometimes and knows what his potential gains and potential losses are at every stage of the game and will bet accordingly. A good poker player with be calm and play without emotion and the same goes for a good forex trader.
This is a very brief overview of the need to develop a trading plan in order to trade forex for profit and hopefully will make you feel more comfortable about proceeding further.
to learn more go now to Richard Mead's blog http://forexinvestmentmarket.blogspot.com/ where in addition to his regular articles about forex trading he publishes monthly reviews of the latest and best forex trading products on the market. His new eBook Quick And Easy Forex Trading is aimed at understanding the fundamentals of forex trading...it's on special offer now at http://www.forextradingebook.com/