Forex Trading Philosophy
06:07
" Easy money " is the allure that captivates many forex traders beginning . Websites offer Forex trading " risk free" , " high yield " , " low investment " . These claims have some truth in them , but the reality of FOREX is a bit more complex .
Beginning Trader Errors
There are 2 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 do not 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 money . Forex traders must have a rational trading strategy and not make trading decisions in the heat of the moment.
Understanding market movements
To make rational trading decisions , the Forex trader must be well educated in market movements . He should be able to apply technical studies to charts and plot the points of entry and exit. It should use the various types of orders to minimize your risk and maximize your profits.
The first step to becoming a successful Forex trader is to understand the market and the forces behind it. Who trades Forex and why? This will identify successful trading strategies and use .
Responsibility
There are 5 major groups of investors who participate in Forex: governments, banks , corporations , investment funds and traders. Each group has its own objectives , but one that all groups except traders have in common is external control . Every organization has rules and guidelines for trading currencies and can be held responsible for your trading decisions. Individual operators , on the other hand , are responsible only to themselves .
Large companies and traders approach the Forex education strategies , and if you hope to succeed as a Forex trader you must follow suit.
Money Management
Money management is an integral part of any trading strategy . Besides knowing which currencies to trade and how to recognize the input and output , the successful trader has to manage his resources and integrate money management into his trading plan.
There are various strategies for money management . Many rely on the calculation of core equity - beginning balance minus the money used in open positions.
Core Equity And Limited Risk
When entering a position try to limit the risk of 1% to 3 % of each transaction . This means that if you are operating a standard Forex lot of $ 100,000 you should limit your risk to $ 1,000 to $ 3,000. This is done with a stop loss order 100 pips ( 1 pip = $ 10 ) above or below your entry position .
As your core equity rises or falls , adjust the dollar amount of your risk. With a starting balance of $ 10,000 and 1 open position, your core equity is $ 9000 . If you want to add a second open position , your core equity fell to $ 8000 and you should limit your risk to $ 900. Risk in a third position should be limited to $ 800.
Increased profit increased risk
You should also raise your risk level as basic capital increases . After $ 5,000 profit, your core equity is $ 15,000. It may increase your risk to $ 1,500 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 profits ( $ 5,000 on a $ 100,000 lot ) for greater profit potential.
These are the kinds of strategic tactics that allow a beginner to get a foothold on profitable trading in Forex.
Beginning Trader Errors
There are 2 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 do not 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 money . Forex traders must have a rational trading strategy and not make trading decisions in the heat of the moment.
Understanding market movements
To make rational trading decisions , the Forex trader must be well educated in market movements . He should be able to apply technical studies to charts and plot the points of entry and exit. It should use the various types of orders to minimize your risk and maximize your profits.
The first step to becoming a successful Forex trader is to understand the market and the forces behind it. Who trades Forex and why? This will identify successful trading strategies and use .
Responsibility
There are 5 major groups of investors who participate in Forex: governments, banks , corporations , investment funds and traders. Each group has its own objectives , but one that all groups except traders have in common is external control . Every organization has rules and guidelines for trading currencies and can be held responsible for your trading decisions. Individual operators , on the other hand , are responsible only to themselves .
Large companies and traders approach the Forex education strategies , and if you hope to succeed as a Forex trader you must follow suit.
Money Management
Money management is an integral part of any trading strategy . Besides knowing which currencies to trade and how to recognize the input and output , the successful trader has to manage his resources and integrate money management into his trading plan.
There are various strategies for money management . Many rely on the calculation of core equity - beginning balance minus the money used in open positions.
Core Equity And Limited Risk
When entering a position try to limit the risk of 1% to 3 % of each transaction . This means that if you are operating a standard Forex lot of $ 100,000 you should limit your risk to $ 1,000 to $ 3,000. This is done with a stop loss order 100 pips ( 1 pip = $ 10 ) above or below your entry position .
As your core equity rises or falls , adjust the dollar amount of your risk. With a starting balance of $ 10,000 and 1 open position, your core equity is $ 9000 . If you want to add a second open position , your core equity fell to $ 8000 and you should limit your risk to $ 900. Risk in a third position should be limited to $ 800.
Increased profit increased risk
You should also raise your risk level as basic capital increases . After $ 5,000 profit, your core equity is $ 15,000. It may increase your risk to $ 1,500 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 profits ( $ 5,000 on a $ 100,000 lot ) for greater profit potential.
These are the kinds of strategic tactics that allow a beginner to get a foothold on profitable trading in Forex.
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