Forex trading: part-time earnings or a complete business

Foreign Exchange trading is a reasonable alternative/addition to passive investment and stock-market trading. Common passive investment (deposit to savings account) yields less than inflation rate in most EU countries in 2019. Potentially good profit at stock market, on the other hand, requires thorough market analysis and long-term capital commitment, while tolerating substantial fees. Forex trading differs from the above. It is a systematic business activity and millions of private investors are making a living out of it. Forex is the world’s most common trading method, with daily volume of several billions of dollars. Private investors (with a tiny starting capital) get into the same trading environment with banks and countries, on the same terms and with extremely low fees. User-friendly trading software (MetaTrader) can be downloaded and tested for free. Forex strategies discussed on this page require maximum 1-3 hours a day, with all the preparations. In a proper short-term strategy order is kept open from few minutes to few hours.

Generally, there is prejudice about Forex as a liable business. This is due to valid, practical information not being easily available, while the negative opinions, rarely based on proper trading experience, are being widely spread. There are, of course, many instances of fraudulence in Forex. For instance, a well documented and too often recalled Wincapita pyramid scheme in Finland, which promised to multiply investors’ capital by using “some sort of Forex trading”. Giving own money to be “multiplied” by other person/company is the opposite to professional Forex trading! While having discussions with people about proper Forex trading, I noticed that there is a willingness to learn, but no clear systematic guide (made by actual trader) available. At least not in Finland and rarely anywhere, except may be US and UK.

Practical facts of Forex trading

  • Methodical investment business, not an “easy money” nor a gamble. Well considered, own risk/return decisions.
  • Free practice on demo-account; no risk nor commitment. Proper demo practice develops a skill base in a couple of months.
  • Could begin with only few hundreds (split into many trades). Withdrawals at anytime. Only the original investment can be lost.
  • Money transfers are simple, fees are low, technical aspect is user-friendly. Business degree or financial experience not required.
  • Methodical approach minimizes risks and ensures long-term profit. Beginners often trade with emotions and lose due to that.
  • Profit made on ups and downs, also on short time frame, less than 1h. Proven strategies for various investor mentality and capital.
  • Several English forums and sites with professional in-depth analysis. Also plenty of scam systems promising “glorious” returns.

Basic Forex trade example

The purpose of the pictures and step-by-step description below is just to demonstrate Forex’s basic analysis, use of strategy and potential profit possibility. Do not get confused nor try to fully understand and start trading right away – all the terms and principles will be thoroughly explained in the further parts of this website. Generally speaking, the idea of every Forex strategy is to find high win-probability situations and to avoid the higher risk & lower reward spots. Order (buy or sell) is placed only when all the conditions of a chosen strategy are made; simple and logical.

Below is the setup traded a while ago on USD/CAD pair. Chart1 is on Daily-timeframe with its last blue bar/candlestick representing a one day period. For the analysis, blue line (trendline) is drawn on chart and the yellow curve (Moving Average indicator) is added. From the chart it is evident, that the price has previously stopped twice at the similar spot (blue and yellow), at so called support-level, and went up after that. It is probable, that the situation (price action) will repeat itself. Chart2 is this same Daily-candle zoomed into more precise timeframe, where one candlestick is only 15 minutes. On this chart it is more evident, how the price goes up from a blue trendline, as anticipated. Chart3 has the same setup, but the price’s upward move is verified by extra indicators: Pivots, Stochastic and Heiken Ashi, which alters the colors of candlesticks. Strategy’s conditions are met on Chart3’s (marked with yellow arrow) and trader opens a buy order. Usually, the routine use of strategy’s conditions is enough, but when larger timeframe points towards the same outcome, the probability is even higher. In a simplified strategy, the “pinbar” candlestick formation on the support-level of Chart2 justifies a trade itself – without any extra indicators.

Let’s assume, that the invested capital is only 100€. In proper Forex trading, the risk for every order is suggested to be 3%, at most. In this case, the account would withstand loss and new orders could be placed even after a series of losses. This low 3% risk of assumed 100€ would be no more than 3€. Order volume (lot size) is planned so that the stop loss (loss limit, closing the trade if it suddenly goes in wrong direction) is the aforementioned 3€, at most. In other words, only 3€ can be lost with this trade. The unit of the chart is pip (percentage in point), smallest possible price change, i.e. one step. In case of Chart3, stop loss would be 16 steps, according to strategy’s specific rule. Order was open for approx. 3 hours and the profit was 105 steps (pips). With assumed 100€ capital, the profit would have been 19€. So the capital would have grown by 19% in 3 hours and the next order size would be calculated for 119€ capital; and so on. One could easily calculate the according (totally realistic) profit for a few thousand euros. Setups like this, with over 100 pips of profit, appear from time to time on different currency pairs. Smaller ones, still with the same strategy requirements, present themselves more often, several times a day. From the calculations it is easy to understand, that when trading properly, one can be wrong many times (losing always 3%) and still be able to profit in a long run.

What is required from a trader?

  • Self control and methodical thinking. Sufficient income and emotionless approach to money.
  • Reasonable English skills, Forex terms are easy to get used to. Reliable PC and internet connection.
  • Time to study and to practice learned basics. Patience during the long testing phase of chosen strategy.

While reading the page forward, the meaning of logo’s concept “Knowledge. Discipline. Consistency.” becomes clear. You will also notice, how crucial it is for profitable trading. Most of the beginner traders fail; this is a widely used argument against Forex and it actually is a proven fact. The practical reasons to why is it so: study and practice of basic things were mostly overlooked, wrong strategy was chosen or, more importantly, strategy was not properly tested, and finally, money management was faulty. According to many professional traders, the most common issue for beginners is the self control and feelings like greed and fear. A lot of books were written and thousands of webpages were made about the “Mental Discipline” concept, but still most of the beginner traders overlook it and end up losing.

Important note to beginners

Beginners, not just in investment field, usually skip studying the basics and try to learn things in practice, hands-on, so to speak. In Forex, this approach does not work well and even the beginners luck will eventually backfire. Having read some promising Forex stories, it may feel boring and useless to go through all the basics and usual errors. Why not download the free software, search for some “highly profitable” strategy and start trading on demo, or may be with real money right away? There are thousands of strategies, paid courses and “most incredible” trading robots on the internet. Beginners hop from one to another, not understanding how things should be implemented, what should be avoided at all costs and what would actually turn losses into profits. It is difficult to exit that downward spiral and, most of the times, beginners end up losing the initial investment. After that, some realize to get back to studying basics, however, the majority repeat the original mistake and lose more.

Plenty of beginner’s mistakes and eureka-moments were encountered in my early trading career. Actually, this website was made based on my own experience, considering especially the beginner Forex traders. Information has been collected from various sources over a long period of time and with this website, it was intended to be clearly summarized. One could think of this website as a guidebook of an intensive training course. Guidebook’s chapters should be studied thoroughly, one by one. Time and patience is certainly required, and if those are absent at this moment – it is wiser to return to the topic later on. In order to raise the study motivation, it is worth mentioning, that with proper Forex trading, small investment can have a reasonable continous return; also part-time, in addition to day job. Later on, own proven strategy can be scaled into a larger business, done solely on trader’s own terms, providing a very competitive salary compared to day job.