In this section we will deal with some important rules that should never be violated in Forex trading. If you succeed in applying these rules strictly, you will be well on the way to becoming a flourishing trader. These rules can tremendously improve your chances of
success if they are understood and implemented in the right spirit. These rules were learned through experience, applying trial-and-error method and they point to some inevitable mistakes that everyone makes when starting a business.
Implementing specific goals and objectives
For starting any business successfully, you must have some specific objectives and goals that form the basis of your venture. Even though the primary objective in business is financial gain, it is important to have other objectives that are not strictly money-related. In any business, reward and risk go hand in hand and we can‘t always expect to earn high profits without planning and preparing to face high risk. You must always have very specific objectives and goals and at the same time the following characteristics if they are going to help you.
− Always keep a positive attitude.
− Be naturalistic and achievable.
− Be worth the time and effort employed
− Be measurable according to the completion anti timeframe involved.
If you know what you are trying to achieve in your trading, and when you will achieve it, the whole if your hard work will be more focused on meeting your objectives. This will help you to pay your attention only to things you really want to achieve. This will also show you a way to effectively measure the success and advancement of your trading strategy. Generally traders who have well-defined objectivees will be much more successful than those who do not have such goals.
Discipline and consistency
For realizing the full potential of your trading systems, it is very essential that you adjust every stop, take every trading entry and close out every trade when your predefined trading system says you should. This helps you to achieve sufficient confidence in your trading system‘s efficient and reliable technology and the steadfast discipline to stick to your trading plan no matter what happens. If you have a pre-defined plan for each and every situation you are likely to face as part of your trading venture, you will have a positive assumption about being consistent and disciplined. For making your plan successful, you must include the following items in it.
All your trading rules for entering, adding to and getting out of your positions. − What you will do if your broker, telephone, trading computer, Internet connection, power etc. fail to be of any real use.
− What you are planning to do if for some reason you are unable to trade.
− What will be your strategy if you lose a certain percentage of your account.
− What you will do if all the markets are closed anti you are unable to get out of your
current positions.
If you fall to answer all these scenarios, you cannot nurture a positive and beneficial mental attitude to trading and if you lose money you will not know if it is because your plan is not complete, you didn‘t abide by your plan or your systems do not work.
Let your winning streak run
When we get a profit-making trade going, our natural concern of losing the unrealized cash starts and we really want to dose it out now and depart while we are ahead. Most trading in reality consists of long periods of small winners and losers, followed by a few huge successes that make the difference between overall profitableness and simply breaking even or even losing thanks to the trading costs like slippage, spread and commissions.
lt is your power to let the huge winners become huge. This power influences your overall performance during the season. Letting your winning streak run is undoubtedly the key to being a successful trader although it is easier said than done. In other words, you have to be prepared to give up a comparatively large portion of a winning trade‘s open profit. As a matter of fact, we should be able to increase the effect of a winner and widen stops rather than making attempts to figure out how tight our stops can be to get the best profit.
It is vital that your management rules Iead you to large winning trades and these rules are pre-defined and comprehended before you place the trade in the first place. This results in your strict adherence to your rules when you do get the big winner.
Cut short your losses
Just like profitableness comes from a few large winning trades, capital preservation is possible by avoiding the few large losses that you are likely to suffer each year. Set a maximum loss point before entering the trade so that you know in advance just about how much money you are risking on this position. Set the exit price that warns you that your trade is a losing one and you should exit before it worsens any further. Sticking to this rule will save you from the nasty trades that go against your position until you Ioose more than what many winning trades can pay off.
If you are in a losing position that has reached your maximum loss point, you should just get out at once. You cannot expect the situation to turn around for it isn‘t commonsense. There is no meaning in risking money on a trade that has already proved itself to be a loser when you could just dose it out and move on. In case you decide not to risk any more money on such a trade, you will be in a much better position financially and mentally compared to holding on to your position and hoping for a complete turnaround.
Never add to a losing trade
lt is an important trade management rule that you should never add to a losing trade. Among trades, there are winners and losers. If a trade is a loser, the possibility of it turning right around and becoming a winner are too remote and you should not risk more money on lt. If it is in fact a winner disguised as a loser, it is wise to wait until it appears to be a winner for adding to it further.
If you follow it, you will find that nearly each time the trade ends up hitting your stop loss and does not change direction. There are times when the trade turns around before it hits your stop and becomes a winner and you can consider yourself very fortunate if lt does. On the other hand, you can count yourself unlucky if the trade bits your stop loss and then turns around and becomes a winner. In any event, lt 15 not at all worth adding to a loser, in the hope that it will eventually be a winner. The chances of success are just too low to risk more money in addition to the initial risk.
Never take to much
Risking too much of capital on a single trade is one of the most terrible mistakes that any trader can commit. lt is for sure that if you lose all your capital, you are out of the field indefinitely. There is a meaningful saying in poker that going all-in works every time but once. The same applies to Forex trading in that if you risk all of your account on every trade, it only takes one loser to wipe you out and it is only a question of time.
Generally, you should risk only 1-301o of the available capital shared to a system on any individual trade. This calculation is done using the size and, the difference between our entry price and our maximum stop price, and the amount of capital that is allotted to the system.
If these things are combined, you can assure yourself never to loose all of your trading capital. Actually, the chances of us hitting the maximum drawdown for the year are very bw. The size of all trades you make should almost seem painless to your future. If you are concerned about the size of a trade then lt is too big for you and you should use a lower- amount forthwith. Remember that longevity 15 the key to making money by trading in any trading market. Trading slowly and steadily over a long period with minimal risk is better than trading rapidly with too much risk.
Positive expectancy trading System
If what you have is a positive expectancy trading system, the only factors that will determine how much money you will make every year are, the amount of capital you allot to the system, the number of trades the system makes and how accurately you utilize the trading signals.
If you are doubtful whether your trading system is positive expectancy, it is not practicable for you to 90 ahead with it in the first place. Calculation of expectancy is done using the profit or loss on each trade; divided by the initial risk, and then taking the average of this number of a series of trades. While systems that have negative expectancy will lose money, those with positive expectancy will make money most of the time.
Eminent traders only trade systems when the likelihood of success are in their favor so that they are aware that earning money is the final outcome of correctly applying the System and not just a chance.
Minimize all of your trading business costs:
If your trading system offers you only marginal profitability, trading implementation costs like spread, commission and slippage can be the difference between profit and loss. Since technology has made lt possible to avail the services of modern electronic brokers and fully- automated trade processing and execution systems, it is definitely worth the effort in looking for a very cheap way to implement your trading scheme.
By carefully choosing the right broker, you can dramatically lower high commission, wide spreads and large amounts of slippage. Paying too much for trade execution is a way to lose money, which in fact you can wisely avoid.
Be well studied
For successfully competing at the highest level in the trading business, you must be well studied about what you are doing. Being well-studied means that you have exhaustively researched and effectively tested your trading strategies and know why your trading system succeeded in the past and is still going good.
lt means that you are well versed in all the technology and ideas that your system requires in order to function with accuracy. lt means being aware of your goals and objectives and how trading will help to fulfil them. lt means understanding yourself and the way your personality will influence your results.
For succeeding as a Foreign Exchange trader, you certainly require to be an expert who knows how the dots are all connected, when it is broken and how it can be improved. This takes dedication, hard work and more commitment.
Dealing with Losses
A basic rule of Forex trading is to make your losses as little as possible. With minor losses, you can survive those times when the market moves against your interests, and be well placed for when the trend turns around. The one established method to accomplish the goal of making your losses small is setting your maximum loss well before you open a Forex trading position.
The maximum loss is the highest amount of capital that you are comfortable losing on any single trade. If your maximum loss is set as a little portion of your Forex trading effort, a few losses won‘t prevent you from trading for any particular period. Unlike majority of the Forex traders who lose money because they haven‘t applied smart money management schemes to their trading system, you will be safe with this money management technique.
For example, if 1 had a trading float of $2000, and 1 started trading with $200 a trade, it would be sensible for me to suffer three losses continuously. This would bring down my Forex trading capital to $800. lt would then be decided that they are going to bet $400 on the following trade for the reason that they think they have a better chance of winning after having lost three times in a row. If that trader did bet $200 on the following trade since they thought they were going to win, their capital could be cut down to $500 dollars. The possibilities of making money now, are in effect nil, as 1 would need to make lSO% on the succeeding trade just to break even. If the maximum loss had been decided, and stuck to, they would not be in this state.
In this case, the reason for failure was that the trader risked too much money, and didn‘t employ good money management. The idea here is to make our losses as little as possible
while also ensuring that we open a large enough position to capitalize on profits and minimize losses. With your money management rules in place in your Forex trading scheme, that will always be possible
success if they are understood and implemented in the right spirit. These rules were learned through experience, applying trial-and-error method and they point to some inevitable mistakes that everyone makes when starting a business.
Implementing specific goals and objectives
For starting any business successfully, you must have some specific objectives and goals that form the basis of your venture. Even though the primary objective in business is financial gain, it is important to have other objectives that are not strictly money-related. In any business, reward and risk go hand in hand and we can‘t always expect to earn high profits without planning and preparing to face high risk. You must always have very specific objectives and goals and at the same time the following characteristics if they are going to help you.
− Always keep a positive attitude.
− Be naturalistic and achievable.
− Be worth the time and effort employed
− Be measurable according to the completion anti timeframe involved.
If you know what you are trying to achieve in your trading, and when you will achieve it, the whole if your hard work will be more focused on meeting your objectives. This will help you to pay your attention only to things you really want to achieve. This will also show you a way to effectively measure the success and advancement of your trading strategy. Generally traders who have well-defined objectivees will be much more successful than those who do not have such goals.
Discipline and consistency
For realizing the full potential of your trading systems, it is very essential that you adjust every stop, take every trading entry and close out every trade when your predefined trading system says you should. This helps you to achieve sufficient confidence in your trading system‘s efficient and reliable technology and the steadfast discipline to stick to your trading plan no matter what happens. If you have a pre-defined plan for each and every situation you are likely to face as part of your trading venture, you will have a positive assumption about being consistent and disciplined. For making your plan successful, you must include the following items in it.
All your trading rules for entering, adding to and getting out of your positions. − What you will do if your broker, telephone, trading computer, Internet connection, power etc. fail to be of any real use.
− What you are planning to do if for some reason you are unable to trade.
− What will be your strategy if you lose a certain percentage of your account.
− What you will do if all the markets are closed anti you are unable to get out of your
current positions.
If you fall to answer all these scenarios, you cannot nurture a positive and beneficial mental attitude to trading and if you lose money you will not know if it is because your plan is not complete, you didn‘t abide by your plan or your systems do not work.
Let your winning streak run
When we get a profit-making trade going, our natural concern of losing the unrealized cash starts and we really want to dose it out now and depart while we are ahead. Most trading in reality consists of long periods of small winners and losers, followed by a few huge successes that make the difference between overall profitableness and simply breaking even or even losing thanks to the trading costs like slippage, spread and commissions.
lt is your power to let the huge winners become huge. This power influences your overall performance during the season. Letting your winning streak run is undoubtedly the key to being a successful trader although it is easier said than done. In other words, you have to be prepared to give up a comparatively large portion of a winning trade‘s open profit. As a matter of fact, we should be able to increase the effect of a winner and widen stops rather than making attempts to figure out how tight our stops can be to get the best profit.
It is vital that your management rules Iead you to large winning trades and these rules are pre-defined and comprehended before you place the trade in the first place. This results in your strict adherence to your rules when you do get the big winner.
Cut short your losses
Just like profitableness comes from a few large winning trades, capital preservation is possible by avoiding the few large losses that you are likely to suffer each year. Set a maximum loss point before entering the trade so that you know in advance just about how much money you are risking on this position. Set the exit price that warns you that your trade is a losing one and you should exit before it worsens any further. Sticking to this rule will save you from the nasty trades that go against your position until you Ioose more than what many winning trades can pay off.
If you are in a losing position that has reached your maximum loss point, you should just get out at once. You cannot expect the situation to turn around for it isn‘t commonsense. There is no meaning in risking money on a trade that has already proved itself to be a loser when you could just dose it out and move on. In case you decide not to risk any more money on such a trade, you will be in a much better position financially and mentally compared to holding on to your position and hoping for a complete turnaround.
Never add to a losing trade
lt is an important trade management rule that you should never add to a losing trade. Among trades, there are winners and losers. If a trade is a loser, the possibility of it turning right around and becoming a winner are too remote and you should not risk more money on lt. If it is in fact a winner disguised as a loser, it is wise to wait until it appears to be a winner for adding to it further.
If you follow it, you will find that nearly each time the trade ends up hitting your stop loss and does not change direction. There are times when the trade turns around before it hits your stop and becomes a winner and you can consider yourself very fortunate if lt does. On the other hand, you can count yourself unlucky if the trade bits your stop loss and then turns around and becomes a winner. In any event, lt 15 not at all worth adding to a loser, in the hope that it will eventually be a winner. The chances of success are just too low to risk more money in addition to the initial risk.
Never take to much
Risking too much of capital on a single trade is one of the most terrible mistakes that any trader can commit. lt is for sure that if you lose all your capital, you are out of the field indefinitely. There is a meaningful saying in poker that going all-in works every time but once. The same applies to Forex trading in that if you risk all of your account on every trade, it only takes one loser to wipe you out and it is only a question of time.
Generally, you should risk only 1-301o of the available capital shared to a system on any individual trade. This calculation is done using the size and, the difference between our entry price and our maximum stop price, and the amount of capital that is allotted to the system.
If these things are combined, you can assure yourself never to loose all of your trading capital. Actually, the chances of us hitting the maximum drawdown for the year are very bw. The size of all trades you make should almost seem painless to your future. If you are concerned about the size of a trade then lt is too big for you and you should use a lower- amount forthwith. Remember that longevity 15 the key to making money by trading in any trading market. Trading slowly and steadily over a long period with minimal risk is better than trading rapidly with too much risk.
Positive expectancy trading System
If what you have is a positive expectancy trading system, the only factors that will determine how much money you will make every year are, the amount of capital you allot to the system, the number of trades the system makes and how accurately you utilize the trading signals.
If you are doubtful whether your trading system is positive expectancy, it is not practicable for you to 90 ahead with it in the first place. Calculation of expectancy is done using the profit or loss on each trade; divided by the initial risk, and then taking the average of this number of a series of trades. While systems that have negative expectancy will lose money, those with positive expectancy will make money most of the time.
Eminent traders only trade systems when the likelihood of success are in their favor so that they are aware that earning money is the final outcome of correctly applying the System and not just a chance.
Minimize all of your trading business costs:
If your trading system offers you only marginal profitability, trading implementation costs like spread, commission and slippage can be the difference between profit and loss. Since technology has made lt possible to avail the services of modern electronic brokers and fully- automated trade processing and execution systems, it is definitely worth the effort in looking for a very cheap way to implement your trading scheme.
By carefully choosing the right broker, you can dramatically lower high commission, wide spreads and large amounts of slippage. Paying too much for trade execution is a way to lose money, which in fact you can wisely avoid.
Be well studied
For successfully competing at the highest level in the trading business, you must be well studied about what you are doing. Being well-studied means that you have exhaustively researched and effectively tested your trading strategies and know why your trading system succeeded in the past and is still going good.
lt means that you are well versed in all the technology and ideas that your system requires in order to function with accuracy. lt means being aware of your goals and objectives and how trading will help to fulfil them. lt means understanding yourself and the way your personality will influence your results.
For succeeding as a Foreign Exchange trader, you certainly require to be an expert who knows how the dots are all connected, when it is broken and how it can be improved. This takes dedication, hard work and more commitment.
Dealing with Losses
A basic rule of Forex trading is to make your losses as little as possible. With minor losses, you can survive those times when the market moves against your interests, and be well placed for when the trend turns around. The one established method to accomplish the goal of making your losses small is setting your maximum loss well before you open a Forex trading position.
The maximum loss is the highest amount of capital that you are comfortable losing on any single trade. If your maximum loss is set as a little portion of your Forex trading effort, a few losses won‘t prevent you from trading for any particular period. Unlike majority of the Forex traders who lose money because they haven‘t applied smart money management schemes to their trading system, you will be safe with this money management technique.
For example, if 1 had a trading float of $2000, and 1 started trading with $200 a trade, it would be sensible for me to suffer three losses continuously. This would bring down my Forex trading capital to $800. lt would then be decided that they are going to bet $400 on the following trade for the reason that they think they have a better chance of winning after having lost three times in a row. If that trader did bet $200 on the following trade since they thought they were going to win, their capital could be cut down to $500 dollars. The possibilities of making money now, are in effect nil, as 1 would need to make lSO% on the succeeding trade just to break even. If the maximum loss had been decided, and stuck to, they would not be in this state.
In this case, the reason for failure was that the trader risked too much money, and didn‘t employ good money management. The idea here is to make our losses as little as possible
while also ensuring that we open a large enough position to capitalize on profits and minimize losses. With your money management rules in place in your Forex trading scheme, that will always be possible
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