Unlike anything else in the financial world, the Forex market cannot be controlled by any single event or individual given its speed, volatility and sheer size. It is therefore known as the closest market to "a perfect market" by many economists. The highly speculative nature of the Forex market infers an increased risk but also translates to potentially higher profits.
Having a solid foundation of knowledge is vital in Forex trading. The following tips offer critical advices and tips for significantly reducing risks of Forex trading, and increasing your chances of making profitable trades.
- 1. Demo First!
Never invest money into a real Forex account until you practice on a Forex demo account for at least 2 months. Studies has shown that 90% of beginners fail to succeed in the real money market ONLY because of the lack of knowledge, practice and discipline. The remaining 10% of traders who are successful had been sharpening their skills on demo accounts before entering into the real market with confidence. - 2. Get the Bigger Picture
Always take a look at the time frame bigger than the one you have decided to trade. For example, when trading in 20 minutes time frame, take a look at the 1 hour chart; trading hourly would require obtaining a picture of daily or weekly price movements. If a trend is hard to spot, choose an increasingly bigger time frame. Up and down market patterns are always present. Always make sure you know the dominant trend, unless you are a scalper. Scalpers typically only need to know what is happening in the market within the past 5-10 minutes time frame. - 3. The Stop-Loss, Take-Profit Rule
As a general rule of thumb, traders should set Stop-Loss orders closer to the opening price than Take-Profit orders. By following this rule, a trader needs only to be right for less than 50% of the time to be profitable. However, a Stop-Loss order should not be so tight that normal market volatility would trigger the order. Take-Profit orders should reflect a realistic expectation of gains based on the market's trading activity and the length of time to hold the position. - 4. Not Moving is a "Move"
Not trading is a perfectly valid position. When in doubt, stay out. If it is not clear where the market will move, do not trade. Saving present capital is definitely a better choice than risking and losing money. - 5. Zero Stucked Money
Learn to use protective stops and stand by them. Hoping that market will turn in your direction can be a very delusive hope. By moving a Stop-Loss threshold further and further down, a trader effectively increases his chances of ending up with a much bigger loss. In the mean time, invested money is stucked for an unknown period of time and therefore cannot be used for opening new positions. Money not working is money wasted. - 6. Choose the right day to trade
This tip is often ignored as "Optional". Yet, choosing the time to trade can make a difference between successful and hopeless trading. It is proven and highly recommended not to trade on Mondays, when the market has recently awaken and is making its first steps to form a new or confirm a current trend. It is also not recommended to trade on Fridays afternoon, during the huge volume of closing trades. The best trading days are Tuesdays, Wednesdays and Thursdays. - 7. Success is not about winning every trade
Learn to measure your own trading success by the end of the day, week and then month and year. Do not judge your trading success by a single trade. To be successful, traders do not need to win every trade. They also do not need to become rich with just one trade. They simply need to be profitable in the long run.
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