Foreign exchange trading is not an easy market to master; expertise in the market comes only with extensive experience and it does not even guarantee trading success. Although performance in foreign exchange trading is, for the most part, quite unpredictable, there are some rules that can increase your chances of performing wisely and protect you from losses as much as possible.
1. Develop your trading plan all the way down to the details.
One of the most important things in foreign exchange trading is a trading plan. Success without a trading plan is simply not possible. Most beginners make the mistake of thinking that trading is simple logic, but it is far more complicated than that.
Your trading plan should consist of your trading goal, which determines how much you want to make and how much you are willing to lose. Then the plan should also include details of how you will respond if the currency pairs are in your favor or if currency values go the opposite direction. The important thing in handling these risks and rewards is to minimize losses and taking your winnings in stride.
2. Follow a single course of action and stay on that road.
The next rule is that you should stick to that trading plan. Your trading plan is there for a reason. Decide on a specific course of action and follow that course consistently.
A lot of seasoned traders can tell you that being consistent can help you achieve stability in the business. This could also be due to the fact that consistency focuses more on long term benefits. Consistency can also allow you to observe market activities as they happen, and this will make it easier for you to gather experience and insights, which are crucial factors in making you a better trader.
3. Don't count on your profits before they come.
It is also important to stay on ground. Avoid jerky decision-makings, even if the market becomes jerky. The foreign currency trading market is very vulnerable to a multitude of outside factors, so it is not good to be overconfident. Do not assume winnings before you get the actual profits. If you win, you should still know when to stop.
4. Do not let small losses rattle you.
In order to be an effective trader, you also have to face the fact that losses are part of the trading business. The important thing is that, if you lose, you know how to keep it under control. If not, your losses can lead to surprised reactions and make you lose your focus and your overall trading plan.
5. Maintain patience.
Every player in the foreign exchange trading market needs quite a lot of patience. As you trade, don't be surprised to be faced with market ups and downs such as rising and falling trends, frequent fluctuations, and so on. Despite this, it is wise to maintain patience, stick to your system, and not let any losses or winnings divert you from your overall trading plan.
6. Do have an exit plan.
It is also important to have an exit strategy to help you minimize losses. In trading, you exit a trade either with a stop-loss strategy or a take-profit strategy. To develop an exit strategy, consider how long you plan to be on that trade, how much you are willing to risk, and where you want to get out.
7. Do not be greedy.
Finally, the last and most important rule is to not be greedy. There is simply no space in the foreign currency trading world for greed. Always manage your money and think of long term success rather than short term profits.
