Lesson 7 – Forex Trading Rules
Trading on Forex markets may be handy for those who truly understand how it works. It may feel sometimes that the Forex market is a real war zone. However, it is just an impression. Still, for things to go well for a trader on this market, there are several rules to apply:
Don’t start your account with the minimum required deposit.
There are brokers who require a very low minimum deposit for a trader to open the account. This can have as effect the opening of very large account positions related to the opening balance. This practice can only lead to disaster. Of course Forex brokers aim to have traders open as many accounts as possible. This is why they set such low bars for opening deposits, so that beginners would fall into trap. Surely it is theoretically possible to control a $10,000 trade on the Forex market with only $50 deposited in the $300 account. Brokers don’t lie when they advertise this. It isn’t smart at all to do so, though. The smart thing to do is starting with large deposits and making smaller trades. This increases the chances of survival on the Forex market.
Do some researching before buying Forex Software
Don’t jump into buying the first Forex software that you bump into on your search engine page. Base your choice on other traders’ recommendations. Word of mouth is a very good guaranty that the product really works. Flashy advertisements and exaggerated claims don’t make a good product. Look for some independent Forex reviews. You may find there some good pieces of advice.
Stop Losses are something you need to know how to use
Forex trading is not done right without the use of stop losses. Learn to use this tool effectively. Although you may think you have a profound understanding of the Forex market, you would still need to use stop losses. Stop losses protect traders from experiencing unlimited downside and it allows traders to move on another opportunity.
Keep track of you operations in a trading log
Having a trading log offers you a better insight on your strategy, on what it works and what went wrong. It is an extra effort, but it pays in the end. It gives a clearer image on the trading patterns of which you are not aware of. You will keep track of your decisions and reasons for making those decisions and it will show you the difference between ending up with a successful trade and a failed trade.
Have a trading plan
No trader should go on trading without having a plan. Sometimes all the hustle on the market can swipe you away just like a giant wave and cause you a painful failure. To avoid that and to stay on your two feet, you need a plan to stick to. A large winning trade does not make you a winner on the forex trading, but the sum of the actions you make in time.
Mind the size of your account and don’t make too large trades
Your account can be rapidly killed by very large trades in relation to the size of the account. Such a practice causes large fluctuations in the account balance and will also stress you a lot. Going from very happy when winning to very depressed when losing will cancel your ability of thinking straight in your trading actions.
Always avoid picking tops or bottoms
The points where the currency pair seems most likely to turn around to the opposite direction are very tempting. Still, the rate of success in choosing such points is very low, as statistics show it. The constant trying to pick the top or bottom points will only lead to the thinning of the account balance. Trading the trends is the best choice.
Avoid adding to the losing positions
It is common sense not to add to the losing position. This will only increase the loss rate when the market moves in the opposite direction of your trade. By adding to your losing positions you will only increase your risk until you kill the account or just close the trades in loss.