Casual Forex Trader

I thought it would be fun to go over the trading rules that you need to follow. I thought a list would probably help you out much more than just breaking it down over posts. So I hope you enjoy this.

1. Trading Is An Art, Not A Science

I know a lot of people really want this to be a science. It makes things so much easier, but the market is inevitably influenced by people. People are definitely not a science. There is a lot of “science-like” things that can occur and during normal situations they can remain almost like a science. But inevitably the art will beat it.

2. Never Let A Winner Turn Into A Loser

You’re going to find that the market is very competitive and moves very fast. This provides a lot of challenges for people and the main one is winners turning into losers. I don’t think there can be anything more disappointed than having a trade that is in positive territory that turns sour. Using stop-loss and trailing stops to help prevent this sort of thing from happening.

3. Logic Wins; Impulse Kills

I’ve been talking to people about this for a long time. Logic is your best friend. You want to listen to your head and not your heart. Impulse and emotional thinking will get the worst of you in the end. You might win a few times, but in the long run you will fail.

4. Never Risk More Than 2% Per Trade

This is a very important rule in marginalizing risk. No trade is going to be a guaranteed profit, so you have to make sure that you only have small amounts invested. It’s a diversification of trades that allow you to avoid the problem of one big devastating loss.

5. Use Both Technical And Fundamental Analysis

You need to use both of these to be successful. The fundamentals will give you a very good overview of direction. The technicals will help you with the slight moves that happen in shorter periods of time.

6. Being Right And Early Means You Are Wrong

Being right is a great thing, but timing is more important. There is a specific time to move and if you show up at the wrong time you’re going to get burned. It’s just an inevitable thing, so make sure you know when to get in if you know you’re right.

7. Differentiate Between Scaling In And Adding To A Loser

The difference between adding to a loser and scaling in is your initial intent before you place the trade. Adding to a losing position that has gone beyond the point of your original risk is the wrong way to trade. There are, however, times when adding to a losing position is the right way to trade. For example, if your ultimate goal is to buy a 100,000 lot, and you establish a position in clips of 10,000 lots to get a better average price, this type of strategy is known as scaling in.

8. What Is Mathematically Optimal Is Psychologically Impossible

I think what I’m trying to say here is that you’re not perfect. You’re never going to make the right move all the time and you’re emotionally going to make the wrong choice. This is why it is important to trade a 2:1 reward to risk ratio because you can trade wrong 6.5 times out of 10 and still turn a profit.

9. Risk Can Be Predetermined; Reward Is Unpredictable

You never know what your profit will be and that is just the way it is. You have to make sure that you can handle the loss that you could possibly face. All “good” trades are nothing more than educated guesses, so you have to know what you can handle.

10. No Excuses, Ever

Basically you should never been in a trade that you don’t understand. There is no excuse for such tactics. Sometimes you anticipate a specific outcome based on news. The news goes in your favor, but you see the total opposite thing happen. You have to get out. You shouldn’t stick around in something that you obviously don’t understand.

A lot of people don’t want to invest a lot of money or any money when they are starting out. And seriously, I can’t blame you. The economy isn’t doing that well and it can be scary dumping your money into something that you’re really not sure is going to return you any money. Profiting in forex is great because it is dependent on leveraging currencies, which can be done in good economic times and bad ones. Demo accounts can be your best friend or your worst enemy.

Let me explain how…

Demo accounts are nothing more that simulations of the market. It’s your way to play, without actually having to invest real money. I know there is a lot of people here saying “well that’s genius. I can practice until I learn everything, than use real money.” The problem with demo accounts is that they’re based on past market performance or typical past behavior, which can often be too reliable in a way.

Like if we were talking about stocks and you “pretend” to buy it at a specific price and it goes up each day, that would be a real good simulation because you get to see the real time market, you’re just pretending though.

So when you test some strategy out in a demo account you have to make sure that you aren’t literally getting hustled. You’ll find that behavior in the demos are more normal and typical, which doesn’t exist in the real markets. In today’s market, moving from a demo to real market can be very dangerous. Currencies are moving in rapid speeds, sometimes breaking fundamentals. It’s hardly a “normal” situation and that means you can easily be burnt out of all your money.

I think the only true way you can know if you’re getting somewhere is by testing in the real market as well. I’m not talking about putting your money out there but at least “pretend” to buy. Just pretend to buy at a specific point and see what happens.

I think one of the hardest things you’ll experience with forex trading is finding your flow that leads to profits. A lot of people ask me what I mean by flow and all I mean is a consistent “flow” toward a goal (profit). You’re going to have a lot of different directions you can go into when you start out, so it is difficult to figure out the proper direction to flow. I hope this will help you out.

Try Things With Minimal Risk – Just To See

You’re going to have to try things (of course at minimal risk to your money) just to see what will happen. You’ll be surprised how you’ll get a bite of profit. I think this is the most logical thing you can do. If doing something leads to profit, than you should continue to do it. You have to do what works for you and that is how you lead to profits.

That’s why you try things out to end up learning what works. As you do this over time you’ll start to learn what works and what doesn’t. You’ll add more working strategies into your daily routine and you’ll continuously increase your over all profits.

Reevaluate, Ever So Often, How Things Are Working

There always needs to be some sort of measurement of what you’re doing. If your goal is to lose weight, but you never get on a scale or get out the measuring tape, than how do you know if you’re really doing the right thing. I know profits should be enough of a measurement, but they’re not always in this case.

Since there is many different things you can implement for profit you can get caught up in the total income you’re taking in. One method of profiting can pose a lot less risk and more money per hour, than another method. And I think that is what you need to realize.

Obviously you want to make the safest amount of profit for your time. The more time you have to invest and the amount of money you have to risk, should constitute toward something that might not be the best (even though you profit). Meaning, if you have to watch your trades like a hawk, invest a large sum of money and turn a small profit, than you should be evaluating whether this is good.

I thought I’d do a different kind of post today to help push you toward more profitable futures. Sometimes you just need to practice a few things over a 30 day period to help you become a much better trader. I can’t promise that they’ll necessarily make you more profitable because it is up to you and how hard you work.

Break When You’re Getting Upset

We all get heated and pissed off at times. Nothing is more annoying than losing money and it is frustrating. Unfortunately these emotions are very detrimental to a trader and can actually be very unprofitable. I know when I lose money, I always want to get in a trade to get it all back. This is the emotion of a desperate gambler and it’s not a state you want to be in.

When you feel your emotions taking over, take a break. Go have a cup of coffee or go for a walk. Get the emotions out and come back to trade with the logical part of your brain.

Brush Up On The Fundamentals

I think if you’re trading forex, you should have a pretty decent grasp of the fundamentals. When you get into a routine after a while, you’ll often forget about the fundamentals. It’s not to say that you’re trading poorly, but you just don’t have the fundamentals in the front of your mind.

Take some time to brush up on the fundamentals of sound forex trading. It should be a very simple review and you may even have an epiphany or two.

Try Out New Strategies

New strategies are always a risk, but I think they’re important to try out. You can always use the demo software provided by your broker to test it. That’s not a guarantee that it will work, but it can help you a little. If the strategy fails in the demo, you probably know it won’t work in real trading.

If you need to, there are plenty of cheap cheap currencies to test strategies against. You shouldn’t have to risk much in this case.

I thought I’d talk about the top 5 reasons that you are failing at forex. There are a lot of people with the best intentions that are failing. It’s really sad. I see more and more people being laid off in this economy turning to forex to help supplement their income. They end up losing even more money and fall into a deeper trap. Here are the top 5 reasons that you are failing at forex.

1. You Don’t Understand the Fundamentals

I think people run into this business with the wrong frame of mind. If you were to learn a sport like hockey, you’d want to learn how to skate before you tried to score goals. The same thing applies with forex. I see people trying to make big money, but they don’t understand the fundamentals of protecting your money, assessing risk, stop-loss points, and sometimes even properly reading a candlestick graph. If you can’t read a candlestick graph than you are going to be in a world of hurt.

2. You Play With Too Much Money

When you deposit money into a broker account you’re going to notice that you can play with a lot more money than you put in. The deal is that you can play with the extra money as long as you make money. If you put in $100, you can’t lose more than a hundred even if you’re allowed to trade $10k. That’s how brokers protect themselves. Once your loss comes close to a hundred, your positions will be sold and you’ll be finished trading.

Only play with 10-20% of what you have available. A small fluctuation in $10k will eat up your $100 in a minute, but if you’re only playing with a $1000, you don’t have to worry about such things.

3. You’re Far Too Emotional

Emotions are the worst thing to act on when it comes to forex. We’re talking about money here and the only thing that you should act on is logic. The fact is that you’re going to have a real tough time if you can’t control your emotions. If you get a ‘gut feeling’ about something, don’t act unless you have evidence. If you experience a loss, walk away. You can lose a lot of money when you’re upset about a loss. Typically after someone loses, they try to win back what they lost… losing even more.

4. You’re Using The Wrong Broker

Everyone seems to start out with brokers that have been recommended to them. That is completely fair, but you need a broker that is going to meet your needs. As you develop as a trader you’re going to find that you have certain needs your broker can’t meet. You’d be surprised how many brokers don’t even have a toll free number you can call for support. Imagine there being a problem with your account, which is full of your money, and there is no one to call for help. You just have to wait for an email.

5. You Don’t Have Software Working For You

It is how the pros do it, so you might as well emulate their example. I’m not saying that trading software is going to make you any better, but it gives you the means to improve. It has the ability to identify potential profits. That’s big. I find that people who start out really don’t know where to look. The software will help you along in that manner. You can learn more about that here.