If you want to make money in forex trading and consistently do so, it’s important to review proven trading methods and techniques on a regular basis.
Here are some tips that might help:
1. Learn to limit your losses.
The science of successful trading is less dependent on making profits, but rather on avoiding losses.
The need to restrict drawdowns and prevent losing trades from significantly eroding capital should be your main objective in any type of trading.
To reduce losses, most traders prefer to use a specific plan with pre-determined exits.
Stop-loss orders can be used to prevent making bonehead decisions while in a trade and “trailing” stops can be utilized to follow a position into greater profits while protecting for unexpected reversals. In addition, not only must losses be limited, but all positions must be reviewed regularly to ensure that you total trading capital risk is kept to a practical minimum.
2. Know your limits before you open any position!
Just as setting stops on each individual trade is an absolute must, a “maximum allowable loss” must be considered when managing your total trading capital.
The rule is simple: Never trade with more money than you can reasonably afford to lose and always maintain adequate cash reserves. When assessing position size and cash requirements, ensure that funds for active trades are not co-mingled with capital for other functions.
It is also very important to set a “total loss limit” at the beginning of each month. When this level is reached, trading should be halted for the duration of that period. Of course, if your losses are consistently higher than your gains, stop trading! Step back and take a few days off.
When you are ready to try again, evaluate your current trading strategies and review the most recent trades (to learn from your mistakes), then move on. When you begin to make money, put some of the profits in a small reserve account, just in case there are unexpected setbacks in the future.
3. Know your strategy and only use techniques that fit your trading style.
You can’t make good decisions without knowing the mechanics of a specific technique. In fact, the best traders are those who are acutely aware of the shortcomings of their particular approach.
Focus on positions whose trading characteristics match your ability and risk-reward attitude. Don’t use complex or advanced methods simply because they are complex and advanced and you want to feel like Albert Einstein.
If the strategy isn’t appropriate for your financial situation, it should be avoided, regardless of how attractive it appears. Obviously every strategy has risk. The key is to develop an arsenal of profitable methods. Use only those that fit the market outlook, and manage each trade for maximum potential.
4. Learn the art of patience because timing is the key to success.
The opening trade is of particular importance. It deserves your best analysis and judgment and it’s important to assess all potential trades well in advance. Correctly timing the initial entry requires a thorough knowledge of charting techniques and market trends.
The entire process is something a trader must completely understand because a successful exit is by and large the product of a proper entry. Those who are guilty of “overtrading” should assess their past results from this careless practice whenever they are tempted to participate in such activities.
5. Be diligent in sticking to your plan!
Success will come when you create a favorable balance between hard work, sound judgment and patience. Too many traders give up after a few losing trades, long before they have time to learn and absorb the various methods required for profitable trading.
This article is originally posted by Dr. Pipslow at babypips.com Click here for the original article.