Currency Trading Rules
1. PLAN YOUR TRADE AND TRADE YOUR PLAN. You
must have a trading plan to succeed. A trading plan should consist of a
position, why you enter, stop loss point, profit taking level, plus a sound
money management strategy. A good plan will remove all the emotions from your
trades.
2. THE TREND IS YOUR FRIEND. Do not
buck the trend. When the market is bullish, go long. On the reverse, if the
market is bearish, you short. Never go against the trend.
3. FOCUS ON CAPITAL PRESERVATION. The most important step that you must take when you deal
with your trading capital. You main goal is to preserve the capital. Do not
trade more than 10% of your deposit in a single trade. For example, if your
total deposit is $10,000, every trade should limit to $1000. If you don't do
this, you'll be out of the market very soon.
4. KNOW WHEN TO CUT LOSS. If a trade goes against you, sell it and let go. Do not hold on to
a bad trade hoping that the price will go up. Most likely, you end up losing
more money. Before you enter a trade, decide your stop loss price, a price where
you must sell when the trade turns sour. It depends on your risk profile as of
how much you should set for the stop loss.
5. TAKE PROFIT WHEN THE TRADE IS GOOD. Before entering a trade, decide how much profit you are willing
to take. When a trade turns out to be good, take the profit. You can take profit
all at one go, or take profit in stages. When you've recovered your trading
cost, you have nothing to lose. Sit tight and watch the profit run.
6. BE EMOTIONLESS. Two
biggest emotions in trading: greed and fear. Do not let greed and fear influence
your trade. Trading is a mechanical process and it's not for the emotional ones.
As Dr. Alexander Elder said in his book Trading For A Living, if you sit in
front of a successful trader and observe how he trades, you might not be able to
tell whether he is making or losing money. That's how emotionally stable a
successful trader is.
7. DO NOT TRADE BASED ON A TIP FROM A FRIEND OR BROKER. Trade only when you have done your own
research and analysis. Be an informed trader.
8. KEEP A TRADING JOURNAL. When you buy a currency or stock, write down the reasons why you
buy, and your feelings at that time. You do the same when you sell. Analyze and
write down the mistakes you've made, as well as things that you've done right.
By referring to your trading journal, you learn from your past mistakes. Improve
on your mistakes, keep learning and keep improving.
9. WHEN IN DOUBT, STAY OUT. When you have doubt and not sure where the market or stock is going,
stay on the sideline. Sometimes, doing nothing is the best thing to do.
10. DO NOT OVERTRADE.
Ideally you should have 3-5 positions at a time. No more than that. If you have
too many positions, you tend to be out of control and make emotional decisions
when there is a change in market. Do not trade for the sake of trading.
