Best Practices in Forex Trading
The Forex market is literally a goldmine of opportunity. Open around the clock, the amount of money traders can trade in Forex is practically limitless. But it is not that easy; the high profit potential comes with great risk. It is also possible to lose a lot of money if one is not careful. To ensure that they consistently churn out profits from the market with minimal risk exposure, Forex traders have to implement some best practices.
Traders should consider education as one of the most important best practices in Forex trading. With adequate knowledge and an appropriate skillset, traders will have the most vital requirement needed to avoid losses in Forex trading. Education will help them better understand the mechanics of the Forex market, make their trading strategies more adaptable to market conditions, master their trading psychology as well as improve their overall decision making in the market.
One of the best educational tools in Forex trading is the Demo Account. A demo account allows traders to simulate live trading, thus helping them get a practical perspective of the risks and opportunities in the Forex market. A demo account can also help traders forward test their strategies in the market, without putting any real money on the line. In a dynamic market, such as Forex, traders should also understand that there is no end to education; any new information is worth studying as it can help in maintaining a successful trading career.
Everyone likes easy money, and in Forex there is always the temptation to ‘set and forget’ your trades. Setting your stop loss order and take profit targets and then coming back later to book your profits or losses sounds okay, but it is not. One of the most valuable best practices is tracking your positions or managing your trades. As stated above, the Forex market is very dynamic; which means that anything can happen at anytime. For instance, news releases can trigger sharp price movements that can take out one’s positions. It is therefore vital to keep an eye on the market, such that, if conditions change, traders can take measures to protect their capital from further risk exposure or enhance their profitability if there is opportunity to do so. This can be done using features such as trailing stops or applying scheduled orders. Traders can track financial news using the economic calendar, while their positions can be monitored using mobile trading platforms if they cannot stay glued to their desktop screens.
Everyone is in Forex to make money; most traders are driven by the profit objective, but professional traders agree that one of the best practices is risk management. Having a well thought out risk management plan will not only guarantee survival in the markets, but also long term trading success. A risk management plan should detail the maximum amount a trader should stake in any one particular trade, the maximum drawdown as well as specify when the trader will increase or decrease the investment amount.
Keeping a Trading Log
In a performance-based activity, such as Forex trading, keeping a track record of your actions is one of the best practices one can do. That is why keeping a trading log in Forex trading is very important. A Forex trading log will contain a record of a trader’s performance statistics, market views and philosophy, trading mistakes and missed opportunities as well as a trader’s general motivations for trading. In essence, a trading log is a record of one’s whole trading activity.
Successful Forex trading is not an impossible endeavor; it is very much achievable. Applying these best practices can go a long way in helping traders curve out a successful career in Forex trading.