The world of Forex is littered with sad stories of novice traders who entered the fray full of hope and expectation, only to leave bruised, battered and poorer. This isn’t due to any fault in the market or it being a “bad investment” – thousands enjoy success with the Forex markets and many of those are the home-based amateurs and hobbyists. But those who fail are typically the ones who neglect to follow some simple rules that apply to any form of speculation but are doubly important in Forex.
Here, we offer a guide to the avoiding the elephant traps and improving the chances of your foray into Forex being both profitable and enjoyable.
1) Manage your money prudently
Investment is, in itself, a prudent way of managing money. But only if you understand the dynamics of the market in which you are trading and behave with prudence and sound risk management principles as your guiding ethos. Hoping for the best and preparing for the worst sounds like a cliché, but it is one that you need to keep close to your heart.
That means always going into a trade with the assumption that you’re going to come out on the losing side. It sounds pessimistic, but there are no cast iron guarantees in any form of trading, so the axiom is to only speculate what you can afford to lose.
There is a simple rule of thumb here that anyone can follow. Never place more than three percent of what’s in your trading account of a single trade and you literally cannot come to grief.
2) Learn to read the signs
There’s an ongoing philosophical debate about whether Forex trading is a form of gambling. That question can hang in the air and be left to the philosophers to answer, but one thing that’s certain is that there are some similarities between the two.
A professional gambler who spends every day at the race track will only make money if he understands the form of the horses, the track conditions and so on. Similarly, when you are trading, you need to know all there is to know about what’s happening in the economy, but also the “form” of particular currency pairs. This means taking time to learn how to use momentum indicator MT4 and to read other key signals.
Without these, you are the equivalent of an enthusiastic race goer throwing all your money at the horse on the basis of it being a nice colour or having an interesting name.
3) Set realistic expectations
Forex trading can be lucrative if you know what you are doing, but don’t expect miracles. Take time to allow your profits to accumulate on your account, follow a logical strategy and keep working to refine it and that success will come. It all takes time and so it’s important not to put too much pressure on yourself.