Essential Steps to Forex Success – 5 Point Plan

How to plan for success
How to plan for success

Nowadays, the “explosion” of online retail brokers means that anyone can trade from the comfort of their own home, coffee shop or beach cafe.

But the idea of putting your own money to work in speculative currency transactions might be enough to send you running for the hills. Not to mention the confusing financial terminology, dozens of different broker accounts and plethora of conflicting advice that’s out there.

If you get past these initial hurdles, the rewards can be substantial. Forex success is not easy – learning the technical aspects of trading can be a challenge. But the reason most new traders I’ve known lose is not because of a lack of trading skills, but that their entire approach doesn’t stack up.

I wrote this article on with the aim of helping people who’re considering investing or trading in the forex markets with their own money. It’s not about trading technique, but rather about setting off on the right foot.

If you’re just starting out, there are a few key things to be aware of before you begin.

Step 1: Decide Your Goals

First and foremost, you should decide what you are trying to achieve. Many people begin online trading with a rush of energy and enthusiasm believing they’re going to make vast sums of money very quickly.

However they don’t give much thought to their own personal circumstances and their long term objectives.

To put things into perspective, it helps to consider the following:

  • Your financial resourcesfree capital
  • Your financial experience
  • Your attitude to losses
  • The amount of free time you can devote
  • Your level of commitment and interest in trading
  • What are your financial objectives, and times scales?

Only once you’ve thought about the above can you decide what type of trading or investment system would be most suited and most profitable given your own personal circumstances.

For most people, the primary goal is making money. For a few, it’s the technical challenges that trading offers – pitting their wits against the world’s best professional traders and money managers.

Making serious money in the forex markets requires intelligent planning, good risk controls, and perseverance.

Strong nerves are also essential to withstand frequent setbacks.

Step 2 : Am I a Trader or Investor?

Decide if you’re primarily a trader or an investor. There’s a world of difference. In my experience people tend to be one or the other. Each has a completely different mindset and set of skills.

The investor An investor seeks a return on his or her capital but has (or wants) little involvement in day to day trading activities. An investor needs a certain amount of free capital to invest.

One thing that attracts people to investment in forex is that you don’t have to risk a fortune to make ample returns. Leverage can magnify small gains, however it does also increases risks.

The trader A trader is the person who decides how the money is put to work in the currency markets. They’ll decide when to open and close transactions, and in doing so make a profit or a loss.

Would you be scared by short-term fluctuations in your capital? If so perhaps a savings account would be more appropriate.

As a trader, you’ll need to be able to spare enough time each day to analyze the markets, to do some financial research, and technical analysis. Depending on your level of commitment, this can be anything from 1 hour to 12 hours per day! Can you spare this amount of time?

If you’re a skilled trader but have little free capital, you could make a profitable living out of trading for other people. In other words, people entrust their money to you. See my other article for more on this.

Step 3: Decide on a Broker

Only once you’ve considered the above points will you be in a place to consider a suitable broker.

It’s best to have a clear idea about your goals and strategy before you start your research into which broker is most suited to your needs. Check our reviews on forexop to help you.

Some brokers are geared towards more experienced traders, while others are geared towards beginners. Some are better suited to investors, others to day traders. Some brokers have active user communities where you can share ideas and ask questions, and with others trading is a more lonesome experience.

Here’s a comparison of some of the popular FX brokers:

Broker Name Suitability Investments Community?
FXCM Intermediate Yes No
Oanda Beginner Yes Yes
eToro Beginner Yes Yes
ZuluTrade Beginner Yes Yes
Easy Forex Day traders Yes No
FX Pro Intermediate Yes No Intermediate Yes No

See full table

Step 4: Execute Your Plan

Succeeding in Forex markets - plan and strategy
Succeeding in Forex markets - plan and strategy

All leading retail brokers offer demo accounts where you can practice your trading or investment strategies without risking real money. Allow at least 3 months to test and refine your trading system.

The longer your “test window”, the more likely you’ll be to encounter typical market conditions. Many new traders make the mistake of diving headlong into real trading without testing their strategy sufficiently well under a range of market phases.

Warning A common mistake is testing a strategy during a strongly trending market. When the trend breaks -as they do, the strategy generally falls to pieces. Understanding market phases and cycles can be an expensive learning curve.

Developing a workable trading system can take a lot of time and perseverance. Money management should be an integral part of your plan. Good money management ensures that your account isn’t exposed to too much risk and that a few trading losses won’t be enough to wipe you out early on in the game.

Start your system with smaller trades Given the massive leverage that many brokers offer, it can be tempting to start with big, “bet the farm” type trades that will hopefully earn spectacular returns. Don’t fall into this trap. Start with small trades (a micro or nano account is best) and only expose a fraction of your trading capital at any time.

Step 5: Review and Refine Your Plan

No plan is perfect. It’s almost certain that your trading plan will need tweaking and refinement as you gain more experience and encounter different market cycles.

For some, a 1-2% return per month would be spectacular. For others, it would be a dismal failure.

One mistake people often make is to stick with a plan even when it’s not working. Over the short term of days, to weeks it may be impossible to tell the difference between market noise, and a trading/investment plan that’s not working.

For this reason, you need to give it time to “pan out”. Review your P&L over weekly, monthly and quarterly periods. Do this objectively and revise and rework your plan until it is “consistently” profitable.

Keep in mind, just a 1.75% return per month compounded would be nearly 23% return per year. With this return it doesn’t take long for the “snowball” to gather momentum.

The billionaire investor, Warren Buffet, is well known for achieving an average 23% return, year after year on his investments. He started with barely nothing, but look where it’s got him.

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About the Author

Steve Connell has spent over 17 years working in the finance sector as a trader/market maker and strategist. Over that time he’s worked for several global banks and hedge funds. Steve has a unique insight into a range of financial markets from foreign exchange, commodities to options and futures.

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