Mon. May 20th, 2019

Conversations with a Forex trader: is it possible to trade on Forex for a living?

Forex has a remarkably bad reputation — and for a good reason.

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The South African spoke to Erin Peterson, the head trader at JustForex.com

Just a decade ago, the market was mostly unregulated and scammers ran amok. Bucket shops, boiler rooms, market makers and brokers that traded against their clientele were very common and even slot machines had better payout security than Forex trading.

However,
things changed. After the majestic screwup of CrownForex, both EU and US took a
long hard look at the Forex market and introduced a lot of new regulations.
This led to new generations of brokers — ones that are willing to play by the
rules and profit with their customers, not from them. Making a living on Forex
is no longer a dream — for some people, it’s a reality.

The South African talked to Erin Peterson — a private trader who witnessed the development of the Forex market first-hand and is currently living off her trading.

What made you get into the Forex
trading?

My
friend was trading and constantly talked about it. I don’t think he was
particularly successful, but it got me interested. I had enough money at the
time but I wanted more, so I thought “why not?”

I
also wanted to understand how it works. So I started reading books and blogs,
talked with other traders online… That was six years ago and I am still
learning new things.

How did you start?

I spent a few months just learning things in my spare time. Read a lot of books, most of them bad… Ones I can recommend are Alexander Elder’s Trading for a Living, and Bill Williams’ Trader’s Troubleshooting Tools. I certainly wish I read them first.

Once
I was comfortable, I started trading with a Demo account. It’s a virtual
exchange where you trade with virtual money. It’s free at most brokers and
allows you to test the strategies without risking your real money. Of course,
it’s still not like real trading — there is no risk and no stress involved. But
it was good practice for a few weeks and allowed me to avoid a lot of mistakes
later.

Then
I started a Cent account with… 20 USD? Maybe 25, I am not sure anymore. I
doubled it in two weeks, then lost everything on a risky trade. That lead to
long research about risk management and why it is actually important.

The
next attempt was two or three months later, this time with a 500 USD deposit
and on a standard account. This time I traded small and actually had a stable
income.

Forex trading has a bit of a
reputation, is it a bit like gambling?

Outsiders
may think that Forex is all about luck but they would be wrong. There are laws,
rules and algorithms at work. The most crucial ones are supply and demand. And
as long as you understand those rules, you can predict the state of the market
with a reasonable success rate.

Basically,
it’s all about probability. Game the system and make money off other people’s
mistakes while they are making money off yours. And trust me, you will make
mistakes — everyone does. But as long as you manage your risks well, you will
be able to cover those mistakes and even make a profit.

Once you have some training
under their belts, you will trade forex
successfully. I’m not saying that everyone can be a Jesse Livermore, George
Soros or Jim Rogers — those are extreme cases of having luck, talent and
a lot of starting capital. But you can make
some money.

Just
don’t expect much. You need to be a wizard to start with $100 and make $10 000. But you can definitely invest $10 000 and
comfortably live off the profits. Of course, you should start smaller than
that, but you get the idea.

How does one compete against the
automated traders?

Automated traders aren’t really a threat on the Forex market. Sure,
they are faster than you but they are stuck with primitive strategies, for the
most part. And even then, the market is large and liquid enough for them to not
even register as a threat. There’s enough money there for all of us.

Now, had I been on the stock or a derivative market, I’d be
more concerned.

How does the Forex market differ
from other markets?

Forex
is the largest, has the lowest cost of the transaction (not counting crypto)
and the fastest cash flow. Each year it grows ever bigger. Current daily
trading volume is north of 6 million USD.

What currencies are the best to
trade and why?

You
should start with the major currency pairs.
Personally I use EUR / USD, USD / JPY, GBP / USD, USD / CAD etc.

How many hours a day do you trade?

I trade for about four hours a day, spread throughout the day. I take a lot of breaks when nothing interesting is happening.

What is the best strategy for
trading forex?

Swing trading is OK for beginners, but
personally, I recommend intraday trading — it’s simpler and has less
non-obvious issues.

What emotional characteristics
are required to be a successful trader?

  • Discipline. If you panic after a bad
    deal, you make mistakes.
  • Patience. The best forex traders will
    tell you that it is worth waiting for one profitable transaction rather than
    opening many positions “just in case.”
  • Control. You need to manage risks,
    capital, emotions, investments, and the trading process. You need to know how
    to choose between bad and worse, and not feel bad afterwards.
  • Enthusiasm. If you don’t care about
    the process of trading, you should quit right now.
  • Self-control. This is achieved with a
    clear plan of action, when the trader is in no hurry to take risks, thinks
    about every step, and can spot trends in the market.

How has the market changed in the
years since you started trading?

Six years ago you could coast on a single
strategy and still make money regularly. You can’t anymore. I recommend having several trading strategies and switching
between them.

How much should one have set
aside before they can begin trading?

Start with 20 USD in a
Cent account. You’ll lose it, but you will understand
a lot more once you are done. Then try again
and again until you don’t.

Once
you can stay profitable, put 100 USD in a Standard account. That should be enough to start trading
without a serious handicap. You can deposit more,
up to $500, but that is not strictly necessary.

What profits can one expect to make?

There is no universal metric. It all depends on your deposit and
the state of the market. Generally, I can make 10-20% off my deposit each
month. But there were times when I made more after catching a good trend.

How does one get started?

A Forex Broker will provide you with access
to the market via their software platforms. I’ve been trading with JustForex
for several years. I like their spreads which are pretty
decent. The broker also offers high leverage,
so I think it’s a good place for beginners. They also provide support, so feel
free to ask them questions.

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