There are some core principles we believe are imperative to navigating the Forex market effectively and profitably. These concepts are not complex, yet can be the difference between success and failure. These are our Forex rules to live by.
Do’s and Don’ts for Today’s Forex Market
- Do spend more time on your position sizing rules than on your entries. Your position sizing rules are the key to achieving your objectives. Once you understand how to limit losses, protect profits, scale into winning trades and use “market money” you will have a big advantage over the majority of Forex traders.
- Do define the market type: Is it trending or sideways, quiet, or volatile, bull or bear – This is key. The market trends less than 50% of the time. You should have a different strategy for each market type.
- Do have simple entries complex exits. With Forex you want to trade the market that is in-front of you. By having a series of exit rules that allow you to maximize and protect profits depending on what happens after you get into the trade, your chances of trading success is greatly enhanced.
- Do watch the cross pairs – Even if you don’t trade the crosses, you have to know what the big trends look like. For instance, if EUR/AUD is surging from oversold territory on daily and weekly charts, it may very well be holding AUD/USD back. It’s wise to wait for very strong cross pair currents like these to fizzle out before looking too much at AUD/USD long, in this example.
- Do more of what’s working, less of what isn’t – This applies to strategies, currency pairs, etc. When a strategy or a pair simply is not working, eliminate it for the time being and do more of what is working. Rather than babysit a dead trade, we cut those and focus on what is moving and working for us.
- Don’t run with the herd – Following the herd is generally a bad idea. We use a number of sources to gauge what other retail traders are doing and avoid doing the same thing most of the time.
- Don’t buy (or sell) the laggards – The majors don’t always move together or play catch up. For example, we may see EUR/USD and several other majors up 80 pips on the day and GBP/USD is down 10. Traders sometimes see the laggard (GBP) as a great buy. More often than not, there’s a good reason it’s lagging and is going to stay that way. You probably did not find a hidden gem.
- Don’t obsess over a currency – Avoid getting too wrapped up in one currency or pair. In doing so, you are likely to force trades when they are not there and miss out on much clearer, better opportunities in other currencies. If you lost money trading a specific currency pair today, you don’t need to “make it back” trading that very same pair. The pair is not holding your money hostage, another trader already gained that loss. Move on.
Set Realistic Forex Trading Goals
Setting realistic, attainable goals for your trading that will help you as you progress is one of our core Forex rules. Targeting a percentage of your account balance (rate of return) to measure success rather than “pips” or percentage of winning trades is important. After all, if you make money on 9 of 10 trades, but the one loser erases nine winners, you’re not doing so well in the Forex market.
Creating monthly and quarterly goals is the most efficient strategy, rather than creating daily and weekly goals. Since there are some days where you will not find a great trade there should be no reason to put undue pressure on yourself.
You must know that using leverage properly means doubling your account each month is not a goal you should target. This is a financial market, not a casino. We’re in it for the long run and hope you are too.
Use Forex Leverage Wisely
One of the biggest challenge for new FX traders is respecting and understanding the high degree of leverage available. Using margin to trade Forex will exacerbate losses and gains. Before entering a trade into the Forex market, traders should always consider how much money they’re willing to risk.
We believe when traders are over-leveraged, they are more apt to become emotional and make poor decisions that ultimately result in losses. Swing for base hits and allow the home runs to come naturally.
Use Forex Market Stop Loss Orders
Using a stop loss order is important for all Forex Traders. Before you get into a trade you need to define you initial risk. To do this you need to place a stop-loss.
Placing a stop loss order does not have to serve as your only exit strategy rather it’s placed to protect your positions. There will be certain instances where you may have to close your position before the stop is triggered.
The stop order will not guarantee your exact exit price within the Forex market, but having no stop loss simply isn’t a solid game plan. Always abide by this Forex rule.
Source FX Renew