The Dos and Don'ts of Forex Trading
Forex trading isn’t as difficult as some might imagine, but it’s not a walk in the park either. There are certain well-defined rules as well as unwritten laws that traders abide by to not only profit but avoid losses. You can learn from the experience of much more experienced traders and become familiar with their pitfalls so you don’t repeat the same mistakes.
Traders can also pick up various tips that can give them a competitive edge against other newcomers. These are the do’s and don’ts of forex trading that all experts will tell you about:
Do
Have a Trading Plan
A trading plan is an approach that a trader takes based on research and market analysis. A trading plan doesn’t only factor in the various financial events of the world, but also personal psychology that plays a major part in trading decisions. Just like other business ventures, having a well-thought-out plan is crucial for profiting in forex trading. Have realistic goals regarding the profit you’ll make so you don’t revenge trade just to recoup losses down the line.
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Experienced traders will review records on what trades generated profit and losses, and they must follow the techniques that brought them positive results. Knowing when to enter a trade and exit comes with experience and needs to be a part of your plan.
Know What You Can Afford to Lose
Generally, experienced traders never use more than 2% of their total account on a single trade. The idea is to minimize your chances of losing but losses are inevitable. With proper risk management, your ratio of losses to profits should be fairly minimal.
Research
Being a math wiz can certainly pay off when you’re counting the spread, but there are many more variables that need your time and attention. The trading techniques that you’ve employed might need to change if, for instance, interest rates and other market fundamentals move in a different direction to that which you had anticipated. It’s smart to join an online community or financial blog that regularly provides forex trading content.
In recent years, copy trading and social trading have become more popular, allowing successful traders to share their techniques with others. Learn about the various risks that apply to forex trading and improve your trading results.
Use Stop Loss
The stop-loss order is used to minimize or limit the loss for a particular trade position. After the stock or instrument reaches a particular price, the order is placed. For example, a currency is valued in a pair for $2.58. If you’ve set a stop-loss order for it for $2.46 and its price crashes, once the market value for the currency reaches $2.46, it’ll execute that order to close your position and limit your losses.
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All of the best forex trading solutions come with a stop-loss order, especially as the trader can’t be active every second of the day. For people trading passively without a fund manager, this can be an effective way of preventing unexpected losses.
Stick to One Trading Platform
Trading platforms allow you to use your existing accounts to gain access to the financial markets and trade forex. Not all forex platforms are created equal. Some may be better suited to experienced traders, while some may be more user-friendly for beginners. Your goal is to find one you are most comfortable with. Also ensure that it is from a credible broker, that offers round-the-clock support.
Don’t
Not Paying Enough Attention to News and Events
Forex depends heavily on economic events around the world. Firstly, there are various financial events with national, regional, or international impact. These economic or geopolitical events have an impact on the economy of these countries, and by extension, their respective currency pairs.
A currency pair is heavily affected when the nation in question is going through economic prosperity or if they’re experiencing hard times. Many of these economic events are scheduled for announcement well beforehand while others take place randomly.
Trading When Emotional
While not a technical error, trading when emotional is a psychological mistake. When you’re feeling upset or angry, your feelings are bound to affect the way you approach a trade. Such emotional states cause traders to deviate from their trading plans and take on major risks. Doubling down and chasing losses is extremely common among forex traders when they’re not approaching trades rationally.
It’s better to call it a day and trade some other time than to incur any unnecessary losses due to cloudy judgment.
Overusing Leverage
Essentially, leverage is a loan that brokers provide you to take on a larger trader volume, using a fraction of the required initial margin. The upside to leverage is that it can help you make some decent profits. However, it’s a high-risk, high-reward maneuver that can also backfire.
This is the reality of margin trading, as losses can exceed deposits. This isn’t to say that leverage should be avoided at all costs, but moderation is essential.
Ensure that you’re working with one of the top forex trading platforms from the start. Crystal Ball Markets has been adjudged as one of the best platforms for forex, with our platform providing access to the most popular forex pairs to trade. Crystal Ball Markets is not only a top crypto trading but also an afunctional energy trading platform for trading Brent Crude and WTI CFDs. As one of the best forex trading brokers, we provide round-the-clock support for both experienced and beginner traders looking to start trading currencies. Our website also provides other value-added resources like the economic calendar which helps traders to keep track of upcoming important economic events or announcements that may move the financial markets.