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Learn Forex
Draw Up A Set Of Forex Trading Rules And Stick To Them
One of the biggest problems with Forex trading for many novice traders (and quite a number of experienced traders) is that they are no real rules to follow. In one sense this is of course one of the advantages of Forex trading and it is good to be able to trade when you want to, to open and close trades when you feel like it, to increase or reduce an existing position and indeed not to trade at all if you don't feel like it.
But this very freedom can also make Forex trading dangerous.
Whatever we do in life there can be little doubt that we do much better when we know exactly where we are going and have a roadmap to get us there. But, even if we have a map to follow, it is also vital that we have a set of instructions to keep us on course.
In foreign exchange trading those traders who follow a set of rules undoubtedly enjoy far greater success than those who simply 'wing it' and, if you talk to those traders who do follow a set of rules, they will tell you that when they follow the rules they generally have a good day and when they don't follow the rules they often run into trouble.
Now, since the Forex market doesn't have any rules, you will have to create your own. Just what rules you draw up will very much depend on your trading strategy but what sort of rules are we talking about?
Well, one very good rule which you might set for yourself is that of not entering a trade without first putting a stop loss order in place. You might also set down a number of rules detailing the specific conditions which must be met before you will enter a trade. In other words, you clearly specify that you will not enter a trade simply because you have a good feeling about it, but will only do so if your market analysis, as defined by your set of rules, tells you that you should enter a trade. Finally, you might stipulate that whenever you find yourself in a profitable trade you will always protect your position by moving your stop whenever your profit reaches a pre-determined level.
These are just a few ideas of the type of Forex trading rules you might lay down and your own list will of course have to be drawn up to meet your own particular trading strategy.
Whether you have a long or a short list of Forex trading rules is not important, but it is extremely important that you draw up a list and that that you then stick to it.
Currency Risk: The risk that shifts in foreign exchange rates may undermine the dollar or any other foreign currency value of overseas investments.
Devaluation: The act by a government to reduce the external value of its currency.
Mark-to-Market: The theoretical value of an open position at the current market price.
Sterling: Another term for the British currency, 'The Pound'.
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