It’s easy to see the tempting lure on social media of traders who “made it big.” Succumbing to the idea that ForEx is a way to get rich quick is a dangerous mentality and may even mean you leave with less money than you started with. 

Yes, you can lose money with ForEx trading. Losing money with ForEx trading is always a risk, so you need to have a good foundation and know what you’re doing before investing a lot into it.  

It’s difficult to exactly say whether you will mostly lose or mostly win, as there are so many factors that go into ForEx trading. Let’s examine the best trader’s secrets and determine what you need to know to get ahead of the curve and prevent losing money with ForEx trading.  

A Risk to Remember  

When considering if you will lose money or not, it’s important to realize this article isn’t a lucky 8-Ball that will predict how you do. In fact, a quick read on TopBrokers’ website holds this disclaimer before anyone trades: “Risk Warning: Your capital is at risk. Statistically, only 11-25% of traders gain profit when trading ForEx and CFDs [Contract for Differences]. The remaining 74-89% of customers lose their investment. Invest [with] capital that is willing to expose such risks.”  

If this off-putting disclaimer hasn’t scared you off yet, you likely know that there are preventative measures you can take to actually “play the ForEx game.”

The most basic strategies every ForEx trader should know are listed below and broken down to help you not just keep your money, but make money!     

Best Practices To Keep Your Money 

Form a Strategy…

Before you start trading, you need to form your “strategy.”

You’ll need a holistic approach to each trade (what you do every time) and an individual plan per trade (specific for the trade conditions you’re entering).

The individual plan per trade can be developed by looking at the “risk profile.” This is the combination of things like:

  • Volatility
  • Recent news
  • Volume
  • The recent history of that currency pair 

Determine Your Approach

If you’ve done any research about ForEx at all, you may be familiar with the technical analysis versus fundamental analysis approach.

You can try to combine these a little, but traders typically rely on one versus the other to avoid complications and contradicting ideas. Before you begin to trade officially, you need to have a plan in place.

Figure out:

  • How much you want to earn
  • Which type of analysis you’ll use
  • When it’s time to pull out

Plan Every Trade

Once you know your strategy for analysis, you need to develop a plan for each individual trade.

It may seem tedious, but each trade has its challenges, points of analysis, and volatility. Have a backup plan for this plan as well, just in case the market circumstances change. This could involve situations such as:

  • Perhaps you missed to mark to sell, and the currency pair is dropping quickly.
  • Should you sell or wait for it to go back up?   

Pre-Determine Entry and Exit Points

As part of the plan you create through budgeting, you also want to add entry and exit points to that plan.

It’s easy to get confused with various charts telling you conflicting information, but your estimate for exit and entry points shouldn’t be based too heavily on graphs. You should factor in your budget and how much you can lose before thinking about the best and worst-case scenarios to trade.    

And Stick to Your Strategy! 

Stop While You’re Ahead 

Pulling out of a trade while you have time to guarantee your gain is essential to good trading.

You don’t want to cling to the hopes that you’ll get more and then have it be too late to exit without a significant loss.

Having the discipline to control the feeling of greed that takes over while trading is important. It’s easy to see something you think is “right there” and end up getting disappointed. 

Set Limits

The same concept of self-control applies in this part too.

You need to set limits for yourself in various ways, not just “getting out while you can.” There are plenty of ways to impose limits on yourself and your account and stick to them: know how much you want to risk per trade and don’t risk more than you can afford.      

Stop-Loss Orders

A stop-loss order essentially bars your account when the market dips too low. It can help you from losing all your money in a single trade that went downhill. It’s great, especially if you have several positions and don’t want to manually close each and every bad trade. Especially if it’s a bad trading day overall, it’s also good if you trade over multiple days, rather than in one market day.

You don’t want to wake up to all your stocks crashing and wonder what happened last night.    

Sometimes traders sort of deny when the stock is falling and have a little too much hope things will simply “work out.” With a little experience, they learn that the price won’t recover in the timeframe they need more often than not.

By doing this, you’re essentially just clinging to a bad position. 

Accept your fate, pull out, and move on. And if you can, try to learn from your mistake (if it was your mistake).

Sometimes, it’s just the way the market moves. You even get a lot of control over the stop order. You can set your own price for when it’s time to pull out!

Here is a synopsis of the terminology surrounding limits and orders: 

  • Have a stop order   
    • Not visible to the market and will stop and pull you out once the price is met
  • Have a limit order 
    • This is visible to the market. It acts as a guide for your broker to either buy or sell at a certain price. This is similar to a stop order but gives you a little more control over earnings in either direction – rather than pulling out completely like you would with a stop order.  

Consistency

Trying to remain consistent is important for trading. Sticking to a plan each time you trade is the best way to keep a sense of consistency when trading.

Make a note of the factors you consider before trading and what made you decide to enter that trade. If you use technical analysis, stick to that every time for a little while. If you use fundamental analysis, stick to that for a while. Don’t keep switching things up.

If it helps, you can view your process as an experiment.

Within one trading method (fundamental or technical analysis), keep a few variables the same each time (looking at graphs, pips, or news, for example). Then, stick to it for a few trades before changing a variable (one at a time).

Even if you take a more holistic approach and look at factors from both technical and fundamental analysis, it’s ok. Just stay consistent and follow the same method.      

Also, if you do find an overall trading strategy that works for you, don’t think that’s all you should be doing. There are always chances for growth in ForEx, especially as it’s a craft with a heavy focus on trends and new technology.

Explore new technology and methods and adapt accordingly. You have to keep up with the market to prosper, rather than the other way around.   

Go Slowly

Build Up To Speed

You have to be patient when it comes to trading. You’re not automatically going to know everything after three days.

Channel your excitement about trading into all the prep work surrounding it. You may be excited just to jump in and put a lot of money in. Still, you’ll actually be a much better trader if you put that energy into:

  • Researching
  • Experimenting
  • Demo trading
  • Joining workshops or groups

Gradual and patient learning is key, and more experienced traders will know that.  

You can even refine your strategy over time, so you don’t jump in with both feet and give up before “shopping around” for good strategies.

You can do day trading if you like closed-decisions and the rush of trading and daily gains. If, on the other hand, you’re more open to “see what happens” and have less at stake, you can trade over a longer period of time.

If you don’t enjoy trading, you might just need a tweak in strategies. 

Analyze EVERYTHING

Trading Conditions 

Trading conditions are important, regardless of the type of analysis you’re performing.

A good way to look at the morning to see how the day will go is to consider:

  • The spread involved
  • The political climate of each country you’re trading in
  • The volatility of the market before you proceed 
  • Also, use the Economic News Calendar to see big events that will affect trading  

Reflect

The good thing about the market is it’s sometimes closed.

This allows you to not stress about having to trade 24/7 and always monitor fluctuations in your sleep. It also allows for time to get a little prep work in. You can look at charts from the previous trading week, predictions for the upcoming week, and news.

Essentially, look at factors that will affect your trading next week and learn about new things you can do and good currency pairs to look for. This is what the most dedicated traders do in their time off.   

Document Trades

You can keep a journal of sorts to give your future self the gist of what you were doing.

You can include variables and very organized detailed lists of what you did before, during, and after a trade. You could also make a spreadsheet and develop your own personal tracking system.

Perhaps you should consider noting mistakes and devise a plan to correct or prevent those mistakes the next time you trade. 

Educate Yourself 

Even the most experienced traders are constantly learning new things, especially in the context of ForEx. There are constantly new strategies and technologies to learn.

Refresh yourself on the fundamentals with a little cheat sheet.

And don’t forget to read every single day – especially before trading, as you never know what can happen overnight! 

Deciding on a Broker 

It’s incredibly important to decide on a broker.

Ensure the broker has a current license, as there are plenty of fakes out there that will try to take advantage of you.

You may pick a broker your experienced trading friend uses and end up overwhelmed by the complexity of that platform. Or maybe you will find that you signed up for something that costs too much in fees.

Doing a little research on the best banks to trade with is your best bet.

Learn the broker’s:

  • Functions
  • Interface
  • Policies
  • Reviews from professional, verified, and trustworthy sources 

Another thing to look for is that they would suit your trading style.

You want to figure out what your trading style will be (day trading or long term) and see which brokerage matches up with your needs most.

For example, day traders should look for minimal or low fees per trade. Whereas, longer-term traders need to check for inactivity fees, as the whole point of your trading is to “let it sit.” 

Study and Use Charts

Trading the ForEx market, especially if you try to open and close within the day (also known as day trading), is fast-paced.

If you rely on charts, graphs, and the market itself as your primary trading indicator, you need to be familiar with how charts work.

Sometimes, you’ll be perfectly aligned with the line of resistance, and if you don’t know how to interpret that, you may miss the mark before you even know what’s going on.

Charts give you a lot of information broken down into very simple, visual terms to allow swift, easy trading.    

Learn the Markets

You should know the market like the back of your hand.

Learn through:

  • Smaller trades
  • Tutorials
  • General studying

You need to know what makes one currency pair unique from the other and how it might behave differently. There’s a lot of cause-and-effect information to study as a precursor.

Learn different market behaviors on every variable possible, such as the differences during busy and steady days and times.

Experiment & Practice 

Experiment

Honing in on a strategy you love and that works for you is great. But don’t ever be afraid of experimenting a little.

This doesn’t mean you have to eliminate your perfect trading method! You can just try tweaking some things to see if you can get better and better results.

Also, some things may work for specific types of trading. For example, entering a volatile market is much better for day trading that for long term trading.

Just like with business, the ForEx market is ever-evolving.

New technology and new trends make up a huge part of being a savvy trader. And there are plenty of websites and newspapers dedicated to informing traders or the newest things going on in the trading world.

Especially if you find your strategy deteriorating, informing yourself of changes in the market may be the key to understanding how to fix your strategy. Not only that, but you may:

  • Learn new things
  • Have new goals
  • Be in a different financial point in your life than you were when you first began  

Practice

Practice never makes perfect in the ForEx trading market, but it can help you make improvements. No trader ever reaches that 100% every time, even the professional, seasoned, experienced traders of say, 20 years.

So, you can rule out the need for perfection. 

However, you can get better. Even getting to the point of simply making a small profit, rather than breaking even, or completely losing all of your money.

You can try with a demo account to build up a level of familiarity and start to recognize when it’s time to invest and when it’s time to let go.   

Pay Attention

Trends Are Important

Trends are the lifeblood of trading. The secret, especially if you are a fundamental analyst type of trader, is learning about the types of trends you need to follow for your trading method.

For example, if you are a day trader or trade over a few days, look at novel trends that are there for a flash. Learn how to find specific trends as well, through:

  • Newspapers,
  • Subscription services
  • Online research with current traders (such as forums)

Don’t try to leach-on to every trend, though. Not all trends were created equally. 

Make Evidence-Based Predictions

A good trading day is not something you can simply feel when you pull back your blinds.

It’s not a feeling.

You have to stay objective and base what you believe the market will do on solid evidence such as:

  • Professional’s predictions
  • News
  • Trends
  • Things like that

The more evidence you gather (both technical and fundamental), the more accurate and wholesome your prediction will be.

You can see where the market will be going daily on a large scale.

Stay Objective

Greed

Generally, the primary motivator for traders is a need or desire for more money. When left unchecked, this desire for a little more in the bank turns into greed and affects how people trade. It makes people take risks they wouldn’t usually take – even unnecessary or detrimental ones.

It’s important to pull out of a trade if the currency pair is dropping, instead of trying to force something to happen that won’t.

Holding on and having persistence isn’t always a character trait, the market admires. Learning to let go is. Or, if you set limits for yourself, make sure you stick to these limits as well.      

Other Emotions 

Trading on emotions is a surprisingly common phenomenon, so it’s worth mentioning more than you may think.

This isn’t to be confused with trading on experience and the intuition that comes with it. Or your analysis of the facts either. Emotions go up and down alongside the stock market – and behave as temperamental as it does.

Craving the Adrenaline Rush

There’s a certain rush that comes with trading, no matter how experienced you are.

Using this excitement to fuel your vigilance in the market is beneficial. Using this excitement to influence your decisions, in that every swing of emotions is a swing of your involvement, is not.   

Needing to Prove Yourself to the Market

Sometimes, people also trade based on anger in a sort of vengeful way.

This sort of “showing the stock market who’s boss” attitude will come back to hurt you, as you become more risky and unregulated.

There comes a point where some traders get so emotional they can’t focus.

Financial Panic

It sounds a little “out there,” but when people feel financial pressure (like meeting a bill on time), they may take it out on the stock market. However, the stock market isn’t a punching bag. It’s not good to fight it with pure rage.

Trading is much more of a strategy game, like chess. And if you have patience, it actually will end up rewarding you. 

Your best bet is not to go in with an emotional mindset, as trading will only exacerbate that.

Even if you’re stressed and think you need to trade to get quick cash, there are other ways to find to meet that need.

Clear your head and remember that it’ll work out way better if you approach trading logically and with a level head. Obviously, you can have a clear head and still end up getting emotional – especially after experiencing a bad streak. 

Thinking You Know it All

When you’ve reached an emotional point of no return, pull out your trade before it gets worse. Then, clear your head once more and try again. It takes practice and patience not to let the stock market control you.

Especially when you make the mistake of thinking that you’ve “mastered it” (although no one officially does), and it throws a curveball.

Learn from it and channel that passion into growth. See how much farther you’ll get.   

Take Breaks

To prevent even getting to a bad point, you can simply take breaks.

This will prevent emotional build up and allow you to have a good headspace for every trade.

If you have a demo account or would like to practice, There’s benefit in measuring your success with and without mental breaks. You could try this strategy after every session or maybe just after demanding ones. 

Remember to eat as well.

You could even take a break here to meet with a friend and take your mind off trading. Or, if you don’t want the distraction, you could try to learn about what you plan on doing next and have a clear guideline.

This may be the most effective measure you can take.  

Accept Loss

In your quest for objective, unemotional trading, you have to learn to react to what the market does.

As with life, it’s not about the hand you’re dealt, but with how you respond to it.

Of course, there will be days you lose money. As long as you’re sticking to your investing strategy, it’s not the end of the world. It happens, and that’s what you’re getting yourself into before you start trading anyway.

As long as you budget and aren’t spending your life savings on trading, you do not need to panic. Just spend a small percentage, and if you lose money, it won’t be a big deal.  

Positive Feedback Loops

Create a “positive feedback loop.”

This is more of a psychological term than one you’ll find in a ForEx glossary, but it’s still relevant. It is part of the psychological feelings garnered from ForEx trading.

If you go in with a bad attitude, it will spiral.

But, if you try to form a positive feedback loop, you’ll end up well off and cultivating your own positive experiences with trading. Even if you have a few small losses throughout the day, most of your trades may end up positive, and you’ll take the good with the bad.

The way it works is that you: 

  • Plan well
  • Execute your stated plan (and stick to it consistently)
  • Have good feelings about trading
  • Keep trading
  • Repeat this process until you get to a good point 

Be Realistic 

You have to understand the number one rule of ForEx: be realistic.

You will:

  • Have losses
  • Have a strategy that fails
  • Have inconsistencies
  • Bad days

The promises of gaining a lot of money aren’t quite like what social media will have you believe they are.

Set realistic expectations, which will become easier with experience.

If you give up, you won’t give yourself the chance to get experience, which will allow you to see the truth. Be patient, and you’ll be rewarded.

Conclusions

There may be days you lose a lot of money or a little money with trading.

You may break even.

You may only make a tiny bit.

Or you might be very successful.

Have a solid strategy but keep an open mind. Pay attention to (and accept) change, and try to remove as much emotion from the process as you can.

ForEx is not for everyone, but it may be that you just need some more experience to see the ForEx trading world is more multifaceted than it seems.

Anyone can trade. You just have to do what’s right for you!