Trade Currencies With Sufficient Capital
One of the worst mistakes that Forex traders make is attempting to trade without sufficient capital. The trader with limited risk capital not only will be a worried trader, but will always be looking to minimize losses beyond the point of realistic trading. He will also frequently be taken out of the trading game before he can realize any sense of success in trading with his preferred system or strategy. Recommended trading capital to open a Forex mini account is about $2500. It is only a suggestion, remember you can start with as little as $100.
Exercise Discipline
Discipline is probably one of the most overused words in trading education. However, despite the cliché, disapline continues to be the most important behavior you can master to become a profitable currency trader. Discipline is the ability to plan your work and work your plan. It's the ability to give your trade time to develop without taking yourself out of the Forex Trading market simply because you're uncomfortable with risk. Discipline is also the ability to continue to trade your system or strategy even after you've suffered a series of losses. Do your best to cultivate the degree of discipline required for you to become a world-class Forex Trader.
Be patient and Persistent
Many traders have become disappointed when immediate success was not attained. Be patient by allowing yourself sufficient time to achieve success. Persistence is one of the most important qualities a trader can possess as well. Those who quit too soon or haphazardly apply their trading system will not produce the wins they are looking for. In order to develop persistence you must force yourself initially to do everything according to the rules of your trading system or method. Follow through on this commitment, and you will find that after you have taken every trade according to your tested system or method, your consistency will have paid off and you will have profits to show for your efforts.
Employ Risk-to-Reward Ratios
A risk-to-reward ratio compares the potential for reward against the potential for loss. As a trader you must view your trade as a business transaction. We identify risk by counting the pips between the forecasted entry price at which we would exit the market in a losing trade (stop loss). We identify reward by counting the pips between the forecasted entry price and the forecasted price at which we would exit the market in a winning trade. To effectively manage risk, we look to find high probability trades that have a 1 to 1 or greater risk-to-reward ratio. Most professional traders look for positive RTR ratio's between 1-3. For example risking 50 pips to gain 150 pips (RTR = 3).
Follow Trading Rules
The proper execution of trades is a very important aspect of becoming a profitable Forex trader and one of the most difficult to learn. The problem comes with the initial analysis of the market. When you are studying examples of past trades, it is much easier to recognize direction, entries, and exits than if you were trading live. Recognizing opportunities in the "now" is much more difficult to do. To develop this important skill, you must pay very close attention to specific price patterns and the chart positions of technical indicators. Following trading rules and a trading system is no small matter. It requires you to obey rule after rule, even when thier initial response to markets is not to trade, end a trade or get into a trade, based on emotion? Trading should only occur when the right setups are present and when confidence is high.
Accept Losses
Always Use Stops
Stops are orders in the market placed a distance from your entry price, in the event market prices turn and move opposite from the anticipated direction. The idea behind a stop is to prevent a loss from "running" too far and you loosing an excessive amount of capital in one single trade. Too often traders are so convinced of where they believe market prices are headed, they lose their sense of reality and begin to trade on hope. They choose not to trade with a stop, or remove their original stop, simply hoping that market direction will eventually turn (again) their way and their loss will turn into a win. However, by the time they finally realize that such will not be the case, and that their hope was an illusion, they have risked far more that they wanted to at the beginning of their trade, and the result is a devastating, excessive loss, eventually wiping out their entire trading account.
Keep a Trading Log
Keeping a log of trades is like taking a snapshot in time. You'll find that after making your first analysis, market conditions develop so rapidly that it can be difficult to remember exactly what you saw in the beginning that caused you to enter the market. By recording just a few notes about each trade you make and the technical picture you see, you will sharpen your skills in recognizing strong trade setups.
Hopefully these tips are simple enough and after reading them you maybe have a few more tools for your Forex Trading toolbox.
Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
