Before you can start to exchange on a real-money account, we all know the importance of doing some practice on a practice account. Actually… a lot of practice. But therein lies the rub, how much is enough practice? Some advisors will tell you to try practice exchanging for a few weeks and others could advise you to do it for months before you’re ready. The truth is, there is no definite time that could be quoted as being enough to make you ready for real-money exchanging. But there are a few signs that you could look out for in your practice exchanging to indicate your readiness for a real-money account, and these will be the primary focus in this article.
As a side, there is usually an often quoted time limit of 10,000 hours. This standard time limit was first proposed by Malcolm Gladwell in one of his books where he stated that all experts in various fields had spent at least 10,000 hours on the tasks they eventually mastered. For years, many people have believed this was the standard amount of time required to master any new skill. By that standard, therefore, one would only need to spend about 12 hours a day, every day, for about two and a quarter year practicing on a practice account in order to master the art of Forex exchanging. However, this 10,000-hour rule has been disproved lately because there just isn’t a single standard for everyone in the world as we learn at different rates. (Every good exchanger knows the: 10 steps of successful exchangers)
One alternative I really like was the one set forth by Robert Greene in Mastery that encouraged ‘deliberate practice’ over the 10,000-hour rule. In this alternative, Greene proposed that people learned only by practicing, taking note of their errors and making corrections to rectify them. By doing so, a person could eliminate all errors in their Forex exchanging habits and become a better exchanger. If anyone would to follow this plan, then it could be very much possible to become a better exchanger and move on to a real-money account. That could mean taking an even shorter time, but it would all depend on whether you portray the signs of a qualified exchanger. (Many people lose money, but this is: How Not To Be Added To The 95% Of Losing Exchangers)
So, what are these signs that you’re ready?
There is no risk in exchanging on a practice a count, absolutely none, and that is why anyone can get a practice account and Forex exchanging platforms from a broker even before creating an account with them. On the other hand, this lack of risk also takes a lot of the pressure away from the actual exchanging, and one may become overconfident. It’s not bad to be confident, but overconfidence is a dangerous drug. Furthermore, the stakes are real in a real-money account with serious consequences. For example, if a broker doesn’t provide negative balance protection, you could end up with more debt that you started with. Many exchangers have experienced this, but you don’t have to become a statistic if only you make sure you exhibit these signs. (These are the: 10 most common mistakes Forex exchangers make)
You make profits consistently
One thing is for sure, there isn’t an exchanger who does not experience moments and even periods of losses in their career. It doesn’t matter how experienced they are, everyone will have a streak of losses at some time, and in fact one of the most commonly asked questions is how someone can get out of a rut of bad luck. Therefore, when we say you need to make consistent profits, this does not mean only making profitable exchanges with no losers. By the way, if someone has some secret formula to do so, I’d kill to have it. Even here at Top Brokers, we train people to exchange through various Forex exchanging strategies, but none are ever 100% successful. (You should: Learn How To Use Position Exchanging In The Forex Market For Profit)
The key is to maximize your profits on the winning exchanges and minimize losses on the losers. If you can adhere to this rule and still maintain proper risk management in your exchanging, even an exchanging strategy with as little as 20% profitability can make you money. For example, imagine if you made 10 exchanges in a week and only 2 were profitable; but you let the winners run for a long time and collect maximum profits while the losers were quickly stopped out. The returns from the winners can be enough to cover any losses and then some, leaving you with a decent profit at the end of the week. Now imagine if you had an exchanging strategy with an 80% success rate, how much could you theoretically make, huh? (Here is: A Complete Guide To Volume Spread Analysis In Forex Exchanging)
So when we say ‘consistent profits’, it simply means that your account has been growing consistently over time. Think of it this way, if your exchanging capital on a chart looks like the S&P 500’s in 2017, that is consistent growth. The only difficulty comes in determining the period of time over which to decide the account’s profitability; a week, month, year? (Make many exchanges every day and win using the: 10 rules of how to earn money with scalping)
Again, there isn’t a standard here for everyone, as we have already mention, but I like to think of it this way – do you feel confident in your exchanging strategy week-by-week, or is your attitude hit-or-miss. The most profitable exchangers are those who have confidence in their exchanging that they can predict how profitable they could be in a month or year. Such confidence is built on experience practicing a particular strategy and taking note of its profitability. If you’re still in a stage where you don’t know at the start of the week, simply making exchanges and hoping to make a profit, then you’re not ready to exchange on a real-money account. Keep practicing until you really know you have a profitable strategy that can give you consistent profits. (Have you ever wondered: How much money Forex brokers make?)
You already have very clear rules on the amount of risk to take
A common rule in Forex exchanging is that your success is half dependent on your skill and the other half on your risk management strategy. Imagine an exchanger who is very good at the game – they can read charts like a pro, make accurate technical analysis, read news announcements and make good exchanges most of the time. Then one day they make a mistake in their analysis and place a losing exchange. That one exchange could completely wipe out their account in a day if they had not remembered to limit the risk they take. Indeed, many new exchangers have been kicked out of the markets for just this reason, because they forgot that they could lose just as much as they gained or even worse.
It is for this reason that you should never start exchanging on a real-money account before you know the amount of risk your account can take. This will also protect you from losing a huge portion of your capital when you eventually face those losing streaks that will inevitably come down upon you. For proper risk management, you should always risk an amount of money you’re willing to lose – that is the general rule. This is usually capped at 2% of your capital and never beyond 5% when running simultaneous exchanges. Let’s say your account balance is $1,000, 2% would be just $20. Now let’s say you are using a leverage of 100:1 on a standard account, that would mean never to open an exchange of more than 0.05 lots from the exchanging platform. (You should know: How to protect yourself from margin call)
Another important character is to be able to stick to it, otherwise, it loses its purpose. Very often, we get carried away by our own self confidence and take larger risks. You can see this any time you walk into a casino or even watch someone betting on sports. The more they keep winning, the higher they wager believing luck is on their side, and often this ends in tragedy. The opposite also occurs, when losing, because you start to believe bad luck has run out and surely the next exchange will be profitable. It gets worse when you keep raising your margin in order to make up for the losses, and pretty soon you’re wiped out. That is why it is not only important to have a good risk management strategy, but also stick to it no matter what. (Concepts every exchanger should understand: Leverage, margin and hedging)
It is also important to identify your limits. Everyone knows how they react in different situations and can take steps to avoid being in such situations. A friend of mine gets really rowdy after a couple of drinks, and he has learned to quit after just a few and take a break with some water or soda. If you know you have the habit of getting overconfident as you win or vice versa, remember to give yourself a break. Some people think that taking a break away from the exchanging desk is akin to losing money, but sometimes it’s better to lose an opportunity than to actually lose money chasing a mirage. To determine the best course of action, look inward and find the best solution for yourself.
You have already established a well-detailed exchanging plan
Risk management, check! But what about the exchanges themselves? Risk management has to follow exchanging plan, but this way I can keep you on your toes. Anyway, a detailed plan is basically like an exchanging strategy, only broader. Put it this way, your exchanging strategy may involve taking a long position every time prices cross the moving average upwards. On the other hand, an exchanging plan could instruct you on which currency pairs and markets to focus on and the best time of day to exchange. See the difference? An exchanging strategy is the actual trigger to make exchanges, but an exchanging plan determines your schedule and focus over a longer period. (Find out: How to create an exchanging strategy)
Having an exchanging plan is crucial because it protects you from being scattered and haphazard in your exchanging. As Warren Buffet said, it is better to buy one or two stocks you completely understand that multiple stocks you know nothing about. For me, I prefer to stick to major currency pairs, and especially the USD/JPY and GBP/USD. Once in a while, I may dabble in the exotic currency pairs market and throw in some USD/MXN, but I only do this when there is a specific news announcement I can anticipate. My exchanging platform will often have the same 5 to 6 windows open unless something new comes up. And even when this happens, I have to plan ahead of time and not just rush to make a trade because of the fear of missing out (FOMO). (Every investor should: Learn How Cryptocurrency Scams Operate And Avoid Them)
Once you have an exchanging plan, you are a much better trader with laser focus on what you want and can achieve better results on the areas you choose to concentrate. Your exchanging plan should also include a follow-up at the end of the week to check your progress and see if there are any changes to make. If you happen to notice a flaw in your exchanging plan, this is the time to fix it and not rushing to make sudden changes in the middle of the exchanging day. (Some of the: Most common questions FX traders ask)
Not only does an exchanging plan make you a better trader, but it eliminates a lot of the stress involved in the industry. At the start, many people see FX exchanging as a get-rich-quick scheme where you can just make a few clicks and walk away with a profit. Very quickly everyone realizes that there is no glamour in the industry but actual hard work. Everyone has to sit down in front of a computer screen, sometimes for hours on end, and actually put in the work. Without said exchanging plan, you are going to be the most stressed person in the world as you jump from one currency pair to another throughout the day. And as soon as you come back to the one you just left, that’s when you realize an opportunity has just gone by. If you do this all day, I frankly feel sorry for you because that’s how you get high blood pressure. Take your time to study the markets and decide what you are most comfortable with and make an exchanging plan. Also plan for other things in your life like exercise, friends and family, entertainment, whatever you like. Do not allow the exchanging to mess up your life because then you just become miserable and a loser at that.
You can handle your emotions
There is a reason computers are taking over many industries – they have no emotions. Given the ongoing World Chess Championship match, it reminds me of chess engines that have a much higher rating than any human. Beyond just playing ability, a computer cannot be stressed by pressure from the audience or friends and family. A computer just plays the game, and that is how it gets so good. In the FX market, just like in any other financial market, we are always advised to ‘trade like a robot’. This means, leave out your emotions as soon as the exchanging platform is loaded and just think about the markets as a robot would with unbiased eyes. Whether the emotions arise from the actual exchanging or from outside, try as much as you can to block these emotions out. (On the next Friday, remember these: Friday FX Exchanging Tips For Day Traders)
Everyone has their own way of doing this, but my shield of choice is music. I can always focus on the task ahead of me with headphones blasting as it makes me less anxious about my surroundings. I know someone who prefers to exercise as a way to get their heart and mind going, and some who can just focus without any aid. Whatever your strategy is, just make sure it allows you to focus on the real-time FX charts in front of you and leave everything else behind.
Emotions also extend to your reaction to the trades, whether they be winning or losing. Take the hit or gain in stride and forget about it, shifting your complete focus on the next trade because looking back could affect how you feel. I know how elated I feel after a profitable trade, especially one with a huge profit and I’m often tempted to start thinking of what I’m going to buy with the money. Anyone else like me? I won’t lie, this is more difficult to do that to write down, no matter how much you try, but that is all it takes. You just need to have the will to focus on the next task with whatever aid you’ve got. This is also why you should follow up over the weekend and review all your trades, so as to understand what decisions led to your win or loss in a particular trade. If you can train you mind to have this kind of schedule, then you can be less emotional. Over time, you will be able to hold off immediate reactions because your brain knows it can deal with that later. But it takes time to retrain your brain this way. (The best brokers have a license from one of: The 3 Most Trusted Exchange Authorities in The World)
You are comfortable with your broker and exchanging platform
Many times already we have stressed the importance of a good broker, otherwise, it would be like bringing a knife to a gun fight. Your broker provides you with the necessary tools to be competitive in the industry, and there are so many participants already. Quite simply, it is kill or get killed in the FX money since someone has to lose for you to gain. That is why a good broker can mean the difference between your success and failure.
For example, consider one trader working with one of the reputable ECN FX brokers and another who is stuck with a less competent dealing desk broker. The odds are massively in favour of the former trader because they have the advantage of getting accurate market quotes from the interbank market and no chance of manipulation by the broker. On the other hand, the other broker is disadvantaged because they could be getting wide spreads and even possible distortion by the broker to increase their chances of losing. Even if the two traders are equally skilled, only the former will make a profit in the market. (Investing In Cryptocurrencies: Watch These 5 Profitable Coins)
Knowing the importance of the FX broker, you have to be very careful in selectin your preferred broker, and we have covered this topic in a previous post. The key to identifying the ideal broker is patience and a willingness to try out different options with input from experts like ourselves and other traders. Also make sure that you are getting your very specific needs addressed by the broker. Simply because a particular broker is possible among many traders worldwide does not make them the best for you. For example, I don’t use the most well-known or popular broker in the world but prefer another company simply because they allow for funding in my local currency. That makes deposits/withdrawals more efficient for me and, in case of a margin call, I can quickly make a deposit and prevent a stop-out. Everyone should feel as comfortable with the broker beyond their legitimacy and other issues of reputation. (US residents should know at least one of the: Best US regulated FX brokers)
This issue of comfort also extends to the exchanging platform, because it is the one tool you interact with the most. If you go back through most of my screenshots of exchanging charts, you should quickly realize that I use MetaTrader 4. I don’t just do this because it’s popular but because I am very comfortable with the exchanging environment. After years of exchanging I know exactly where every button is placed and can even use keyboard shortcuts to execute quick commands. All these make me comfortable while using this platform, and everyone should feel the same when exchanging. Basically, your exchanging platform should not feel like a platform but more like an extension of your arm – I hope you can understand what I’m getting at. (Is It Time To Upgrade To MetaTrader 5: Features Of MT5)
I am aware that MT4 is slowly being phased out by MetaQuotes by ceasing support and no longer issuing licenses for the platform, and I understand I have to start practicing on MetaTrader 5. I also know there are a lot of other people who feel the same way out there, but we just have to adjust and once again get comfortable with the new version. Some traders also prefer platforms like cTrader that also has a lot of exciting and powerful features, but in the end it comes down to ow comfortable you feel once you load the program on your computer, tablet or smartphone. (Everything You Need To Know About The cTrader FX Exchanging Platform)
Once you have nailed all the above, I can confidently advise you to move up and open a live account; you’re ready. Come over and show us all what you have learned, maybe you might even teach us a thing or two.
How can you develop these signs and move up to a live account?
Does anyone else here get annoyed at being told what they should be doing but not how to do it? I know I do, so I won’t just leave you with a set of expectations without at least trying to help you get there. Most of what I’m about to list here has already been discussed in separate articles on this website, but I shall just mention them nonetheless. (Remember the: Top 10 Most Outrageous FX Market Scammers)
Decide if FX exchanging is really for you
Back when I was still trying to get my footing in the industry, a friend of mine who introduced me to the industry asked me if this is something I really wanted to do. In his argument, he simply stated that anyone can do whatever they set their mind to. It sounded very cliché at the moment but looking back, it makes a lot of sense. Without the will and drive to learn the basics of the industry, I would have never become a better trader. The fact is that no one can make an improvement in something they are not passionate about, and this is why I’m making this my first piece of advice.
So how do you know if this is for you? Know the truth about it. Many videos on YouTube will show you people driving sports cars and jewellery that they bought using Forex profits, and I’m not going to get into the authenticity of the videos or individuals portray. What I will tell you is that Forex trading is not all about the glamour as showed in those videos, but actual hard work. You can indeed become a millionaire from trading Forex, but don’t forget that it takes a lot of time behind the scenes. My typical trading day begins at around 6AM or 7AM in the morning in time to catch some of the Tokyo session and goes all the way up to midnight. During this time, I am mostly in front of my computer or thinking about the markets, not driving a sports car and having a party. Adding it all up, you could say I work about 70 hours a week, which is much higher than most 9 to 5 jobs. If you’re willing to put in the work often 5 days a week, then maybe this could be for you. There are even more hurdles I could mention, but then that would need a whole separate post. But just remember that you won’t succeed unless your heart is in it and not just as a by-the-way. (Do you know: Currency correlation and how to use it?)
A lot of the downtime is spent in looking inwards; thinking about all the decisions made, whether right or wrong, to help us become better traders. Psychologists have identified something called attribution bias as a skewed way of thinking about the results we get in a particular field. A person with such a bias will praise themselves for achieving success and attribute this success to their incredible skills. However, the same person will lay the blame on another person when things go wrong and take the blame away from themselves. If you harbour this kind of bias, you never improve because you’re always perfect in your actions and the whole world is just out to get you. (Behold, the: 7 Powerful Candlestick Patterns to Learn and Understand)
Such a bias can hinder your growth as a Forex trader, and that is why you have to spend a lot of time looking into the mirror. Remember when I mentioned ‘deliberate practice’ in a previous section? This is what it’s all about. If I have had a bad day where I made several losing trades, I won’t just go out and drink myself silly. Instead, I will try to look back at the exact moment when I made the trade and what prompted me to do it. Did I misread the charts or is there something I had not considered like news coming from the economic calendar Forex? When I realize my mistake, I make it a point not to repeat the same in future. (Practice and know: How to work with the economic calendar)
By looking inwards this way, you reduce any bad habits you may have in your trading career and improve. Without this contemplation, I would not have made any improvements whatsoever.
Practice, and practice some more
The importance of practice cannot be stressed enough because it is pivotal to becoming a better trader. Cristiano Ronaldo may be the best player in the world, yet he still spends hours in the field trying to become even better. The same is true among all other best athletes and traders since there is no end to learning and one can never be too good at something. Just remember to focus your practice at specific goals and not just repeating the same thing over and over as that would just be silly. (Real information can only be got from the: Most actual top 10 Forex blogs)
Let’s say you have mastered technical analysis but still have a weakness in fundamental analysis, then focus on this weakness and turn it into a strength. Try trading on a demo account by just reading and listening to news updates from all over the world. All you need to do is identify your specific weaknesses, but then that also requires practice. Any weakness turned into a strength makes you a better trader and even person. It’s funny how a person’s activities change the kind of person they are, but it’s true. By correcting your weaknesses in Forex, this could teach you to be patient and motivate you to make changes in other areas of your life too. Life is like that. (Try: Comparing fundamental and technical analysis)
Also do not be afraid to learn something new, and that is why we’re always coming up with new trading strategies you can use. Do not allow yourself to become comfortable because the brain is a muscle that needs to be stretched by exploration and learning. Take heart because when you learn something new you are also becoming a better trader at the same time. There really is no downside to learning new ideas because your mind is not like a hard drive with limited capacity, so there really is only an upside. (Here is: All you need to know about pivot points)
Alright, that’s enough for now
You should be practicing and coming up with a trading plan for the coming week now, not reading my words all day. So I’m going to cut myself short here and just urge you to keep at it. There are real and achievable rewards if you become a successful trader, and all you need to succeed is to follow everything we have just discussed in this post. There is a lot more knowledge in our other blog posts, so be sure to check those out too.
This post was not really meant for beginners, I assume by now you should have some experience, but beginners can watch this short clip for some quick tips on getting started: