Trading Forex Like a Pro

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Behold, the secret to trade like a pro: become a pro.

The past

It was during my college years at the Business School that I my interest in stock exchange trading emerged for the first time. A numer of subjects related to business and asset evaluation were taught within the financial, operationalorganizational and accounting areas of the official curriculum. One of the most remarkable topics covered was traditional charting theory; a bit of Elliott’s theories and some foundations in chartist patterns. At that time, Internet was still in the early stages and affordable access to financial data of acceptable quality was merely present only on daily press, so that in order to check stock charts and market analysis the time frame was indeed the daily reports that those publications delivered each morning. For those with a modern television set, the teletext service provided a listing of the companies trading at the Madrid Stock Exchange with their current share price updated every 15 minutes. The charts however were not included within the teletext information.

Operating in the markets was also not exent of pain. I used to have kind of a personal VIP bank card with a phone number contact printed on it for the bank’s brokerage department to call trades. Definitively decent for those interested in investing but completely insufficient for retail trading purposes.

The Present Day

It could be written several hundred thousands of words only to describe the modern resources for teaching and allowing any individual to achieve a profound understanding and hands-on experience in trading. But beware of thinking that trading is easy and suitable for most people including yourself. Please, read before continuing the following notice and disclaimer:

Trading is an activity that involves high risk. Any person trying to trade has almost 100% chance of losing all the money on his/her trading accounts and additional high probability of incurring in additional debts when trading with leverage because margin calls may not be executed in time due to frequent particular market situations. The information herein is not a trading advice and must be solely used for educational purposes and never with live accounts with real money.

It is important that you notice that before trading you have to go through and overcome a significant number of critical steps during a reasonable period of time that is not likely going to be shorter than one year or more. Never prior to being able to obtain consistent account growth with your own thoughtful strategies and having perfect control over the timing and price volatility you could consider starting trading with other’s real money (not yours). After doing the same with a live account by using a welcome bonus, you could start considering opening your own small account. How much is small? Something that allows you to trade risking about one thousand part of your monthly salary (provided that yours is an average salary) per trade, so if your monthly net income is $1,0000 (one thousand euros) you do not want to risk more than $1 per trade and adjust that amount proportionally according to the performance of your trades, either positive or negative, increasing or decreasing such $1 amount.

One of the places I enjoy buying most is El Corte Inglés, the biggest spanish retailer store chain. The key difference between El Corte Inglés and others is the customer satisfaction policy. If one client is not completely satisfied, El Corte Inglés completely refunds the purchase price without questions. They have followed this praxis since long ago when only a few used to. When a broker boasts about their cutting-edge technology and that with it you, a retailer, will be given an interesting if not realtively easy prospect of becoming a wealthy individual; when it happens I say: “Yeah, let’s prove it together!, let me buy your services and if I am not satisfied, please approve my reimbursement”.

It’s obvious at this stage that getting rich in one week or year is not the purpose of this post. If the purpose is becoming rich starting from scratch just look around you and realize that average people unfortunately stay on the average no matter how hard they try it, and that the easy routes usually lead to a bad end. Let’s keep our feet on the ground and stay focused towards something reasonable and absolutely work to give away any greed every time it speaks to you into the ear to weaken your good judgement. Sound preparation pays its cost and is not obtained without great effort, humility and discipline.

Have a plan and take the first step

A plan with a preset deadline. If you do not succeed on it before the deadline, finish it immediately, never elongate the predefined time period. If the circumstances change notoriously midway through your plan execution, just cancel it. After cancelling a plan, it must be examined in detail and a new plan should come out after finishing assessing the current state of things. The plan that I present is a walk along a representative set of books and tools.

The books that will be mentioned next are used for guidance purposes and you should not be limited to them or even use any of them. There will be other good alternatives free and paid; on paper, digital support or even personal lessons. Make your own research and you will surely get many unexpected benefits from it. I encourage you to consult every related treatise to boarden your specific culture and to call into question whatever idea formerly developed. Babypips, Elite Trader, Forex Factory and other sites have a lot to offer to you.

The first part of the plan will consist on pure learning. The first book I would recommend is just Technical Analysis of the Financial Markets, by John M. Murphy.

It is a classic and you do not want to use it as a trading guide, you will lose everything if you would do it. Instead this book will teach you the basics on chart reading. I recommend however to skip all the chapters about indicators. Indicators never should be used for trading. All the strategies based on indicators, you should consider these just innefective. The only indicator that is woth using it is the moving average and purely to have a visual guide to help you determine if prices are above or below the mean and far away from equilibrium. But not even the rolling means should never be used to trigger any trading action.

While Murphy’s Technical Analysis of the Financial Markets has introduced the principles of charting theory, the next book could be Japanese Chandlestick Charting Techniques by Steve Nison.

This book will teach you tons of different price bar figures with exotic names. This information will prove to be essential to fine-tune your trading. Have this in mind in advance: japanese candlesticks should not be traded, instead, they will serve as a way to better gauge the tension within the market and how buyers and sellers toss around. You will encounter during your learning trip myriads of strategies that use japanese bars. Just ignore them all because they will empty your pocket.

Remember that indicators, signal providers and trading robots must be avoided without exception. Sooner or later you will run into the interesting area of algorithmic trading. Forget about strategies with indicators if you find them on the algorithmic trading books and you will see that there is no anything remaining to test. In a more elevated level you may come across researching about artificial intelligence. I have developed a bunch of IA systems under the umbrella of my master in Data Science and years of programming experience. Systems that learn by themselves, others that are trained upfront. Again, my adivce: first learn how to manually increase the size of your account, then find a hobby programming expert advisors if you are bored. The rule of thumb: never use a robot without knowing and understanding the underlying source code.

At this point you are at two thirds of your way of your trading preparation stage. Since you have already increased your prowess for financial markets, it is time to start testing that knowledge with real market data. You are still very far from being able to trade with real money and pressure; believe me, the pressure under real trading conditions is so huge it would crush you like a train in less time that it takes to say “hello world”. Financial markets are like a pool full of sharks where you are their aperitif. I am serious, stay away from risking one cent and from beginning being used to carry the loser’s backpack with you.

Set the right mindset up

Trading without a proper psychological preparedness is like driving a car blindfolded.  The trader’s activity is characterised by unlimited risk and freedom to act, devoid of social considerations about what is good or fair. Markets change randomly. There are no rules about how many times traders have to be in the market, working hours, minimum or maximum position sizes and anyone can stay just looking at the charts searching odds. Anything that may happen can happen without prior notice, because the main principle of markets is free randomness.

There is a book praised by the community and describes in plain language the different psychological aspects of trading that the author has identified during his first 18 years trading and working as trading coach.

Trading In The Zone, by Mark Douglas is completely devoted to train you to become a trader. The way to success requires patience and time. Do not fear a break from charts to smother one’s natural tendency to act under emotions and hopes. Learn how to proceed with a consistent methodology consisting in putting the probabilities at your favour and waiting idle around  rough sea when the likelyhood of gain is against you.

Trading In The Zone takes off from the basics and climbs slowly to navigate across those main principles, which is good for people never been exposed in the past to those concepts, but it may result a bit tedious for the majority of persons who already have an average knowledge in psychology and self-help books. Anyway, in my opinion is worth reading it since it is quite unique to the trading area; maybe a bit expensive only because its popularity and because it could have been written in 30 pages instead of 100 (200 on A5 sheets). So not a big deal, but better having this in your toolbox and make the effort of paying what it costs.

Overcome frustration

Through being hit you will learn to not being paralysed in combat or what is even worse, driven by fear or greed when realizing that no matter how well you follow what you have learnt you fail to achieve success trading repeteadely. You will learn how to avoid the punches of your adversaries; and finally if you have what takes, do not hold out a lot of hope on it, you will start winning on the ring. Your bedside books this time will be (1) Reading Price Charts Bar by Bar, by Al Brooks and (2) Naked Forex: High-Probability Techniques for Trading Without Indicators, by Alex Nekritin and Walter Peters.

 This time practical trainig is also recommended. While you learn the concepts and tactics on these books including chart reading, entries and exits and risk management you may find yourself starting to win some wagers in the Forex arena. Remember, you are still just winning, nothing really similar to earning money by trading. You are not even an amateur at this stage. Please, consider keeping training in the manner I will tell you next for one or two months, reviewing the books and concepts one time after another until you really fully comprenhend everything.

How to practise trading

Open a free demo Metatrader account on a Forex broker with a simulated maximum leverage of 50. In any case stay between 20 and 50 leverage level. Try, they won’t bother you with stupid phone calls trying to steal your money by suggesting you to open a real account as many or most of the brokers do. Remember: never ever accept opening a trading account from a phone call. Brokers will insist you are ready to trade with real money with their support. That is false, that is a thief trying to steal your hard earned money. Treat him/her accordingly and ask yourself why someone having the ability to earn money in that way would have such a horrible work instead of being on a beach in Bahamas trading with the laptop while having margaritas and other good experiences.

So once you install Metatrader find out the market opening hours and try to trade within the previous and the later hours. Avoid always trading news. Look for one or two major pairs, let’s say EURUSD, USDJPY or so. Find spreads lower than 3-5 pips and avoid the rest. Never trade bars that are higher than average and too far from equilibrium (10-30 EMA level). You can create a demo account with Metatrader itself. Do it and set it with the parameters above ($500 of capital and 50 leverage). Test your knowledge and the new books risking no more than 50-60 pips on the 5M or 15M charts until your account peters out several times. Learn from it. Do it again and again for a few weeks or months. Avoid improvisation, stick to your strategy. See how it fails. Get over it and avoid acting by fear or greed and stay calm and cold.

Join the amateur’s wagon

It is unlikely but not impossible that trading correctly support/resistance and round number levels you have started to see that finally your trades seem to anticipate market moves. Less probable that you even have been making profit from it for months. This is the next milestone in the plan you have been devoted to during the last months, maybe the last year until you got here.

First, stay out while news are released. This page contains a calendar that you shall use: Those long bars, horrible spreads and slippage levels are not seldom cause of news.

I would have one main concern at this point of the post: what about fundamental analysis?

“HA-HA”, yes, millions of operators accross the world with different purposes and reasons to act, each one of these operators ignoring the reasons of the others. Millions of plans which their trades respond to, private internal information that will never be shared with the public, outside the organizations. It is impossible to now how every agent is going to act today. With technical analysis, at least, you are whatching at what all of them are doing at this very moment and since ever and how securities are reacting to that. In Forex, wait for price to react to fundamentals and keep safe from news releases.

Now, check the next figure and see how the platform installed in the previous step with your demo account looked like, being indistinguishable from a live account platform. The platform simulates any trading operation in real-time on the Forex market, it is free and it does not use real money for demo accounts.

Metatrader image
Metatrader 4 terminal

From here on, there is no one strict way to proceed. The last books I will add to your toolbox is will leverage your odds when choosing the right side to shoot from, Understanding Price Action by  Bob Volman.

Do not venture to such readings until you have mastered the prior lessons, meaning that even if you are still not being profitable in average, at least you have reviewed everything several times, enough to have already a nitid understanding of price action and psychological aspect of trading subtetlies. We have not been aiming to earn money yet, just to understanding price action and to get calm and stick to the plan when facing frustration within the session.

The other book, Forex Price Action Scalping, is also written by Bob Volman. In my opinion Bob Volman is one of those writers that excels over the rest in their field. If the first book is about understanding price action, this second book is more about grabbing the best of every situation in the market. I recommend reading first Undertanding Price Action. I think that the ideas presented on both are universal for any time frame. Be advised that this book is based upon the 70-bars chart, but I have seen the same patterns working, adjusting the settings to the volatility within that timeframe, in the higher timeframes due to the fractal nature of price which patters are repeated over and over again at any scale.

Fractals are structures that repeat themselves across any possible scale (size). The most known example is the one named “the Mandelbrot set”. But, please, do not rush into your book store to buy stuff about fractals and trading, there is no need for it. Just catch this idea of price patters being always present at any time scale and enjoy how a fractal set looks like whatching the image below.

The Mandelbrot Set
The Mandelbrot Set

Beyond the books, search also Youtube for real trading videos that are broadcasted live for free. Do not fall under anxiety and pay for something you may find equally at no cost. Ask all the brokers you want to for tuition-free education on price action and trading. Read the last book by Bob Volman, you will be really surprised as I was. Look for live trading sessions offered by real traders (usually paid by the brokers or anyone else) and learn from real people trading with real money.  Do not trust a trading session in which the trader is not putting real money on the trades and risking the own wealth.

By combining all the teachings since now and the lessons learnt within those live trading rooms, now continue with the demo trading and see if you are able to get consistent earnings for months.

If you are able, then you are one step out from catching the amateur’s wagon and start putting some real money. But not your money, find a broker offering a free welcome bonus account. Here you may be forced to raise the leverage level since those accounts are very small. However, with $30 you have a lot to do with 0.01 lot position size risking no more than 50 cents per trade if you pick very well your trades. If the bonus account runs out of money, find another broker and start again with a bonus account. There are tens.

Once you are doing well with your bonus account and making it grow for weeks or months, start considering risking your first $100 at a 30-50 leverage live account. But before doing it, carefully review all the consequences, legal and financial, of real trading and how it can affect you. Have in mind that the risk is very high and that you will probably have an average probability of losing all the money you put in higher than 90% or 99%. This is a very difficult and financially dangerous endeavour, be advised.

Finally, look for multiple resources, the net is full of them and you will find priceless articles, forum threads and videos. Do not let yourself being convinced by apparently logic and obvious winning techniques. Test everything always for months before deciding if it works or not.

Again, remember that this post is not a recommendation for trading. This post is meant to give support to those that, being interested on learning trading, have not found yet a clear guide of valid steps to follow and work on to improve or adquire in some way their trading skills. The followed results are not guaranteed and this post represents solely the subjective view of the author. The methods described may not be suitable for other persons and the author is not an expert trader nor holds any certification on the matter. This text is also subject to errors, misconceptions and interpretation; it could be completely wrong in every aspect.

Final words

One of the most useful tools I have been using for backtesting is a paid tool called Forex Tester. It is not very cheap but it is not costly for what it has to offer to you. It has the same aspect as Metatrader and similar user interface. It also comes with real market data and can also import data from other tools and brokers.

The purpose of this tool is training and you can trade any past period simulating that is the present time. The tool shows you the market status and generates new bars for you so that the feeling is very similar to demo and real trading. You can also freeze the time and decide when the next bar will be added by just clicking one key.

Of course the typical trading operations are implemented such as market long/short orders, sell and buy stop/limit, trailing stops, etc. Look at this screenshot:

Forex Tester 3
Forext Tester 3 Screenshot. Short trade simulation.

The developers offer a free trial of the tool on so you can evaluate it.

I would like the reader appreciates the fact that I am not affiliated to any of the resources and companies mentioned on this post, including the ones I shared links to, like Tickmill or Forex Tester. I could have used affiliate Amazon links for the books and same thing for the other stuff, but I want the reader to be sure my opinion is not constrained nor directed by economical interests, recommending books and resources I am paid for.

Please, be careful, stay calm, act wisely and be patient. Best luck.

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