Forex currency trading is risky and often frustrating but it can be very lucrative if you know how to get it right. Successful forex traders have certain qualities that they all share. Knowing these FX currency trading secrets can make the crucial difference between profit and loss for the average trader.

1. Funds

While it is true that you can get started with FX currency trading with just a few hundred dollars these days, it is obvious that nobody operating a tiny account is going to make a lot of money in a short time. 10% return on investment per month is an excellent result, but if your balance is $1,000 this would be just $100 per month – not quite enough to retire to Florida for the rest of your life!

If you are starting out with just a small investment, understand that you will need to grow it slowly at first, and reinvest all of the profits. The alternative is to take huge risks and almost certainly lose it all. Your funds must be clear money that you do not need for anything else, because you are not going to be touching them for a few years.

If you are in the fortunate position of having a large amount to invest in FX currency trading, it is still wise to stay small to begin. Start in demo and when you move to real money trading, start small. Many big time traders keep their risk per trade below 1%. When you have a large fund balance, you will want to take extra steps to protect it.

2. Trading System

If you are going to trade for yourself rather than using a managed account or a robot, you will need an FX currency trading system. The best systems are usually simple. Complex systems only confuse things and lead to fuzzy signals and mistakes.

The worst thing that you can do is keep switching from one system to another. Instead, take two or three systems that have good reviews and test them for yourself. When you have found one that brings you consistent profits in both back tests and demo trading, you should have complete confidence in it. You will then be able to stick with it through bad times and good times.

3.  Mindset

The last essential requirement of a successful FX currency trader is a cool head. Do not underestimate the importance of this because it can make or break your trading performance.

We all like to think that we are calm, rational people but the stress and pressure of forex trading can cause all kinds of unexpected reactions. Do not assume that you will never react emotionally to something that has happened during your trading. Instead, recognize that stress, fear and panic decisions are pretty much inevitable and it is how you deal with them that counts. Taking time out at the right moments can help you to stay cool and keep you making money despite the stresses involved in FX currency trading.

Forex trading beginners are often looking for forex predictions to make money with currency trading. Others search for tools that will help them identify forex trends. But which will make more money for them?

Making money with forex trading is not necessarily difficult. On the other hand, it is not always as easy as people think. Anybody who tries to second guess the market or take the approach of a gambler, thinking that probability will be on their side, is likely to lose. In the same way, there is no system that can guarantee making money all of the time. But it is necessary to find some kind of a system.

It is also necessary to learn how to trade. This does not just mean understanding how to use your broker’s forex trading platform. It is also a matter of risk management, and recognizing the importance of applying a system consistently. Another surefire way to lose is to hop from one system to another, always thinking that the latest system or robot must be the best. This is not usually true. It is better to go for something that is tried and tested, like a system based on forex trends.

Forex trends and forex predictions are not the same thing. A system that is based on trends involves looking at charts to see what the price movement has been over the last few periods. In this way it is often possible to identify a longer term trend of upward or downward movement in the price of the currency pair. We can benefit from that by backing the trend and watching our profits rise – provided of course that we get out before the inevitable reversal. It is always important to remember that no trend continues forever.

Forex predictions involve making a judgment about which way the market will go in the future. So they are not so dependent on charts and analysis of the recent past price movements. Often, they will be based on fundamental analysis, which is analysis of the economic factors that drive the market, such as an upcoming interest rate change.

The problem with trying to predict the currency market is that most of us do not have any special knowledge on which to base our predictions. Often times it can come down to a gut feeling which is not much more than guesswork or gambling. If we rely on information from financial websites, blogs or newspapers then we are putting our trading into the hands of journalists. Even if the information is correct, we may forget that the rest of the world has access to the same information and so the market may already have responded. We could simply be caught in a retracement.

Trends on the other hand allow us to set up our own systems and avoid trading around times when announcements are due. Most traders find this a much more reliable method. For this reason most forex traders prefer to follow forex trends over seeking out forex predictions.

One of the biggest myths of forex or foreign currency trading is the idea that in order to make a lot of money, you have to make a lot of trades. Traders are spending more and more time online, afraid of missing trading opportunities, and bemoaning their luck in the forums if they do not find many. Also, one of the biggest complaints about certain forex robots is that they do not make enough trades. But does it really matter?

Of course to some extent this depends on the system that you are using. Some systems do rely on many small trades. Day trading and scalping systems usually work this way.

However, these systems are stressful. There is nothing good about putting yourself in for a lot of stress. Apart from the health risks, which are well known, stress leads to impatience, bad decisions and more mistakes in trading, so it can lose you money.

What is more, even if the system goes according to plan and you apply it perfectly, it is much more time consuming and often, less profitable than a longer term trend following system.

Day traders might have an aim of making 10 pips per day, for example. Not all trades will win, so they may have to make several trades in one day to achieve this aim. Assuming they are successful, then in a four week period trading five days a week they will make 200 pips.

In longer term foreign currency trading you might be aiming to make 100 pips per trade. All you need now is two successful trading opportunities in the month to make the same 200 pips.

If they were asked which system they would prefer to operate, almost all traders would say the second one. However, 95% of beginners start out trying to make several trades per day. Why is this? Perhaps because they do not have confidence in their ability to identify a trend that will last several days and make 100 pips or more. But in that case, perhaps they were not ready to start real money trading.

Often, it is simply a case of not having the patience to watch the market for several days on end without jumping in. Of course, you do not have to watch it 24 hours. You can check in every hour or even less than that. Some people just access the market once per day at a set time. That should be enough for this longer term but potentially lucrative style of foreign currency trading.

Demo currency trading is recommended as the way to start by just about everybody, including us here on this site. Trading in a demo account allows you to get to know your broker’s platform and services, discover the strengths and weaknesses of your system and figure out your own strengths and weaknesses as a trader at the same time.

Nevertheless, forex demo accounts do have some disadvantages. Let’s see what to watch out for and how to avoid the traps.

1. Differences between demo and real money trading

We tend to assume that a demo account and a real money account from the same broker are going to look the same, offer the same services and work in the same way. Usually this is true. Unfortunately however, in a small minority of cases, there are significant differences between the two.

Occasionally you might even find that the demo accounts are managed on a completely different platform. The broker could have many reasons for doing this. Legitimate reasons would include freeing up the real platform and its server space for live traders. Sneaky reasons would involve tricks like drawing you in with something that is easy to use and maybe even stacked in your favor (if it does not access the real market) so that they can grab your money and then watch you lose it in the real world.

Whatever the reason, this is something to avoid. Clearly in this situation the demo is useless for preparing you to trade with that broker. So check before you sign up.

2. Different mindset

Naturally, it is tempting to use a demo account in a very different way than we would if we were dealing with real money. People often jump into demo currency trading as if it were a game. Forex trading is not a game. The way to learn to do it well is to study and to create a demo situation that is as close as possible to the situation you would be in if you were trading for real right now.

So it is important not to max out the leverage, open trades at random and play with ten different currency pairs in demo. Anyone who does that is wasting the opportunity and is likely to crash and burn when they start trading for real.

3. The stress factor

However careful you are to make your demo currency trading seem as real as possible, there is still a major difference which you cannot artificially recreate, and that is the impact of stress. Stress is a physical reaction to a situation where we believe ourselves to be in danger. It kicks in for psychological, emotional and financial dangers as well as physical dangers. It prompts us to take fast and extreme action to avoid the perceived danger. This can often lead to bad decisions made in the heat of the moment.

It is hard to avoid stress in real trading and it is not a great idea to try to create it artificially in demo, so all you can do to prevent this becoming a problem is to start small when you do go live. Then increase your position or your risk gradually. If you act in this way, demo currency trading can be a very useful preparation for the real thing.