Forex trading is not a casino
The first rule has to do with the trading concept itself. Many beginners in forex try to guess with more intuition than training in which direction the market is going to move as if it were really a bet on a casino or a game of chance. The experience ends up proving that this type of traders ends up losing their account in a short time. The foreign exchange market is not a casino, the market evolution follows a logic that has to be interpreted and requires knowledge of fundamental analysis (based on news), technical (based on graphics) or both.
To gain benefits in forex you need a system
To gain benefits you need a set of rules that define exactly when to enter the market and when to exit. It is very easy to fall into the temptation to skip the rules that one has defined when the market advances in your favor to try to obtain greater profits or try to take the revenge to the market to try to recover a losing position. It is equivalent to put a simile to skip a diet that has proposed our endocrine. Do you know anyone who has had a diet by skipping it? I certainly do not. You can go to our section of Investment Strategies where you will find many trading systems that you can try and take as a basis to develop your future trading system but please always follow the rules.
It is imperative to have good money management
It is not enough to have a good trading system for profit. Money Management is as important or even more good money management. The most typical mistakes is to risk too much in each operation. Experts agree that you should not exceed 2% of account loss in a single operation. This is because if we have a poor streak of 5 or 10 losing positions in a row and risk for example 10% of our account would be practically impossible to recover since it would be a hole too large. A good Money Management allows us to fail more times and recover again to reap benefits again. Keep this in mind to set the stop loss of your trades. For this you need to know what level of leverage you are using.
A very high leverage will mean that soon the market goes into our account and we will have lost a significant percentage of our trading account so we do not recommend leverage much greater than 1:20 unless you have very clear what you are playing Really.
Many brokers say in their advertising leverage levels as high as 1: 666 or even more because it is something that greatly surprises the novice trader since it allows you to buy a very large amount of a currency pair with a balance available in your very small account. Actually with a very high leverage level it is very difficult to survive in the market since a particular currency pair as its price changes only 0.1% (which is very feasible) against us would do us a terrible damage In our account and practically irrecoverable.
If you want to know more about Money Management we recommend reading our article about the 5 basic rules of Money Management
First you must know your losses before counting your profits
Extending the previous rule about Money Management (note if it is important) we must know how much money we are willing to lose and how much would be the estimated profit. Most professional traders and experts agree that you should wait with your trading system to earn at least twice what you could lose in an operation. Thanks to this you can keep a 50% success in your operations and obtain long-term benefits.
Forex Trading Psychology
You probably have read it in many places how important a psychologist is to a trader. The only thing we want to emphasize here is that you must act with great prudence since being too greedy will inevitably lead to a disastrous trading. It is important to try to win in all operations that we can even a small amount and cut the losses in time when they occur since in any trading system is absolutely unavoidable to get lost in some positions, sometimes even gusts of several operations followed this way That we must cut in time (remember Money Management)
We must learn to trade forex from our mistakes. If our trading system after a long time does not prove to be profitable we have to improve it but never try to take the revenge to the market to try and get revenge for operations that have gone wrong.