5 Important Principles for Successfully Investing in Forex

Everyone who joins Forex expects to get the best results at the end of the day. However, the outcome depends on the different formulas one employs when trading. The truth is that there is no single formula for trading in forex. It all depends on a combination of many techniques characterized by balance, talent and being mindful of trends. This article is to remind people who are trading about the key principles of successful Forex trading strategies.

The Right Approach Matters

Identify the right approach for trading. Align your goals and character with the tools and the market segments that you can comfortably work in. Consider a trading pattern that is right for your temperament. A five-minute trading chart means that you are comfortable with instant risks rather than ones that come overnight. A weekly chart indicates that you are willing to take overnight risks to achieve your targets.

Find a suitable time for trading. Identify the time of the day when trading reaches its peak volume and tap on it to increase your ability to sell a position. Use a US currency if you are a beginner because of good liquidity. Don’t trade with two currencies that require complex knowledge, especially if there is no enough information about them.

Exercise Discipline

Forex trading is like participating in a competition. You take your position, wait for the signal and take action. It is advisable to take the profits when they materialize immediately rather than waiting for bigger profits associated with wider spreads. It requires a high degree of discipline, especially if you are a beginner. Wider spreads are risky because they can turn around unexpectedly and lead to losses.

Never allow emotions to take a toll on you to a point you forget about or ignore you original trading plan. Through discipline, you distance yourself from potential pitfalls associated with attractive and short-term positions in forex. If you are a beginner, start trading with small amounts. Open a mini forex account that requires smaller cash deposits. The minimum amount you can deposit in a mini account is $2,000 and the maximum $100,000.

Automation Should Be Your Priority

By Allan Ajifo [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)]

By Allan Ajifo [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)]

Successful forex traders use an automated system to do the trading on their behalf. An automated system allows you to establish rules for both entries and exits. Once you program the rules, they can automatically be integrated into a software and be executed on a computer. An automated system minimizes the risks associated with emotions so that the trader sticks to the original plan when trading. Such systems allow users to back-test any position and determine the suitability of a given idea. Automation also allows traders to be more consistent and improve the entry speed of orders.

There are a wide variety of automated trading systems available out there. Some systems have features that can monitor the performance of different currencies and give a detailed feedback on those that sold highly in real-time. Others can identify the most profitable spreads and make prudent decisions on your behalf. The choice of a particular system depends on your needs. If you are a beginner, it is advisable you choose a system that can do all the processes, allow a forex demo and make ordering decisions on your behalf.

Create the Right Attitude

You need to align your mindset to reflect a positive attitude when trading in forex. You must be patient, objective and realistic. Being realistic means that you cannot expect to get a profit of $1,000 from a $300 investment. Consider the associated risks and rewards, and come up with an appropriate timeline for attaining your targets.

You must be objective and ignore what others think about your trade. However, this depends on how talented you are and effective your system is. The system should be reliable to enable you develop confidence and be independent. Once you have a clear overview of your system, have the patience. With patient, it becomes easier for you to wait for the price to reach the level that is fit for an entry or an exit. In case your system indicates a point of entry or exit that does not match a certain market niche, move on to another opportunity.

Risk Management

The truth is that no system will trigger a 100 percent expected outcome. The concept of profitability and loss should be one of the key components of your risk management strategy. With the internet, risk management can be out of control if you don’t employ a thoughtful and practical approach. The adrenaline rush of doing a transaction at an instant and making a profit in seconds can lead to problems.

Just like betting, knowing the odds should be your number one principle for successfully investing in forex. You must understand the dynamics of the market and come up with the right approach. You should know the specific price trigger-points and the right price chart to help you decide when to make an entry or an exit. Consider the number of buyers and sellers at the current market price that can comfortably and easily take up your trade. You must also look at the liquidity of your broker and determine the risks he or she is exposed to.

Another critical aspect of trading is to determine the amount of capital you are willing to risk. This should be a smaller percentage of the total capital you may have. It should not be less than two percent of the total capital.

The Bottom Line

There are so many things associated with forex trading. However, you must have the basics at your fingertips to survive. There is no any right or wrong approach. It all about making profits and losses. The principles discussed above will guide you in successfully investing in forex for now and in the future. If possible, stick a list of the principles on your computer to remind you about what should be done.

 

Leave a Reply