I list here ten rules that I think are important for trading forex. I have split the list
into five Dos and five Don’ts.
Dos
- When trying out a new trading strategy, always test it in a demo account, or witha small amount of money, before you commit more money to it.
- Always keep a record of each of your trades, with details of: why you got in, how you got out and why it turned out the way it did.
- Have a personalised trading plan and update it as you learn from the market.
- If you are unsure of a trade, stay out. It is better to miss an opportunity than to have a loss.
- When trading, keep up-to-date with both the fundamentals and technicals affecting the market. A trader in the dark is a trader in the red.
Don’ts
- Don’t trade with money you can’t afford to lose! It will affect you emotionally, and you will most likely lose it to irrational trading.
- Don’t follow someone else’s trading advice blindly. Always know why you are getting into a trade, and how you are going to get out of it.
- Don’t be concerned about being right. Just be concerned about being profitable.
- Don’t over-leverage. Chances are that your account will be decimated before you can recoup your losses and go into profit.
- Don’t revenge-trade the market. Vent your frustrations elsewhere after a loss.
Every one is eager to get hold of the Holy Grail, whether it truly exists or not. It is indeed the elusive factor that courts the relentless determination of its seekers. A lot of traders – both new and not so new – seek the perfect formula that is capable of predicting with 100% accuracy the future price movements. Want to know where it lies? It only exists in the creative part of the mind – together with fairies and gnomes.There is no perfect formula or strategy that can achieve that unrealistic goal because people who are involved in [...] More…
Why is it that many profitable positions turn into losses, and winning strategies result in losses instead of profits?I strongly believe that once a trader has honed his or her trading skills, the ultimate factor that will affect his or her overall profitability is money management skills.Money management is all about managing the possible risks, and it is the defining factor that separates winners and losers in forex trading. Novice traders think of how much they can harvest from the market; experienced traders think of how much they can lose to the market. Many traders are so eager to [...] More…
Out of the three Ms, I find the Mind component to be the most crucial to trading success. It is often said that we are our own worst enemy. In forex trading, I couldn’t agree more with that saying. Human beings are emotional creatures, and most of our decisions are guided more by emotions than logical thinking. Our mind is capable of playing tricks on us; we can get seduced into unfavourable situations by our emotions. Emotions can work for us or against us. Sometimes they can save us from landing in a pile of sticky mess, but sometimes [...] More…
It is one of the hardest jobs in the world to make big money. And trading forex is not one of the easiest ways – despite what many new traders believe. Many traders fail, and they empty their trading accounts before they learn how to exploit the forex market to their advantage. Although there are also traders who are successful in forex trading, their numbers are small compared to the majority of losers. Many times, traders are not aware that they have the power and might to shift the odds to their favour, that they can dramatically increase their [...] More…
Limited access to interbank marketIndividual retail traders, most of whom trade in much smaller size compared to those of banks, generally trade through forex brokers instead of directly accessing the interbank market. This aspect of OTC shifts the odds of success against individual traders, especially if the forex broker acts as a market maker. Since traders have to deal directly with their brokers, the latter will usually hold the opposite side of the transactions. If a trader is bullish on say, the USD/JPY, he or she will go long by buying a specific quantity of USD/JPY from the market [...] More…
Middle of the nightAn alarm from my computer rings. Jolted from sleep, I drag my feet – with eyes half-open – into my trading room. I turn on the LCD monitors and look immediately at the screen showing the 5-minute chart of GBP/USD. The time is 2:10am and the FOMC minutes have just been released. GBP/USD has fallen by around 40 pips so far to 1.9730 – an intraday low.I click on the headline which summarises what the minutes say. It seems that the Fed’s main concern is that inflation will fail to moderate as expected, and that future [...] More…
Forex trading must be seen as a serious business, not just a casual roll of the dice or a leisurely pursuit. If you approach trading as a means of getting your dose of adrenaline, do yourself a favour by staying away from it – you will do less harm to your pockets by going to the latest Louis Vuitt on sale or by bidding on that vintage car on eBay for the adrenaline shot.Serious money demands serious work. Winners from the trading arena take a non onsense approach to trading – they take care of their P&L (profits and [...] More…
There is a great range of orders that traders can give to precisely control the execution of their order. Not all brokers will accept the same range of order types, but I list below the most common types of orders that most brokers should accept.Market OrderAn order to buy or sell at the current market price.Limit OrderAn order to buy or sell at a specified price or better.Stop-Loss OrderAn order to close a position if the market price hits a certain level. Note however, that this type of order means that after the stop price is hit the order [...] More…
A market maker will usually quote a two-way market price – “two-way” meaning a bid and an ask price– • a bid is a price at which a market maker is willing to buy a currency (and at which the trader is willing to sell), while• an ask is a price at which a market maker is willing to sell a currency (and at which the trader is willing to buy). Here are some examples of currency quotes: EUR/USD 1.3000 / 1.3003USD/CHF 1.2236 / 1.2240GBP/USD 1.9500 / 1.9504 The quote on the left-hand side is the bid, whereas the [...] More…
