Online Forex trading is like being in a war zone where you are the warrior and your forex trading strategy is your only lifeline. The quicker and better you understand the forex markets, the longer and better your chances of survival in this war. And of course, it affects your profits too. Here are the Ten Commandments, or the rules of the game that you need to learn to succeed in forex trading.
Start with a Forex trading strategies.
Your forex trading strategy is your guiding light. Without it, forex trading can be disastrous for your hard earned savings. When the going gets tough, your trading strategy will help keep things leveled. Remember, forex trading is not about that one large win, it is the sum total of all your actions in currency trading market.
Know your account size
Large trades with a small account can cause extreme fluctuations in your account balance. Fluctuations in exchange rates can have far more pronounced effect on your account under such conditions and make you lose focus from your goals. Always maintain sufficient capital in your account to cover all your trades.
Be careful of the minimum account deposits
The low minimum deposit accounts offered by many brokers may tempt you to open large trading positions in relation to your opening balance. Trying to control a $10,000 market trade with $50 from your $500 account is not a wise move. Start with a larger deposit, try out smaller trades, learn the ropes of forex trading, and you will see better results for yourself as time progresses.
Thoroughly research before buying forex trading software
Always do your own research before buying an automated forex trading software. Ask your friends and colleagues if they have tried any software in the market. It should have features that mirror your trading strategy. Never, make a purchase decision without proper research. It can be the difference between your success and failure in forex trading.
Learn the magic of stop-losses
Stop-losses are key to every trading strategy. No trade is perfect, nor is the trader. Stop-losses let you measure your moves and allow you some breathing space when things seem to run out of control. They are your cushion from unlimited downside in your trading positions and allow you to restrict your losses to quite an extent. Learn to use them judiciously and effectively.
Don’t add to loss making positions
When you add to an open losing position, you only increase your rate of loss. Your risks grow bigger until either your account is wiped clean or you close the trade at a bigger loss. Consult your trading strategy, your financial advisor, do some more research and see if you can go long on that position or apply stop-loss to it. But never add to a losing position.
Keep a trading journal for yourself. It will help you with insights from your own past trading patterns. It will allow you to revisit your own decisions in retrospect and learn from your successes and failures alike.
Stay away from picking tops or bottoms
In spite of what you think about your knowledge of the currency trade markets, picking turning points for currency exchange rates is never a good idea. If at all your guess succeeds, it will be an ego boost for you. But the odds are almost always stacked against you and you are much less likely to find tops or bottoms just like that. Your account balance will suffer while you try to prove yourself. Stick with the trends as much as possible.
Volume of smart trades
Don’t let trading to become an obsession. Trading for the sake of trading is not your key to success. If there isn’t much trading action involved in a particular trade but you feel like trading anyway, try doing something else instead. Forex trading is not about the volume of trades, but about the volume of smart trades.
Look at the bigger picture
Keep yourself updated with the trends of forex trading. Irrespective of your trading time frame, keep your eye on the daily charts. It will allow you to understand the larger trends in currency trading, and assist you in building and maintaining a clear perspective. Your trading decisions within your time frame will reflect this and increase your success rate.