Rules For Successful Trading Forex – To be successful in trading, but, one to understand the importance of and adhere to a set of rules that have guided all types of traders, with a variety of trading account size. Each government alone is essential, but when they work together, the effects are substantial. Trading with these rules acutely increase the odds of succeeding in the markets.
Understanding the importance of trading rules, and how they work together, can help traders establish a viable trading business. Trading is hard work, and traders who have the discipline and patience to follow these Rules For Successful Trading Forex can increase their odds of success in a very competitive arena.
Rules For Successful Trading Forex
1: Always Use a Trading Plan
A trading plan is a written set of rules that specifies a trader’s entry, exit and money management criteria. Using a trading plan allows traders to do this, although it is a time-consuming endeavour.
2: Treat Trading Like a Business
In order to be successful, one must approach trading as a full- or part-time business – not as a hobby or a job. As a hobby, where no real commitment to learning is made, trading can be costly. As a job, it can be frustrating since there is no regular paycheck. Trading is a business and incurs expenses, losses, taxes, uncertainty, stress, and risk. As a trader, you are essentially a small business owner and must do your research and strategies to maximize your business’s potential.
3: Use Technology to Your Advantage
Trading is a competitive business, and it’s safe to assume the person sitting on the other side of a trade is taking full advantage of technology. Charting platforms allow traders an infinite variety of methods for viewing and analyzing the markets. Backtesting an idea on historical data before risking any cash can save a trading account, not to mention stress and frustration. Getting market updates with smartphones allows us to monitor trades virtually anywhere. Even technology that today we take for granted, like high-speed internet connections, can greatly increase trading performance.
4: Protect Your Trading Capital
Saving money to fund a trading account can take a long time and much effort. It can be even more difficult (or impossible) the next time around. It is important to note that protecting your trading capital is not synonymous with not having any losing trades. All traders have losing trades; that is part of the business. Protecting capital entails not taking any unnecessary risks and doing everything you can to preserve your trading business.
5: Become a Student of the Markets
Think of it as continuing education – traders need to remain focused on learning more each day. Since many concepts carry prerequisite knowledge, it is important to remember that understanding the markets, and all of their intricacies, is an ongoing, lifelong process.
6: Risk Only What You Can Afford to Lose
Rule No.4 mentions that funding a trading account can be a long process. Before a trader begins using real cash, it is imperative that all of the money in the account be truly expendable. If it’s not, the trader should keep saving until it is.
7: Develop a Trading Methodology Based on Facts
Taking the time to develop a sound trading methodology is worth the effort. It may be tempting to believe in the “so easy it’s like printing money” trading scams that are prevalent on the internet. But facts, not emotions or hope, should be the inspiration behind developing a trading plan.
8: Always Use a Stop Loss
A stop loss is a predetermined amount of risk that a trader is willing to accept with each trade. The stop loss can be either a dollar amount or percentage, but either way it limits the trader’s exposure during a trade. Using a stop loss can take some of the emotion out of trading since we know that we will only lose X amount on any given trade.
9: Know When to Stop Trading
An ineffective trading plan shows much greater losses than anticipated in historical testing. Markets may have changed, volatility within a certain trading instrument may have lessened, or the trading plan simply is not performing as well as expected. One will benefit from remaining unemotional and businesslike. It might be time to reevaluate the trading plan and make a few changes or to start over with a new trading plan. An unsuccessful trading plan is a problem that needs to be solved. It is not necessarily the end of the trading business.
10: Keep Trading in Perspective
It is important to stay focused on the big picture when trading. A losing trade should not surprise us – it is a part of trading. Likewise, a winning trade is just one step along the path to profitable trading. It is the cumulative profits that make a difference. Once a trader accepts wins and losses as part of the business, emotions will have less of an effect on trading performance. That is not to say that we cannot be excited about a particularly fruitful trade, but we must keep in mind that a losing trade is not far off.
Setting realistic goals is an essential part of keeping trading in perspective. If a trader has a small trading account, he or she should not expect to pull in huge returns. A 10% return on a $10,000 account is quite different than a 10% return on a $1,000,000 trading account. Work with what you have, and remain sensible.