Forex has caused
large losses to many inexperienced and undisciplined traders over the years.
You need not be one of the losers. Here are twenty forex trading tips that you
can use to avoid disasters and maximize your potential in the currency exchange
market.
1. Know
yourself. Define your risk tolerance carefully. Understand your needs.
To profit in
trading, you must make recognize the markets. To recognize the markets, you
must first know and recognize yourself. The first step of gaining
self-awareness is ensuring that your risk tolerance and capital allocation to
forex and trading are not excessive or lacking. This means that you must
carefully study and analyze your own financial goals in engaging forex trading.
2. Plan
your goals. Stick to your plan.
Once you know what
you want from trading, you must systematically define a timeframe and a working
plan for your trading career. What constitutes failure, what would be defined
as success? What is the timeframe for the trial and error process that will inevitably
be an important part of your learning? How much time can you devote to trading?
Do you aim at financial independence, or merely aim to generate extra income?
These and similar questions must be answered before you can gain the clear
vision necessary for a persistent and patient approach to trading. Also, having
clear goals will make it easier to abandon the endeavor entirely in case that
the risks/return analysis precludes a profitable outcome.
3. Choose
your broker carefully.
While this point is
often neglected by beginners, it is impossible to overemphasize the importance
of the choice of broker. That a fake or unreliable broker invalidates all the
gains acquired through hard work and study is obvious. But it is equally
important that your expertise level, and trading goals match the details of the
offer made by the broker. What kind of client profile does the forex broker aim
at reaching? Does the trading software suit your expectations? How efficient is
customer service? All these must be carefully scrutinized before even beginning
to consider the intricacies of trading itself.
4. Pick your
account type, and leverage ratio in accordance with your needs and
expectations.
In continuation of
the above item, it is necessary that we choose the account package that is most
suited to our expectations and knowledge level. The various types of accounts
offered by brokers can be confusing at first, but the general rule is that
lower leverage is better. If you have a good understanding of leverage and
trading in general, you can be satisfied with a standard account. If you’re a
complete beginner, it is a must that you undergo a period of study and practice
by the use of a mini account. In general, the lower your risk, the higher your
chances, so make your choices in the most conservative way possible, especially
at the beginning of your career.
5. Begin
with small sums, increase the size of your account through organic gains, not
by greater deposits.
One of the best tips
for trading forex is to begin with small sums, and low leverage, while adding
up to your account as it generates profits. There is no justification to the
idea that a larger account will allow greater profits. If you can increase the
size of your account through your trading choices, perfect. If not, there’s no
point in keeping pumping money to an account that is burning cash like an furnace
burns paper.
6. Focus
on a single currency pair, expand as you better your skills.
The world of
currency trading is deep and complicated, due to the chaotic nature of the
markets, and the diverse characters and purposes of market participants. It is hard
to master all the different kinds of financial activity that goes on in this
world, so it is a great idea to restrict our trading activity to a currency
pair which we understand, and with which we are familiar. Beginning with the
trading of the currency of your nation can be a great idea. If that’s not your
choice, sticking to the most liquid, and widely traded pairs can also be an
excellent practice for both the beginner and the advanced traders.
7. Do
what you understand.
Simple as it is,
failure to abide by this principle has been the doom of countless traders. In
general, if you’re unsure that you know what you’re doing, and that you can
defend your opinion with strength and vigor against critics that you value and
trust, do not trade. Do not trade on the basis of hearsay or rumors. And do not
act unless you’re confident that you understand both the positive consequences,
and the adverse results that may result from opening a position.
8. Do not
add to a losing position.
While this is just
common sense, ignorance of the principle, or carelessness in its employment has
caused disasters to many traders in the course of history. Nobody knows where a
currency pair will be heading during the next few hours, days, or even weeks.
There are lots of educated guesses, but no knowledge of where the price will be
a short while later. Thus, the only certain value about trading is now. Nothing
much can be said about the future. Consequently, there can be no point in
adding to a losing position, unless you love gambling. A position in the red
can be allowed to survive on its own in accordance with the initial plan, but
adding to it can never be an advisable practice.
9.
Restrain your emotions.
Greed, excitement,
euphoria, panic or fear should have no place in traders’ calculations. Yet
traders are human beings, so it is obvious that we have to find a way of living
with these emotions, while at the same time controlling them and minimizing
their effect on our lives. That is why traders are always advised to begin with
small amounts. By reducing our risk, we can be calm enough to realize our long
term goals, reducing the impact of emotions on our trading choices. A logical
approach, and less emotional intensity are the best forex trading tips
necessary to a successful career.
10. Take
notes. Study your success and failure.
An analytical
approach to trading does not begin at the fundamental and technical analysis of
price trends, or the formulation of trading strategies. It begins at the first
step taken into the career, with the first dollar placed in an open position,
and the first mistakes in calculation and trading methods. The successful
trader will keep a diary, a journal of his trading activity where he carefully
scrutinizes his mistakes and successes to find out what works and what does
not. This is one of the most importance forex trading tips that you will get
from a good mentor.
11.
Automate your trading as much as possible.
We already noted the
importance of emotional control in ensuring a successful and profitable career.
In order to minimize the role of emotions, one of the best of courses of action
would be the automatization of trading choices and trader behavior. This is not
about using forex robots, or buying expensive technical strategies. All that
you need to do is to make sure that your responses to similar situations and
trading scenarios are themselves similar in nature. In other words, don’t
improvise. Let your reactions to market events follow a studied and tested
pattern.
12. Do
not rely on forex robots, wonder methods, and other snake oil products.
Surprisingly, these
unproven and untested products are extremely popular these days, generating
great profits for their sellers, but little in the way of gains for their
excited and hopeful buyers. The logical defense against such magical items is
in fact easy. If the genius creators of these tools are so smart, let them
become millionaires with the benefit of their inventions. If they have no
interest in doing as much, you should have no interest in their creations
either.
13. Keep
it simple. Both your trade plans and analysis should be easily understood and
explained.
Forex trading is not
rocket science. There is no expectation that you be a mathematical genius, or
an economics professor to acquire wealth in currency trading. Instead, clarity
of vision, and well-defined, carefully observed goals and practices offer the
surest path to a respectable career in forex. To achieve this, you must resist
the temptation to overexplain, overanalyze, and most importantly, to
rationalize your failures. A failure is a failure regardless of the conditions
that led to it.
14. Don’t
go against the markets, unless you have enough patience and financial
resilience to stick to a long term plan.
In general, a
beginner is never advised to trade against trends, or to pick tops and bottoms
by betting against the main forces of market momentum. Join the trends so that
your mind can relax. Fight the trends, and constant stress and fear will wreck
your career.
15.
Understand that forex is about probabilities.
Forex is all about
risk analysis and probability. There is no single method or style that will
generate profits all the time. The key to success is positioning ourselves in
such a way that the losses are harmless, while the profits are multiplied. Such
a positioning is only possible by managing our risk allocations in accordance
with an understanding of probability and risk management.
16. Be
humble and patient. Do not fight the markets.
Recognize your
failures, and try to accommodate them if they can’t be eliminated completely.
Above all, resist the illusion that you somehow possess the alchemist’s stone
of trading. Such an attitude will surely be ruinous on your career eventually.
17. Share
your experiences. Follow your own judgment.
While it is a great
idea to discuss your opinion on the markets with others, you should be the one
making the decisions. Consider the opinions of others, but make your own
choices. It is your money after all.
18. Study
money management.
Once we make
profits, it is time to protect them. Money management is about the minimization
of losses, and maximization of profits. To ensure that you don’t gamble away
your hard-earned profits, to “cut your losses short, and let profits ride”, you
should keep the bible of money management as the centerpiece of your trading
library at all times.
19. Study
the markets, fundamentals, and technical factors leading the price action.
That we have placed
this so low in the list should not surprise the experienced trader. Faulty
analysis is rarely the cause of a wiped-out account. A career that fails to
begin is never killed by the consequences of erronerous application or
understanding of fundamental or technical studies. Other issues that are
related to money management, and emotional control are far more important than
analysis for the beginner, but as those issues are overcome, and steady gains
are realized, the edge gained by successful analysis of the markets will be
invaluable. Analysis is important, but only after a proper attitude to trading
and risk taking is attained.
20. Don’t
give up.
Finally, provided
that you risk only what you can afford to lose, persistence, and a determination
to succeed are great advantages. It is highly unlikely that you will become a
trading genius overnight, so it is only sensible to await the ripening of your
skills, and the development of your talents before giving up. As long as the
learning process is painless, as long as the amounts that you risk do not
derail your plans about the future and your life in general, the pains of the
learning process will be harmless.
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