How To Trade Forex: 7 Steps Simple Guide

How To Trade Forex


So you are interested to know how to trade Forex.

I will break it down for you in some simple to follow steps so you could get started straight away.

Having said that,

Knowing how to trade Forex successfully will require education, practice and experience. It will also take time and a massive amount of effort on your part to become a consistently profitable trader.

Fortunately, there are resources available to you that could potentially shorten the learning curve.

The rest will depend on you though.

Take your time and learn about the other topics of trading in greater depth by navigating the site.

Further down the page, I will give you a 7 step process and explain how to trade Forex.

However, there are a few things that should be taken care of first.

How to get started with Forex trading

This is how to begin trading Forex.

Let me first walk you through opening a Forex trading account step by step.

Find and choose a Forex broker

As a beginner, you might feel overwhelmed because there are so many Forex brokers to choose from. It is also quite possible that you don’t know what to look for to make an informed decision.

I have written a detailed article on the subject here (opens in new tab) and you should certainly check it out.

But to summarize what was written there with the main points to consider.

You should trade with a Forex broker that is;

  • licensed and regulated and has a solid reputation.
  • Provides competitive trading conditions and fast execution speeds.
  • Has excellent and responsive customer service..

Here is a shortlist of Forex brokers that tick all if not most of these boxes. (opens in new tab)

They are recommended and this should save you some time.

Register your trading account (demo or live)

Once you have your shortlist of Forex brokers, it is time to register a trading account.

Pick one or two from the list that you are attracted to the most.

You can start with a demo account registration and convert it to a live account later or apply for a live trading account in the first instance.

If you are new to Forex trading, you should start with a demo. This will help you get familiar with the trading environment and you can practice without any risk.

Just be aware that the psychological aspects of trading will be very different in a live trading environment as opposed to practicing on a demo. A demo account can only partially prepare you for trading with real money.

Registering a trading account is usually quick and easy.

Download the trading platform

As soon as the registration process is complete, you should be redirected to your secure client area. From here, you will be able to manage your trading accounts and download a trading platform.

A trading platform is basically software that includes price charts so you can analyse the Forex markets and trade with your deposited funds.

Nowadays, you can trade from your PC or through an app on your smartphone.

Verify your trading account

Most Forex brokers will allow you to deposit funds during the registration process. However to operate your account fully, you will be required to verify it.

This basically means uploading a couple of documents that provide matching information to the details you provided during the account registration process.

These documents include a proof of you identification and a separate document that proves your residential address.

Fund your trading account

When you are ready, you can fund your trading account and go live.

This can be instant with a credit or debit card or it might take a few days in the case of a bank transfer. It depends on the method because some methods clear your funds faster than others.

Refer to the funding methods available by the broker and choose the most convenient method for you. Forex brokers provide many options for funding.

To avoid delays, ensure that you fund your trading account from a funding source in your name. Deposits and withdrawals from and to third parties are prohibited. This is for your safety and security.

Now you are able to start trading.

Metaquotes and Spotware trading platforms

Forex trading tutorial

Before you do start trading, it would be wise to learn how to trade Forex and have some kind of plan.

Like any other skill, getting good at Forex trading requires education practice and experience. So your plan will probably evolve over time.

Suffice to say, you should have a general idea about what to do.

Here is a general overview of a simple trading process and a framework to help you get started.

How to trade Forex in 7 simple steps

Lets get straight in to it with a general guide.

Step 1. Identify an opportunity or price areas of interest to buy or sell

There are as many ways to trade as there are traders.

But trading begins for everyone by identifying an opportunity.

A common and very effective approach to Forex trading is to identify supply and demand areas (support and resistance) on a price chart. These are areas on the chart where prices bounced or reversed in the past.

Although this is subjective, these price areas can potentially provide you with high probability trading opportunities whenever currency prices revisit them.

Why is that? Because the market has a memory and traders expect them to become pivotal points again like they were in the past.

Traders anticipate prices to either turn around at these areas or continue trading through them.

Support & resistance areas

Other ways that you can identify trading opportunities is from economic news announcements and political events.

Positive news can have positive impacts on the values of currency. While negative news can have negative impacts on the values of currency.

Although it does not always work out like this, some traders do trade from these fundamental news announcements.

Fundamental themes establish price trends that last for days, weeks, months or years.

Step 2. Be patient and wait for the signal

So, you have marked up some price areas on the chart that you might consider doing business at.

The next thing to do is wait for the price to approach these areas.

When or if it does, you should pay careful attention to how the price reacts around them. This can give you a further clue whether the price will be rejected there and possible turn around or not.

You can gauge the buying and selling pressure from the price behavior.

Look out for candlestick patterns that suggest a reversal.

Or, you can use any other indicator you are comfortable with that suggests that a currency might be relatively cheap or expensive.

Once you have adequate confirmation, it’s nearly time to pull the trigger.

Step 3. Estimate and measure the risk to potential reward

Before you execute a deal,

It is a good idea to know how much you are prepared to risk and what you could potentially gain from it.

This is achieved by knowing beforehand the prices you will stop losses and where you will take profits. In other words, you formulate an exit plan for both scenarios before you enter the market.

An ideal scenario would be to enter a trade that has a high probability of success. Plus, have a low risk but a higher potential reward.

What I mean by this is; are you risking $100 to try and make $50 or are you risking $100 to try and make $300?

The latter is a far more appealing scenario and you don’t have to be right as often as the former to be consistently profitable.

You might want to reconsider those trades where the risk to reward is not favorable enough for you.

Another opportunity will present itself soon enough and you should only trade when you think the probability of success is in your favor.

Step 4. Calculate an appropriate lot size

Now that you know when you will get in and out of the market, it is time to calculate your position or lot size. In other words, how much volume are you going to buy or sell?

This is an easy calculation using a simple formula.

Quite simply, you can divide the total amount that you are prepared to risk by the total distance in pips of your stop loss from your entry price.

This will give you a pip value and then you can use a pip value calculator to select the appropriate deal size.

I talk much more about this here (opens in new tab).

You should certainly read more about position sizing because trading too much or too little will directly impact your overall performance.

Step 5. Execute your order through the trading platform

Now you are ready to pull the trigger.

There are several ways you can do this and it depends on your trading tactics.

Here is more information about the different order types and how you can use them. (opens in another tab)

You can set an order to execute at a predefined price, or you can execute at the current market price.

In case of the former, your deal will get triggered when the price trades at your predetermined price. For the latter, your deal will open immediately.

Set the predetermined stop loss and take profit prices for the deal and away it goes.

The market will continue to do its thing and take you along for the ride.

Step 6. Monitor and manage your deal

One of the benefits of Forex trading is that you can buy or sell at practically any time.

As the price action and market events unfold, there might be a cause to make adjustments to your deals.

This is when you might want to modify your stop loss and take profit orders or even close the deal out entirely.

Don’t let your emotions cloud your judgement or motivate you towards doing something that could potentially sabotage your result.

Fear and greed are powerful motivators and experienced traders understand this. A set and forget approach to your trading might help.

You should plan your trade and then trade your plan.

Step 7. Learn from the outcome and optimize your approach

You can’t control what the Forex market is going to do next.

But you can control what you do in the market and when you do it.

So you and only you are responsible for your trading decisions and I am sure that you want to be successful.

To help you achieve your goals, it would be a good idea to keep a trading journal to document your trades and progress.

In this journal, you can record all your trades as well as the reasons why you decided to take, modify and close them.

You can then review your performance periodically and identify any patterns in your behavior. So you can eliminate what isn’t working for you and do more of what is.

No one likes losing money but every trader has losing trades. With that being said, losing trades are also the greatest opportunities to learn.

Re-framing them positively as investments in to your education will help you focus on the process instead of just the outcome.

Treat your trading as a business and think long term.