Easy Tips That You Must Have In Mastering Forex Trading
Tip 1. Develop a trading strategy or adopt an existing one and make sure it workson historical FOREX data. Then make sure it works on a demo account, and finally make sure it works on your life account with mini-lots. After that, you can trade with your regular FOREX lot sizes. With proven strategy, trading can be profitable over a long period of time.
Tip 2. Keep in mind that when you trade, you should always consider the current trend. Depending on the time frame you trade in, it can be daily, monthly or global trend. It can also be flat, especially during the summer months. If the market is in a trend, open positions in the direction of the trend only. You can also trade in both directions within the channel if it is flat.
Tip 3. The larger time frame should be consider prior to opening your position. Take a look at all of the important levels, previous extremum and the market direction moving towards on the global scale. Frequently volatility is at the highest important levels, where certainty is very low. Just in case that you trade intraday, you should look at the daily time frame to assure that you are not trading against the monthly trend.
Tip 4. You may prefer to take advantage of a smaller time frame in finding the best entry and exit points. Use M15 charts to find the best entry and exit points if you trade on H1 charts. Then, use H1 charts to find best entry and exit points if you trade on daily charts.
Tip 5. Learn the right way in managing your risks. Your deposit in your trade is your workhorse, and you will be out of the business once you lose it. This is the reason why in any circumstances, you should not risk more than 5% of your deposit per trade. I suggest in my FOREX tips that you risk even less. 2-3% is the safest way to go.
Tip 6. You should know how to handle your emotion. Set aside your anxiety and greed and then abide by your trading system no matter what happens. When you start opening and closing positions based on what you feel and not based on what your system tells you, you start to lose your money. If you lose more of your money, your trading will become more chaotic and you will more money as a result. The same happens if you win too many trades in a single row. When you start feeling like your are "God" and start losing your mind, you will also start disregarding your system which will usually leads to big losses. Stay cool no matter what happens, whether you win or lose. It's not so bad loosing a trade or even a number of trades consequently. After losing trades you usually get winning trades, which compensate your losses, and the opposite is also true.
Tip 7. It would be better if your trading strategy complements your lifestyle and personality. If you can trade only a few hours a day, choose a strategy that is based on delayed orders, and use larger time frames such as daily and monthly time frames. If you cannot wait for big market movements, use a smaller time frame, such as M5 or M15. Perhaps, a scalping strategy will best suit you. If making a decision could take you hours or days, you may want to use larger time frames and trade long-term.
Tip 8. When the markets are unstable and if you are in doubt, you better stay away from trading. Do not trade if you are in doubt and when the markets are unstable. Staying away and not trading is also a position, often called "neutral position". When you are not trading, you are not only avoiding losses but also preparing to take a big win once the uncertainty is over and a new trend emerges.
Tip 9. You can actually limit your losses by using protective stop-loss orders or hedging. If you open a position in a wrong direction, stop-loss or hedging order will kick in saving your deposit. You will lose this single trade, and your deposit will shrink a bit which is fine. And in case that you did not employ your preventive stop-losses, your stop-loss in your entire deposit. Do you really want to risk your workhorse just for the sake of a single transaction?
Tip 10. You must check if Profit/Loss ratio of the trade is at least 2:1 prior to accepting a trade signal. You forecast profit and loss targets when you forecast a price movement. Divide projected profit in pips by projected loss in pips, and you will get this ratio. If you come up with a number less than 2 then do not enter the market. The truth is it is less possible for traders to forecast price movements with greater probability than 60% as proven by history. So, this is why the only way to stay profitable over the long term is to choose P/L ratio of at least 2:1.
Tip 11. If your trade is losing, do not add any positions in it. If you think that market is about to turn around and desperately want to add positions to your losing trade at a better price, it means you lose more money than you originally planned.