| We feel that there are a few
basic forex principles that separate successful traders from those that
fail:
1. Trading is an investment not an income.
It is important to have a realistic
expectation of what you can achieve through forex trading. The nature of
trading is such that you may make a good return on your initial capital
over an annual period, but during that period you may have a number of
consecutive losing months, with only a few bumper months inbetween.
Therefore, even daytraders cannot claim to make a fixed amount per month
which equates to a salary. You need to have another source of income to
support yourself while trading forex. NEVER borrow money to trade with.
2. You can't predict the forex markets.
The forex markets are influenced by
billions of traders, economic and political events. You simply cannot
predict the direction and manner in which the markets will move.
Technical and fundamental analysis does
much to provide a more educated guess than a simple coin toss but it is
important to realise that each of these techniques will have a large
failure rate. You will lose a large percentage of the time. Sometimes you
will lose on more trades than you gain on. However, it is still possible
to make money under these conditions by employing sound money management
forex principles.
3. Let profits ride and cut your losses
The only way to make money from forex
trading (or any form of trading) is by making enough money on your winning
trades to cover your losses and to gain additional profit to grow your
capital. This means letting your profitable trades ride and cutting your
losses early. It is harder to put into practice than it sounds as
psycologically it is much easier to "marry" your losing trades
in the hope that the market will turn in your favour and grabbing your
profit too soon when you see your hard earned gains slipping away as the
market temporarily turns against you.
4. Trade according to a tried and tested
system
This is one of the most important forex
principles. The only way to cut out emotion in trading and adopt a more
business-like and informed approach is to use a system of rules that have
been developed and tested on market data. In this way, all the trade
decisions have already been made before you even enter the forex market.
This is a much less time consuming and less stressful way to trade for a
living.
5.
Employ a sound money management strategy
In our opinion, money management is the
single most important aspect of any trading system and is badly neglected
by forex beginners. It enables the trader to fully utilise their capital
to grow their money as fast as possible while protecting them from
excessive losses and final account blow out.
6. Don't ignore the fundamentals
Fundamental economic principles drive the
foreign exchange rates of the world over the long term. However, they have
minimal effect over the short-term and are thus not reliable to use for
daytrading decisions.
Having said that, economic announcements
sometimes have a profound effect on the markets, causing movements of
hundreds of pips in a matter of hours. Therefore forex beginners
ignore them at their peril!
7. Don't put your faith in the expert's
recommendations and comments
There are literally hundreds of forex
companies providing trading signals, daily commentary and trading
recommendations. While it may be useful to read some of these to get an
outside opinion, it can just be information overload for newcomers to the
forex market, creating indecision and stress! Believe in your system and
trade accordingly. |
