• Pyramid a winning position
As the market moves up and you have a long position, do not double it up. Instead, buy less and less currency units. In fact, did you know that pyramiding instructions appear on the back side of one-dollar bills? Add less and less on the way up. Keep an eye at the top. See for yourself here. Do not pyramid a losing position!
• KISS – Keep It Simple, Stupid
However, do not equate simplicity with unsophisticated thinking. KISS is not ‘Keep It Stupid, Simple’. It is ‘Keep It Simple, Stupid’. What this means is that you should not make your method or strategy complicated.
• To be successful, forex trading should be boring
Trading is not supposed to be about fun. It’s supposed to be about winning profits. Passion is one thing, thrill-seeking is another. Stop trading and analyze yourself if you’re into forex for the thrill and the emotional highs and lows it might be giving you. If you’re looking for a thrilling and fun way to lose your money, go to a casino.
• Stick to trading one or two time frames, always having in mind the situation on the daily and/or higher chart
This is yet another way to keep stuff simple, and ease your work. Looking at one or two time frames allows you to focus on learning the intricacies of only one or two time frames which you will agree is easier than learning about a bunch of time frames. But never forget the trend or range as shown on the higher-level charts. If you’re trading the 15-min chart, you should know that there’s been a down trend for the last 4 days, for example. If you’re a swing trader trading the daily chart, make sure you keep in mind what’s happening on the weekly chart.
If you find yourself switching from the daily to the hourly to the 5-min to the 15-min back and forth, you’re doing something wrong – you’re trying to overanalyze your pair, and that leads to confusion.
• Stick to one or two forex pairs
Here we are at it again – keep it simple. By focusing on one or two currency pairs, you will be able to better comprehend their respective behaviors, or rather the behavior of the guys trading them. You will know what daily range and volatility levels to expect on different days of the week, you will get a hang of why at XX:XX o’clock usually the pair will move abruptly in one or the other direction, etc. You will be under less stress if you trade only one or, at the most, two forex pairs.
• Beware of the forex broker
The market is littered with what remains of day traders and genius 'systems,' and to survive in the long-run, traders have to realize that they are playing a game where the cards are clearly stacked against them. Slow order filling, stop hunting, slippage, trading against clients (i.e. not offsetting your trades), weird spikes that don’t show on other platforms, and a few more are all in the bag of dirty tricks of the unscrupulous forex broker. Don’t get us wrong – you can make money trading currencies, but you must be aware of the practices of your broker.
• Have an exit strategy
That is, place a take-profit order and a stop-loss order when opening a position. Not having an exit strategy is a recipe for disaster. Don’t leave your account to the vagaries of nature. Just as you set goals for yourself in life, set goals for each trade you take. And, of course, you will always want to have a Plan B, right? Plan A is your target (take-profit order, or TP), and Plan B is your stop-loss order (SL).
• Regularly withdraw some of the profits
This is so rewarding yet so few do it. Well, of course, considering that the fatality rate in the forex business is 90-95%, very few people get to enjoy profits in the long-term, but even if you just happen to have a winning streak for a few weeks, send a withdrawal order to your broker, and get part (or all) of your profits. Your profit is yours to do with it as you please. Don’t be greedy and thinking that you have to reinvest it all back into the account and double it and triple it and quadruple it and quintuple it because this attitude is not a winner’s attitude. Take some profit out, and enjoy it with your loved ones.
• Have a trading plan
If you fail to plan, you plan to fail. You’ve heard that. It sounds trite but it’s true, you know. You have to set up a plan in writing which will guide you in your trading. A good trading plan should be able to answer the questions about what your goal for your fx account is (double it in a year?), what is the maximum distance between your entry and your stop (53 pips?), what percentage of your equity you can risk in all open positions (2.79%?), what emotional pitfalls your regularly get into and how to go about handling them (if I lose a trade I will immediately try to make up for it no matter what?), and so on and so forth. As you can see in the upper part of the page, we have prepared a section on trading plans with many examples - use it to create your own plan.
• Cut your losses early on
A vital forex tip! Capital preservation is of paramount importance in forex trading because of the huge leverage traders use. If you do not abide by this rule, you will probably not become a consistently profitable trader. If you’ve already traded forex unsuccessfully, chances are this is your biggest mistake. Please take a look at your trading history and notice whether you lost more pips for your average losing trade than you made for your average winning trade. If that’s the case, what use is it to have a 70% winning rate? Winning 7 out of 10 trades sounds like a great score until you notice that the 3 times you lost cost you more pips than the gains of the 7 trades combined!
Also, if you have a losing streak of 2 or 3 trades in a row, take a couple of days off the charts. A losing streak can grow into an abysmal whirlpool sucking most or all of your money in. Don’t rack up your brains too much. Cut your losses, take a rest and come back in a few days with a clear mind to sort things out, is one of the best pieces of advice you can get from experienced fx mentors.
“When the market goes against you, you hope that every day will be the last day – and you lose more than you should had you not listened to hope. And when the market goes your way, you become fearful that the next day will take away your profit and you get out – too soon. The successful trader has to fight these two deep-seated instincts.” Jesse Livermore, legendary stock market trader
• Sometimes staying aside is the best course of action
Most newbies think that if they don’t hold open positions they are not trading. That’s not true. Not holding a position is a position, too. Successful trading is supposed to be boring (yet rewarding). Gambling is not boring (and definitely unrewarding in the long haul, though your forex brokers will love you). If your analysis shows that there’s no good setup in the forex pair you’re trading, then stay on the sidelines. Do observe the action in the market, if you will, but don’t trade when you have no clue about the probabilities of the price going one way or the other.
• Learn to measure your P/L on a monthly basis
Learning to measure your Profit/Loss on a monthly basis will help you become more long-sighted about your trading. If today you had a couple of losses, it doesn’t mean you’re a loser. And, vice versa, if today you came up with a couple of winning trades, it doesn’t make you a forex champ. Long-term profitability is what you have to be after, if you want to be successful.