People who trade in the foreign exchange currency market (Forex), in an attempt to apply logic to an activity that for the most part routinely defies logic, spend some of their time seeking out Forex trading pits to try and gain an edge of some sort for their trading decisions.
Some of these are tried-and-true, others are so crazy that you find yourself wondering what, if anything, the person or persons responsible for these tips are thinking.
Here are just a few of the tried-and-true variety, along with a brief explanation of why they are important to rememberfor FX trading.
1. Let Your Winners run and Cut Your Losers Short Nothing seems so obvious, but in reality, its application under live trading scenarios is one of the most difficult things you will ever encounter in trading. Here’s why: on enough trades to make an impression on your brain, just as you were about to pull the trigger on a losing trade, the market reversed and handed you a winner. Or, there have been enough instances where a number of losing trades were exited before they could cause too much damage, but then, when the winner did come along, anxiety surrounding the possibility of another loss caused you to jump on a winner before it could return a nice profit.
2. Always Use a Stop-Loss This one is also extremely difficult to follow. Every forex trader will see their protective stop take them out of a trade at the exact, precise point right before the market resumes trending in their favor, and many times showing them that they were right and only needed to give the market a little more room to have returned a windfall winner.
So, should you use a stop loss? All honest traders will admit to having adjusted a stop to give the market more room. It only makes sense to use a stop if you can prove to yourself that you have the discipline to honor it. 3. Avoid Exotic
Currency Pairs This one is actually pretty simple to follow. The reason behind it is also simple. The value of the currencies of countries without large, diverse economies, can fluctuate wildly and without sufficient trading volume it is possible to get trapped in a trade that is losing money with no opportunity to exit the trade.
If you liked our article you should also read this: http://en.wikipedia.org/wiki/Foreign_exchange_market