Trading Safely
It is a fact that a great majority of forex traders feel that knowing all the moves in advance, or having some indicators that cross over each other giving buy and sell signals is all that is necessary to succeed in this market to trade safely. Nothing could be further from reality.
True, it is important to have a good system or tool. Also, having the right mental attitude cannot be overlooked. But another facet of trading that many new ones must come to understand is to preserve trading capital.
It has been said that to not trade may be one of the most important action you can take to be successful in trading. I believe this to reveal some very important points. A successful forex trader needs to know not only when to get in, but when not to. The forex trader must make the decision prior to putting on a trade as to what the maximum risk is going to be. If the risk is too great for the size of your account, you should let it pass by.
There are many suggestions as to what percentage of risk one should never exceed. I prefer 5% as a maximum, which for any decent forex trader should weather a storm of losses just fine. If you start to increase this amount, you are lowering the number of hits you can take.
Now, a small account risking only 5% in itself may be risky, because it may mean the stops will be too tight and cause many premature exits. Once an account gets to the point where 5% is less than $200, it is time to look into options (another form of risk) or build your account up prior to making another trade.
Now in the way of technique, one such technique works well for those who trade based on time. If you have time, and expect a turn, the low risk thing to do is not to try to trade the presumed bottom of a downward trend, or the presumed top of an uptrend. Time trading is not a perfect art. The best available can be a day off. So, you will want to make sure that what you thought was a time day bottom, isn’t really a one day off time day high! If the trend is moving down, you’d only be looking for highs, now wouldn’t you?
This is just one technique to protect yourself when time trading. If you do moving average breakouts or pattern breakout trading, this is a different story altogether. Here, you will then use the breakout indicator, whether the moving average line or the breakout price level as your shield, and place your exit order on the other side of it.
Practice safe trading. Keep your risks manageable, never overtrade, and only enter when it appears safe to do so.
This is not an exhaustive post on how to do this, but a brief offering.
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