10 Golden Rules Of Forex Trading
Embarking on a career as an FX trader is certainly an exciting endeavour and one that can see you reap some serious financial rewards… if you’re disciplined and objective enough to keep a handle on your emotions, no matter what happens day to day.
Even the most seasoned of traders will have let their heart rule their head at some point during trading hours and this almost always ends in a loss, so it’s important that you develop the psychological skills and resilience you need to stick to your trading plan, without emotions and knee jerk reactions leading you down a wayward path.
Consistency is key when it comes to trading and there are no shortcuts you can take to start turning a profit. It’s all about developing a successful strategy over time, across a variety of trades… and this is where a disciplined nature will stand you in excellent stead.
Of course, when the markets are flying and you’re right in the eye of the storm, this can be easier said than done – and you shouldn’t expect to get it right each and every time, especially if you’re just starting out.
Practice makes perfect, as they say, so give yourself the time you need to really perfect your strategy and cement your outlook, so you’re able to react accordingly, regardless of what happens.
To help keep you on track, we’ve compiled some of the top Golden Rules of Forex Trading to drive success and ensure that your career is a lucrative – and enjoyable – one.
- Get some sleep
While the markets may never sleep, it’s imperative that you do. Exhaustion never did anyone any good and if you’re over-trading, you’re more likely to make bad decisions, which won’t help your back pocket in any way. Make sure you’re scheduling proper time for sleep so that you can stay alert, on point and ready to take on the trading day.
- Use a demo account
Don’t just jump into the feeding pool feet first without putting some practice in beforehand. It’s important for you to know what to expect and for you to find out just how robust your trading strategy is before you trade currency pairs in the real world.
All the most successful traders will have cut their teeth using a demo account – and you would be wise to follow in their footsteps, as well.
- Avoid making predictions
Of course, it’s necessary and advisable for traders to monitor the news and keep a close eye on what’s going on, but the danger comes when you try to predict outcomes and work out where you think the market is going, making your trades based on your own projections.
Ultimately, this is a recipe for disaster and you could take some serious hits as a result, or potentially miss out on some lucrative opportunities.
Instead, focus on being patient and waiting for hints and indications from the market itself as to where it’s going and what’s likely to happen so that you can capitalise on that and start raking in the wins.
- Always follow your trading strategy
Confidence is key when it comes to trading and if you’re second guessing yourself, or finding yourself occasionally being swayed by what you see happening on websites, what other traders are doing or even advice from friends or family, you’re sure to see progress start to stall.
Don’t forget – you dedicated a lot of time and effort into devising your strategy, so you need to have trust in yourself and the research you’ve done, following your trading plan through to the end, no matter how tempting it may be to go in another direction. Your analysis is the one that matters, so try to avoid being steered by outside influences.
- Prioritise risk management
Risk management is one of the most important lessons that any trader can learn and it should always be positioned at the very heart of your trading plan. After all, you can’t play with what you don’t have – so it’s important that you don’t put it all on the line.
The first rule of risk management is to work out what the odds are of your trade being successful. For this, you’ll need to have a solid understanding of how the market works and how you’re going to control or manage the risks involved with specific trades, working out a cut-out point and what potential losses you’re willing to accept.
Remember – if your losses would be too substantial for you to handle, avoid the trade at all costs. You’ll likely find yourself becoming too emotionally involved, putting your ability to think objective under serious stress and pressure. And, as we all know, an emotional trader is a trader in trouble.
- Only trade what you can afford
The trading world is a fast-paced one and fortunes can easily turn on a dime, so it’s essential that you only ever trade with what you can afford to lose. Bad days are sure to happen to each and every trader and losses are inevitable, so avoid investing everything you have and putting all your eggs in one basket.
Avoid investing more than between two and three per cent of your bankroll on a trade and make sure you stick to the system you’ve devised where risk and money management are concerned.
The reason your strategy exists is to keep you on track and you will have compiled it when you were cool and clear-headed, making decisions based on facts and facts alone… so it’s the one to trust and fall back on when you’re making trades in real time.
- Be kind to yourself
Never forget – bad trades can and will happen. You need to accept this reality before you start your trading career, or you could find your emotional health and wellbeing really takes a beating, alongside your bank account.
The key to future success will be in how you handle the bad days. If you give yourself a hard time when faced with failure, you can start to lose confidence in yourself and this could then have an impact on how you trade, creating a vicious cycle of loss and emotional abuse.
A big loss can lead you to questioning yourself to such an extent that you start getting out of trades too quickly or holding onto them for too long, getting into too many for you to handle, missing out on opportunities for fear of failure… there’s a lot that can go wrong!
So when you are in a sticky situation and have a big loss on your hands, accept it, don’t dwell on it, forgive yourself and move on. And don’t forget – every loss also represents a learning opportunity, so analyse what took place and see what lessons exist therein.
- Less is more
Because the FX trading world is so exciting, it’s very easy indeed to get caught up in it all – particularly when you’re just starting out. Before you know it, you have currency pairs flying around here, there and everywhere… and that’s where the trouble starts.
It’s essential that you only make moves on two or three trades at the beginning, so you can test out your trading strategy, see how it works in real time and how you react when trading with actual finances.
If you take on too much, you’ll likely find yourself overwhelmed and struggling to keep track of it all, so only increase your trades when you’re good and ready. There’s no rush and it’s all about maintaining control of the situation.
- Keep a journal
Knowledge is power for FX traders, but there’s so much of it flying around that it can be incredibly difficult to keep track of what’s going on and how it should affect your trading strategy.
This is where a journal really comes into its own, helping you to document daily activity and analysis of the trades you’ve made. This, in turn, helps you see where you’ve gone wrong, what changes (if any) to make, which trends are working, which are on the downward slope and so on. Organisation is key and a diary of sorts will help you keep your thinking clear.
- Have fun
Yes, trading is a business and it can be a very lucrative one, but if you start taking it too seriously and forget to enjoy yourself, you could see yourself taking on more losses and making more dubious decisions, all in the pursuit of money.
Greed is just one of the many emotions you need to keep in check when trading and the best way to do this is to make sure you’re not just in it for the cold hard cash.
There are all sorts of ways you can have fun while trading, everything from joining forums to chat to like-minded people and taking regular breaks to refresh your approach to watching market-inspired movies or reading books on the topic.
Looking for a funded trading account? Get in touch with FTUK to find out more.