Forex trading involves substantial risk of loss and is not suitable for all investors. This article does not constitute financial advice and is intended for educational purposes only. Trading Forex, the international currencies market, can be risky. But there are some rules that will help you reduce your risk and increase your chances of trading profitably.
Use a Stoploss
Using a stoploss properly can at least prevent a trade from wiping out your trading capital. But it can also lock in your profits, if you manually trail the stoploss. A common and effective way of doing this for long trades is to move the stoploss just under the most recent swing low. For short trades, move your stoploss just above the most recent swing high.
Use Minimal Leverage
Leverage is the financial device that lets $10 of your trading capital control, for example, $1,000. The more leverage you use, the more you stand to gain---or lose---on any given trade. Since tiny gains won't kill your trading career, whereas huge losses will, it makes sense to use the minimal amount of leverage. Increase your leverage only when you're consistently, confidently profitable. And when that occurs, use only the leverage you need to reach your goals.
Risk No More than 2 Percent on Each Trade
When you risk two percent of your trading capital on each trade, you're giving yourself a chance to make a profit while reducing your chances of financial ruin. Even a string of losses would likely still leave you capital to trade with. See for some sample calculations to convince yourself of the 2 percent rule.
See the Bigger Picture
Though you might prefer trading on smaller timeframes like the one-minute chart, draw the major support and resistance lines from higher timeframes. These lines greatly impact price action on lower timeframes. At minimum, draw lines for daily and four-hour swing peaks and valleys and Fibonacci levels.
Don't Chase after Price
Price may momentarily shoot up only to tag a resistance line before resuming its long dive---and blowing up the long trade you rashly entered. Let price come to the zones that your pre-trade analysis has suggested will give you the best chance of profit.
Trade with the Trend
There are successful traders who trade against the trend, but they know their strategies like they know their own names and can read price action like a book. If your skill level is anything less than that, you're stacking the odds against yourself when you buck the trend.
Use Fibonacci Levels
Price may look like it's reversing when it's only retracing--a natural, normal and common aspect of price action. But you won't know that unless you use your trading platform's Fibonacci tool. Learn how to use it here:
Seek Confluence and Confirmation for Each Signal
The axiom "there's strength in numbers" holds true in trading. A support level is much more likely to hold when it overlaps or nearly overlaps other support levels. Draw a variety of support and resistance lines to see these overlapping levels. Use Fibonacci, trend lines and prior swing peaks and valleys, for starters.
Take Losses in Stride
Successful traders know that losses are a natural part of trading. Rather than mourning your losses, learn from them.
Review All Trades Regularly
When you make a habit of harvesting the good and the bad from each trade, you'll have a much better sense of what will work and what won't in future trades.
Source - eHow
