With declining stock markets around the world there has been a resurgence of interest in forex trading by all sorts of investors. Novice forex traders soon learn that in order to trade at a profit at least a few basic forex trading tactics must be observed.
Here are 8 important forex trading tactics that if followed can assist a trader to become a more successful trader.
1.) Never trade forex with money that you can not afford to lose. The forex markets can at time change price levels with blinding speed. If you are upside down on a rapid move and do not have proper stop loss orders in place you may lose your money before you have the opportunity to take action.
2.) Do not over trade. Many forex traders are in and out of the market far too often. Trading at a profit usually depends upon a good entry point. Be patient until a low risk entry point presents itself.
3.) Always think for yourself. Do not blindly accept everything you read or hear about trading forex as the truth. For example, one often hears that to make a big profit you have to take a big risk. Not true. Big profits are usually made when you take a high percentage low risk trade, such as going long as markets run stops just below long term support areas and selling out or going short as markets run stops just above long term resistance areas.
4.) Do not think that you are so amazingly smart that you can beat the market by frequent day trading. While there will be times when day trading will offer quick profits the profits are usually fairly small and over time will probably be more than offset by undisciplined trades. Successful day trading takes a lot of discipline. If you do not have the discipline to quickly cut off losing trades do not attempt to day trade. Trades that start out as day trades and that are carried over into the next trading day at a loss have a real potential to become big losers.
5.) Do not try to trade more than one or two currencies at a time. Unless you are a real pro you will find it difficult to manage multiple forex positions.
6.) Do not bet the farm on any one trade. If one big trade turns against you that might mean you will be knocked out of the game. No one trades forex over any significant time period without incurring losing trades. If your positions are too large, using too much leverage, you may experience the misfortune of having a series of just a few losing trades that completely deplete your capital.
7.) Do not scale up your trading activity and position size too fast. Some traders think that after even a few winning trades they have found the secret to fame and great fortune. They then drastically scale up their trading position size and go for huge profits. While there is nothing wrong in scaling up position size as a forex account grows it should be done very slowly and carefully. Racing forward and scaling up based on only a few winning trades is usually a mistake. One loss on a big position can quickly take your account to near zero or less.
8.) While using stops is recommended you can not place them at obvious places. If you do place stops at obvious price levels chances are high that other novice traders are doing the same thing. As stops accumulate at obvious levels do not be surprised if professional traders push the market into the stops. After the run on the stops (you have been stopped out) the market will often quickly rebound and the traders who stopped you out (by buying what you have sold) will sell out for a short term profit. That kaching sound is your money going into their pockets.
Trading forex is an exciting fascinating game and can be highly profitable. However, you should be aware that if your forex trading tactics are defective there are experienced traders who will be only too happy to take your money as long as you keep placing it at risk.
