There are several key guidelines that will help both new and experienced traders make more money in Forex trading. With trillions of dollars being traded each day, and fortunes being made and lost in Forex markets by professionals and amateurs, there has never been a better opportunity to become a profitable Forex trader.
Key to becoming profitable with Forex trading is understanding these guidelines and applying them consistently.
Even a beginning Forex trader can have a few successful trades. The problem becomes handling those trades that lose money. To illustrate how significant money management is to becoming a long-term profitable trader, imagine what would happen with a trader that has three profitable trades in a row and one money losing trade.
A rookie mistake, is to take the profits from the last good trade and move them into the next trade.
After three successful transactions, even a new Forex trader could have doubled or tripled their initial funds. Feeling confident and excited about making a fortune on their fourth trade, this inexperienced trader puts all their funds into the fourth transaction. Without using a system and without having carefully assessed the risks to their account, they end up losing everything on that last ill-fated trade.
This scenario is all too common in the world of Forex.
The proper way to handle every trade is to only use a portion of the profits for the next trade. If you start out with $1000 on your first trade and conclude with $1500 afterwards, then your second trade should be no more than $1250. This way, you can stay in the game if your trade goes against you.
The best Forex traders are completely emotionally disassociated from the market. Whether they have had an enormously profitable day, or if they have lost everything in their trade, they remain cool, collected and prepared to continue.
The same cool demeanor applies while you are in a trade. If we get emotionally tied up in our trade either becoming very profitable or losing money, then we are unable to clearly understand factors impacting the trade and to make sound analytical decisions. This is one reason why chess players tend to become excellent traders.
Chess players have learned to think rationally about all the problems they see in the scenario they are analyzing. Forex trading requires the same level of logical and analytical thinking to be successful.
Tied with logical and analytical thinking is developing your own trading system. Your system does not have to be computer managed but at least it has to be based off of analytical signals rather than emotional reactions to the market.
Emotional reactions to the Forex market are not fast enough for trading, nor are they accurate enough to create consistent profits. Only analytical tools that continuously monitor the 24-hour Forex trading platforms and alert to trading opportunities or prevent trading losses, can be effective in today’s market.
These guidelines apply whether a person is just starting their Forex career or are an experienced Forex trading.