FOREX Trading Philosophy
The lure of easy money brings many new traders into the Forex market. Forex trading can be very profitable, but it is a bit more complex than many of the “get-rich-quick” websites would have you believe.
Beginning traders make 2 common mistakes. These 2 mistakes are letting their emotions interfere with their trading and not having a trading strategy. You may be tempted to jump right into trading immediately after opening your account. ITts easy to watch the market for a short time and believe that you now “know” where it is going to go next. Needless to say using the “shoot from the hip” trading method is a bad idea.
Successful Forex traders have a strategy or system that they use to profit and help minimize the affect that emotions can have on your trading.
Formulating your own strategy and knowing you market is all part of your ongoing Forex education. No matter which experience level you have achieved keeping informed about your market is always a good idea.
Understanding the Forex market and the factors which influence it should be your first step. Learn what successful Forex traders do and then follow in their footsteps as much as you can.
Traders, banks, corporations, investment funds, and governments are the five major groups that participate in the Forex market. Each of these has a set of guidelines and rules that they follow for trading successfully and each can be held accoountable for their trading actions. As an individual trader you are only accountable to yourself.
Basically if you don't have a set of guidelines and rules you will find it difficult if not impossible to succeed. You rules and guidelines can come in the for of trading systems, strategies, and trading plans. After all, how can you get where your going if you don't have any idea of how to get there?
Money Management
Money management has often been called THE key to trading successfully. It is unfortunately overlooked far too often and can multiply your profits exponentially. Trading without money management is like trying to save money without the benefit of compound interest.
Properly allocating the appropriate amount of your account equity can have a tremendous affect on your total returns.
One of the simplest things you can do put you on the road to successful trading is to control the amount of your equity you risk per trade. Keeping the amount risked at 1% to 3% is a good start. This gives you a good buffer and allows you to weather the inevitable drawdowns that are a part of all trading.
Using this percentage of equity method increases how many dollars you risk as your equity grows.
A successful trading system will increase the average dollar amount it makes per trade over time even though the percentage of money you risk per trade may stay the same.
The higher the percentage of your equity that you risk the more aggressive your trading becomes. Here is where you have to be very careful because as you do this your room for error decreases. For instance, if you risk 50% of your equity per trade you can only afford to be wrong 2 consecutive times. If you risk 2% of your equity per trade you could theoretically be wrong 50 consecutive times. Which position would you rather be in?
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