Tips for Trading Forex
Tip 1 – Always trade with a stop order, not because you expect to lose, but to prevent a large loss from an unexpected news event like a currency devaluation, terrorist attack, tsunami, or whatever. Nobody can predict tomorrow.
Initial stops for slower moving pairs (NZD/USD, AUD/USD, EUR/USD, USD/CHF, EUR/CHF, EUR/GBP, USD/CAD) should be in the range of 20-25 pips. Just verify where the pair was trading the last few hours before the current movement started using a conventional chart found on most brokerage platforms. You can also look at the "lows" and "highs" on the smaller regression channels found in each plan to check these values against the conventional pricing over the last few hours, they always match up well. Initial stops for buys should be placed immediately below the recent lows for the last few hours of trading, initial stops for sells should be placed immediately above the recent highs. These instructions are simple so don't make it overcomplicated. Remember that stops are disaster protection. For more volatile pairs add some pips to your initial stop.
Tip 2 – Always know your money management ratio. If a trade has 100 pips of potential and you enter the trade with a 30 pip stop at the outset, then the money management ratio is 100/30 or 3.3 to 1 positive. The higher the money management ratio, the better. Everyone has losses. It’s going to happen. Just keep them small and manageable and with the proper ratio of wins and losses and the proper money management ratio and you will be fine.
Tip 3 – Many forex traders try to do too much and they lose a lot of sleep and it sometimes winds up costing them their health. Its not worth it to trade if your health is at stake. Consider getting a trading partner and opening up a joint account with them. Make sure you think alike and plan trades together so that if one person gets busy, is gone, is sick, or on vacation or whatever reason the other partner can help out. You can meet online in a chat room daily and discuss trades and mutually approve trades. In some cases partners can share expenses too.
Tip 4 – When you get into a currency trade and the trade is going your way set a time limit for resetting your stop to break even. Depending on the pair give the entry 30 minutes to 1 hour to materialize and move nicely in your favor. Do not stay up all night watching the pair or waste time online chatting with 100 people. None of this will help. After entry and initial stop placement set an alarm clock for 30 minutes to 1 hour later and then come back and look at the pair later. A cheap $10 travel alarm clock works fine. Then move your stop to near break even or just into the positive. If the trade is stalling out with slightly positive or slightly negative pips or not going your way its best to exit and keep your money to trade another day.
Tip 5 – Guidelines for exiting a profitable trade are if you have any currency pair that has moved strongly in your favor you can close out half of your lots, adjust your stop order and let the rest ride on a strong intermediate trend, or better just hold on for more until tomorrow.
Tip 6 – All traders in all markets trade with a plan, you must have a plan of entry or you are just throwing money at the forex. Put it in writing too. If you don't do this you will suffer emotional grief and financial losses. Arbitrary entries don't work in any type of trading and they don't work in to forex either . Everyone knows this. Plan your trade and trade your plan. WSS provides daily trading plans.
Tip 7 – New traders to the forex can learn to trade with the less volatile pairs and then move to the more volatile pairs later. Get your feet wet first. Experienced stock and option traders generally know how to handle the volatility better but there is still a learning period. Some of the most volatile pairs are the GBP related pairs and the CAD exotics. You can start off by only paper trading these volatile pairs then add them to your real money trading when your comfort level goes up. Each individual must decide when the time is right. If you continue to papertrade the most volatile pairs you will get the picture.
Tip 8 – Carry trades are great, these are trades where your objective is a combination of high interest income and some capital appreciation. If you buy a pair the high interest payout country must be on the left. For example if you buy the AUD/JPY you are paid the interest differential daily and it is quite large. These are buy and hold trades and more like investing rather than trading where interest accumulation gives you daily and weekly income. Start following interest rates of the various countries and regions if you are interested in this type of investing. You can also papertrade to witness how the interest accumulates. This an excellent trading style for persons who have less time to trade in their schedule. Also consider using a broker with leverage of 200:1 or higher on these types of trades.
Tip 9 – There are times in your life when you should not be trading. When you are sick, distracted, have family issues, when you are dead tired. Admit it and trade when you are in the right frame of mind. Or else ask your trading partner to take over for a couple of days (Tip 4) then you can help out next week.
Tip 10 – At some point in your trading career, the electricity will go off, the internet will die, your software will not be working, etcetera. Plan in advance for these types of problems and always use stop orders, conventional price charts, or phone in exit orders to your broker and always have a contingency plan in place or backup systems for your hardware and trading systems.
Tip 11 – Some conventional chart patterns are very important and can help you to be a much better forex trader. Focus on recognizing pennants, flags, double tops, double bottoms, ascending and descending wedges, and oscillations. These chart patters are easy to recognize and occur frequently, they also confirm your trade and direction.
Tip 12 – When using news to trigger an entry make sure you have a plan and only trade news in the direction of the trend like your plan says to. Trading news arbitrarily without a plan or against the trend will yield losing trades.
Tip 13 – Trading the forex is a stepwise process, you papertrade first, then start trading with microlots or fractional minilots, then one minilot, the multiple minilots and then ramp up over time to multiple mini lots and beyond.
Tip 14 – Rationalizing your entries can kill your account. Put your trade on and let it run. If it hits your reasonable pre-determined stop, you're out. Moving your stop against yourself is like getting up after a knockout blow; it's pointless, things will only get worse. Don't ignore the obvious, if you are wrong, the stop you set will get you out. Come back the next day or when the market look right and try again. A small loss will not hurt you, but a catastrophic loss will. The first loss you take will always be the smallest. This can all be practiced during the paper trading phase.
Tip 15 – Learning to be a longer term trader and managing your trades differently is not difficult. Anyone can teach and train themselves to do this, if you get into a nice positive trade you can always take some profit (half of your lots) and if the intermediate term trend is in place just hold onto the rest with a break even stop. "Learn while you earn" and teach yourself to be a longer term trader.
Tip 16 – Trade only with the trend and market momentum. To help you set your mind in this direction you can read the book by Michael Covel titled "Trend Following".
Tip 17 – If there are no trades available taking a break from trading and the computer is good, spending time with family and hobbies will keep you well rounded in all phases of life and when you come back to the computer your mind will be refreshed and ready.
Tip 18 – Fully understanding parallel and inverse relationships helps with trading decisions. An obvious inverse relationship is the EUR/USD and the USD/CHF. A far less obvious inverse relationship is the NZD/USD and the EUR/AUD. When trying to decide whether or not to trade the GBP/JPY or the EUR/JPY very few traders look at the EUR/GBP for guidance as to which would be the better choice. If all of the AUD pairs are weak and you enter a trade to sell an AUD pair if they are all falling together everything is in your favor for a profit.
Tip 19 – Education versus entry points.Every new forex trader needs to be educated and will have a lot of questions. But at the end of the day even the most educated person in the forex needs an entry plan. This is where WSS enters the picture. When you don't pre-plan your trades, it is essentially a thought and not an idea; thoughts are emotions and a very poor basis for doing trades. Always plan your trade and trade your plan.
Tip 20 – If you enter a trade set some kind of time limit like 45 minutes or sometimes less for volatile pairs, if you are not able to move your stop then consider exiting. Use an alarm clock for this and put it next to your computer most trades that stall are in the plus or minus 10 pip range and over time this will never hurt you. Trades that move strong in your direction are the keepers.
Tip 21 – Don't let the forex rule your life. you in charge. Don't stare at the forex all day and all night. Write a plan and set price alarms to minimize time in front of the computer. __________________
Happy Trading...
Tip 4 – When you get into a currency trade and the trade is going your way set a time limit for resetting your stop to break even. Depending on the pair give the entry 30 minutes to 1 hour to materialize and move nicely in your favor. Do not stay up all night watching the pair or waste time online chatting with 100 people. None of this will help. After entry and initial stop placement set an alarm clock for 30 minutes to 1 hour later and then come back and look at the pair later. A cheap $10 travel alarm clock works fine. Then move your stop to near break even or just into the positive. If the trade is stalling out with slightly positive or slightly negative pips or not going your way its best to exit and keep your money to trade another day.
Tip 5 – Guidelines for exiting a profitable trade are if you have any currency pair that has moved strongly in your favor you can close out half of your lots, adjust your stop order and let the rest ride on a strong intermediate trend, or better just hold on for more until tomorrow.
Tip 6 – All traders in all markets trade with a plan, you must have a plan of entry or you are just throwing money at the forex. Put it in writing too. If you don't do this you will suffer emotional grief and financial losses. Arbitrary entries don't work in any type of trading and they don't work in to forex either . Everyone knows this. Plan your trade and trade your plan. WSS provides daily trading plans.
Tip 7 – New traders to the forex can learn to trade with the less volatile pairs and then move to the more volatile pairs later. Get your feet wet first. Experienced stock and option traders generally know how to handle the volatility better but there is still a learning period. Some of the most volatile pairs are the GBP related pairs and the CAD exotics. You can start off by only paper trading these volatile pairs then add them to your real money trading when your comfort level goes up. Each individual must decide when the time is right. If you continue to papertrade the most volatile pairs you will get the picture.
Tip 8 – Carry trades are great, these are trades where your objective is a combination of high interest income and some capital appreciation. If you buy a pair the high interest payout country must be on the left. For example if you buy the AUD/JPY you are paid the interest differential daily and it is quite large. These are buy and hold trades and more like investing rather than trading where interest accumulation gives you daily and weekly income. Start following interest rates of the various countries and regions if you are interested in this type of investing. You can also papertrade to witness how the interest accumulates. This an excellent trading style for persons who have less time to trade in their schedule. Also consider using a broker with leverage of 200:1 or higher on these types of trades.
Tip 9 – There are times in your life when you should not be trading. When you are sick, distracted, have family issues, when you are dead tired. Admit it and trade when you are in the right frame of mind. Or else ask your trading partner to take over for a couple of days (Tip 4) then you can help out next week.
Tip 10 – At some point in your trading career, the electricity will go off, the internet will die, your software will not be working, etcetera. Plan in advance for these types of problems and always use stop orders, conventional price charts, or phone in exit orders to your broker and always have a contingency plan in place or backup systems for your hardware and trading systems.
Tip 11 – Some conventional chart patterns are very important and can help you to be a much better forex trader. Focus on recognizing pennants, flags, double tops, double bottoms, ascending and descending wedges, and oscillations. These chart patters are easy to recognize and occur frequently, they also confirm your trade and direction.
Tip 12 – When using news to trigger an entry make sure you have a plan and only trade news in the direction of the trend like your plan says to. Trading news arbitrarily without a plan or against the trend will yield losing trades.
Tip 13 – Trading the forex is a stepwise process, you papertrade first, then start trading with microlots or fractional minilots, then one minilot, the multiple minilots and then ramp up over time to multiple mini lots and beyond.
Tip 14 – Rationalizing your entries can kill your account. Put your trade on and let it run. If it hits your reasonable pre-determined stop, you're out. Moving your stop against yourself is like getting up after a knockout blow; it's pointless, things will only get worse. Don't ignore the obvious, if you are wrong, the stop you set will get you out. Come back the next day or when the market look right and try again. A small loss will not hurt you, but a catastrophic loss will. The first loss you take will always be the smallest. This can all be practiced during the paper trading phase.
Tip 15 – Learning to be a longer term trader and managing your trades differently is not difficult. Anyone can teach and train themselves to do this, if you get into a nice positive trade you can always take some profit (half of your lots) and if the intermediate term trend is in place just hold onto the rest with a break even stop. "Learn while you earn" and teach yourself to be a longer term trader.
Tip 16 – Trade only with the trend and market momentum. To help you set your mind in this direction you can read the book by Michael Covel titled "Trend Following".
Tip 17 – If there are no trades available taking a break from trading and the computer is good, spending time with family and hobbies will keep you well rounded in all phases of life and when you come back to the computer your mind will be refreshed and ready.
Tip 18 – Fully understanding parallel and inverse relationships helps with trading decisions. An obvious inverse relationship is the EUR/USD and the USD/CHF. A far less obvious inverse relationship is the NZD/USD and the EUR/AUD. When trying to decide whether or not to trade the GBP/JPY or the EUR/JPY very few traders look at the EUR/GBP for guidance as to which would be the better choice. If all of the AUD pairs are weak and you enter a trade to sell an AUD pair if they are all falling together everything is in your favor for a profit.
Tip 19 – Education versus entry points.Every new forex trader needs to be educated and will have a lot of questions. But at the end of the day even the most educated person in the forex needs an entry plan. This is where WSS enters the picture. When you don't pre-plan your trades, it is essentially a thought and not an idea; thoughts are emotions and a very poor basis for doing trades. Always plan your trade and trade your plan.
Tip 20 – If you enter a trade set some kind of time limit like 45 minutes or sometimes less for volatile pairs, if you are not able to move your stop then consider exiting. Use an alarm clock for this and put it next to your computer most trades that stall are in the plus or minus 10 pip range and over time this will never hurt you. Trades that move strong in your direction are the keepers.
Tip 21 – Don't let the forex rule your life. you in charge. Don't stare at the forex all day and all night. Write a plan and set price alarms to minimize time in front of the computer. __________________
Happy Trading...
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