This article is courtesy of eToro.
Helping traders understand the top 10 safe fx trading habits. Safe fx trading habits are those habits a trader needs to imbibe in order to avoid giving away pips and money frivolously when trading currencies.
The Top 10 Safe Fx Trading Habits
1) Controlling Greed A major part of the problems of forex traders is how to suppress this dangerous emotion. Many forex losses are as a result of greed, which manifests in various ways.
- Trying to manufacture trading conditions that do not exist.
- Gambling on trades.
- Trying to push profit targets beyond psychological and technical points of support and resistance.
- Not knowing when to cut off obvious losing trades. Believe it or not, any trader who does the opposite of what has been listed above will save a lot of pips.
2) Avoiding Overtrading Overtrading occurs when the trader tries to take too many trades in one day, or opens too many positions than he can control. A common occurrence of this phenomenon usually takes place soon after a losing trade in an attempt to recoup what has been lost. Traders who engage in this practice forget that there will always be better opportunities to recoup those losses on other trading days. Overtrading is bad and avoiding it will prevent many losing occasions.
3) Trading with Low Risk and Appropriate Leverage It is generally agreed that the only way not to have your account battered by a potentially devastating loss is to use very low risk which should not exceed 3 - 5% of account size, and using a leverage of not more than 1:100. It is easier for an account to recover from a 5% loss than from a 20% or a 30% loss (which is the result of using too much capital exposure in an effort to maximize gains). It is very common to see many retail traders using up to 30% of their account size in a single trade in the hope of making a big hit. This is wrong and invariably leads to margin calls. Prevent this by using low risk and appropriate leverage.
4) Trading with High Speed Internet Connection I am sure many reading this will ask why this should be a point of note. The speed of your internet connection will determine if your chart and currency quote data will come in real time, or experience a delay. In forex trading, timing is everything and a delay in the data can make the difference between a winning trade and a losing one.
5) Trading Only at Specific Times Many traders erroneously think that 24-hour nature of the forex market is an all-day trading ticket. This is not the case. The market is only active at specific times (usually when there is an overlap between two trading zones), and those times represent the best opportunity to make money in the market. Trading should only be done at those times.
6) Use Regulated Forex Brokers Make sure you use brokers whose activities come under strict supervision by the relevant regulatory bodies. This will ensure that your money is protected and all complaints regarding trades will be handled transparently. There are many scam brokers out there; protect yourself.
7) Closing all Open Trades Prior to a High Impact News Release The news moves the market. There is no way of telling beforehand exactly how a particular news release will affect the market. I have personally seen good trades with unrealized profits reversed in an instant by a news release. One good example is the recent minimum currency peg of the Swiss National Bank that basically reversed all long trades on the CHF (which traders have always bought as a safe haven currency).
The EURCHF reversed by 1000 pips in 15 minutes (a very big move in forex). Always play safe by making sure you are not in the market when a high-impact news item is about to hit the newswires. Other safe fx trading habits are: 8) Consulting forex websites for market insight.
9) Consulting the forex economic calendar to note times of news trades.
10) Joining forex trading online forums to gain knowledge about various aspects of forex trading.
Helping traders understand the top 10 safe fx trading habits. Safe fx trading habits are those habits a trader needs to imbibe in order to avoid giving away pips and money frivolously when trading currencies.
The Top 10 Safe Fx Trading Habits
1) Controlling Greed A major part of the problems of forex traders is how to suppress this dangerous emotion. Many forex losses are as a result of greed, which manifests in various ways.
- Trying to manufacture trading conditions that do not exist.
- Gambling on trades.
- Trying to push profit targets beyond psychological and technical points of support and resistance.
- Not knowing when to cut off obvious losing trades. Believe it or not, any trader who does the opposite of what has been listed above will save a lot of pips.
2) Avoiding Overtrading Overtrading occurs when the trader tries to take too many trades in one day, or opens too many positions than he can control. A common occurrence of this phenomenon usually takes place soon after a losing trade in an attempt to recoup what has been lost. Traders who engage in this practice forget that there will always be better opportunities to recoup those losses on other trading days. Overtrading is bad and avoiding it will prevent many losing occasions.
3) Trading with Low Risk and Appropriate Leverage It is generally agreed that the only way not to have your account battered by a potentially devastating loss is to use very low risk which should not exceed 3 - 5% of account size, and using a leverage of not more than 1:100. It is easier for an account to recover from a 5% loss than from a 20% or a 30% loss (which is the result of using too much capital exposure in an effort to maximize gains). It is very common to see many retail traders using up to 30% of their account size in a single trade in the hope of making a big hit. This is wrong and invariably leads to margin calls. Prevent this by using low risk and appropriate leverage.
4) Trading with High Speed Internet Connection I am sure many reading this will ask why this should be a point of note. The speed of your internet connection will determine if your chart and currency quote data will come in real time, or experience a delay. In forex trading, timing is everything and a delay in the data can make the difference between a winning trade and a losing one.
5) Trading Only at Specific Times Many traders erroneously think that 24-hour nature of the forex market is an all-day trading ticket. This is not the case. The market is only active at specific times (usually when there is an overlap between two trading zones), and those times represent the best opportunity to make money in the market. Trading should only be done at those times.
6) Use Regulated Forex Brokers Make sure you use brokers whose activities come under strict supervision by the relevant regulatory bodies. This will ensure that your money is protected and all complaints regarding trades will be handled transparently. There are many scam brokers out there; protect yourself.
7) Closing all Open Trades Prior to a High Impact News Release The news moves the market. There is no way of telling beforehand exactly how a particular news release will affect the market. I have personally seen good trades with unrealized profits reversed in an instant by a news release. One good example is the recent minimum currency peg of the Swiss National Bank that basically reversed all long trades on the CHF (which traders have always bought as a safe haven currency).
The EURCHF reversed by 1000 pips in 15 minutes (a very big move in forex). Always play safe by making sure you are not in the market when a high-impact news item is about to hit the newswires. Other safe fx trading habits are: 8) Consulting forex websites for market insight.
9) Consulting the forex economic calendar to note times of news trades.
10) Joining forex trading online forums to gain knowledge about various aspects of forex trading.
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