What Is the Forex Market?
The mechanics of trading are not that difficult. There are many Forex trading systems and strategies out their that will work (provide positive expectancy) and will make a trader money. The simpler the system, the better - to a point. (At a minimum a trading system has to tell you when to get in and out and what currency pairs to trade.) What ruins most traders is their inability to check their emotions at the door when it comes to trading. It is their emotional reactions, far more than their technical know-how, that causes most traders to blow out their trading accounts.
As a simple example, lets assume a few conditions:
You will only trade a currency pair that is in a strong trend and that you will
use just one indicator to tell you when such a trend is in play.
Whatever the number of pips of risk any one trade takes on your goal is to make double that number of pips.
You will trade the majors and their crosses, no exotics.
Whatever your starting balance, you will risk no more than 1% on any one trade.
With just these 4 conditions you have the beginnings of a strategy (it is not yet a system) that can provide you positive expectancy. Flesh out what will trigger an entry (the “how” and “when” conditions for entry), where to set the initial stop-loss (take profit is double the number of stop-loss pips) and you have the makings of a system.
If I fleshed out the entire system only one person out of 10 would succ
essfully trade it - and that’s if I gave them the entire system. Why is it only one out of ten could succeed? The answer has nothing to do with the system but rather the trader. Successful traders have learned to check their emotions at the door. By this I mean they do not allow their emotions to dictate how they will apply the system.
They follow it mechanically during the trading day, treating loses as the cost of doing business. Trading is a business, not a game and you have to treat it as such. As a business this means that it will incur expenses and for a trader the trades that end up as losing trades are their company’s largest expenses. Therefore, as the owner of a trading business your job is to minimize as much as possible your expenses and maximize your gains.
But getting back to your original question, yes you can learn to trade Forex for free.
While you are learning you will want to experiment with the various concepts being learned. This means you will need trading software, a data feed and a demo account. Find an ECN broker, download their free software (9 times out of ten it will be MetaTrader 4), install it, run it and open a demo account. By the way,
why an ECN broker? Because you don’t want the broker being the market maker when it comes time to open a Live account and most new traders tend to stick with the broker they first start learning with, so make it an ECN broker from the beginning. All this means is that for Live trading with real money your orders pass through the broker and onto other participants in the currency market (banks, insurance companies, large multi-nationals, and so on). This software comes with a lot of built-in indicators, and even more are available for free, online. Ignore them for now.
Learn Price Action (PA) first before you fall into the trap of looking for the perfect set of indicators that will point you to riches. Every trader I know who
wasn't forewarned has fallen into this trap - often euphemistically called the Search for the Holy Grail. Avoid this trap at all costs. It will eat up your time and money. One of the best ways to avoid it is to learn price action analysis first. There is a lot of free information online about this. Google and YouTube are your friends here.
On YouTube there are two good sources of free information on PA. The first is Al Brooks’ channel called BrooksPriceAction. I will admit up front it can be difficult to listen to him. He has a very monotonic delivery that could possibly double as a sleep aid, but what he has to teach you will find yourself using years from now - as I have. He also teaches a course that I have yet to purchase. He provides enough information for free to get you started without having to go through the course - though I’m sure his course would provide much additional info and I may still take it one
day. But it isn’t a requirement. The second YouTube channel belongs to Nial Fuller. He teaches a particular subset of PA, based heavily around pinbars and a few other formations. Again, he offers a course as well but there’s enough provided for free that you don’t have to take the course to learn the basics.
Now you can have a look at those indicators. Most are a waiste of time. For my own trading the following are the only indicators I use:
A static Support/Resistance indicator: MWD Pivots and Fibs (Fibonacci levels; MWD = Monthly, Weekly and Daily).
Dynamic Support/Resistance indicators: Exponential moving averages. During a runaway or spike phase of a currency pair I will sometimes use an ultra-short term Linear Weighted Moving Average in order to get into the move at a better price. But this moving average is transitory and is removed when not needed.
Fast trend identification: Tilson T3 lag-reduction moving aver
age
Over-bought/Over-sold indicator: CCI (Commodity Channel Index)
To determine whether or not a pair is worth spending the time
to trade: ATR (Average True Range indicator)
That’s it, I make use of no other indicators, and as you can see ea
ch one that I do use has a single, specific purpose.
Now that you’re familiar with PA and a smattering of indicators it’s tim
e to either locate or develop your own trading strategy. There’s a big difference between a trading strategy and a trading system. Develop your strategy first, then develop your system. Your strategy defines the “why” and “what” of your trading. It’s
the thinking or ideology behind why you will trade in a specific way. Once you have that defined, then you can develop your trading system which will specify the “how,” “when,” and “where” portion of your trading. Here is where the rubber meets the road. You lay out, in writing, the rules and processes you will follow as you trade. Again use Google to find a template for writing down your trading system. Several traders have made their templates available for free, so find one you like and use it. Or find one that’s close to what you’re looking for. You can always modify it to suite your pa
rticular needs.
So your trading strategy is laid out and your trading system is developed and written down; now is the time to try it out. Open a new demo account and begin trading your system. I’m not one who favors using a demo account to determine whether or not the system is workable, rather use this demo account to make sure the processes you've laid out to follow are workable. If any changes need to be made, now is the time to make them. Once you’re ready to give your system a real tryout:
Open and fund a Live account. Plan on trading only one or two micro-lots - and trade your system. With real money on the line you will feel emotional swings as you win and lose trades. Stick with just one or two micro-lots until you have those emotions under control and not impacting your trading. On days where the emotions seem overwhelming (and they will at times in the beginning), w
alk away from trading for that day. The goal here is to NOT blow your account while you are learning to deal with these new emotions. They will cause you to make mistakes until you have control over them so it’s best to make those mistakes with as little money exposed as possible. Plan on taking at least 100 trades at only one or two micro-lots.
So you’ve taken over 100 trades at one or two micro-lots and now have all of those emotions under control? OK then, you can start increasing your risk exposure at whatever rate feels comfortable until you’re up to your system specified risk level.
best of luck in your trading endeavors.
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