Forex trading is a learnable skill. Therefore, understanding its fundamentals is essential to your success. Unfortunately, many beginner traders are unaware of most if not all of the basic rules underlying Forex trading. This article highlights five golden rules that every Forex trader should keep in their minds.
1. Start with a demo account!
Most Forex trading websites offer free demo accounts which allow you to do live trades with “virtual cash”. Use this as a way to make yourself comfortable with the ups and downs of the Forex market, familiarise yourself with your Forex trading platform, develop your own strategies and build up your self-confidence before you trade with your hard-earned money.
2. Plan your trades!
To enter a trade without a plan is no different from gambling! Before you enter a trade, you should have a clear aim of profit as well as a clear threshold to cut loss. Once you have reached your target profit, close your trade and keep the profit. Similarly, if the trade hits your stop-loss threshold, your trade will be closed and your out of the trade. One should neither be too greedy nor too ‘optimistic’ to hope that the market to come back your way. Self-discipline is important. For beginners, it is also good to start small with micro- or mini-accounts with smaller leverage.
3. Follow the trends!
When your currency pair shows an increase or decrease, enter a long or short as necessary. Do not go against the trend as it is a fastest way to lose your money. There are experienced traders who make money by trading against the trend, but let’s learn to crawl before you do a sprint!
4. Control your emotions!
Being emotional with your money is harmful in Forex trading. Controlling your emotions during a trade can help you to be more objectives in responding to each market movement. Emotion management goes hand in hand with a trading plan, i.e. the better you plan your trade, the better you can control your emotions. Accept that no profit is guaranteed in the Forex market and make sure you are trading your truly disposable income at your own comfort level.
5. Review your trades!
Make it a habit to record your trades and review them regularly. Learn from both the good and bad trades. Never mourn your losses! All these priceless learning experiences will ultimately make you a better Forex trader.
With these basic rules in mind, do spend time to educate yourself on the markets and strategies, then you are one step closer to become a successful Forex trader!