This article looks at the different forex strategies one can use to stay safe when trading on the foreign exchange market.
Confidence and a willingness to take risks is important on the foreign exchange market, but you also need to keep yourself safe or risk losing all the trading capital in your account. It is important you learn how to achieve this degree of forex trading safety in order to be an effective trader. This article will provide you with some tips and forex strategies on how to protect yourself, and your capital, when trading.
1. Controlling your emotions
One difficulty all traders face is an emotional reaction to trading results, and then emotional trading. The emotion you must be most wary of is greed. All traders will feel greed at some point, but you need to learn how to control it. If greed should take control of your trading behaviour you may find a winning trade turn into a losing one. There are certain methods to control greed, which is listed below:
- Do not trade on a gut feeling. All trades executed must be based on technical or fundamental analysis and factual data. You may incur some profits by trading on a hunch, but this will lead to losses if you continue to trade on ‘hunches’.
- Know when to cut your losses. There are numerous traders who use an averaging down system, but this will only result in trading losses. If a trade hits your stop loss you must not attempt to hold onto it.
- Trade on what you can see. Some traders will open positions on what they believe the market will do once a news item has been released. This is a gamble as the market is volatile and you have no way of predicting its movements.
- Never move your take-profit targets. This behaviour is the most common way that traders fall victim to greed. If a trade is doing well you should not move the take-profit point as this is what you have calculated as a profit. By holding onto the position you will more than likely experience detrimental losses.
2. Lower the forex trading risks
It is vital that you implement a risk management plan when trading on foreign exchange market. This plan will ensure that you adhere to a set risk to reward ratio. Rule of thumb dictates that you should not trade more than 2% of your forex trading account and this should be noted in your risk management plan. You should also consider the leverage levels offered when creating your plan. Always remember, just because you have been offered a certain amount of leverage doesn’t mean you have to use it. Leverage is highly dangerous and should be avoided if possible.
3. Trading schedules as part of forex strategies
It is highly recommended that one develop a trading schedule as part of your forex strategies. This schedule will detail when you will be trading. If you do not adhere to this schedule, the chances are high that you will begin overtrading and experience detrimental losses.