To become a professional forex trader or want to live only from trading (trading for living), it cannot be done in a flash or instant way. There are several stages that must be followed from time to time.
Nial Fuller’s post on how to become a professional forex trader consists of 4 parts:
- Build a strong foundation.
- Test your trading skills.
- Take off into the real market.
- Combines trading knowledge and skills.
1. Build a Strong Foundation
Building a solid foundation to become a professional trader takes your time and effort in learning all aspects of the forex market. From your experience of ups and downs starting from a novice trader to what you have achieved now, of course, there are many lessons.
If you still feel lacking or may be left behind, of course, you shouldn’t be discouraged. By sticking to your goal of becoming a trader and consistent in continuing to learn and evaluate yourself, sooner or later your goals will come true.
Step 1: The correct trading process
Becoming a professional trader starts with consistent trading results and trading skills that have developed over time. So the first step that you must achieve is the end result of consistent trading within a certain period of time, of course, it must be profitable.
You can achieve this without having to trade full-time like most professional traders. The important thing is you must be disciplined in the time and effort that you have planned for forex trading.
A small account balance doesn’t mean you can’t trade with consistent results every month. If your initial balance is $ 1,000 and your target at the end of the month has to be $ 25,000, of course, this is difficult to achieve and less realistic.
You might even close your account in the middle of the road. You don’t have to push yourself with fantastic profit targets. Even a professional trader who manages large enough funds does not set profit targets that are too grandiose.
Consistent results can only be obtained if you apply money management effectively, and a consistent measure of profit is relative to your account balance.
If with the initial balance above you set a risk/reward ratio of 1: 3, or you will get 3R (reward 3 times the risk) each month, meaning that in a year you produce 3 X 12 = 3 6R.
Say your risk per trade is $ 25 or 2.5% of your initial balance of $ 1,000, then within a year, you get a profit of $ 25 X 36 = $ 900, or 90% return. A very adequate result for a professional trader.
Well, if later your balance is $ 100,000, with the same target your profit is $ 90,000 per year, and with a million dollars your profit per year will be $ 900,000 if the risk remains 2.5% or $ 25,000 per trade.
Maybe you feel the profit of $ 900 per year is not acceptable, but the trading process you are doing is correct and this is an important foundation for moving to the next stage. Many investors are eyeing you if you are able to trade with consistent profit.
Step 2: Mastering the basics and trading methods
If you already know the goal of forex trading is not to get rich in a short time but to make regular and consistent profits, then the next step is to evaluate your knowledge of the basics of forex trading.
Many traders have been in the forex market for a long time but still don’t understand margin, leverage, lot size, and more. If you want to be serious in the forex market, you should evaluate your knowledge of the basic rules of the forex world.
You have to really master before choosing and determining a trading method because some of these standard rules are closely related to the money management strategy that you will apply.
And if you have chosen the most suitable method for trading, use it in a demo account until you become proficient and accustomed to implementing it.
If you want to be serious about becoming a professional forex trader, of course, you have to master the basic and standard rules in forex trading in addition to being adept at using the trading methods and strategies that you have chosen.
Step 3: Using an effective trading strategy
An effective trading strategy is one that is simple, uncomplicated, easy to implement, and profitable. Simple means that there are not many restrictions or frequently change parameter settings, are not complicated with many technical indicators, and are easy to apply in all market conditions, both trending and ranging.
One example is a trading strategy with price action combined with support and resistance levels. The probability of this strategy to generate profits is quite high when used in the daily time frame.
In addition, a strategy to maximize profits is also necessary, for example by applying averaging or pyramiding techniques if market conditions allow.
2. Test Your Trading Skills
This part is very important in the process of becoming a professional trader. Maybe you think making trading plans and trading journals is very boring and you don’t need them, maybe you are even bored and don’t need a demo account.
However, your perception of trading plans and trading journals does not change the fact that these two things are important and are an indispensable tool for trading, especially if you are a beginner trader and don’t have much experience. If you ignore this, you may fall before you become a professional forex trader.
Planning steps before entering the market and evaluating trading results are the basis for becoming a disciplined and thriving trader. Plans and evaluations are an important part of the trading process that you must do consistently.
After knowing the correct trading process and choosing a trading method and strategy such as steps 1 to 3 in part 1 of this article, here are the next steps to test your trading skills.
Step 4: Test the trading plan
Planning a trade according to the steps in your strategy needs to be done so that your trading method is systematic and organized which will benefit you if you have plunged into a real account with real money.
It is not a coincidence that traders without a trading plan often experience losses. The trading plan contains standard steps that must be done with discipline either in applying the analytical method to enter the market or the money management strategy that you have agreed on.
Without a clear trading plan, you will tend to involve emotions in trading which have fatal consequences, besides that you will find it difficult to get consistent results because you do not use clear and systematic frames of reference.
Well, the trading plan that you have created should need to be tested several times in trades or enter the market, is it effective and comfortable enough to make a reference, or needs to be adjusted and rearranged. The stages in testing a trading plan are:
- Test trading methods – Has it been effective and profitable enough the number of times you have entered the market? If it’s still not effective because it might be a bit complicated in its interpretation, make it simpler and direct (to the point). The important thing is your trading method can provide a high probability of profit. For example, if you happen to use the price action method, determine the criteria for the formation of bars that are formed (pin bar, fakey bar, inside bar) to make an entry reference in addition to visible supporting factors (support and resistance levels) and current market conditions (trending and sideways).
- Testing the money management strategy – Are you comfortable with the risk/reward ratio you have set? Beyond your experience determining stop-loss levels and profit targets according to market conditions, the risk determination factor is more personal depending on your financial condition. But if after testing you feel uncomfortable with the previous risk/reward ratio, you can adjust it again as long as it is still logical and in accordance with market conditions.
- Test the profit maximization strategy – Are the current market conditions trending strongly? If yes and you have applied averaging or pyramiding techniques, is the increase in profit significant? The ability to use these techniques will increase as your trading experience and frequency grows.
Step 5: Test the trading journal
As previously discussed, a trading journal is a track record of evaluating trading results as well as a tool for monitoring overall trading developments. Try to use it in several trades by recording trading results in your trading journal. To test whether you have benefited from the trading journal, try to answer the following:
- Are you disciplined enough? – By evaluating the trading results on each position that you have made, you will find out whether you are consistent with the stop loss criteria and profit targets in your trading plan. If you change the criteria on the trading plan, try to remain disciplined and responsible for its implementation.
- Do you need to learn further to improve your trading skills? – From the development of your final trading results, of course, you can know the percentage of profit (winning percentage) and percentage of loss. If you feel the results are not profitable, you can learn further to improve your skills in market analysis, money management, and others.
- Do you need to improve your trading results by for example looking for investors? – If you are quite satisfied with the development of your trading results so far which is reflected in the returns you have earned over a certain period of time, you may be able to find investors to develop your trading profession. This of course depends on your long-term plans, but at least you already know where the development of your trading profession is by looking at the trading journal that you have created.
Step 6: Test your trading broker
with a demo account is essential for testing all the aspects you have learned in forex trading. Steps 4 and 5 above you do in a demo account that you open, of course, at your favorite forex broker.
Usually, traders use a demo account for 3-6 months as preparation before going to a real account, or to test out a new trading method. The role of your trading broker is very important, especially to align the trading process you are doing with your trading plan.
Pay attention to whether the process of executing your opened positions is fast, slow, or maybe you frequently ‘re-quote’ (a term on the Metatrader 4 platform for repeating an opened position).
In addition, you should choose a broker that is properly regulated and offers generally accepted trading conditions, such as moderate leverage and a normal stop-out level (margin level for determining margin calls). If possible later you will continue to use the broker to open a real account, you must really know the quality of the broker.
3. Take off into the real market
Trading with real funds is mentally different from demos. You have to accept the fact that it is very possible that you will lose a certain amount of money.
Many traders who try to tend to test their profits when they first open a real account ignore their trading plans because they are tempted by the fact that they are going to get real money. This is one aspect of trading psychology that you must understand before thinking about trading for a living.
In essence, avoid thinking about getting “rich quick”, but think about how to make consistent profits over a period.
Step 7: Get into live trading
As mentioned above, the psychology of trading on a live account is very different from when you test your trading skills on a demo account. Take note of the following as you dive and take off into a real account:
- Always control your emotions – The main aspect to be aware of when you trade with a real account is the emotional factor. Emotions hardly play a role when you are on a demo account, otherwise, you will tend to be tense and anxious when using real money. Since this emotional factor can make you ignore systematic steps in a trading plan which can adversely affect your trading results, try to trade on a live account in the same way as you have done on a demo account.
- Use funds that you have prepared for forex trading or funds that are ready to lose’. Never use funds for daily living expenses. Think of it as your venture capital because forex trading is a real business. This way of thinking can spare you an emotional way of trading.
- Be prepared to accept the fact that you are very likely to suffer losses. Even though your trading signal may be completely valid, you cannot be sure of what will happen in the market. Knowing this reality will really help you understand the reality that happens in forex trading.
- Stay consistent with the trading plan and do not add or remove menus that you have applied in a demo account. Changing steps in a trading plan by for example over-analyzing can disrupt the trading process that you are used to running.
- Imitate the way of thinking of professional traders that trading results are not measured by once or twice opening a position, but by the results of the overall trades, you have made during a certain period.
Step 8: Manage risk effectively
By managing risk effectively, you will also control your emotions and make the right way to trade. Managing risk effectively means that the amount of risk you determine every time you open a position is according to your plan and is enough to make you comfortable so you can trade without emotion. As has been discussed in the previous article, there is no standard rule on what percentage of the risk of your capital should be.
Experienced traders recommend a large risk of between 3% and 5% of capital. Of course, this is very relative and depends on the financial condition of each trader, but no matter how much risk you determine, you must feel comfortable with this choice so that you can trade effectively.
What must be kept in mind is that the amount of risk per trade is measured in money value, not in pips, and is determined in terms of the percentage of capital or balance in our trading account. Position sizing or determining the size of the lot should be calculated every time you open a position based on the size of the stop loss that you specify according to current market conditions.
So the position size always changes every time you open a position. As you have done in a demo account, keep referring to the risk/reward ratio that you usually apply, for example, 1: 2 or 1: 3 depending on market conditions. Try to be able to apply the risk/reward ratio rationally and consistently, so that in the long term you get an adequate return (profit) even though your overall profit percentage is still smaller than the loss.
As an addition that may not be covered in your trading plan, avoid opening several positions simultaneously if you are not really experienced. You can add positions to maximize profits, for example averaging techniques, if market conditions really support and are in accordance with your trading plan.
4. Combines trading knowledge and skills.
The steps in a trading plan to determine the timing of market entry depend entirely on the knowledge of the trading methods we have tested on a demo account.
In this article, an example of how the author (Nial Fuller) reads the market with the price action method in order to find trading signals that are valid enough and the right momentum to enter the market.
Step 9: Finding valid trading signals with price action
If you happen to use the price action method, you will certainly determine the following criteria in reading market sentiment. It is recommended that you use a daily time frame to be accurate and the 8-daily and EMA 21-daily exponential moving average (EMA) indicators to determine entry momentum.
- What are the current market conditions? Are you trending or consolidating (sideways)?
- Are there strong support and resistance levels (key levels)? How do current prices correlate with the EMA 8-daily and EMA 21-daily?
- Has a price action setup been formed on the current price movement? (pin bar, inside bar, or fake bar?)
- If a price action setup occurs, is it supported by the support or resistance level (key level)? Or the Fibonacci retracement levels?
- Do the 8-daily and 21-daily EMA lines as dynamic support/resistance levels also support?
- Is there a rejection or a break around the support or resistance level that strengthens support as momentum for entry?
The above are several checklists that you automatically do every time you start interacting with the market in order to find the best probability of entering the market.
Step 10: Determine the risk/reward ratio for the position to be opened
After finding a valid trading signal, professional traders usually immediately calculate the risk and determine a rational risk/reward ratio according to the conditions of current price movements.
The thing to keep in mind is to determine the risk in currency values, not in pips.
Step 11: Perform trade managements
After opening a position The main objective of trade management is to maximize profit, and it is carried out after opening a position in accordance with current market conditions.
You can change the stop loss level with the trailing stop facility on your trading platform, or averaging technique by opening a new position, or changing the stop loss while opening a new position (pyramiding technique).
Step 12: Maintain emotional balance after entering the market
Forex trading is very vulnerable to emotional influences, if you can control your emotions before and when you open a position, then keep your emotional balance after entering the market. Stick to the steps that you have defined in the trading plan and avoid unnecessary interference with the positions you have opened.
Usually, professional traders use the ‘set and forget’ method after opening a trading position, and return to monitoring the market sometime later to see the possibility of trade management if the position is profitable or re-opening if a trading signal occurs.
If you have done all the steps starting from part 1 of this article, of course, it will still take time to get a consistent profit. The time it takes for each trader to achieve consistent trading results is certainly different, but as long as you can control your emotions and be disciplined in implementing your trading plan, sooner or later you will become a professional trader.