Understanding the basics of currency trading is the first step to learning how to trade successfully. The foreign exchange market can make you rich however few traders have the knowledge to capitalize on this money exchange opportunity that is relatively new to the retail investor.

What does it take to learn how to trade currencies ?

It takes time and dedication. Being a trader isn't about being an MBA economist with years of University education. Most traders care very little about the fundamentals that drive global economies. These fundamentals are a subject for long term investors like Warren Buffett and others who buy and hold positions for several years.

A trader might sometimes look at financial news events such as interest rate changes or news releases of certain economic indicators such as the PMI which is a manufacturers index which is released monthly and used to gauge the strength of a sector of the whole economy of one country. These economic indicators might work for some traders called "news traders" but not every trader is a news trader.

The technical trader comes in many varieties. There are short term scalpers and daytraders, then there are swing traders which are generally mid-term traders who'se trades are opened and closed within a few weeks, and then there are long term traders who are most commonly termed investors.

Daytrading is the most dangerous of the three types but those who succeed at daytrading are likely to be rewarded with a higher return on investment or ROI. The traditional day trader takes large positions on very short market moves and never leaves a position open overnight. This is sometimes referred to as scalping but not all daytraders are scalpers. Daytraders are highly stressed during the time they trade but they sleep well (hopefully) since they need not worry about what the markets are doing when they are away from the computer.

The swing trader is more likely to have smaller positions which are open at a time when a technical indicator gives a signal to go long or short a market position. The technical indicator is not to be confused with the economic indicator mentioned before. Technical indicators are special lines computed by a certain set of numbers which can be based on price movement or a number of other market factors. These are additions to a price chart and can be waves, zigzags, horizontals, verticals, angled, etc. There are hundreds of such technical indicators which can seem very confusing to the novice who wants to learn how to trade. The tendency of the newcomer to the foreign exchange market is to use way to many indicators. Understanding two or three of them and using them religiously is more beneficial.

Another tendency for the newbie trader is to try to trade every currency pair that is offered by the various brokers who act as middle men between the trader and the interbank system. Have you ever seen those ads stating "no commission trading"? Think again, the vig charged by the broker comes in the form of a spread and depending on which broker you trade with it can be much more expensive than a commission cost.

To learn how to trade, one is best to stick to a single currency pair and to use only a very select number of technical indicators.

Having mastered that one currency pair is like mastering the dog paddle in swimming. It will keep you afloat and once you can survive at par or better then you are ready to move into deeper waters or to learn a new technique.

That is the basics of currency trading in a nutshell.

Learning the basics of trading means learning about charts and technical indicators. It also means learning about brokers, and fees charged by brokers.

But mostly discipline and a currency practice account will teach you the basics of trading and whether you have a set of technical indicators which can give you entry and exit signals that are strong enough to make you win more on your total winning trades that the total amount you lose on your losing trades.

So if you have that system then you are definitely going to come out ahead of the currency trading game and you will be filthy rich in time to come.

If you answered yes to that last line then think again since you forgot the most fundamental of all trading rules.

You need to go back and you need to add a money management variable to your winning system.

If you can make 10% per year on one currency pair consistently then you are better than 90% of the unsuccessful traders out there. Buffett built the Hathaway fund at 30% per year and Soros made a billion dollars in a week trading only the sterling pound.

Learning the basics of currency trading is only a first step. In the end it isn't about making billions. Learning the basics of currency trading is a first step to financial freedom which means earning enough from your trades to afford a modest lifestyle.

Having achieved that then you have also learnt the art of running a successful business online. 

It's a blog and a notebook where i keep a journal on the gbpjpy. You won't learn how to trade from reading the posts there but you will see how commodity and currency correlations can be used together to formulate a winning currency trading system.