Learn Forex Trading
Trade with Only Money you Control
Range Bound Market or Trending Market
A successful forex trader always enters into a forex trade knowing the maximum amount he could lose of course willing to lose on that trade. This would be your stop loss amount, and you should maintain your commitment to it. You can put that stop loss directly into the trade using the forex trading software or you may simply write it down. If you write it down, your making a commitment to yourself that you should keep. In many forex trading brokers stop losses are guaranteed so you will never lose more of your money than what you put the stop loss in for before placing the trade. Remember, you set the stop loss at a specific amount before trading, so if your experiencing a losing trade you do not want to change the stop loss for any reason. This way your utilizing the tools of the trade to keep from losing your entire account which could prevent you from further trading.
This has dual meanings. It could mean setting a trailing stop or a virtual trailing stop. The reason behind it is to prevent losses and let profits run. Keeping emotion out of your trade and relying on your strategy is the best medicine. You can keep track of your trades by hand, or many forex software platforms come with a history so you can take a look and see what happened whether it was 2 minutes ago, or two months ago. When the currency market moves positive you can then move your stop loss up to the point in which the stop loss is then profitable.
A knowledgeable trader is aware that profitability is gained over time, not all at once. By maintaining a good size of equity and keeping it a comfortable level, you can keep trading for weeks and months to come. Continuing to apply you strategy, even in the face of diversity will almost certainly lead to many successful trading sessions. There is a high rate of success for traders who manage their capital wisely by not risking more than 10% of their capital within their account. So if you made a deposit of $5000 USD, your max loss would be no more than $500 on a 5% margin. There is nothing wrong with starting small and then slightly increasing your trade size as your confidence and your account grow in size.
This just applies to staying with your strategy no matter what happens. You certainly don’t want the influence of others leading you away from your primary forex trading strategy. Sure, its okay to discuss forex trading, both before and after you place a trade, but you don’t want to listen to the logic of others while you have a trade placed, because you need to develop and validate your strategy – not theirs. Keep your eyes on the prize and your head in the game at all times and avoid useless conjecture while your trading.
A minimum ratio you should be utilizing is 1:1, so if you are profitable on 50% of your forex trades you are at least staying even. With a 55% success ratio as opposed to a 45% lose ratio, you because of winning strategies and your understanding of the market, you can do quite well in the currency markets. For instance say you profit 55% of the time and you trade one 100,000 trade a day on a risk vs. return ratio of 1:1 and your stop loss is set at 100 pips on a $10,000 initial deposit as in the example below. Over a 20 day period you will have 11 positive trades and 9 negative, which equates to you making 200 pips net, or $2,000 profit. On an first deposit of $10,000 that would equate to a 20% increase in one month.
Trade with Only Money you Control
Trading with money you can’t afford to lose is like trading with someone else’s money, and its not something you should do. For one, you will feel rotten after you lose the money, secondly, that money could be for something very important that could affect a relationship in your life, and you don’t want that to happen either. The best forex trade you can place is the one you can afford, and don’t need profit from to pay your mortgage or your rent with. Knowing your financial limitations ahead of time will alleviate a lot of stress for while trading forex. A hold back is always essential so you have more money to trade with and your not shell shocked and prevented from placing another trade either financially or emotionally.
Range Bound Market or Trending Market
There is no substitute for gaining knowledge of the currency market. By executing careful analysis you can determine whether you are experiencing a trending market or a range bound forex market. Your strategy will quite different for both of these. You need to determine a timeline to use, or several to confirm which market your in. With a range bound market you can then proceed to buy on the dips and sell on the highs. If your witnessing a trending market you simply follow that direction. You will want to utilize stop losses to protect your forex capital.
Follow the “yellow brick road” cause those aren’t yellow bricks, their gold and can lead you to riches. Follow the trend and don’t go against it, cause in forex trading, the trend is good as is following “the pack”. follow that trend like its a wave that can carry you from rags to riches. You never know when a trend will stop. You can could make a tremendous amount of money in a single trade before that trend comes to an end.
A familiar and common foe of the forex trader is something called averaging. Like leverage, it has a tendency to either win big, or lose even bigger. You should not double up in a losing trade unless that was your strategy before placing the trade. You should keep a conservative approach to doubling up, even if it has something to do with your strategy. Averaging can quickly break down small and short-term trades and eliminating your capital very quickly. You want to keep capital in reserve and not jeopardize it because your trying to chase bad money with good money. Accepting losses is a learned trait in forex trading, and one the most successful fx traders learn quickly and move on. It a know fact, you never want to add to a losing trade.
When you see a potential for positive trade, hesitating until later is probably not a good idea. By waiting until later your likely to pass up the “profitable period” of the trade. Make sure the trade has not gone south or is headed south quickly. Ask yourself if its still a good trade. Don’t worry about seeing another profitable potential trade, they come and go quite regularly.
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