3 Golden Rules for Damage Control in Forex Trading |
In times when even a lazy expert has already told his word about the recession, Forex market seems to remain immensely huge as a rock to be out of recession reach. Therefore, profiting in hard times, as well as during economic stability, is more than possible with Forex.
However new traders are easily swayed by a massive spam-like avalanche of information, which comes from multiple sources (i.e. outdoor and internet ads) and promises you riches overnight. In this respect, smart traders before starting to trade gather “tons” of information first: read an endless number of FX articles coming through the web, go to forums where traders discuss trading platforms, etc.
As they say, “Trouble is the Beginning of Disaster." However, you can avoid it by following the simple three golden rules. I don’t mean that knowing them brings you an expert’s tie. Following the “golden rules” will give you a head start and help to avoid the troubles of disaster.
Rule 1. No Luck-Trading in Forex
Making money has always been serious. As a big field for such opportunities, Forex trading demands a thoughtful and smart approach. Don’t jump into this “boat” without any plan. No trading strategy or money management techniques will make you lose (and maybe not once). So… have you been made to close your account after, let’s say, five bad trades? If yes, stop doing the things wrong then. Here are my 10 “must follow” Forex money management rules.
Ok, I have a good Rule-1 example for you to make myself specific.
You are opening a $10,000 account. Now you decided which part of it, you are planning to risk per trade. See a close relationship here: higher risk means more potential for profit. So if you are risking 10% of your entire account on each trade, ten bad trades will make you a bankrupt. If you put only %5 on risk per trade, you double your chances of making it and cut the margin-call chances in half.
However, it’s not only margin call prevention, which is money management about. It also ensures stable and constant profits. Nowadays, almost all FX trading platforms offer you such advantages as Stop Losses (no forever losing) and Take Profits (control your greed and keep you ahead).
As all human beings, Forex traders often fall under emotions (i.e. fear or greed). Following this Golden Rule turns the emotions down, keeps your strategy alive and makes you stick to it.
Rule 2. Implementing Bullet One
Don’t get me wrong. This point of mine is not the result of my typing addiction. It is your Forex success, which is based on this Golden #2. Remember the cartoon angel and devil sitting on one’s shoulders when it’s an important decision to make? I do. Even if you have your Forex plan and strategy, the seduction of following what your heart (a devil here) tells you is immense.
60% of FX failures are put to this factor. Traders just don’t stick to their plans. Get it clear: emotions can’t be mixed with Forex. If you are too emotional and tend to get excited quickly or have been known to make rash decisions under high pressure situations, let your technique do the job and hold your emotions inside. Done it? So you are on the right way to preventing the downfall.
If you do stick to the plan and control the emotions with no trading result, then this could mean lack of confidence in the plan itself. So research it and check it properly before you decide to get back to trading again. REMEMBER! Trading randomly (with no strategy) will eventually lead you to those 90% of traders who lose the Forex game. With no plan, it is the game, but stable business of making profit.
Rule 3. Use Leverage Responsibly
Almost every Forex website has words “margin” and “leverage” thrown away into your face. For the sake of distinguishing, I must say they are different. Margin is your money and capital. And leverage is what broker lends you to make trades.
As for leverage, traders should remember this is a sword which has both cutting sides. Higher leverage increases your chances for larger profits and… multiplies the risk for your account to be smashed.
Rule-3 example says that if you are up to trading 200:1 leverage, you can trade two hundred times more money, than your capital is. Furthermore, it is two hundred times faster you will be losing your hard-earned. In simple words, it’s your broker, who now controls your account.
If you are sure to win – you could use high leverage. If the possibility is slightest, then handle this dangerous tool responsibly.
Ok, if you are here and still willing to grow bigger in Forex market, you need much to learn. For instance, you should be capable to analyze the market, understand the fundamental features, and process the Forex technical indicators for this trading arena. That’s why I suggest you to read: “How to trade Forex with Fibonacci tool and Forex Fibonacci calculator.”
The forever Forex truth is that you are sure to fall and these three tips can help you soften the blow (what damage control is) and get back to trading in the end. Will you..? So learn the FX basics and, of course, learn from your mistakes do not trip twice on the same rake.
Article was written by Alexander Collins, who is a founder of ForexEASystems and PipBurner Forex blog. Also, I suggest you to download some free Forex trading tools for MT4 platform and PC on PipBurner blog.
About the author: forexmansion.com
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