Forex Trading - 3 Basics

Outlined are three important elements into the Forex Trading System:

First
You must have a good forex trading system. The forex system should be profitable in the long run and must be easy to implement. It is better if it is of a mechanical nature, allowing little or no discretion or judgment from the traders part. Especially if you are a starting trader, it is important that you follow mechanical hard-and-fast rules: if A=B than do C and D. The reason for this is simple. There are a lot of emotions that come into play when trading forex. If you have a set of rules to follow than you know exactly what to do and no matter what your feelings are telling you, you can ignore them and simply follow the precise rules dictated by your system. Remember, your emotions are your biggest enemy when trading. Accept it and approach it accordingly.

First
You must have a good set of money management rules. Throughout my trading career I have come to learn that success in trading is not only about having a good trading system (of course that is VERY important) but also about having a good set of money management rules and principles. Trading without following these precise money management rules is a sure way to fail.

For those of you that are new to the business of trading let me explain what I mean by money management. The term refers to the principles and discipline you use in order to control your risk exposure when entering a trade or set of trades. How much of your total capital you will risk on any individual trade, where will you place you stop loss, where will you place your profit objective, the ratio between your profit objective and your stop loss etc.

Another parameter in the money management area that is very important (but not used by most) is diversification. No, I don’t mean the common and simple diversification theory of trading two completely uncorrelated markets. That is good, yes. However, my approach goes one step further.

I will trade the same currency pair and will still be properly diversified. How? Simply by using different trading systems. By this I mean systems that exploit completely different aspects and opportunities in the market. For example, I might use a forex day trading system on GBP/USD and at the same time I will use a swing trading system on the same pair. As you can see, one has nothing to do with the other. They approach the market in very You must be able to control your emotions. This is a very important rule a trader must learn to master. While trading, you are constantly presented with feelings such as fear, greed, and excessive excitement (for example, as a result of a winning streak). The reason many traders experience these type of feelings is simple, they don’t have a good trading plan. They don’t have a good and clear set of rules to follow. They will trade based on emotions rather than on signals issued by a robust and profitable forex trading system. They will not respect stop losses, profit objectives or any other important parameter essential for profitable forex trading.

Different circumstances, their rules are different, their time frame is different, parameters are different etc.

First
I strongly believe in emotion-free trading. It is essential for success and that is how you will be the best of the best, by following a precise set of rules that are easy to implement and require absolutely no discretion.

So there you have it. I stress this again, the above is by no means all that you need to be a successful forex trader. However, it is the basis that you build success on. Trading is like a building. You build strong foundations as the basis of your structure.

Dan Katz the owner of Forex Trading Tutor, a Forex Trading Education website, developed to guide new forex traders get into the forex market and update professionals with new concepts.

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