Forex Trading Tips and Rules | ForexGen

This lesson sets out some simple currency trading tips and rules .

We have developed these rules from our own experience, and that of successful currency traders. These rules are in summary form, and are elaborated on in other later lessons.

Don’t overtrade

Overtrading is when you trade more positions than are justified by the amount of margin in your account. For example, if you have $10,000 in your account, this does not mean that you should trade 10 positions. In fact, you should probably trade 1 or 2 positions.

If you overtrade, it significantly reduces the probability that you will be a successful trader. This is because it reduces your ability to absorb losses and continue trading. Losses are a fact of life for all traders, so plan accordingly. You should trade about 1/5 of the maximum number of positions that you can open.

If you don’t have the capital to cover a full sized contract, consider the mini-contracts offered by some FX brokers. These contracts are usually for $10,000, and you can trade a position with $1,000 in margin.

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Forex Trading Profit | ForexGen

It is often a good idea to lock in forex trading profits when a position is positive. There is nothing worse than a position getting very close to your take profit price then having the position turn negative. Break even stop losses can also be placed to make a profitable position completely risk free.

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Risk management strategy | ForexGen

Another smart risk management strategy is to avoid holding positions in two currencies which tend to move together like the British Pound and the Euro. These currencies are correlated. The most common pairing of currencies is the US Dollar and the Euro. Since the British Pound and the Euro typically move in the same direction up or down, you should look to select a second pairing of the US Dollar with a currency other than the British Pound.

You should also avoid taking a long and short position in currencies which generally move in opposite directions. This is the same situation - you are taking on more risk than you need to.

And finally, leave the gambling urge to the casino crowd. If you’ve lost money on your previous few trades, don’t double-up your next trade in order to “recoup� your previous losses. Your odds of profiting on your next trade won’t increase as a result of your previous losses. The odds of winning remain 50-50 every time you trade.