Common Sense Guidelines For Currency Trading

By Ahmad Hassam

Someone had rightly said a long time ago that common sense is so common that nobody uses it. Well, if you are going to become a trader than you need a lot of common sense. If you don't use common sense than you might as well not trade at all! OK, now a few common sense guidelines for you as a trader:

1) Always beware of forex brokers. Your broker might be cheating you and you may never know about it. It is all due to the unregulated nature of the forex market. Even if you complain nothing will happen. Don't fall into the trap of some unknown broker. Your ability to trade effectively depends on consistent spread and ample liquidity. You should always look for a reputable broker. Anyone can open a position. However, your ability to close a position at a good price is more important.

2) Trading means making consistent steady profits! Learn prudent money management rules. Avoid using excessive leverage that puts your investment capital at risk. Always trade with a stop! Never try to win big in one single trade. This is not trading, it is gambling. Always live to trade another day. If you believe in winning big than quit trading and start gambling! But if you do that you will only ruin yourself.

3) Never ever trade emotionally. Stick to your plan and maintain your trading discipline. Always develop and make a trading plan before you take up trading. Set a reasonable risk/reward ratio for your trades. Never ever override yours stops for emotional reasons. Don't react to price action buying just because you think it is cheap or selling because you think the price is high now. Always use technical analysis to make your decisions.

4) Don't punt. Punting is trading for the sake of trading without any planning or view. You are not a punter. Always plan each trade.

5) Don't try to trade around round numbers. Don't leave stops at round numbers or obvious levels. If you do that chances are they will be triggered.

6) You are not a gambler. You are a trader. Don't use martingale strategies in trading. Don't double up just in order to recoup your losses. In other words, only do that if it is part of a trading strategy. Don't add to a losing position unless it is part of a plan to scale into a position.

7) When trading against the trend be disciplined in taking profits and don't hold out for the last pip. When trading with a trend always use a trailing stop loss order.

8) Treat trading as a continuum. Don't base your success on one trade. Avoid emotional highs or lows on individual trades. Consistency should be your target.

9) Try to trade multicurrency. This will hedge your risk. Always keep an idea on the crosses.

10) Markets hate surprise news. You should know the economic calendar. Don't trade just ahead of an economic news release. Always beware of volatility following the economic releases. Be cognizant of what news is coming out each day so that you never get surprised.

11) Stay away from illiquid times like holidays or pre-holidays when liquidity is thin. Beware of central bank intervention in illiquid markets. - 31876

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