Trading is an art, not a science! Top 10 forex trading rules
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.
Try to control the fear, the excitement and the adrenaline. Relax and think logically no matter if you are winning or losing.
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.
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.
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.
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.
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.