In this article i am going to talk about the forex trading rules you should never break. if you have been trading for a while, I’m sure you will relate to some of these rules.
1. understand the game before you play it
New traders rush to open live trading accounts without understanding how the forex market works because they heard how it will make them rich fast.
Don’t be that person who rush to open a live trading account and start trading without understanding how the forex market works. You will loss all your money!
Invest your time and money in learning. There are a lot of learning materials out there. In fact, follow these steps here.
2. Find your own trading style
There are millions of trading methodologies out there.Find the one that is right for you and stop moving from one strategy to another.
3. Stop searching for “holy grail”.
Most people think that there is some magic strategy. They honest believe that there is a strategy that will make them not to have losing trades therefore they constantly move from one strategy to another, trying to discover the so-called “holy grail”. You never going to find it because such secret doesn’t exist.
4. Use position sizing
Most traders are risking way too much, they take 5- 10% risk on a single trade when they should be risking 2% or less per trade. I wrote a post here ae about position sizing. Make sure you read it.
5. Use stop loss all the time.
Using a stop loss goes hand in hand with position sizing.
Your stop loss represent the level that, if reached, you are forced to get out. Make sure you master position sizing and use it all the time.
6. Cut your losses short and let your profit run.
This sounds obvious but you will be surprised how many traders get this one wrong.
Most trades hold on to their losing trades for too long and hope that the price will soon reverse, but they are way too fast to take profit on a winning position.
This strategy is completely the opposite of what trades should be doing.
7. Choose your broker very carefully
If you are going to trade, you need a brokerage account, there is no other way. Unfortunately some brokers are after your money.
Your loss is their profit so be very careful when you open a trading account. Here I wrote about the important things you should look for when you open an account with a broker.
8. Know your risk vs reward ratio
I personal don’t take a trader unless the risk reward is 1:4 or more
If you don’t know what risk:reward ratio i, this post here with help you understand the importance of risk:,reward ration.
“if you don’t have a competitive advantage, don’t compete.”-Jack Welch
9. Trade with a plan
A well-conceived plan is a set on rules that determine when to enter a trade, when to exit, how much you willing to lose on that trade, how much you’re going to make.
Every trade needs to have a trading plan otherwise they will not last very long. If you not sure what a trading plan is all about then make sure you read this article below. Why you need a forex trading plan
10 Don’t revenge trading
Revenge trading is when you increase your lot size after taking few losses because you want to bring back the money you have lost in your previous trades
Revenge trading can turn a $100 loss into $1,000 loss
11. Be patient
Be very selective when it comes to your trades. Being selective means you are patient enough to wait for higher probability traders.
Just because you’re a trader doesn’t mean you should be trading all the time.
12. Protect your money
Your primary goal is to make money, not to lose it. The only way you will ever be able to protect your money is to use rule #4.always!
13. Know where to get out before you get in
You should know where to put your stop loss, and where to place your take profit target before you take a trade.
That allows you to define your maximum possible drawdown . This is why I strongly recommend price action trading.
14. keep it simple
A lot of people (including myself at one stage) think that in order to trade successfully, you must use a complex strategies. this is far from the truth.
Keep it simple and trade with price action.
15. Focus on higher timeframes
The shorter your time frame,the less money you will make. The price can only move so far in 5 minutes chart than it can move further in 15 minutes chart, even more and lot more in a daily or a weekly chart. It takes time to grow your profit.
16. Keep a trading journal
A trading journal is a collection of your trades: your before and after trades, the reasons why you took the trade, how much did you risk, how much did you lose/ win.
Trading journal will enable you to see at a glance just how discipline you are in your trades. That way you will be able to see the mistakes you make and learn from them
17. Trade with an edge
An edge is all about how you trade,the trading strategy you use,the time frames, risk reward ration, how you carefully select your trades,how you make your trades, etc.
18. Accept loses as part of the game
It’s very important that you learn to accept loses as part of trading.
The trick is to lose less and win more-cut your loses short and ride your profit. If your trade goes against you, get out as soon as possible.
19. Learn from your mistakes
Most trades spend thousands of dollars donating to the market and the worse part is that, most of these traders know exactly what they should be doing to avoid losing their trading accounts, yet they keep committing the same mistakes over and over again. As a matter of fact, learn from these mistake here
20. Maintain discipline
This is it- the most important and very difficult thing to master.
You can have the best trading strategy in the world, but if you are not disciplined, You never going to be able to achieve success in the long run.
Forex trading success has a lot to do with your emotions, If You can master that, success will come chasing you.
Trades like Richard Dennis, Paul Tudor Jones, Josh Brolin and Louis Bacon, to name just a few. These trading legends were able to succeed through discipline while learning from their mistakes and managing intense psychological pressure. You too can make it.
There you have it folks-forex trading rules you should never break.
“IF you can, help other; if you cannot do that, at least do no harm to them.”-DALAI lama xiv.
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