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Cn For All The Struggling Fruitless Forex Traders: 5 Commandments Of Forex Trading part2


The Commandment VI : Honor Your Objectives and Your Stops

When your identified target is reached, you must use stops. The only way to execute the trading plan is by honoring the parameters you established prior to entering a position. Do not make changes to your position that can alter the original risk-to-reward ratio you decided. The basic rule is to use the last support or resistance, plus 5-7 pips, using an odd number ending in a 3 or a 7, such as 90.13 or 90.27. Monitor your margin account capital to avoid risking more than 1-2% of your margin account accumulatively. You must know that with fractional pricing, you will get a fractional difference in the spread at your stop, which can cause broker to close your trade. Be aware that each time you move a trade to break-even point, you have released your margin back into your cumulative balance, again making it available to your 1-2% for other trades.

In Forex world, you can make use of leverage of your account. Leverage controls a larger amount of currency with a small percentage of your capital at risk. By utilizing leverage, you can look for multitudes of chances as long as you don’t break your margin management rules. In 50:1 leverage, you give the broker 1 part; the broker contributes the remaining 50 parts. If you deposit $1,000 in collateral, you can trade $50,000.

If you trade without a stop, the entire $1,000 deposit is at 100% risk. However, if you put a stop loss in place at 30 pips or $300, you have limited your risk at $300. Your stop is the best way to maintain your margin.

Honoring the profit target is as crucial as the correct use of stops. When your profit goals are reached, then honor the target point by moving your stops tight and locking in your profit.

If you voluntarily close a trade which then continues in the same direction, you will blame yourself for the lost pips. However, if your trade is stopped out by the market, and then continues as before, that is just the market functioning its nature.

The Commandment VII : You Should Keep a Written Trading Journal

For Forex traders, there is always room for improvement. You will always face ups and downs and you will be struggling to minimize the losses and learn from each trading closure. Hence it is essential to achieve consistency in trading, you should record your trading for a critical review. Examine each trade and re-evaluate your strategy and decision. Going over the right and wrong of your decision is a best way to make worth of trading experience. By keeping a thorough log, you can make your own discipline and find a pattern in your trading behavior. Over time, many Forex traders grow their own habit of mistakes.
Examples of mistakes include:

  1. buying/selling too soon
  2. giving back profit by not closing the trade
  3. setting stops too loose or too tight
  4. taking too many trades at one time
  5. waiting too long to enter a position thus missing trades
  6. being overly cautious/aggressive
  7. being in too many high-risk trades that turn against you
  8. abandoning a trading plan

Take your time to review your journal, you are a better trader if you are wise enough to learn from your own mistakes. When you hit a losing streak and struggle at some point while trading, it’s better to take a break for few days, then try paper trade for few more days to recover your trading mind. After returning to trade, take smaller positions until winning patterns are re-established.

The Commandment VIII : You Should Not Force Trades

The hardest part of trading is waiting the market to reach your target points. Majority of full-time Forex traders, according to research, spend more time on sidelines not trading than they do in position.

For day-trading, forcing trade means that you entered a trade too soon, without chart confirmation or before the parameter set-up. This may happen when you feel like you “need to do something”.

However, it’s a “wait trade”. You should not chase trades up or down. If several entries are narrowly missed, you will only see the trade turning against you. In many cases, it is best to do nothing and wait for the best time to come to you.

As a Forex trader, you often spend an entire day to several days accumulating positions without closing a trade. As your target objectives slowly reached, you can lock in your profit and suddenly realize a very good portion return over that period of time. Try not to sell too soon over and over. Try to avoid the feeling of “need to do something” and try to be free from the thought of making profit every day. There are only 1-2 REAL chances per session. Even when you take a trade and scale in and out, it is still only one trading opportunity.

After establishing a trading plan, let the trade come to you. Do not be afraid of missing a few, and never force your way into a trade. Simply be keen on changes and observe for the opportunity. There are plenty of currencies and the market is 24-hours a day open. The trade you missed is not the last trade in your trading life. Always remember forced trades can lead into unreasonable decisions, which will lead into losses.

The Commandment IX: You Should Manage Your Emotions

It is not a mistake that most successful investors are calm, analytical, and methodical. The emotional decision you make is directly proportionate to your winning rate. Trading is all about calculating risk vs. reward based on analysis, but even with the correct analysis, you simply cannot keep the consistency in trading plan with emotion playing on its own. The common emotion such as fear, greed, insecurity, stubbornness, and justifying hope. The strength of your trading abilities must overcome your emotions for you to become successful trader.

The Commandment X : You Should Become a Disciplined Trader

There are various styles of trading such as day-trade, breakout trade, intraday pivot trade, momentum trade, etc. Though, the universal factor, regardless of styles, is that it must be disciplined. For example, day-trade is a specific trading method, which consists of the following principles:

  1. Identify key resistance/support level
  2. Confirm the technical logic in trading
  3. Accumulate positions through scaled sells/buys at resistance/support level
  4. Use stops to protect positions
  5. Limit the total investment in any one currency
  6. Identify buy/sell targets
  7. Move stops tight when targets are reached.

Above all, discipline in trading means executing the plan for each currency without being affected by your personal emotions. All Forex traders make rules for their trading, and their performance is influenced by how much they follow their own rules. That is why Forex is called a mental game. However, the process of becoming a trader with strong will is same as becoming a better person, which we all are thriving to be every day.

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