The systems and ideas presented here stem from years of observation of price action in this market and provide high probability approaches to trading both trend and countertrend setups, but they are by no means a surefire guarantee of success.
Therefore, no rule in trading is ever absolute except the one about always using stops! Nevertheless, these 10 rules work well across a variety of market environments, and will help to keep you out of harm's way. The FX markets can move fast, with gains turning into losses in a matter of minutes, making it critical to properly manage your capital. There is nothing worse than watching your trade be up 30 points one minute, only to see it completely reverse a short while later and take out your stop 40 points lower.
You can protect your profits by using trailing stops and trading more than one lot. For more on this, see Trailing Stop Techniques. It can be a huge rush when a trader is on a winning streak, but just one bad loss can make the same trader give all of the profits and trading capital back to the market. Reason always trumps impulse because logically focused traders will know how to limit their losses, while impulsive traders are never more than one trade away from total bankruptcy.
To get a better understanding of traders, read Understanding Investor Behavior. This is the most common and most violated rule in trading.
Trading books are littered with stories of traders losing one, two, even five years' worth of profits in a single trade gone terribly wrong. Both methods are important and have a hand in impacting price action. Fundamentals are good at dictating the broad themes in the market that can last for weeks, months or even years. Technicals can change quickly and are useful for identifying specific entry and exit levels.
A rule of thumb is to trigger fundamentally and enter and exit technically. For example, if the market is fundamentally a dollar-positive environment, we'd technically look for opportunties to buy on dips rather than sell on rallies.
When a strong army is positioned against a weak army, the odds are heavily skewed toward the strong army winning. This is the way you should approach trading. When we trade currencies, we are always dealing in pairs - every trade involves buying one currency and shorting another. Because strength and weakness can last for some time as economic trends evolve, pairing the strong with the weak currency is one of the best ways for traders to gain an edge in the currency market.
In FX, successful directional trades not only need to be right in analysis, but they also need to be right in timing as well. If the price action moves against you, even if the reasons for your trade remain valid, trust your eyes, respect the market and take a modest stop. In the currency market, being right and being early is the same as being wrong. Consider a scenario where a trader takes a short position during a rally in anticipation of a turnaround.
The rally continues for longer than anticipated, so the trader exits early and takes a loss - only to find that the rally eventually did turn around and their original position could have been profitable.
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 , lot, and you establish a position in clips of 10, lots to get a better average price, this type of strategy is known as scaling in.
To learn more about scaling in, see Tales From The Trenches: Novice traders who first approach the markets will often design very elegant, very profitable strategies that appear to generate millions of dollars on a computer backtest. Armed with such stellar research, these newbies fund their FX trading accounts and promptly proceed to lose all of their money. Because trading is not logical but psychological in nature, and emotion will always overwhelm the intellect in the end.
Conventional wisdom in the markets is that traders should always trade with a 2: In practice this is quite difficult to achieve. Before entering every trade, you must know your pain threshold. You need to figure out what the worst-case scenario is and place your stop based on a monetary or technical level. Every trade, no matter how certain you are of its outcome, is an educated guess. Nothing is certain in trading. Reward, on the other hand, is unknown.
When a currency moves, the move can be huge or small. The "no excuses" rule is applicable to those times when the trader does not understand the price action of the markets. For example, if you are short a currency because you anticipate negative fundamental news and that news occurs, but the currency rallies instead, you must get out right away.
If you do not understand what is going on in the market, it is always better to step aside and not trade. That way, you will not have to come up with excuses for why you blew up your account. Dictionary Term Of The Day. Broker Reviews Find the best broker for your trading or investing needs See Reviews. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. A celebration of the most influential advisors and their contributions to critical conversations on finance.
Become a day trader. Trading is an Art, not a Science. Logic Wins; Impulse Kills. Use Both Technical and Fundamental Analysis. Always Pair Strong With Weak. Despite the opposition it faces, advisors should still plan to comply with the fiduciary rule.
Whether you're a novice or an expert, these 10 rules should be the backbone of your trading career. While financial rules of thumb can be helpful at times, they can also be dangerously wrong. A majority of independent broker-dealers want Trump to repeal the fiduciary rule, a recent survey reveals.
Not every moment is a good trading opportunity. Put each trade through this five-step test, so you're trading only at the best profit potential times. Hunt for new winners with carefully-drawn scanning filters and third party services. This rule was deemed ineffective and repealed in , but critics argue it protects the market from bear raids. How much a fixed asset is worth at the end of its lease, or at the end of its useful life.
If you lease a car for three years, A target hash is a number that a hashed block header must be less than or equal to in order for a new block to be awarded. Payout ratio is the proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage.
The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as Get Free Newsletters Newsletters.More...