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FOREX Trading Philosophy
Keen on starting FOREX trading? Why would you not be? Many beginning FOREX traders are captivated by the allure of easy money. FOREX websites offer 'risk-free' trading, 'high returns' and 'low investment' - these claims have a grain of truth in them, but the reality of FOREX is a bit more complex. As with anything in life, what you put in will determine what you get out. There are two common mistakes that many beginner traders make - trading without a strategy and letting emotions rule their decisions. After opening a FOREX account it may be tempting to dive right in and start trading. Watching the movements of EUR/USD for example, you may feel that you are letting an opportunity pass you by if you don't enter the market immediately. You buy and watch the market move against you. You panic and sell, only to see the market recover. This kind of undisciplined approach to FOREX is guaranteed to lose you money, and have you waste your time. FOREX traders need to have a rational trading strategy and not allow emotions to rule their trading decisions. The two emotions prevalent in the above example is greed (entering the market immediately) and fear (selling when the market temporarily moves against you). Investing and these two emotions do not gel at all. Keep them out of your trading and you will see results. To make rational trading decisions the FOREX trader must be well-educated in market movements. He must be able to apply technical studies to charts and plot out entry and exit points. He must take advantage of the various types of orders to minimize his risk and maximize his profit. The first step in becoming a successful FOREX trader is to understand the market and the forces behind it. Who trades FOREX and why? Who is successful and why are they successful? This knowledge will allow you to identify successful trading strategies and use them as models for your own. There are 5 major groups of investors who participate in FOREX - Governments, Banks, Corporations, Investment Funds, and traders. Each group has varying objectives, but the one thing that all the groups (except traders) have in common is external control. Every organization has rules and guidelines for trading currencies and can be held accountable for their trading decisions. Individual traders, on the other hand, are accountable only to themselves. If you do not keep yourself in check, nobody else will. Why should they worry if you aimlessly waste your money? This means that the trader who lacks rules and guidelines is playing a losing game. Large organizations and educated traders approach the FOREX with strategies, and if you hope to succeed as a FOREX trader you must play by the same rules. That is studying these strategies and rules before starting to trade is so important. FOREX Trading Philosophy - Money Management Money management is part and parcel of any trading strategy. Besides knowing which currencies to trade and recognizing entry and exit signals, the successful trader has to manage his resources and integrate money management into his trading plan. Position size, margin, recent profits and losses, and contingency plans all need to be considered before entering the market. This may sound like Greek now! If it does, you have more reason to get to know these terms. Knowledge will empower you on any investment market, including FOREX. There are various strategies for approaching money management. Many of them rely on the calculation of core equity. Core equity is your starting balance minus the money used in open positions. If the starting balance is $10,000 and you have $1000 in open positions your core equity is $9000. When entering a position try to limit risk to 1% to 3% of each trade. This means that if you are trading a standard FOREX lot of $100,000 you should limit your risk to $1000 to $3000 - preferably $1000. You do this by placing a stop loss order 100 pips (when 1 pip = $10) above or below your entry position. As your core equity rises or falls you can adjust the dollar amount of your risk. With a starting balance of $10,000 and one open position your core equity is $9000. If you wish to add a second open position, your core equity would fall to $8000 and you should limit your risk to $900. Risk in a third position should be limited to $800. By the same principal you can also raise your risk level as your core equity rises. If you have been trading successfully and made a $5000 profit, your core equity is now $15,000. You could raise your risk to $1500 per transaction. Alternatively, you could risk more from the profit than from the original starting balance. Some traders may risk up to 5% against their realized profits ($5,000 on a $100,000 lot) for greater profit potential. As you can see, the novice needs to get through quite a bit of education, understanding and planning before those 'risk-free' trading, 'high returns' and 'low investment' promises will come into play. What are you waiting for? Get yourself a decent FOREX Trading Education. If you need more information, feel free to visit http://www.investing-smarter.com. Dries Cronje has a BSc (Actuarial Science) degree and is currently studying to be an actuary. He has worked as an ACtuarial Consultant for almost five years. For more information, please visit http://www.investing-smarter.com
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Earn 30% Each Month RELATED ARTICLES Chinas New Currency Regime The base unit for the renminbi is the yuan, which is how the Chinese currency is most commonly referred to. The official ISO abbreviation for the yuan is CNY, but it is also commonly abbreviated in the forex industry as RMB. Facts of Day Trading Are you thinking of entering the fast-paced world of day trading? Arm yourselves with the information from this fact sheet on day trading.What is day trading?Day trading is an investment tactic that does online daily stock trading with a relatively short investment. How To Choose Wisely A FOREX Broker Most traders use a FOREX broker to handle their transactions. What exactly are brokers? Strictly speaking, brokers are individuals or companies that buy and sell orders according the investor's decisions. Stopping Yourself I read on a bulletin board a traders comment that on his first outing trading the E-Mini S&P 500 he lost on each of his trades. 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Day Trading Course or Day Trading Technique Seminar: Learn Day Trading Education Profitable day traders recognize that momentum trading is among the fastest & most effective ways to harvest BIG piles of cash in the stock market.The problem is that if you don't know what stocks to look for and how to approach them while limiting your risk, you won't even get close to making some profits. Disgruntled The following situation happens quite often to many traders. Look it over and see if it has been happening to you:You have been faithfully following your trading plan and the rules you've set for trading. Money Management, Part 1 There are some common mistakes I've seen traders make in the area of money management. First, let's understand what money management is all about. Commodity Trading - Advantages and Disadvantages What Is Commodity Trading?Commodity futures markets allow commercial producers and commercial consumers to offset the risk of adverse future price movements in the commodities that they are selling or buying.In order to work a futures contract must be standardised. Writing A Trading Plan All professional traders have a trading plan. Trading futures is a zero sum game and those with a plan (and the discipline to apply it) will succeed over those that have no plan. Forex Market Overview "FX" is an abbreviation of "forex" or "foreign exchange." Foreign exchange is the largest and most liquid market in the world trading approximately $2 trillion every day (that's over 30 times the daily volume of NASDAQ and NYSE combined). Risk and Stock Trading Fees: The Two Barriers To Overcome If You Want A Successful Trading Career. You know the old joke:"How do you make a million in the stock market? Start with two million?"There is no way around it, risk and stock market fees are a part of trading that you can`t avoid. But, you can manage your risk. Forex Signal Services What are Forex signals? Forex signals are paid services offered by some brokers and independent Forex annalists. Companies that offer forex signals monitor and analyze the market for you, providing you with their data via desktop alerts, email or even SMS and pager alerts.
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