5 Things You Need To Know About FOREX Trading Rules
1. Profit Protection Is Essential – One of the most important Forex trading rules is to protect profits. This market moves very fast and a position can go from winning to losing within minutes. It is better to exit a position to protect profits and take a smaller gain then to wait and see the trade turn into a losing proposition. Trailing stops and trading multiple lots can both help with profit protection. Both of these methods require some time and effort but the end result is usually more successful. Trading numerous lots increases the profit margin numbers and potential for the investor.
2. Use Logic and Avoid Impulse Moves – One of the most important Forex trading strategies that investors follow will have the goal of avoiding any impulse or emotion driven trading moves. The Forex market, or any market for that matter, should involve trading moves that are decided based on logic, facts, and effective financial reasoning. Many investors have learned the hard way that reacting to the market with impulsive trading moves or emotional decisions is a recipe for disaster and large losses. The strategy developed and trading decisions made need to be based on sound logic to have the highest chance of success.
3. Follow The 2% Stop Loss Rule – The 2% stop loss rule is one that many investors break, and this almost always results in large losses of capital. The risk involved with any trade should never exceed the 2% rule. Investors who do not follow this rule could end up losing years of profits in a very short time and wipe out an accumulation the entire capital balance with one trade. When this rule is followed the trader may be done some if the trade is not successful but they will not be busted and can try again on the next trade.
4. A Move Made Too Early Is The Same As A Wrong Move – Some investors do not like to admit that they were wrong with a trading decision or investment move, and may try to come up with reasons why the move was a sound one but was executed too early. The end result is still a poor trade. A trading position that is taken too early is wrong and the faster the investor realizes this the faster the investor can move on. This is one of the Forex trading rules that is broken by some investors and should be followed closely.
5. Minimize Losses As Much As Possible – Knowing when to cut investing losses and exit a trade is the difference between successful traders over time and those that end up losing everything. The Forex trading rules are meant to help minimize losses as much as possible. Some traders may hold a position for longer than they should in the hopes that a loser will turn around and become a winner but the odds of this are very slim. Most of these investors end up losing even more capital because they do not attempt to minimize the losses associated with a trade and stay in the game longer than they should.