Individuals who get into forex often make at least a few mistakes before the first day of trading is done. That’s to be expected. When you’re learning something new, you don’t have the benefit of experience. At the same time, you don’t want to burn through your trading capital making stupid mistakes every day. Here’s what you need to avoid to make sure your lessons are good ones.
Know When To Cut and Run
A lot of traders stay in a trade too long. This happens because they don’t set firm rules before they start trading. This is an uncomfortable thing for most people to get used to, but you absolutely need to write out the rules for your trades before you open up your trading software.
Things like profit and loss targets, stop losses, and entry points for the day should be some of the first things you define. Having a set of definitions like this makes it easy to trade because all you need to do is play your trading “by the book.” There’s no emotional response to a market correction or a temporary setback. Trading becomes objective instead of subjective.
Use Trading Signals
Trading signals are part of the game of trading. If you’re not using some kind of signal to help you determine which way the market is moving, then there’s really no way to profit over the long-term. Usually, this means following charts and trying to find patterns, but it can also mean paying attention to fundamentals too.
Always Place Stop Orders
Stop orders are a way to automatically stop trading, regardless of where your position is. Most traders, when they first start out, forget to place stop orders at least once. This can be detrimental to your trading for the day, but it can also put a sizeable dent in your trading capital. Never forget to place your stop loss order.
This is one of the benefits of using Metatrader – it’s very user-friendly in this respect. In fact, if you’re not using Metatrader, or your broker doesn’t support it, switch to one that does.
Pick Tops And Bottoms
Again, don’t forget to pick tops and bottoms. This is hard, but you can create general rules based on trends you see developing in the marketplace. Pick what you think will be the “top” and “bottom” for the day and then trade on the trend.
The Trend Is Your Friend
Speaking of trends, don’t forget that the old saying is true. The trend is your friend. Now, this doesn’t mean you have to be a strict trend-trader. Some traders are range traders. But, everyone, ultimately, identifies a trend that they take advantage of in some way, shape, or form.
Know The Pair, Not Just One Currency
Knowing just one currency is dangerous. Currencies are traded in pairs, so it helps to understand both sides of the “story,” so to speak. While many traders become experts in one currency and often know the fundamentals to the “T,” you want to be familiar with how one currency affects another – for example, how the euro affects the U.S. dollar. This separates you from amateurs who are just looking for an “if this, then that,” arbitrary trading methodology.
About The Author
Samuel Watkins does quite well in the Forex market. He likes to share what works for him with newbies to investing. You can read his helpful articles on a variety of websites and blogs.