Forex trading can either be an extremely profitable or extremely depressing experience, depending on how you go about it. Here are a few general forex strategies to abide by should you venture into the exciting world of forex trading.
1. Don't Gamble
Gambling is a lot of fun... except when you lose money and lose money you will if you just trade on 'gut feeling'. In a sense, forex trading IS a lot like gambling only with forex, you can tip the odds in your favor provided you do sufficient research.
2. Never risk more than you can afford to lose
Ideally, you should only trade with 2-3% of your account. It sounds small, I know, but over time that 2-3% compounds into a very decent amount, that is, provided you make the right trades. You shouldn't even think about trading a big percentage of your account unless you really know what you're doing - just the fact that you're reading this guide makes it safe for me to assume that you're not quite there yet.
3. Trade without emotion
When you design a trading system, stick with it no matter what. The most common mistakes when people trade with their emotions is to either add more money to losing trades to chase their losses or pull out early of winning trades to 'quit while they're ahead.' In the long run, this is not a good practice.
4. Follow the trend
The general rule of thumb in forex trading is to follow the trend unless you have a good reason not to, this analysis of trend is known as technical analysis, which brings me to my next point.
5. Craft a trading system to suit your particular style
Some people prefer trading with short term trades using technical analysis. For technical analysis, I highly recommend investing in some sort of forex signal generating software, it's worth it. Others, by contrast, prefer trading with long term trades using what is known as 'fundamental analysis'. Generally speaking, this involves a considerably broader analysis looking at things like the overall strength of a country's economy and the factors that might influence it in the future. Needless to say, this involves a considerable amount of time and research. The best traders employ a combination of both technical and fundamental analysis.
6. Trade with a practice account to begin with
The forex market is a complicated place so you should always trade with a practice account before you risk real money. Wait until you're making a consistent profit (say, over the course of month or two) before you open a real account.
If you follow these general rules and expand on them, eventually you'll be making a consistent profit and, when you do, it will compound and that's when you'll be making big money. That's why the top forex traders make so much - the more money you make, the higher your income. Think about it this way: the forex market handles trillions of dollars, if you can get your hands on 1% or even .1%, you're basically set for life. So persevere and you'll get there eventually.
Happy trading!
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