Forex Trading can be a good and profitable business when properly traded, and can be a source of pain and sorrow when badly traded! How come, Something that gives so much profits could turn around and give so much dept? The secret is on how you trade, thing you do, and how you do them.
Here are some important tips that will help you to avoid losses:
1. Avoid Trying to Over Leverage Yourself.
When you are just starting out in the Forex, it can be really easy to get caught up in the leverage of the market. The great thing about leverage is that someone who is not investing as much as other larger traders can play with the “big boys” and potentially makes a good profit. An investor can expect to only need to back their investment up to 4% in most cases.
This can get some people in trouble however. When you choose to abuse this system, you can end up with a lot of debt. You should never over leverage your portfolio. Be responsible when trading and remember that you are trading larger amounts that you probably have in your portfolio…
Keeping yourself grounded is the best way to make sure you use the Forex market to your best potential
Over-leveraging one’s trading account, also known as risking too much, is probably the single biggest reason forex traders lose money in the market. You must understand and effectively implement a sound forex money management strategy if you wish to survive long enough in the market to build up your trading account. Many traders make the mistake of becoming over-confident as they experience an early bout of success in the markets and as a result begin to risk more than they can afford to lose on any given trade.
Once this emotional trading mistake is made it is very likely to kick off an avalanche of emotional trading mistakes that can literally dissolve your trading account much faster than you think. Define your money management strategy in your forex trading plan before entering any live trades and you just might be able to avoid this most ubiquitous of trading mistakes and build your forex trading account much faster.
2. Desist From Over Trading.
Why are you trading this particular setup? Ask yourself this question before you enter into any forex price action setup and you might just find yourself committing another widespread emotional trading error: overtrading. The reasons for overtrading are many and varied; the bottom line is that it can seriously hinder your efforts at consistently building your forex trading account. Probably one of the biggest reasons why traders overtrade is because they think they will somehow build their trading accounts faster by trading the market with a higher frequency.
The fact is that on average, traders who trade smaller numbers of transactions each year typically make more money than their counter-parts. You should only trade if there is a sound logical reason, such as a very well defined pin bar setup or other price action setup. If you are trading just because you want to be in a trade or you are trying to make money “faster”, you are going to seriously delay increasing the value of your trading account.
3. Commence Profit Taking.
This one may seem surprising if you are new to trading, but ask any seasoned forex trader and they will probably admit to having let many profitable trades turn sour on them. The main culprit for this behavior is not having a pre-defined forex exit strategy. Most traders concentrate most of their technical analysis on their entries with the attitude of, “I’ll figure out my exit strategy after I enter the trade…
I wanna see how it does first”. The problem with this is thinking is that you are setting yourself for an emotional exit, which will almost necessarily result in you losing money or making less than you otherwise would have. The only way YOU can successfully TRADE the market is by pre-defining all aspects of your trading actions, otherwise the MARKET will trade YOU, which means instead of mapping out your plan of action before the battle begins you will be forced to compete with your emotions during the heat of battle, and this almost always results in lost money.
Make a Forex Trading Plan.
Having an effective and tangible forex trading plan is your primary defense against committing emotional trading mistakes, think of it as the glue that holds everything together. Many traders simply ignore the fact that they know they should have a defined and tangible trading plan, or they think to themselves something like, “I’ll make one someday”. This is simply not how successful forex traders build their trading accounts.
A forex trading plan will keep you on the disciplined trading path and will help you learn from past mistakes. It should not be viewed as a one-off static document, but rather an ever-evolving accountability tool that you can use to master your own emotions and as a result master the market. An effective forex trading plan need not be super in-depth or complicated, it might be as simple as tracking all your trades in an excel spread sheet.
The point of a trading plan is that you need to treat forex as a business and not as a trip to the casino, if you put effort into making an effective forex trading plan you will naturally think of forex as a business with costs (losses) and revenues (winnings), once you begin to do this you will likely see your forex trading account consistently increase in value.
1. Don’t put all of your eggs in one basket – This is true for any investment and Forex is no exception. Forex investment should only be part of your portfolio, not all of it. Another way to achieve diversification is to trade in more than a single currency pair.
2. Don’t over-leverage yourself – It’s easy and tempting to leverage yourself a 100 times over. It also makes it pretty easy to lose your shirt. Don’t take huge leverages. It’s easy to lose all of your deposit that way in just one quick fluctuation of the market.
3. The Stop Loss is sacred – Trading without a stop loss is like jumping out of a plane without a parachute. You’re going to get splattered and it’s going to be ugly. Also, once you set a Stop Loss, you never take it down. Otherwise, it’s like jumping with a parachute but never intending to open it.
4. The trend is your friend – Unless you’re a position trader and you plan to hold a position for years based on in depth economical analysis, you shouldn’t go against the trend. Remember, there are stronger players in the market. You’re not going to wrestle the market to the floor. What would you rather do, swim with the current or paddle in the opposite direction?
5. Educate yourself continuously – The best way to know Forex risk management rules and become a successful forex trader is to know how the market works. This is an ongoing thing, so keep at it.
6. Use software to help you – To achieve Forex success, make use of trading software and analysis programs which can help you make a better decision. These systems aren’t perfect, but you can still use them as advisors and something to fall back on.
Do you have anymore tips? Feel free to comment it below!