Forex trading: part-time earnings or a full-fledged business

Foreign Exchange (fx) trading is a good alternative or addition to passive investment and stock-market trading. Passive deposit on one’s bank account is the simplest type of investment, but it delivers a very low annual return; around 1% depending on the country and bank. Profit at stock market, on the other hand, requires thorough market analysis, large capital and long period of time; also the fees are substantial. Forex trading differs from the above. It is an active and systematic business, done solely on trader’s own terms. Millions of private investors are making a leaving out of it. Forex is the world’s most commonly used trading method, with daily volume of several billions of dollars. Nowadays private investors get (with a tiny starting capital) into the same trading environment with largest banks and countries; on same terms and with extremely low fees. Trading software is user friendly, it 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 remains open from few minutes to an hour.

Generally, there is prejudice about Forex as a liable business. This is due to valid information not being easily available, but 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, the well documented Wincapita pyramid scheme in Finland, in which investors’ capital was promised to be grown with huge returns, using “some sort of Forex trading”. Giving own money to be “multiplied” by another person/company, is the opposite to professional Forex trading with own decisions and actions. While having discussions with people about proper Forex trading, I noticed that there is an interest to learn, but no reader-friendly, systematic guide (made by actual trader) available. At least not in Finland and rarely in any country, except may be US and UK.

Experience-based facts about 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 a 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 is not required.
  • Methodical approach minimizes risks and makes long-run profit. Beginners commonly trade with emotions and, due to that, loose.
  • Profit made on ups and downs, also on a short time frame (less than 1h). Proven strategies for various investor mentality and capital.
  • Several English forums and many 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 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 and its last blue bar/candlestick represents period of one day. 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, that closes 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 the 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’s 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 (loosing always 3%) and still be able to make profit.

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 entirety “Knowledge. Discipline. Consistency.” becomes clear. You will also notice, how crucial it really is for profitable trading. Most of the beginner traders fail; this is a widely used argument against forex and is actually a true, studied 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 has not been properly tested, and finally, money management was faulty. According to many professional traders, the biggest and the most common issue of beginners is the lack of self control and feelings like greed and fear. A lot of books have been written and thousands of webpages were made about the “Mental Discipline” concept, but still, most of the beginner traders overlook it and end up loosing.

Important note to beginners

Beginners, not just in investment field, usually skip studying the basics and try to learn things through practice. In forex market this approach does not work too 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 – 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 loosing all of their investment. After that, some understand to get back to studying basics, however, the majority repeat the original mistake and loose some more.

Plenty of beginner’s mistakes and eureka-moments were encountered in my early trading career. This website is actually 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 study course, which chapters should be studied through 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. To raise the study motivation, it is worth mentioning, that with proper forex trading, small investment can have a reasonable on-going return; also part-time, in addition to day job. Later on, existing and proven-to-work strategy can be scaled into larger business, done solely on trader’s own terms, providing a very competitive salary compared to day job.