Several forex trading rules that newbies tend to forget

On October 17, 2012 | By | In Strategies

Forex trading is one of the greatest and biggest source of money circulation. Billions of dollars are traded in just one day and the market is constantly expanding. Needless to say, this kind of trading is getting more popular in nowadays society, involving investors, workers, repairman, office clerks or even housewives. Despite it‘s attractiveness due to high leverage usage and currency fluctuation, most of the so called investors are losing money in forex every day. The reason is inexperience, lack of knowledge and uncalculated risk taking. Currency trading, like any other kind of job requires training, skills and knowledge and without it, I believe any venture would be fatal. My goal of writing these free forex trading tips is not to teach you how to trade and double your capital in one day – it‘s impossible. I would rather draw some simple guidelines that will help you preserve your capital and stay in the market without much loss. Defined below are the most important rules for traders, which, sadly are often ignored in volatile market conditions.

1. Enter your trades risking the smallest amount that you can tolerate. Remember, it‘s very easy to burn your account in a day, when the risk is 10 or 20% per trade and that is already a suicide. New traders must be even more cautious than professionals, because their trading system and strategy is new and only the time can tell if they are applying the right trading methods. My advice would be trading in demo account for a while and then switching to live account risking 1 % or less capital amount per one trade.

2. Entering a trade in several positions is a wise decision helping to distribute the profits and lessening the emotional pressure. First you close positions gradually, meaning even the 40 pips movement is fixed profit, and the remaining positions are targeted at bigger sum of pips, like 80 or 90, 100 and more. By closing some of your positions you also move your stop loss to a break even or smaller number accordingly. Knowing that you have already some fixed profit takes off the pressure of “have to earn money” thought. Besides, you are aware that much more can be earned by letting your remaining positions go.

3. Never abandon your trading strategy, even in the worst market conditions. Your strategy, even if it was proven successful in the long time period, has probably not been tested in all market conditions, and when it‘s not working, it‘s better not to trade. If you deviate from your proven methods and desperately try to recoup your losses by making decisions based on emotions, it‘s the quickest way to bankruptcy. My advice is to stop trading and wait for another day. There is always a good trade around a corner.

4. There will be days when the whole market will turn against you. You could even suspect your broker making some money on your losing trades. Forex is always and will always be an unpredictable business, at least for some part, and if you’re having problems with that you should do some serious thinking whether you’re in the right “shoes”. Your strategy, as perfect and elaborate as it can be, will never predict 100% of forex moves. When such crazy money losing and error making days come, it’s best to stop and cool down. It’s very easy to lose all your 4 or 6 months earning in just one day, because we are emotional beings. When we cannot explain what’s happening in the market and why our strategy isn’t working it’s best to do nothing. This is very important to grasp, because when you make several irrational moves and lose money it’s getting more difficult to stop. The disbelief that your methods are not working and feeling of revenge will drive to invest more and more. The same rule goes for casino playing – when you made some good cash and suddenly start losing it all, you most probably will not stop until you will be penniless.

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