subject: When You Trade Forex - Never Fuel A Losing Trade Or You'll Be On Your Way To Disaster [print this page] To "get a better average price", new traders often add to trades that are already losing. They think they will be able to break even when the market goes in the direction they want. However, most of the time the market moves further against them. A previously small and manageable loss, becomes large and catastrophic.
This story's moral is simple. To profitably trade Forex, never add to a trade that is losing. This is a very common pitfall that many new traders fall into and in the end decimates their short-lived aspirations of becoming a Forex trader on a full-time basis. Do not fall into this deadly trap!
Control Your Risk - Controlling your risk allows you to control your reward. If you don't know the risk level of a system then never trade that system. Before you enter a trade it is important that you determine a definite level to exit the trade if the market is working against you.
With risk control, you are able to "stay in the game" while maintaining capital because you don't allow for needless, out-of-control losses. Consider this example.
If you've got $5,000 in a Forex account and risk $2,500 on each trade, how much will be lost? You don't have to be a genius to see the poor risk control in that example. You should always trade with the mantra of living to trade another day. It is better to take a small loss than to try and win every position that you open. You will have to accept losses as a trader and the important thing is that your losses are fewer and smaller than your wins. Do the math!
Maintain Proper Trading Discipline -- Lots has been written about Forex trading psychology. The most successful Forex traders know that is extremely important to have discipline when trading. With no trading discipline or mindset to maintain that discipline, your Forex trading tools will be useless. Discipline will enable you to stay focused and stick to your system of trading. A good trading system will help you to profit and eventually garner wealth. You can trade Forex without guessing if you are able to control your emotions.
We've discussed some of the basic things you need to do in order to be a successful Forex trader. All of these are important trading rules and continually hold up over time. Review this list every so often and use these rules as you trade. You'll find that these will help you stay on the path to successfully trade Forex.
by: John Eather
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