Tuesday, 7 July 2015
Trading on the FOREX market - what should be noted. Introduction and main practical aspects
In this series of articles we will try to examine the most important practical aspects of the active trading. These aspects are known to everyone however, their revision is always useful and meaningful. Today we will begin with the examination of the highlights and will gradually proceed to the main “truths” of risk control and emotional behavior. We hope that the new traders will find these aspects useful while experienced traders will be happy to revise because the success in the market depends on the ability to soberly and objectively evaluate yourself and the current market situation, and as many know, this obvious characteristic has the tendency to be forgotten and scattered in the mind of the intraday trader.
- Every time you find yourself in front of the monitor it does not mean that you have to open a position and start trading. This mistake is common among newbies and traders with small deposits. In other words, opening a position or entering the market must not be emotional, as said- you should not chase the market. The plan should be decisive and this plan should contain exactly how and most importantly why you want to enter into one deal or another. Then, you open an order if the market behaves the way you have predicted according to your plan. In such a way you trade on your terms and can determine in advance the risk/ reward ratio. This is very important. You must be ready to refuse to enter the market or open a position if the market situation does not develop the way you expected or planned.
- Sometimes the main job of the market analysis consists of planning the deals which do not end up with a factual market entry or position opening. At first, it may seem that it is a chancy situation to enter the market and everything goes very well, but if the market does not show further development according to your plan, leave this deal, no matter how profitable and potential it seemed in the beginning.
- Enter the market and open positions if your potential risk/reward ratio is at least 2 to 1. For example, if your risk (stop-loss level from entering the market) is 250 points then your profit (take-profit level) must be 500 points. Do not revise your profit target (take-profit level) to comply with the risk / reward ratio, instead, set the level of profit which the price is more likely to reach.
- Every order must have a specified level of stop-loss – limiting your loss but also a targeted profit level to enter (take profit). Working without “stops” is more likely for beginners and it is not even worth mentioning how many accounts were in a loss because of that. Another extreme approach is not doing anything after entering the market – “enter the market and forget”- and allowing the order to close by one of the stop orders; this approach might be good for inactive traders. For an active trading there are moments when it is necessary to interfere and actively manage the orders (“cut” the losses in advance or postpone the level of take-profit). If you practice this approach, determine how and under what circumstances you will make changes to your position. Try to make this before you open the position. This rule of the active order management can be referred to all order types and can help you avoid making decisions based on emotions.
- Finally, DO NOT trade over! Assign the number of trades in advance as well as the volume of a daily loss and profit.
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