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Learning to Trade the Forex Market

May 30, 2008
Learning to trade forex is very easy. Learning to trade forex well and at a profit is much more of a challenge.

There are a several good reasons why learning to trade forex is a worthwhile undertaking. Forex, or foreign exchange trading is the granddaddy of them all in the trading field. Daily volumes are in the trillions of dollars. The huge size of the market reflects the basic use of money in the modern world.

This massive activity every business day of the week means that the skilled forex trader has a virtually unlimited pool of money to tap into. When trading forex you never have to worry about the size of the pot. It will always be as much as you can possibly handle.

After learning to trade forex successful forex traders can make hundreds, even thousands, of dollars a day right from their home computer. One of the most successful forex traders of all time, George Soros, once made over a billion dollars in just a few days time by correctly forecasting that the Bank of England would not be able to defend an overvalued British Pound. Once Soros had completed his analysis he took massive action and placed a large short position against the Pound. As the Pound collapsed Soros made his fortune.

The following are a few good reasons to why learning to trade forex may be a good idea for those who have risk capital to trade with:
1. The forex market is where the big money is. There are really no limits as to what a skilled trader can make.
2. The forex market is worldwide and in major currencies like the US Dollar, the Euro, Japanese Yen, and British Pound is quite active. You can trade forex around the clock five days a week.
3. The forex market is highly liquid. This means that there is always a tight dealing quote at which you can buy or sell active currencies.
4. Forex trading usually comes at you fast. Your trade will most often move into profit or hit a stop loss point very quickly.
5. Currencies usually trend one way for long time periods. It is not unusual for a currency to have a major trend in one direction for three to five years at a time. When you trade with the major trend this gives you a trading edge.
6. Transaction costs are low. Major currencies can be traded even by small traders at dealing spreads of two to three pips.

If there is one point above all others about learning to trade forex it is this one. Your chances of having a successful outcome to your trade are increased tremendously when you trade with the major trend. When you enter your trade on a reaction (correction) within the trend your odds of completing a successful trade increase even further.

For example, let's say that you have identified the Euro as being in a major uptrend against the US Dollar. This is easy to do by looking at a long term chart of the Euro against the US Dollar. Instead of immediately rushing into the forex market and buying the Euro you wait until a correction takes place, as they often do, and you buy the Euro on a pullback to its long term trend line. This takes some patience and discipline to do but the payoff can be huge.

As the major trend kicks in your Euro position is immediately in profit. Then you have the pleasant decision to make as to when to take your profit. Learning to trade forex can be broken down into a series of decisions like this. The key is careful analysis as to the direction of the trend and then waiting for a good entry point. Patience and discipline are the hallmarks of the most successful forex traders.

In getting started in learning to trade forex setting up a free demo trading account with an online forex broker is recommended. Trading play money is not the same as trading your own real money but by starting with a demo account you can learn how to best set up and use the trading platform without putting your money at risk during the learning process.
About the Author
Gerald "Taipan" Greene is a retired forex trader and portfolio manager who worked in Asia for over 20 years. The nickname was acquired in Hong Kong and is now used for a number of financial, political, and Internet business related blogs. One of them is at Forex Trading Guru
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