Do’s and don’ts of trading forex
What are the basic trading strategies
Forex Trading is the biggest market in the world in terms of activity. A mammoth $5 Trillion is traded each day. With the amount of volume traded comes great opportunity.
Traditionally it was only the wealthy who had access to trading high volumes on an exchange but now, thanks to leveraged trading, virtually anyone can compete and trade in the Forex market.
There is a wealth of online brokers which facilitate trading with leverage, granting accessibility to traders with less capital who want to trade higher volumes.
New Broker EagleFX allows users to start trading with as little as $10 and lot sizes starting from 0.01 lots up to 1,000 lots - catering for beginners and professionals alike, in pristine trading conditions.
It is important to consider some key fundamentals before entering the market with a 'buy' or 'sell' position.
This article will run through some of the key 'do's' and 'don'ts' which will help you, as a trader, be more successful by following a few simple rules.
Have a trading plan!
It is massively important to have a game plan and hence why it makes it to the top of the list for this piece. Not only is this true in sport but is especially true in Forex. Traders need some sort of clear goal and objective when entering a market. Forex trading is considered an aggressive marketplace so having a plan is pivotal to success.
Without a plan, trading might as well be considered gambling.
Do your own research
Knowledge is power so make sure you are doing some reading of current market trends and political situations that might affect a particular countries currency.
Politics is a good place to start when looking at how a currency may fluctuate as well as other factors such as war and natural disasters. In August 2005, Hurricane Katrina devastated New Orleans costing the US economy an estimated $45.15 Billion.
Epidemics can have damaging effects not only on the populous but also on markets. The ongoing Coronavirus has hammered markets in recent days and weeks. Global Stock Markets have been gripped by fear and UK Stock Markets are seeing their biggest fall since the great financial collapse of 2008.
In addition to the Footsie having its worst day in 12 years, the DOW had 2,000 points wiped off as many economists are concerned over a looming global recession.
Patience is a virtue and a vital ingredient when looking towards trading successfully. Being patient helps to keep any impulsive behavior patterns at bay.
Set yourself a target of how much you are willing to lose. Not only this, set yourself a target profit you would be happy with.
Trading Platforms such as MT4 have tools where you can set a desired 'take profit' and a 'stop-loss' where you will be stopped out of a trade when the profit or loss amount is triggered. This is especially useful in long term positions and if you are unable to log into your trading account.
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So now we have seen the 'do's' let's explore the 'do nots'!
Don't overcomplicate strategy
We know that having a strategy is crucial to trading success. Having a clear outlay of objectives helps maintain discipline but try and keep things simple. Having too much to think about may serve to cloud judgment.
Don't let your emotions take over.
Human beings are extremely emotional and even more so when under stress. Stress can be magnified when money is involved!
What is vital in trading is to not let emotions cloud judgment when in an open position.
The big 2 emotions traders will experience at some point or other are:
Greed, one of the 7 deadly sins and a particularly dangerous attribute to have when trading. Greed makes humans behave differently and without clarity. It is a feeling of want rather than need.
Greed can affect traders in several ways. Greed can make traders 'overtrade'. Overtrading in the sense of chasing losses or having multiple positions open to try and offset a losing trade.
Traders can and will take unnecessary risks if greed starts to seep into the trading psyche. This is why having a strategy is essential and - sticking to that strategy even more so. Traders should have a particular profit in mind pre-execution. Maintaining discipline and taking that profit is the challenge to most.
Fear can leave traders feeling like deer in the headlights and debilitate us - resulting in a fight or flight scenario.
When a trade starts to creep into profit, fear can make traders close positions too early in fear that the price will begin to fall when in fact the market is moving on up.
Equally, fear can make traders close positions too late when a target profit has already passed and the market starts to shift against us.
New traders are particularly susceptible to FOMO - fear of missing out. Traders open positions without thought or analysis, fearing that a chance might go when in reality, it wasn't there in the first place.
Don't fall into the trap of revenge trading
Once you have reached your target profit, take it. Make use of 'take profit' features to alleviate temptation.
Don't use money you can not afford to lose!
This goes without saying, only invest capital which you can afford to lose!
Trading should be taken seriously. With the right blend of analysis and research, trading Forex can be a profitable side earner.
Don't turn trading into gambling and stay within budget parameters.
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This article was submitted by EagleFX.