The Successful Forex Trader Blueprint (Everything You Need To Know)
Is there a secret to going from where you are to becoming a successful Forex trader?
I don't think so. I do think, however, that the steps and actions you take will guide you through failure or success.
“The beginning is the most important part of the work.” – Plato
The web is filled with unorganized content (as if your job as a developing trader was to figure everything out!). That isn't an ideal situation for someone who's trying to learn…
After personally helping several traders, I have realized that processes and step-by-step guidelines were of tremendous help. Once you know the steps, the only thing you need to do is execute on those steps. And soon, if things are done properly, you'll see real results.
That is the main reason why I had the idea of creating a step-by-step blueprint to become a successful Forex trader.
One thing I want to point out: this blueprint isn't made for people who want to know how to analyze; it's made for people who want to know how to trade using technical analysis tools. There's a difference between trying to learn about all the different indicators vs. picking only what you need.
I am totally aware that, after reading this article, only 5% of traders will apply the blueprint step-by-step. Those 5% will definitely set themselves apart (just saying).
The Successful Forex Trader
Upon reading, this article, you'll realize that the start is the most important part of your learning process. The way you start will set the tone of your trading journey.
If you blow up your account on the first day (I know people who did), you'll remember it for the rest of your life. If you believe you must find the right strategy to make money, you'll keep looking for it the rest of your life. If however, you start with the idea that you want to trade Forex and grow your skills over time, you'll be in a much better position.
Phase 1: Let's Get Started
I wanted to start from the beginning. I noticed that most traders start in Forex trading by watching videos. They go on Youtube and type something along the lines of “how to trade Forex”.
Those traders will get across good and bad videos. After watching a couple of those videos, they will realize they need a trading strategy if they want to make money.
Well, it's not the best way to start!
What follows is a long period of information overload where new traders will be in the quest for the “best trading strategy”. The more you rely on others, the more dependent on information you will become.
The first thing I recommend traders doing is to open a demo account with a broker of their choice. Once that's done, it's time to learn how to place a trade.
You have no idea how many traders I see make mistakes by not knowing how to properly enter and exit a trade even after several months!
Make sure you know the types of orders on your trading platform, and perhaps try to enter and exit your first trade (it's just a demo account after all!).
- Take a full weekend or a day to go over the features of your trading platform.
- Plot various indicators and try to determine what they represent (TradingView's documentation might be useful)
- Try placing a limit order with a stop loss and take profit.
Phase 2: But Of Course, You Need A Plan!
Once you get to understand how to place trades and plot various indicators, you'll get the feeling that you can become the next Warren Buffett…totally normal!
But here's the thing: all traders (even Warren Buffett) have a plan.
Unfortunately, you can't just sit down for an afternoon and come up with a plan – at least not at this stage.
Nevertheless, don't go out trying to learn a strategy yet! Don't search for the “best trading indicator”!
You need to understand one thing…
There are only 3 main types of trades in the market. Whatever you do, you'll have to learn The 3 Types Of Trades You Must Know.
Every trade you are going to place will either be a pullback/retracement, a reversal, or a breakout/breakdown so you might as well get used to those terms.
It becomes necessary for you to know how to spot those trades on a chart. You might be tempted to use the 3 types but I recommend you stick to one at this point and focus on it.
In case you didn't want to read the article linked above, here's a summary:
When the market is trending, you look for pullback/retracement or reversal trades.
When the market is sideways, you look for breakout/breakdown or reversal trades.
Once you've picked a type of trade to focus on, you will need to learn what makes those trades WORK or FAIL. That will allow you to know how to enter on those trades (and the indicators to focus on).
I Know What To Trade…How Do I Confirm It?
This is where we get to more technical stuff.
New Forex traders try to learn price action and indicators at first.
Here is the reality: price action and indicators are only tools to increase the probability that your trade will work out. There's no right or best indicator.Think of an indicator as a meteorologist. He'll tell you what he sees but it doesn't mean he's right. Click To Tweet
Where To Enter
When it comes to price action, you might want to learn A Powerful Way To Draw Support And Resistance Zones. This will tell you where you can consider entering a trade when the market moves in a range. In a trend, you will look at Fibonacci retracements, moving averages, or trendlines to give you a possible entry location.
Once price gets to the location you've identified, you want to make sure that your trade has an additional chance of working out. You might look at specific candlestick patterns such as the Engulfing Pattern. Those will help you figure out whether the buyers or the sellers are taking control by being more aggressive.
Price action alone could be enough. You might want to add another level of confirmation, though. Technical indicators will give you that additional confirmation, but they shouldn't be followed blindly. After all, any indicator you'll use is based on what you can see on the chart without it (all indicators are derived from the price).
Where To Exit
This has been discussed in several articles. In short, you should have Reward-To-Risk (amount of potential profit / amount risked) of more than 1:1 unless you can win more often than you lose.
If you expect to win less than 50% of the time – which can be normal – you will want to make sure that you set a Reward-To-Risk that is higher. See What Is An Edge And How To Get It for more info.
If a specific trade isn't expected to give you that Reward-To-Risk at a minimum, skip it!
- Read the article The 3 Types Of Trades You Must Know.
- Come up with a plan for you trading (indicator + price action + support/resistance)
- Backtest it to make sure it works
- Demo test your plan for a month
Phase 3: So, It's Time To Trade The Plan!
Once you have a plan, you might very well be tempted to go straight ahead and trade it.
You could open a live account and throw a good chunk of money in it but THAT IS NOT THE WAY TO SURVIVE IN THE LONG-RUN.
If you jump unprepared, one of two things can happen:
- You start to trade and experience losses. After losing a couple percents of your trading account, you start to doubt yourself and your strategy. You then become afraid of losing money and start to look for a way to not lose.
- You start to trade and experience gains. After gaining money quickly, you start to think that trading is easy and that you might as well increase your position size to make more gains quicker. This excitement causes you to take more trades than you should.
In both cases, you will most likely derive from your initial plan and that will lead you to the habit of adopting and dropping systems that could have made you money.
If you have backtested your trading plan, you need to first start trading your plan while accepting any outcome it will produce.
- If you trade and lose 2% in a month, fine!
- If you trade and break-even, fine!
- If you trade and earn 4% in return, fine!
But you need to learn to stick to a plan if you want to see the results of it. In fact, one of the best habit you could implement starting today is to stick to what you decide for at least a month. Only at the end of that month can you start to modify your plan.
First Evaluate, Then Tweak
I see many traders who are stuck in the planning mode because they want to find the best trading strategy that will allow them to make money. I've been there too!
However, if you want to see progress, you must stay away from perfection. Focus on experimenting instead. As soon as you have a plan, you should try to see how it performs.
If you're losing money by demo trading your plan, ask yourself the following question:
- Do I have enough confluence in my trades?
- Am I entering only the trades respecting my plan? If not, why?
- How can I identify only the top 20% of my trades with the biggest gains? (based on the 80/20 rule)
From there, your trading success will be based on tweaks to your initial plan. You won't be looking constantly for the best trading strategy, nor will you get affected by the losses because you'll know that too many losses only represent a plan that isn't optimized yet. Losses will always occur, but you can make efforts to reduce them.
- Tweak your plan until you are able to trade it with a constant return (for at least 2-3 months)
- Stick to your decision by testing things until you see a valid result (positive or negative)
Phase 4: Scaling Up!
When you start to trade with a plan that has been proven to produce gains, you will become ready to scale up. That means opening your live trading account (if not done already) and adding money into it on a constant basis.
You shouldn't add money blindly! What you want to do at this stage is to add money as a reward. For instance, if you respect your plan for a week, you could set out to add x dollars to your account. That will be very beneficial to motivate you to respect your rules.
The money you add to your account won't be dependent on your P&L at this point (it should be slightly constant by then) but on your compliance with your plan. That's how pretty much any successful Forex trader would do it.
- Write down your scaling up implementation plan.
- Get committed to tracking your level of compliance
Don't forget that probably less than 5% of traders will take the advice in this article and go through the action steps. If you want to stand out from the crowd and become a successful Forex trader, you might want to figure out what phase you are currently at. Then, understand what your next steps are and FOCUS (follow one course until completion).
If you are aspiring to Forex but wonder how to put together a solid trading plan, I recommend you grab my FREE One-Page Trading Plan Template. It will help you simplify your trading strategy on a single page!