Things You'll Need:
- Forex microlot account
- demo account
- credit card
- bank account
- patience and a willingness to change strategies
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Step 1
THE DEMO ACCOUNT: The purpose of the demo account is to familiarize yourself with the intricacies of the Forex. You are typically given a rather large account (more money than you have probably ever seen at one time in your life) which allows you to trade free of any and all risk for a very long time. You've probably noticed that you are able to make large trades multiple times without significantly reducing your total amount. Demo accounts help develop your fundamental analysis skills. You can make a trade depending on the economic strength of a currency's country, wait for a couple of days, and see a positive trade develop. This all helps you become familiar with how the Forex works. You know you're ready to advance to a live account when you manage to double your demo account's total. TIP: This will require a lot of trades made with very large lots. Something you won't be able to do on a live microlot account.
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Step 2
THE MICROLOT: A microlot is designed to advance your technical analysis skills, and this is a point new traders miss. These trades are designed to do one thing and one thing only: make you money within a fairly short period of time, at the most two hours. You will not be able to open multiple trades, nor will you be able to open up large lot sizes. Trade a single lot each time. Because of the significantly smaller amount total involved with microlots (anywhere from $25 to $100), you'll basically be trading nickels and dimes. Each trade should produce between 25 cents to a dollar. Ideally, you should be able to make a dollar a day, or about $30 per month. This is probably not what you wanted to hear, but for the sake of advancing your education, it is the reality.
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Step 3
PICK YOUR CURRENCY: Choose from among the most liquid of currencies to prevent slippage and to get the best spreads. USD is the most heavily traded currency in the market, so any of the USD pairs would be a good place to start, but most especially EUR/USD, GPD/USD, and AUD/USD. The other dollar pairs to trade with on a microlot are USD/YEN, USD/CHF, USD/CAD, and NZD/USD. Stay away from the exotic dollar pairs from emerging economies such as South Africa or Norway. These pairs are too expensive to successfully trade with on your microlot account. Also stay away from the other currency crosses from various countries. The conversion rates for these currency's also make them too expensive to successfully trade on a microlot.
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Step 4
PICK YOUR TIME FRAME: You can trade anywhere between Sunday night and Friday afternoon. But the days you should be trading on are Tuesdays, Wednesdays, and Thursdays to get in on the best trends, volatility, and momentum. Now make a note of this: You have 3 time frames to choose from, all eastern time. 9:30 am to 11:30 am, 1 pm to 3 pm, and 8 pm to 10 pm. These are the best, most active time frames to trade in. There is a fourth time frame from 3 am to 5 am, but that choice is typically out of reach due to its early morning slot. You can of course trade outside of these time frames, but the pip moves will be pretty small and not worth the stress.
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Step 5
CAPTURING THE TREND: It is essential that your trades remain in line with the dominant trend of the moment. Usually the trend for the day, although this can (and often does) reverse during the second part of the trading day. To establish the trend, simply make your trades on your free demo account in accordance with where you think the trend will go and then see what happens. Open a number of trades and then pick the best one to place on your live microlot account. Don't worry, this isn't cheating, and is still considered practice. You should typically wait for about 10 to 15 minutes to allow the trend time to develop before placing your live trade.
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Step 6
TRADING CHART PATTERNS, NEWS RELEASES, AND OTHER INDICATORS: Microlots are designed to advance your technical analysis skills. So once you've established a viable trend, you'll want to pay attention to any chart patterns and news releases that support that trend. All of the technicalities involving how to accurately read chart patterns and indicators, along with properly interpreting news releases is beyond the scope of this particular article, but are easily learned using other outside resources. Continue your education. Trade against the trend at your peril.
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Step 7
PIP MOVES AND MANAGING RISK: The standard movement for most Forex traders is 20 pip movements per session, which is actually fairly difficult to stomach due to the wild swings within that particular range. It would be best to stick to between 10 and 15 pip movements per session to acclimate yourself to the unfamiliar emotions and psychology involved when you see your total shrink before generating a profit. On a microlot, this typically translates to 10 cents per pip move, or between $1 and $2 per session. Keep your risk to a 2:1 ratio. That is, don't risk more than 2 percent of your account total at a time. But expect to make twice that amount in profit. So if your account total is $25, don't risk more than 50 cents at a time, but expect to make at least $1 on each trade. If you're not sure you can make those percentages during a session (due to the price being too close to support or resistance levels), don't make the trade. On the other hand, if it looks like there is plenty of room for your trade to make those standard 20 pips, go for it. Your risk increases substantially once you're past the 20 pip mark, so proceed with caution.
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Step 8
Most of your account increases will be due to the periodic deposits you should be making to your microlot account while you practice trading chart patterns, news releases, and other indicators. After a few months of practice, you should be able to upgrade to a mini lot where pip moves will be closer to $1 per pip. Eventually, you should be able to open a standard lot account where your pip moves will be closer to $10 per pip. Once here, you should have the experience and confidence to consistently make around $100 to $300 per day. Use your microlot effectively, and this could be your reality in less time than you probably had imagined at first. Good Luck!
