| |
Your FOREX Trading Philosophy
By Ron King
"Easy money" is the allure that captivates many beginning FOREX traders. FOREX websites offer "risk-free" trading, "high returns", "low investment." These claims have a grain of truth in them, but the reality of FOREX is a bit more complex.
Mistakes Of The Beginning Trader
There are 2 common mistakes that many beginner traders make: trading without a strategy and letting emotions rule their decisions. After opening a FOREX account it may be tempting to dive right in and start trading. Watching the movements of EUR/USD for example, you may feel that you are letting an opportunity pass you by if you don't enter the market immediately. You buy and watch the market move against you. You panic and sell, only to see the market recover.
This kind of undisciplined approach to FOREX is guaranteed to lose money. FOREX traders must have a rational trading strategy and not make trading decisions in the heat of the moment.
Understanding Market Movements
To make rational trading decisions, the FOREX trader must be well educated in market movements. He must be able to apply technical studies to charts and plot out entry and exit points. He must take advantage of the various types of orders to minimize his risk and maximize his profit.
The first step in becoming a successful FOREX trader is to understand the market and the forces behind it. Who trades FOREX and why? This will allow you to identify successful trading strategies and use them.
Accountability
There are 5 major groups of investors who participate in FOREX: governments, banks, corporations, investment funds, and traders. Each group has its own objectives, but 1 thing all groups except traders have in common is external control. Every organization has rules and guidelines for trading currencies and can be held accountable for their trading decisions. Individual traders, on the other hand, are accountable only to themselves.
Large organizations and educated traders approach the FOREX with strategies, and if you hope to succeed as a FOREX trader you must follow suit.
Money Management
Money management is an integral part of any trading strategy. Besides knowing which currencies to trade and how to recognize entry and exit signals, the successful trader has to manage his resources and integrate money management into his trading plan.
There are various strategies for money management. Many rely on the calculation of core equity -- your starting balance minus the money used in open positions.
Core Equity And Limited Risk
When entering a position try to limit your risk to 1% to 3% of each trade. This means that if you are trading a standard FOREX lot of $100,000 you should limit your risk to $1,000 to $3,000. You do this with a stop loss order 100 pips (1 pip = $10) above or below your entry position.
As your core equity rises or falls, adjust the dollar amount of your risk. With a starting balance of $10,000 and 1 open position, your core equity is $9000. If you wish to add a second open position, your core equity would fall to $8000 and you should limit your risk to $900. Risk in a third position should be limited to $800.
Greater Profit, Greater Risk
You should also raise your risk level as your core equity rises. After $5,000 profit, your core equity is now $15,000. You could raise your risk to $1,500 per transaction. Alternatively, you could risk more from the profit than from the original starting balance. Some traders may risk up to 5% against their realized profits ($5,000 on a $100,000 lot) for greater profit potential.
These are the kinds of strategic tactics that allow a beginner to get a foothold on profitable trading in FOREX.
About the Author
Visit http://www.forex4u-now.com to learn more. Ron King is a full-time researcher, writer, and web developer. Copyright 2005 Ron King. This article may be reprinted if the resource box is left intact.
Article Source: http://www.simplysearch4it.com/article/15060.html
| If you wish to add the above article to your website or newsletters then please include the "Article Source: http://www.simplysearch4it.com/article/15060.html" as shown above and make it hyperlinked. |
| Some other articles by Ron King | FDA Approves Lasik Eye Surgery
The Food and Drug Administration (FDA) approved a new custom lasik procedure in September of 2005. This new procedure can now treat many patients who were previously ineligible for the surgery.
...
Building An Outside Deck
One of the most beautiful additions to any home is a deck. Not only does it add beauty, a deck also adds value to your home.
But there is much to think ...
Make A Good First Impression: Landscape Your Driveway
Is your driveway landscaped? It should be.
This includes the driveway itself, as well as the design elements on ...
College Basketball Jerseys: Don't Just Show Your Support -- Wear It!
Among the most highly prized possessions that any college basketball player can hope for is their college basketball jersey. The college basketball jersey represents a feeling of pride and belonging to the team. ...
Basics Of Home Buying
The most important investment you will ever make is probably the purchase of a home. Finding the right home for you can be a long and arduous process, but there is no ...
The 7 Schools Of Feng Shui
Everyone has heard of Feng Shui, but what exactly is it? Feng Shui is an ancient Chinese belief that involves the study of both the natural and the created environments. To ...
|
|
| |
|
