Trading With Success - Strategies That Work
If you decide to trade FOREX by yourself without a broker, the following guidelines will prove helpful. Whether you are a beginner in the FOREX market or have been trading without too much success for some time, the following strategies will help you trade with greater discipline and success.
How To Use Stop-Loss Orders
One of the most important trading tools at your disposal, especially if you are handling your own trading is the Stop-Loss Order.
The Stop-Loss Order is an instruction that permits buying up to a certain level if the markets are trending downwards and permits selling up to a certain level if the markets are trending upwards.
However, what is most significant about Stop-Loss Orders is that it limits the potential losses you may suffer if the market were to move against your position.
In fact, it is advised that a Stop-Loss Order be placed almost as soon as a new position is entered.
Many a times, a trader wanting to trade within a profit-risk margin of just 50 points ends up losing more than 500 points because of the sudden fluctuations in the market and because no Stop-Loss Order was placed.
To avoid such poor risk/profit ratios, always place a Stop-Loss Order.
How To Use Take-Profit Orders
Take-Profit Orders are used to ensure that you do not sell too early and thereby lock up a profit. By being patient and waiting for the market to settle, you may make more of a profit.
Just as a Stop-Loss Order is used to ensure that you do not overrun your losses when the market is trending downwards, Take-Profit Orders are used to ensure that you do not rush into trading when the market appears to be in a winning position.
It is possible that experience has taught you to be patient, to wait and monitor the market and only when the market is established in its winning position, to trade and make better profit. If you feel confident enough, a Stop-Loss Order should suffice.
How To Manage Your Risk/Profit Ratio
Whether you are trading through a broker or not, your aim should be to achieve a positive risk/profit ratio.
This means that whenever you conduct a trade, the amount of profit that you are willing to make should be more than or at least equal to the amount that you are willing to risk or lose.
Further, to be a successful trader you should constantly aim at having positive risk/profit ratios. If you have 4 winning trades in which you win 30 pips each but then have one losing trade in which you lose 150 pips, at the end of the day, you would have lost 30 pips.
Knowingly or unknowingly, beginners and unsuccessful traders tend to trade using a negative risk/profit ratio. They are willing to risk far too much to gain very little.
However, when you trade this way, you will find that there are too many losing positions than if your risk was small, and you keep making losses. It then gets very difficult to recoup these losses in a short period. Moreover, the losses spur traders to increase the volume of their trades hoping to make some profits quickly, which again only increases the trading risk.
Trading based on such spur of the moment decisions naturally tend to be disastrous.
The best way of managing your money well and be assured of profits is to be consistent and always under control. And the best way of doing so is by using a combination of the Stop-Loss Orders and Take-Profit Orders mentioned above.
How To Trade For Long Term Gain
Till just a few years ago, spreads in currency pairs used to be of the order of 10 pips. In fact, brokers would even charge a commission on every trade.
However, things have changed dramatically in the last few years owing to the spread of the Internet, a major boom in the foreign exchange market and also because of heated competition between various Forex brokers.
Most currency pairs are now offered at just 3 to 5 pip spreads like say in the liquid currencies USD/JPY or EUR/USD. Trading on such small spreads works to the advantage of the traders and one can get excellent value from trading on these currency pairs.
Nevertheless, you should avoid the temptation to overtrade and enter the market for profits or loss of merely 5 to 10 pips.
It is generally recommended that you place your Stop-Loss Orders or your Take-Profit Orders at least ten times the spread that you have already traded on.
This strategy will ensure that you do not overtrade and constantly improve your risk/profit ratio.
How To Avoid Falling For Short Term Trends
Even if you are a short-term trader or just a day trader, you are recommended not to trade based on short-term trends.
In the sense, if the Euro has been found to rise by 200 pips and is trading at the day's high, you may be tempted to buy Euros. Or if the USDJPY has lost nearly a 100 pips and is trading at the day's low, you may be tempted to sell the USDJPY.
Even in such scenarios, you are advised to hold on to the currencies and wait till the market consolidates. Only then will the real picture emerge and you will in all likelihood be presented with better opportunities.
Typically, if you are just a beginner, you may panic when the market is showing the reverse trends and this panic buying or selling will only result in losses. Most of the time, you will end up buying when the currency is high and selling when it is at a low.
How To Managing The Margin
Part of money management in the foreign exchange market is managing the margin.
You are normally recommended to risk up to ten percent of the total trading equity available to you on a single trade. You may think that this is very little considering that the amount of leverages being offered are anywhere from 100 to 250.
However, by being careful and systematic, you are making sure that on every trade, you risk only that ten percent you have traded and of course, there are possibilities that some of your other trades will bring in better profits.
Even the most experienced and profitable traders can have major losing streaks where they will have more than one losing position.
By managing your margin well, you will maximize your profits and minimize your losses.
How To Stay Successful In FOREX Trading
It is important to remember that to be successful in Forex trading, you are required to be committed to long term investing and trading with patience and consistency.
By following the guidelines of fundamental and technical analysis, you will be able to trade with control and discipline.
Aim to make profits over the long term and not hope to double your money in a week's time. Such unrealistic expectations will not only force you into making unwise decisions at times, they may force you into losses. This may turn you completely off Forex trading and deprive you of a chance of investing in an area full of profitable opportunities.
Do not stop reading or researching once you actually start trading. Only continued knowledge can give you the power and confidence to be able to carry out successful and profitable trading in Forex