Foreign Exchange transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. It includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global forex and related markets is continuously growing. Since then the market has continued to grow. The foreign exchange or the forex market is accepted as the most active and liquid financial markets in the world.
The spot forex market is an over-the-counter market and is different from exchange-traded products because it has no physical location or central exchange. Foreign exchange trading takes place in the world major financial trading centers with the main centers being London, New York and Tokyo.
1) Learn Before You Leap
2) Cut Losses, Let Gain Run
3) Discipline is Crucial
4) Focus On The Process
5) Know Your Exit
6) Manage Your Money
7) The Trend Is Your Friend
8) Don’t Trade Emotions
9) Consider Who Loses
10) Remain Humble
SIX Guidelines for Forex Trading
Forex trading may become a much easier activity if you follow your own or someone else’s well-formulated guidelines. I’ve based my guidelines on my past Forex trading experience and knowledge gained listening to some of the best stock and Forex traders. What’s important is that the guidelines are not the laws and rules — they are not the only way to success, they just help the traders in their endeavor. Here’s the list of my Six Forex trading guidelines:
1) Open a Demo Account and learn to trade it first before “going live” with real money. You will usually learn how to avoid some mistakes and also get familiar with the broker’s trading platform before you have hard-earned money at risk.
2) If you’ve never traded Forex before, I recommend opening a mini account first. Trade less and become accustomed to the quick Forex market, before you start using the higher leverage of a standard account.
3) Risk only 3% of the total trading capital with each trade. Generally it’s quite hard to come up with the comfortable risk percentage value for your trades if you want to keep a good money management and still let your funds grow at a nice rate. For me 3% is the optimal level — safe enough to save and high enough to gain.
4) Reward-to-risk ratio should be no lower than 1. Many currency traders prefer trading with the ratio not less than 2 or even higher. That’s a problem of risk/gain balance too. For me the opportunities with the ratio above 2 are very rare — maybe, because I prefer high accuracy trades. If your accuracy rate is far from 90% than sticking to reward-to-risk ratio of 2 would probably be a better decision.
5) Don’t leave the positions open through the weekend. The weekly opening gap can be a killer. Don’t underestimate it. As a swing trader, I prefer to open my positions in the beginning of the week and I always close them before trading ends on Friday. The gap in the price rates that usually occurs after a weekend can make your stop-loss trigger far from the levels you planned it to.
6) Wait before opening a new order after you’ve just traded. If you jump into another position right after you closed or opened a previous order is a straight road to overtrading and an empty balance. I always wait some time analyzing opportunities and resting from the Forex market before setting up my next order. Maybe, for the extreme scalpers this isn’t a best decision, but for the absolute majority of the medium-term Forex traders it is.
FOUR Easy Steps to Remove Emotions from Your Forex Trading
Emotions are the one of the greatest problems of the Forex traders. Almost every beginning trader, who starts with the demo account, experiences a great success in his trading, but fails to carry this success to the real money account. What’s the problem? Emotions! When we lose we feel frustration and sometimes even despair. Winning can cause us to lose control over our actions and turn our trading into a gambling or cause a serious overtrading. So here are the four easy steps to stop emotions from ruining your Forex trading:
1. Single loss is not your fault. It’s not even the market’s fault. And it’s not your system’s fault. It’s just a loss. No trader or system can guarantee 100% winning rate. So, losses should happen. If you lose then your system works. It may even lose again, but that won’t change the full picture. Trading doesn’t work with a single loss or win; it works with the loss rate and risk-to-reward ratios. So, next time you lose, remember that there is no one to blame, because there is no guilt in losing.
2. If the losses prevail over the winning positions then check your risk-to-reward ratio first. If each of your losses is less than a third of your single winning position then maybe your system is intended to work with 65% of your positions in the red zone? If your risk-to-reward ratio doesn’t compensate your poor loss-to-win ratio, you still don’t have to blame yourself, the market or your system. Probably, it’s just the wrong system for the market you are trading in. Time changes and the old systems stop working, while the new ones are created. Just switch to something else and continue your pursuit of success.
3. Single winning position is not an indicator of your success. The same as with the losses don’t treat a single win as your accomplishment. It’s just a part of the routine process of trading Forex.
4. If your winning rate is high during the long period of time and the risk-to-reward ratio is rather low then I can congratulate you with finding the right strategy that worked fine for the kind of market you were trading on during that period. That’s it! Stick with it until your winning rate declines below the satisfying level.
Advantages of Online Trading!
- Online futures commodities trading places the smart, self-directed trader in complete control of his or her trading decisions and executions
- Futures Trades are instantly routed to the trading floor for immediate execution
- Electronic futures such as E-Minis are filled in as little as one second
- Fill reports are delivered promptly via electronic processing. The capacity for errors is theoretically lessened because there are fewer humans in the chain.
- Risk management through easy account access: Online traders can quickly and easily check their order or account status at any time
- Eliminate the broker-client “chit-chat” and execute your orders as soon as you want to
- Save Your Money. Eliminate the middleman – you make your trades directly via the internet – online trading reduces the many overhead costs in trading that are typically passed to traders.
If you keep these things in mind as you get started trading, you will be doing yourself (and your account) a favour. I’ve never seen anyone regreting it.
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