forex trading rules

When trading the Forex Markets using AshokFX, it’s common for aspiring traders to forget these 3 simple rules that makes a trader consistently profitable.

Admit it, most of us are focused on those stuff you see that the so-called ‘pros’ use in their trading plan that claims to generate guaranteed profits; or those strategies that sound too good to be true and would typically cost a hefty fee only to realize that IT DOESN’T WORK.

And at the end of the day, you forget these rules and you lose money and wonder what’s wrong with you.

In this post, I’ll talk about the 3 simple rules that when neglected, can be disastrous and can ultimatley blow up your trading account if not taken seriously.

Find out what they are by reading on.

Learning To Avoid Emotional Trading

Have you ever tried trading using a demo account? If yes, then let me ask you a question. Why is it that it’s easy to generate profits using a demo account compared to a live account?

The answer is simple – trading a demo account doesn’t generate the exact emotions you feel when you trade a live account because no real money is involved.

When real money is involved, a trader with a bad trade will let the trade run because they ‘hope’ that the trade will eventually end up in their favor only to realize that it’s a mistake and eventually lose more money.

On the other hand, a trader with a good trade will probably take profits early because they ‘fear’ that the winning trade may eventually turn out as losing trade. But this is a mistake and that you end up only with a measly gain.

In a demo account, you become an emotionless trader because you know in yourself that there’s no real money involved. In effect, you tend to think more critical. That’s why you’re profitable.

If you feel like you’re the one being described above, don’t feel bad about it. It’s human nature. That’s the way it is. But to become a profitable trader, you should do the complete opposite. I’m not saying that you should stop being human. All I’m saying is you have to be critical about your decisions.

Professional traders cut their losses early and let their winning trades run. Amateur traders do the opposite.

To become a profitable trader, you should do what professional traders are trained to do.

To do that, here are some tips:

  1. Control your greed. This way, you’ll avoid the mistake of trying too hard to milk the market.
  2. Avoid overconfidence. Too much of it after a series of winning trades can lead to euphoria and thus lead to a series of trading mistakes. You’ll just get back to where you started or worse, lose money.
  3. Don’t regret missing out on good trades. This emotion tends to make you jump into the market and execute a bad trade and in the end lose money.

Being emotionless when trading will enable you to think critically and act accordingly to the fundamentals and technicals presented.

Learning To Be Patient

Knowing when to trade and when not to trade is probably one of the simplest rules that will prevent you from totally blowing up your account.

If you wait patiently for a good opportunity to execute your trade setup, more often than not, it will lead to a higher probability of making money.

Identifying a good opportunity means learning the skill of identifying trends. You must understand how the Forex fundamentals work to get an overview if the currency pair you’re trading has a long or short bias. Then, by applying techncial analysis, you’ll be able to enter at those precise points that will enable you to capture the trend.

Now, how exactly do you identify a good trend to trade?

Luckily, Finwaze offers one of the best Forex training classes that will teach you how to interpret Forex fundamentals and apply technical analysis. The Elementary course is designed for aspiring traders with little to zero knowledge in trading the financial markets. You should give this a try if you want to learn Forex from the professional traders.

Now, let’s say entered into a trade, you must have realistic expectations. This means that you should not set too high targets or too narrow stops. If you put a narrow stop, you might get stopped out early and miss out on a good trade. On the other hand, if you set a high target, the market may reverse before hitting that target and lose money instead of making money on the process.

Be patient because if you’re proven right, you could capture those 1,000 pip moves and make a lot of money consistently.

Learning To Apply Proper Risk Management

There’s a fine line when it comes to trading and gambling. Know this, if you trade without applying any risk management, you’re basically GAMBLING. You might as well go to a Casino and try your luck there.

A good trade setup consists of 3 things – proper lot sizing, stoploss and a 1:2 risk/reward ratio.

One common mistake you could make is to neglect proper lot sizing. If the trade goes bad, you get a margin call and then you are stopped out. That is the worst thing that will happen to a trader like you. If you get stopped out, it means that you’re an irresponsible trader. Avoid this common mistake by practicing proper lot sizing in your trades.

Another mistake is by neglecting to put stops in your trades. By putting a stoploss, you’ll minimize losses if the trade didn’t end up in your favor. Even if you initiate a buy order on a currency pair that’s trending upwards, there are many forces that can push the market to move on the opposite direction. We don’t want to get caught up to the wrong side of the trade do we?

Lastly, making trades with a bad risk-reward ratio should also be avoided. It doesn’t make sense to aim for a $100 profit if you risk losing $500. We should at least aim for a 1:1 ratio. A 1:2 ratio would be ideal because if you trade 10 times and you lose half of your trades, you still win by a factor of 5.

Conclusion

These 3 simple rules if taken seriously can prevent you from losing money. Trading Forex should not be risky. If you religiously apply these 3 rules, you’ll have a better chance of making slow and consistent profits overtime.

Happy pipping!

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