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The Forex market has fascinated traders all over the world. It is even seen by many as the quickest way to try to get rich and traders love currencies for their availability, liquidity, volatility, and diversification.
However, Forex trading can also be volatile and uncertain at times. And most traders end up chasing their losses because they don’t have the right approach and the discipline in place.
If you are someone who’s about to start trading currencies, we’ve got you covered.
Here are our five commandments of trading currencies, which MTI’s professional analysts think will go a long way towards helping you achieve the right mindset and give you the best chance of winning trades.
#1: Always Protect Your Capital
This is central to a successful currency trading strategy. Because without capital, you have nothing with which you can trade and potentially make profit on. Most individuals who try their hand at forex trading never succeed because they run out of money and can’t continue trading. Imagine blowing out your capital before you have a chance to enter what turns out to be a profitable trade.
Another reason why capital preservation is important is losses in the Forex markets can wipe out a significant chunk of your capital very quickly.
So, always quantify how much you are willing to lose before you enter any trade. You should never trade without asking yourself, “If this trade does not work out, can I afford to lose X amount of money?”
A few ways in which you can have a strong capital preservation strategy in place are…
- Limiting the amount you trade per position
- Trading with discipline and knowledge
- Setting specific entry and exit levels for each trade and acting on them
- Having reasonable stop loss levels in place
- And trading with a correct mindset
Capital protection is a money management strategy in itself. It helps you trade in a disciplined manner and acts as a shield against potential losses. So, always keep it as the most important practice while trading in the Forex markets.
#2: Have a Trading Plan in Place
Every successful trade is preceded with a well-thought-out trading plan and executing it. So, plan your trade, and trade your plan.
This becomes important in Forex markets as it helps you avoid making emotional decisions in times of huge volatility. Plus, it also sets specific parameters of your ideal trade and makes trading way easier.
Here are a few elements your trading plan for each trade can have:
- Defined number and size of lots you are willing to trade
- Specific entry point(s)
- Identified target level(s)
- Stop levels based on your risk-to-reward ratio
- How the plan changes in times of huge market volatility
The next important thing now is to stick to your plan. Because no matter how good your plan is, it won’t work if you don’t follow it.
#3: Honor Your Targets and Stop Losses
One place where successful Forex traders’ discipline is the strongest is in the process of selling. They don’t let greed come in their way of selling when a trade hits its specified target or stop loss levels. If you have established a stop loss for your trade, honor it by selling your positions when it hits the stop loss level. This could help save you from experiencing losses in case of unexpected market movements.
Honoring your target levels is also just as important. Don’t let emotions get in your way of selling, expecting that the price will rise further. Because greed can quickly turn a winning trade into a losing trade. Once your target and profit levels are reached, stick to them by selling your positions and locking in profits.
#4: Master Your Mindset and Control Your Emotions
It is said that there are old traders and then there are non-disciplined traders; but there are no old and non-disciplined traders. If a trader is not disciplined, it won’t be long before he and his money part ways.
This is because prices in the Forex markets fluctuate a great deal on account of people’s tendency to speculate. And you should be prepared to see downfalls in your portfolio every now and then. Just as the rises, downfalls are a part of this game and you shouldn’t react to them by abandoning your strategy.
In fact, you can use these fluctuations to your advantage by using strategies to try to profit from them. You should also approach the markets with a winning mindset. This means having the knowledge and mastering your trading mindset to stay focused and disciplined.
We believe that successful trading requires 10% skills and 90% emotional intelligence. And having a winning mindset goes a long way in developing key trading habits and skills in trading and in life.
#5: Find A Mentor & Invest in a Solid Forex Education
We believe this is the single most effective way to take your trading skills to a whole new level. Find a mentor who does what you want to do and then get them to teach you the secrets of the trading game. The greatest reward in choosing a mentor is that you get the opportunity to learn from their trading mistakes rather than making them yourself.
Mentors have learned how to think more accurately from their past experiences of trial and error. They are very clear on how to separate facts from mere information.
Mentors are someone whose hindsight can work hugely to your advantage in creating your foresight. And they are someone who can help you lay your foundational bricks to a solid and successful Forex education.
Market Traders Institute’s trading rooms are a classic example of how mentorship and the right education could help you gain a trading edge in the Forex markets.
If you want to know how to successfully trade Forex, register for one of MTI’s free weekly webinars, where our experts will teach you live-market strategies that have stood the test of time.
Foreign Exchange trading carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work for you, as well as against you. Before deciding to invest, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and you should not invest money that you cannot afford to lose. You should seek advice from an independent financial advisor. Nothing contained herein or offered by MTI is an offer to buy or sell futures, stocks, options, or any other financial instrument. MTI is not a Commodity Trading Advisor or a financial or legal advisor of ANY KIND. MTI does not manage money, offer personalized advice, or otherwise direct trades or trade on your behalf. MTI is not liable for any losses you incur as a result of trading. Statements regarding results, pips, income, gains, or losses are not an express or implied guarantee of ANY KIND. Your individual results related to these statements and trading in general may vary. Information presented herein is solely for the purpose of general market commentary. Such information is solely for educational purposes and is not intended as investment advice, nor is it suiting to your individual circumstances. All information is provided AS IS with no representation, warranty, or guarantee. MTI expressly disclaims all liability associated with reliance on the information provided.
