Forex trading has caused large losses to many inexperienced and uneducated traders. For all of its numbers, charts and ratios, trading FX can been seen as more of an art than science.
As with anything talent is key, but at the end of the day it will only get you so far. The key to being successful is developing a strategy that keeps your losses to a minimum whilst maximising your profits. Below we’ve listed 7 tips to help protect your capital whilst risking it on the forex market.
Stick to what you understand
As a rule of thumb, if you’re unsure of what you’re doing, or don’t feel as if you can fully justify any decision you’re making then simply don’t place the trade. You should avoid trading on the basis of hearsay or rumours and ensure you understand both the positive consequences, and the adverse results that may result from any trade.
Discover Your Risk Tolerance
To get the most out of your trading career, it’s important to ensure you understand how you cope with risk. To start with, it’s essential to ensure that your tolerance for risk and allocation of funds aren’t overly liberal. It’s wise to carefully determine your personal goals and proceed accordingly, especially at the start of your trading career.
To start any journey you need to know where you’re going and how you’ll get there.
Whether you’re shooting for financial independence or just trying to generate extra income, it’s wise to allocate a timeframe and stick to a plan at least in the beginning. Also knowing what you constitute as failure and define as success is imperative to gaining the insight necessary for successful trading.
Never add to a losing position
While this seems to be common sense, many novice traders will try to drag themselves from a loss by throwing more money onto the fire. It’s impossible to know how a currency pairing will move during any given period of time. Hazarding educated guesses is all you have in FX, meaning you’ll never have solid knowledge of where a price will be even in a short amount of time.
Simplicity is Key
Forex trading isn’t rocket science, however overcomplicating things can make it feel like it. You needn’t be a maths genius or economics wiz to be successful. Clarity of vision alongside well-defined, carefully chosen goals and techniques offer the best path to success.
Don’t go against the markets
No matter what level you’re at, trading against the market is always risky. Remember trends are called trends for a reason, and joining them allows you peace of mind. Fighting the trends will create stress, pressure, fear and probably a loss.
Every is human meaning that greed, excitement, panic and fear will inevitably play a role. However, emotions have no place in a traders calculations. It’s important to control your emotions and minimize their effect on your decision making. This is one of the big reasons traders are advised to start with small amounts. Having a logical approach, and reducing your emotional intensity is the best formula for success.
In conclusion, trading forex is risky. Nothing will remove the risk element but you can take these steps to minimise it, helping to protect your funds. By sticking to these basic principles you’re putting yourself in the best position to ensure your losses are infrequent and to an absolute minimum. If you’d like to learn more about FX trading then visit ETX Capital for more information.
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