Trading is an art, not a science! Top 10 forex trading rules
When Forex moves, you move
In forex, gains may turn into losses in a matter of minutes. This is why; you need to learn how to protect yourself.
Let’s face it: There is nothing worse than watching your trade be up 30 points one minute, only to see it completely reverse a short while later and take out your stop 40 points lower.
You have to act fast – as fast as the markets.
Let’s face it: There is nothing worse than watching your trade be up 30 points one minute, only to see it completely reverse a short while later and take out your stop 40 points lower.
You have to act fast – as fast as the markets.
Less emotions, more logic
Traders who cannot control their emotions will rarely make any successful trades and will quickly join the 95% of traders who lose money consistently.
Try to control the fear, the excitement and the adrenaline. Relax and think logically no matter if you are winning or losing.
Try to control the fear, the excitement and the adrenaline. Relax and think logically no matter if you are winning or losing.
Never risk more than 3.2% per trade
Never risk your whole account just for one trade, always follow proper risk management techniques. Many traders risk only 3.2% of their account per trade. Each may figure out their own % of risk per trade depending on their maximum tolerable drawdown.
Also choose a correct win/loss ratio - a general rule is that the win/loss ratio should be either equal to 2:1 or higher.
To make things simple, let’s say that your average winner is $30 and your average loser is $15. That would give you a ratio of 2:1 that is, for every $ that you risk you have a chance of winning double that amount.
Also choose a correct win/loss ratio - a general rule is that the win/loss ratio should be either equal to 2:1 or higher.
To make things simple, let’s say that your average winner is $30 and your average loser is $15. That would give you a ratio of 2:1 that is, for every $ that you risk you have a chance of winning double that amount.
Technical and fundamental analysis go hand in hand
Don’t separate them, because both technical and fundamental analysis
can give you an idea of where the markets could be headed.
Fundamentals are good at dictating the broad themes in the market that can last for weeks, months or even years. Technical can change quickly and are useful for identifying specific entry and exit levels.
can give you an idea of where the markets could be headed.
Fundamentals are good at dictating the broad themes in the market that can last for weeks, months or even years. Technical can change quickly and are useful for identifying specific entry and exit levels.
Keep balance – always pair strong with weak
When a strong army is positioned against a weak army, the odds are heavily skewed toward the strong army winning. This is the way you should approach trading. Keep the balance and the odds in your favor.
Being right and early means you are wrong
In Forex, it’s all about the timing. If the price action moves against you, even if the reasons for your trade remain valid, trust your eyes, respect the market and take a modest stop. In the currency market, being right and being early is the same as being wrong. Remember, when the markets move, you move but together.
Don't Add to Losing Positions
The difference between adding to a loser and scaling in is your initial intent before you place the trade. Adding to a losing position that has gone beyond the point of your original risk is the wrong way to trade. There are, however, times when adding to a losing position is the right way to trade.
For example, if your ultimate goal is to buy a 100,000 lot, and you establish a position in clips of 10,000 lots to get a better average price, this type of strategy is known as scaling in.
Sophisticated strategies will not win you the game
Novice traders who first approach the markets will often design very elegant, very profitable strategies that appear to generate millions. Armed with such stellar research, these newbies fund their FX trading accounts and promptly proceed to lose all of their money.
Why? Because trading is not logical but psychological in nature, and emotion will always overwhelm the intellect in the end. Conventional wisdom in the markets is that traders should always trade with a 2:1 reward-to-risk ratio, the trader can be wrong 6.5 times out of 10 and still make money. In practice this is quite difficult to achieve.
Hope for the best and prepare for the worst
Before taking a trade, you need to figure out what the worst-case scenario is and place your stop based on a monetary or technical level. Every trade, no matter how certain you are of its outcome, is an educated guess. Nothing is certain in trading. Reward, on the other hand, is unknown. When a currency moves, the move can be huge or small.
Know when to stop
There will be times when you will not understand the price action of the markets.
If you do not understand what is going on in the market, it is always better to step aside and not trade. That way, you will not have to come up with excuses for why you blew up your account. It's acceptable to sustain a drawdown of 10% if it was the result of five consecutive losing trades that were stopped out at a 2% loss each.
However, it is inexcusable to lose 10% on one trade because the trader refused to cut his losses.
If you do not understand what is going on in the market, it is always better to step aside and not trade. That way, you will not have to come up with excuses for why you blew up your account. It's acceptable to sustain a drawdown of 10% if it was the result of five consecutive losing trades that were stopped out at a 2% loss each.
However, it is inexcusable to lose 10% on one trade because the trader refused to cut his losses.
