Rules For Productive Forex Trading
In order to be a profitable forex trader an individual needs to understand the importance of rules and regulations. The rules and plans of action will and have directed many traders to positive results, however it is acknowledging one’s behaviours and the associated cognitions which is vital to success. By accepting and managing these factors one is able to develop rules which will assist in a productive trading career.
Rule 1: Make a forex trading plan
Every trader working on the forex market agrees the most important task is to develop a forex trading plan. This is a set of rules acts as a trader’s plan of action during a trade. It identifies and explains the behaviour route to be followed during introduction, management period and exit.
Although a rather laborious and time-consuming activity, developing this plan will benefit one in the long-term. In today’s technological era it is possible to create more specific and detailed plans applying the concept of backtesting, making it more thorough and infallible. Backtesting is an economic term referring to the application of trading ideas based on historical data, and the analysis thereof. This data can also include the review of previous trading plans, which will allow an individual to improve on failed attempts or incorporate previous beneficial aspects into the current plan.
Rule 2: Don’t lose your head
The forex market is a high-paced industry which may leave some traders grasping for some clarity. Don’t lose your head! It is important to remain focussed and attentive when trading. Furthermore, one should not be deterred by losses. According to risk ratios, the chance of a loss is highly possible and one must remain objective when facing such a negative trade or face career-damaging emotional difficulties.
Alternatively, cumulative advantageous trades may result in a delusion of grandeur causing one to ‘trade big’. A confident attitude is beneficial in this field; however the borderline of arrogance may set one up for a true emotional break-down once a disadvantageous trade is experienced.
In order to avoid these behavioural calamities, one must develop a method of maintaining an objective perspective. This can be accomplished by establishing realistic goals within the original trading plan. An individual must acknowledge his boundaries and remain within them.
Rule 3: Don’t overstep the mark
With the introduction of online trading, the forex market has changed drastically. Traders are now required to adapt their plans to accommodate the technological aspect of the industry as this plays a crucial role in how a trade occurs. However, creating these styles of trading plans can be difficult due to the lack of historical data and inadequate background knowledge.
Regardless of the impaired information, some traders are developing ineffective plans or trading without plans. Often these traders make continuous disadvantageous trades resulting in great losses to themselves and the brokerages. It is advised that one acknowledges a negative environment and stops trading when it arises, whether it is external or internal. Persistent exposure to stressful settings will not only increase financial difficulties, but can cause psychological dysfunction as well.