The general group of novice FOREX traders believes in the misconception that trading means making money fast. Despite the attraction from various FOREX websites and brochures, trading is not a guarantee of high profits and quick money.
In truth, FOREX is much more complex than that. Oftentimes novice traders make the mistake of ignoring the important benefits of strategy, and trading logic in for emotion. Take the time to learn the FOREX trading techniques and take care not to bite off more than you can chew. A typical novice trader will become swept up in the frantic trading and want to dive right in, by selling or buying—without properly knowing how to mange themselves or their assets.
Unfortunately, following this pattern will only precede one outcome: inevitable loss on your behalf. FOREX traders must harness their emotions and train their minds to follow strategy and listen to logic when making important decisions when trading.
In order to become a successful and smart FOREX trader, you must properly educate yourself with the correct training programs. These will show you the best maneuvers to take in market movements, the correct method in using technical studies to graph both exit points and entry points, and how to take full advantage of the numerous amounts of orders in order to decrease your risk factor and increase your profits.
There are several steps to becoming successful in your career as a FOREX trader, but the first is the most basic, yet most essential of all: understand your market, as well as its foundations. You cannot possibly hope to succeed in unknown territory—so know the environment you’re trading in. Looking at FOREX and all its counterparts and partners will help you distinguish the patterns leading to success and strategies garnering the most profits.
FOREX is divided into five key components making up its core group of investors: governments, corporations, investment funds, banks, and traders. Every single one of these, except for one, exercises complete external control. Traders are the sole component acting entirely for themselves, and holding themselves entirely accountable for whichever moves they make.
Therefore it follows immediately that each trader is for himself. The better the trader knows his game, the more successful he will be over the other players. If you take the time to invest in strategy and FOREX training techniques, you’ll be ahead of your game from the start.
Managing your money is an essential part to every strategy in trading. You’ll be dealing with currencies on a daily basis, so recognizing which ones you’re trading with and knowing the correct entry and exit signals will ensure a successful trading experience. Managing your money wisely from the start will give you leverage in the long run—integrating it evenly according to what area needs it the most will also ensure that your costs are all covered.
You can approach money management in a number of ways, but no matter which path you choose, you’ll find yourself relying on the imperative calculation called core equity. Your beginning balance of money minus your amount of money spent on open positions determines your core equity. Take this for example: if you begin with a balance of $10,000 and you place $1,000 of that within open positions, you are left with $9,000. This is your core equity.
Considering the initial $10,000 you had—remember to always try and keep your risk down between 1-3%. Basically, with your customary FOREXI trading lot of $100,000, your risk should stay limited to $1,000-$3,000, though the former is preferred. Achieve this simply by inserting a stop loss order of 100 $10 pips either higher or lower than your initial entry level.
Watch as your core equity increases or decreases—risk can be easily adjusted through your dollar amount. Consider the starting balance of $10,000—having a single open position would secure a $9,000 core equity. However, adding an additional open position would directly cause the core equity to decrease by $1,000. Your rise is then limited to $900. Risk in another position would then limit to $800.
If your core equity increases, risk may be increased for an even higher profit potential. It essentially follows the same principal as above—successful trading can result in a $5,000 profit, and a $15,000 core equity. Your risk can now be increased, per transaction, an extra $1,500. Likewise, more risk could be taken from your profit than what your original balance initially started as. Sometimes, traders would choose to increase risk by 5%, despite their anticipated or recognized profits.