Fx Trading Knowledge - What You Must Know
One of the most crucial pieces of fx trading knowledge that you should have if you
are going to have any possibility of making money with forex trading, is how to put up your trading strategy. Having a good coherent plan that you can stick to, will make all the difference between profit and loss for many traders.Remember that the majority of traders starting out in forex trading lose money, so it is crucial to carry out everything you can to make certain that you are one of the profitable ones. Having a strategy will provide you with a good start over most new traders who simply start trading with no idea of where they are heading.
Having a profitable method is important of course, but there are many methods out there. Most traders think that the trading system is the only thing that matters and spend all of their time searching for the absolute system that is guaranteed to make money for everyone howeve no such trading system exists. Although there are a bunch of fine systems, no system will be successful without a trading plan that is tailored to the specific trader.It has to suit you as you are the one trading it therefore it has to be customized to you.
What this means is that you need to figure out your trading plan for yourself. Do not be alarmed however because it is quite straightforward but Your plan must include these three things:
1. Size of Trade - How Big?
This can be measured in the number of positions that you will be able to take during every single trade. It may vary according to the strength of your signals or it could be the same for each trade, but it ought to be clearly set out. Do not vary your trade size according to intuition, and do not vary it according to whether your earlier trade was winning or not. Be consistent and stick to your trading plan.
When you are deciding on your trade size, you must also consider your gearing and what proportion of your total funds will be committed to a trade. This is part of your risk management plan and it is critical currency trading knowledge that you ought to always have right by your fingertips.
2. Stop losses - Limiting Your Risk
Your strategy must include a stop loss and this is measured in terms of pips. Again you ought to consider the risk that you are taking as a proportion of your overall funds. In most cases you should target for a risk of around 2% for each trade. However, with various systems or if you have a very low initial pot, you possibly will want to go higher than that to prevent your stop loss being triggered too often. Just be wary that if you do that, you have a greater danger of going bust.
3. Level of Profits - How Much?
You ought to also settle on the exit position for a winning trade, i.e. how many pips you are aiming to take. If you do not settle on this at the beginning of the trade you will often be tempted to hold out as long as possible, praying that the trend will keep going your way. Often times you will be caught out by a unexpected reversal and a profitable trade can be turned into a loss. So it is very important to decide ahead of the trade how much profit you will take.
Once you have your strategy, it is crucial to stick to it consistently. Avoid the temptation to trade when the signals are not quite right, or to follow your gut feelings in anything to do with your forex trading that is at least until you have many years' experience of the market. Also, reduce anyinterruptions whilst you are trading. This will help you to get out of making imprudent mistakes and keep your concentration levels up so that you can make the best of all of the forex trading information that you have acquired.
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