The Golden Rules of Trading.
Becoming a Foreign Exchange trader is not as easy as some may assume. Going through the educational process alone can be a very daunting and overwhelming task and can stress anyone out, just with the amount of educational information you need to cover. When you start going through the Forex educational process, you will start to notice chatter of trading strategies or systems. To navigate through the array of Forex strategies, some basic guidelines you can use are:
Hedging is simply a way for traders to protect themselves against a big loss that might come your way. It might be easier to think of hedging as having insurance on your trades. Hedging is a way to decrease the amount of loss you would potentially receive if something unexpected, as it often does in the Forex market, occurs. A simple Forex hedge protects you because it allows you to trade the opposite direction of your initial trade.
Knowing the difference between a strategy that's not working for you and your style of trading, and one that has given you a few losing trades lately is a tricky concept for a lot of traders to grasp. I hear about traders that have a few losing trades and think it's solely the strategy they're using, and so they switch strategies and are still experiencing losing trades. These are common problems that a trader will face, and making the wrong assumptions can lead to disastrous decisions. It’s important for you as a trader to truly understand how common losing trades are so you know what to expect, and really familiarize yourself with statistics behind trading.
In my opinion, there is no key strategy every trader can adapt to be successful and profitable when they trade Foreign Exchange because every strategy will be used slightly differently with every trader. I suggest going through all the strategies in your demo account, and really exhaust all options your brokerage company has given you access to. You want to make sure you feel confident when using your strategy and make sure you use it in the market and it comes naturally and easily.
Not only does every trader typically possess bad habits, but every person in general usually has bad habits they wish they could correct. When it comes to trading, it's so important to exercise good habits rather than strengthening and further supporting your bad habits. By doing so, you will be leading yourself to profitable trading sessions and the development of your overall trading performance.
Before you start trading, it’s important you become familiar and comfortable with some of the common lingo you will hear when you’re in the Forex industry. You want to not only understand what other traders in your community are referring to right off the bat, but you need to understand what your education and training is discussing without having to look things up.
Overnight positions are trading positions that are not closed by the end of the traders trading day. They're then held open for trading to proceed the following day. Overnight positions expose the traders to risk from adverse movements happening when trading closes for the night.
As a Forex trader, most of us have heard the motto “cut your losses short and let your profits run.” It sounds simple enough, right? Well, to be honest, it really isn’t if you’re not familiar with the very useful tool for all traders known as the trailing stop. The trailing stop is just like a typical stop and loss order with the difference being you can move it along with the market’s volatility.
Scalping and swing trading are very common ways to make your profits while trading. Each has advantages over the other and they have their disadvantages, too. No matter the type of trader you are, the other trading style still must be recognized as it can move markets in its own way and can catch movements that the other side would not catch. So, whether you trade like Shawn Lucas and scalp or if you do a longer term swing trade approach, knowing the difference and what they can add to your trading is important if you're adapting to the new strategy.