If you have an internet connection, a computer and a few hundred dollars to invest, you can begin trading on the foreign exchange market (Forex). Due to its low barriers of entry, Forex trading has become increasingly popular with many people. Traders can easily get started through providers like Easymarkets. However, despite its profitability potential, very few people end up actually making good returns in Forex.
Here are some do’s and don’ts that every Forex trader should know:
Do have a trading plan
This is especially important for anyone that is new to Forex trading. Having knowledge and understanding of the foreign exchange trade life cycle will play a major role in your success. Without a trading plan, you are not trading but gambling.
Don’t engage in ‘revenge trading’
Many traders carry out transactions based on their emotions. For example, when someone loses a large amount of cash, they are likely to rush back into trading hoping to recover their money. However, being emotional will only cloud your judgment and probably result in loss.
Do have a checklist
Your checklist should have conditions that must be satisfied before engaging in any trade. This could be something like ‘trade when reward: risk ratio is at least 3:1’. Going through this checklist before making a decision will significantly lower your chances of making costly blunders.
Don’t complicate your strategy
When it comes to trading, there isn’t one strategy that works for everyone. Therefore, stop copying other people and find a system that works for you. Test your strategies first on demo and when proven, go live. Work with one strategy at a time.
Do set realistic expectations
Whether you are trading to save up for retirement, a house or your education, be sure to set realistic expectations. Keep in mind that the best way of building wealth is by going slow. Don’t expect to be a millionaire within only 3 months of trading.
Don’t be greedy
While aggressiveness is important for success in Forex trading, avoid the temptation to be greedy. Always trade safely and don’t engage in risks you cannot afford to take. It is better to break even or make a small profit than to incur losses.
Do trade using your own money
Forex trading is almost like gambling. Once you have invested your cash, there is no guarantee that you will get it back. Therefore, one of the first rules of Forex trading is to always use the cash you can afford to lose. Never use borrowed money as your capital.
Don’t listen to rumors
Never make trading decisions based on rumors. Even information from financial experts and credible news sources should not be viewed as the gospel truth of trading. In many cases, such information is based on pure assumption. Always do your own research before entering any trade.
Do follow a strict routine
Since Forex trading is an individual endeavor, it is easy to lose focus and get undisciplined. Having a daily routine will keep you disciplined and enhance your chances of success in Forex trading.
Don’t choose the wrong broker
Success in Forex trading will be determined by your choice of a broker. If a Forex broker is in financial trouble, poorly managed or simply an outright scam, you might end up losing all your money. Therefore, be sure to do your due diligence before selecting a broker.