Foreign Exchange Market Trading
Posted on February 7th, 2009 by Tom Flora under Foreign Exchange Market Trading.
Steps to Success in Foreign Exchange Market Trading
Get Into Forex wants YOU to succeed. We give you practical information that is time tested in foreign exchange market trading. For instance, review these basic Steps to Success in foreign exchange market trading.
Step 1 - Always Practice with a Demo Account
It is always tempting to start implementing your trading system once you have finished or even while you are still reviewing FOREX information. Practice for as much time as necessary for you to feel confident with your own foreign exchange market trading. Remember practice makes perfect!
Step 2 -Protect Your Profits
It is important to protect your profits while engaging in foreign exchange market trading by using a stop loss. Hold your winning positions as long as possible, but don't lose your gains or profits. Not only will adjusting your loss help to protect your profits, it will also prevent you from going very quickly from a winning position to a losing position if the market makes a sudden change. Foreign exchange market trading is a business and not a game. Protect your hard earned money. Rule number one in foreign exchange market trading is protect your investment.
Step 3 - Let Your Good Trades Run
While limiting your losses may be the toughest part of foreign exchange market trading, letting your positive trades run comes in a close second. There is nothing wrong with never taking a profit out yourself but to always move the stop up a reasonable degree and when the market direction turns it will take you out with your stop. This method of foreign exchange market trading is best implemented with swing trading or long term trades. Please be advised that the use of stop loss orders may not limit your losses to a specific level as market conditions may make it impossible for the order to get executed at a specific price.
Step 4 - Maintain Proper Risk vs. Reward Ratio
A good risk vs. reward ratio is an essential part of the foreign exchange market trading process. A major problem for novice traders is simply the fact that they do not take this into account. Risk is the maximum value you are willing to lose and reward is the amount of profit that you will be content with. In foreign exchange market trading you need to know this before placing a trade. If you use a poor risk to reward like going for 5 pips of profit but willing to risk 25 pips with your stop, then you will not be profitable in the long run. The math does not add up. With foreign exchange market trading, you need at least a one to one risk reward ratio. If you are going for 20 pips of profit then you can risk only 20 pips. If you are only correct just over half of the time then you will make money
For longer term foreign exchange market trading you can use a better ratio. For example if you risk 50 pips to make 200 pips (1:4 ratio), then you can be wrong almost 70 percent of the time and still make money with foreign exchange market trading. I do not suggest a trading plan that yields results under 50 % though.
Risk Warning