The more I lose in forex trading, the more I learn. I learn more things from losing than from winning. And as time goes by, I learn to adjust my thinking and strategy and learn to have a fixed set of ideas about the market that I use to trade with. These set of ideas are based on rules to help you become more successful in trading. These rules have changed the way I trade for the better and I hope it change yours too.
#1 – Never Lose Money
Rule # 1 is the most basic. Never lose money. The more you trade, the more you lose. That is why, you need rule number 1 to be picky on trades that will only result in winning. Keep in mind this rule every time. Before entering, while in the trade and before exiting the trade. Never lose money. You’ll last longer and learn faster.
#2 – Think For Yourself
Learn a forex strategy then stick with it. You enter and exit by those rules defined only by you. What your peers or your guru tells you is irrelevant. If he tells you to enter the trade, you are not trading, but he is. You are now dependent on him when to exit. Will you ever know when that is? Will you ever sleep at night?
#3 – Use A Non-Negotiable Stop
Stop loss should be non negotiable. You do not use a stop then try to adjust it because it will be hit by the price then hoping that the price comes back. Stick to the plan. Have a defined amount of risk, accept that risk and don’t whine if it got hit. Man up, take the loss, move on to the next trade.
#4 – Let Your Profits Run
I used to have a take profit when trading. But I soon realized that it doesn’t make sense. Why would I settle with a fixed profit if the market is willing to give me more? Throwing your greed aside, putting your stop loss on break even, then letting the trade run is a 0% risk with greater profit potential. Its definitely better than a measly profit for small risk.
#5 – Define Your Risk and Forget About The Target
In any trading and investing books that I read, these lines always comes up “Cut your losses short and let your profits run”. Its a combination of #3 and #4. In my own words, this also means, never add to losing positions or adjusting your stop loss because you are “afraid” to take a hit and then defining your profit target instead of “risking” for a chance to earn more.
#6 – Take Note of Your Mistakes
Reflect on each losing trade. What made you lose it? Did you follow your plan? Is it you who messed up the trade because of greed and fear? Or is it some underlying factor that you might have missed like news? Whatever that is, always reflect if you are following your system and what is wrong or missing with your system so you can adjust and adapt to the ever changing market.
#7 – Victory Loves Preparation
Waiting for the perfect time to enter is what makes forex trading exciting. Its damn hard to sit still while you wait for the perfect time to make that order. And then wait some more for the trade to unfold itself. Trading is waiting game. Its a damn exciting game I must say and usually, the person who waits and “prepare” himself for the high probability trade would be the winner. Not being swayed by the crowd is the hallmark of a great trader.
I got burned a few times because I got in so early. And got frustrated when I got left out by the trend. Patience is a virtue they say, but in forex trading, patience is money.