Your FOREX Trading Philosophy

“Easy money” is the allure that captivated many beginning FOREX traders. FOREX websites offer “risk free” trade, “high returns”, “low investment.” These claims have a grain of truth in it, but the reality of FOREX is a bit more complex.

Mistakes Of Beginning Traders

There are 2 common mistakes that many beginner traders make: trading without a strategy and letting emotions rule their decisions. After opening a FOREX account it may be tempting to dive right and start trading. Watching the movements of EUR / USD for example, you may feel that you let the opportunity pass you by if you do not immediately enter the market. You buy and watch the market moves against you. You panic and sell, only to see the market recover.

This kind of undisciplined approach to FOREX is guaranteed to lose money. FOREX traders must have a rational trading strategy and not make trading decisions in the heat of the moment.

Understanding Market Movements

To make rational trading decisions, the FOREX trader must be educated in market movements. He should be able to apply technical studies to charts and plot out entry and exit points. He must take advantage of the various types of orders to minimize risk and maximize profits.

First step to becoming a successful FOREX trader is to understand the market and the power behind it. Who trades FOREX and why? This will allow you to identify successful trading strategies and use them.

Accountability

There are 5 major groups of investors who participate in FOREX: governments, banks, corporations, investment funds, and traders. Each group has its own purpose, but one thing all groups except traders have in common is external control. Every organization has rules and guidelines for trading currencies and can be responsible for their trading decisions. Individual traders, on the other hand, is responsible only for themselves.

Large organizations and educated traders approach the FOREX with strategies, and if you expect to succeed as a FOREX trader you must follow it.

Money Management

Money management is an integral part of any trading strategy. Besides knowing which currencies to trade and how to recognize incoming signals and outgoing, successful traders have to manage resources and integrate money management into his trading plan.

There are various strategies for money management. Much depends on the calculation of core equity – beginning balance minus the money used in the open position.

Inti Equity And Limited Risk

When entering a position try to limit your risk to 1% to 3% of each trade. This means that if you are trading a standard FOREX lot of $ 100,000 you should limit your risk to $ 1,000 to $ 3,000. You do this with a stop loss order 100 pips (1 pip = $ 10) above or below your entry position.

As your core equity rises or falls, adjust the dollar amount of risk you are. With a beginning balance of open positions and a $ 10,000, your core equity is $ 9000. If you want to add a second open position, your core equity would fall to $ 8000 and you should limit your risk to $ 900. Risk in the third position should be limited to $ 800.

Greater profits, Big Risk

You should also increase your risk level as your core equity increases. After $ 5,000 profit, your core equity is now $ 15,000. You can increase the risk of up to $ 1,500 per transaction. Or, you can take more risks than benefits than from the original starting balance. Some traders may risk up to 5% against their realized profits ($ 5,000 on a $ 100,000 lot) for greater profit potential.

These are the kinds of strategic tactics that allow a beginner to get a foothold on profitable trading in FOREX.
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