By ForexTraders.com
Online forex trading offers lots of opportunities to determined beginners, but also poses some serious risks for an undisciplined trader. Forex is highly leveraged, and volatile, and the combination can be lethal for your account if you don’t assume the proper attitude and adopt correct practices in your trading. Still, forex is a great boon to the trader who knows how to control himself, when to trade, and remain realistic while assessing market conditions. In this article we’ll take a look at some of the general guidelines from which every trader can benefit provided that he applies them with discipline and determination.
1. Always use the stop-loss order
Quite simply, the stop-loss order is your guarantee against a wiped-out account in case things go wrong. If you place this order properly you can go read, have fun, watch TV or do whatever you want as the computer takes over the task of cutting down your losses in case that there are unexpected developments. Although trading software can sometimes fail, this is rare, and for the most part you have the power to reduce your losses by using the stop-loss order effectively.
1. Focus on and perfect your skills in risk management
The word effectively, of course, bring us to the matter of money management. In money management you learn about the tools that can be used to minimize losses and maximize your profits. Analysis never gives you certain outcomes, because you are never in control of the market action, nor can you know with any degree of certitude the future direction of the price. However, you are capable of controlling your own behavior, and doing so in a profitable way is all that money management is about. Money management is probably the most important aspect of trading.
1. Don’t fight the market, don’t try to be right, if you don’t understand, don’t trade
In general, you can be right or wrong, but the market is always right. That doesn’t mean that market participants always make rational choices that can be termed to be correct in the long term, but it does mean that the decisions of the market are always final. There’s no court of appeal for the forex market. If you have lost, there’s no way of getting back your losses. And no one will ask questions once you make a profit regardless of the methods you use.
1. Know that technical tools never guarantee an outcome
For a successful trader career it is crucial to understand that the technical tools of analysis never guarantee that a scenario will occur. In fact they don’t even speak of high probability. Market events are random in the short-term, and no amount of effort will grant you the ability to confine or transform the market action into a deterministic pattern that will give foolproof signals about the future. It is best to use technical tools for determining entry and exit points only, without making any conjectures about the direction of the market on their basis alone.
1. Use analysis for entry points, and money management for being profitable
In sum, use technical analysis for determining the entry or exit point of a trade, while using money management to ensure that on the whole your trades bring a net profit. Don’t fight the market, and don’t be deluded into thinking that you can predict the future in the short-term. Markets act by emotions in the short-term, and emotions of the mass cannot be analyzed effectively because by definition they don’t depend on logic. Forex analysis is good for ordering your trades, and giving a logical framework for trading decisions, also for avoiding arbitrariness in trade decisions which is crucial for a disciplined, rigorous approach. But it’s not a tool of prognostication, and those who assume it as such are often disappointed by their results.