Forex : Guide to Trading
1. Set a Stop Loss:
Before entering any trade, decide beforehand the amount you are willing to lose andstick to it. Set a stop loss on the trade before you enter. Do not fluctuate your stop loss if you are in alosing trade. During times of extreme volatility it can be difficult or impossible to execute orders. Stoporders become market orders when executed, so the order may not be filled at the desired price. As aresult, the initial risk can be estimated, but not guaranteed.
2. Let your profits run:
Do not be emotional about a trade – you will lose some and win some. Know thereason why you entered a trade and stick to those reasons. The less emotional you are the more successfulyou will be. Stick to your game plan – move your stop loss as the market moves in your favor and let yourprofits run. During times of extreme volatility it can be difficult or impossible to execute orders.
3. Don’t be influenced:
You have your own game plan stick to it. If you are influenced by others youwill constantly be changing your mind. Learn to insulate external sources once you have made up yourmind. You will always find someone who will give you a logical reason to do the opposite.
4. Keep your position sizes within your limitations:
Successful traders know that in order to profit youtrade for the long term. Trading is a game of probabilities, and over the long run as long as you stick andimplement sound strategies and stay consistent – success is much more likely to come. To be a successfultrader you should never take a position that puts substantial capital in jeopardy. In actuality you willrarely find successful traders who risk more than 10% of their account in any trade. You might want tostart small and increase your trade sizes as your confidence grows.
5. Know your risk vs. reward ratio:
The minimum ratio you should be using is 2:1, so if you aresuccessful on 50% of your trades you are doing well. For instance, if you are long GBP/USD and youwant to earn 30 pips you should not risk more than 15 pips. You should never risk 30 pips in order tomake 10 pips. If you do, you’ll make a lot more successful deals then unsuccessful ones, but the poorones will ruin any of your chances for profit. Your risk vs. reward analysis is extremely important totrading successfully.
6. Have adequate capital:
You should never trade with money that you cannot afford to lose. Alwaysmake sure that you have enough credit. For example, you should can ask yourself the following question:“if I were to lose 50% of my opening balance in 6 months will I still be able to afford to trade?” Only if the answer is yes should you start trading. One of the keys to successful trading is mental independence,which means your trading freedom must not be influenced by your fear of losing.
7. Trending or Neutral:
Learn to analyze the market – is it a trending market or a neutral market? In atrending market, follow the trend. In a neutral market, buy on lows and sell on highs. As long as you usestop-losses you are controlling your risk.
8. Don’t fight the trend:
Don’t try to buy on dips and sell on highs in a trending market. The old saying“the trend is your friend” is a good one. Why fight it – go with it!
9. Averaging – don’t do it:
One of the most common mistakes traders make is the continuing adding of alosing position. Averaging will be the death of short-term trades. For short-term trades, preserving capitalis the most important thing, and putting too much capital at risk will jeopardize success. In short-termtrading, if a strategy is right the market should move in the correct direction within a relatively shortperiod of time. However if it’s wrong, the short-term traders should realize that they traded incorrectly,