Foreign Exchange Knowledge - Foreign Exchange Quotes
One of the most crucial pieces of foreign exchange trading knowledge that you should
have if you are going to have any possibility of making money with foreign exchange trading, is how to set up your trading strategy. Having a good coherent plan that you can stick to along with the foreign exchange quotes that will be provided by your broker will make all the difference between profit and loss for many traders.Remember that the majority of traders beginning out in forex trading lose money, so it is crucial to carry out everything you can to make certain that you are one of the profitable ones. Having a strategy will give you a head start over most traders who simply start trading with no route map of where they are heading.
Having a profitable method is important of course and there are many of those off the peg systems available. Most traders think that the trading system is the only thing that matters and use up all of their time searching for the flawless system that is guaranteed to make money for anyone. But no such trading system exists. Although there are a bunch of fine systems, no system will be successful without a trading plan that is tailored to the specific trader, it needs to be a customized fit for you.
This means that you need to figure out your trading plan for yourself. Do not be alarmed however for the reason that it is quite straightforward. Your plan just needs to include these three things:
1. Lot size
This can be measured in the number of positions that you are able take on every single trade. Lots may vary according to the strength of your signals or it may possibly be the same for each trade, but it ought to be clearly set out when you get your foreign exchange quotes before starting to trade . Do not vary your lot size according to intuition, and do not vary it according to whether your earlier trades were winning ones or not.
When you are deciding on your lot size, you must also consider your gearing and what proportion of your total funds will be committed to a trade. This is part of your risk management plan and it is critical part of currency trading knowledge that you ought to always have by your fingertips.
2. Stop losses
Your strategy really must include a stop loss which is measured in terms of the number of pips. Again you ought to consider the risk that you are taking as a proportion of your overall funds. In most cases you should target for a risk of around 2% for each trade. However, with several systems or if you have a very low initial trading pot, you might want to go higher than that to prevent your stop losses being triggered too often. Just be wary that if you do that, you have a much greater danger of going bust than if you stick to the previously agreed lot size.
3. Level of Profits
You ought to also settle on the exit position for a winning trade before you start, i.e. how many pips are you aiming to take. If you do not settle on this at the beginning you will often be tempted to hold out as long as possible, praying that the trend will keep going your way. Often times you will be caught out by an unexpected reversal and a profitable trade can be turned into a loss. So it is essential to decide ahead of time how much profit you will take.
Once you have your strategy, it is crucial to keep to it consistently. Avoid the temptation to trade when the signals are not quite right, or to pursue your gut feelings in anything, at least until you have many years' experience of the market. Also, reduce interruptions whilst you are trading. This will help you to keep away from making foolish mistakes and keep your concentration levels high so that you can make the best use of all of the foreign exchange trading information that you have acquired before scrutinizing the foreign exchange quotes from your broker and deciding whether or not to place a trade.
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