Four golden rules to make you a better forex trader

Fsp Invest, 07 Aug. 2013

Tags: forex, forex trading, trading, trade forex, how to be a better forex trader, stop loss, leverage, risk, how to reduce your risk when you’re trading forex

Trading the fast paced, exciting world of forex is not for the faint hearted. But it can be very profitable if you stick to some guidelines. To improve your chances of success, here are some golden rules you should stick to…

Trading forex can be risky.

Four ways to reduce your risk when you trade forex

By sticking to these rules, you’ll reduce your risk and increase your chances of trading profitably, as the FSP Invest team explain in The Ultimate Secrets to Forex Trading

1. Use a stop loss
If you use a stop loss properly you can at least prevent a trade from wiping out your trading capital.

But it can also lock in your profits if you manually trail the stop loss.

A common and effective way of doing this for long (buy) trades is to move the stop loss just under the most recent low.

For short (sell) trades, move your stop loss just above the most recent high.

2. Use minimal leverage
Leverage is the financial device that lets R10 of your trading capital control, for example, R1,000.

The more leverage you use, the more you stand to gain or lose on any given trade.

Tiny gains won't kill your trading career, whereas huge losses will. It makes sense to use the minimal amount of leverage.

Increase your leverage only when you're consistently profitable and extremely disciplined. When that occurs, use only the leverage you need to reach your goals.

Never use more than 100:1 leverage. This amount is more than enough to give you quick short term gains.

3. Don’t risk more than 2% on each trade
When you risk 2% of your trading capital on each trade, you're giving yourself a chance to make a profit while reducing your chances of financial ruin.

Even a string of losses would still leave you capital to trade with.

You must also use your discretion, if the trade is going against you and it’s going to hit your stop loss, cut it early.

4. See the bigger picture
Though you might prefer trading on smaller time frames like the one-minute chart, draw the major support and resistance lines from higher time frames.

These lines greatly impact price action on lower timeframes.

At minimum, draw lines for daily and four-hour highs and lows and Fibonacci levels.

There you have it, four golden rules to make you a better forex trader.

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