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Trading Rules




 

Important Currency Trading Rules to Follow
                  



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.

11. Use stop loss to reduce risk
FOREX trader must be able to afford taking loss. Using the stop loss will prevent any further loss, 
the affordable loss depends on the account available margin situation. If there is a stop loss, 
FOREX traders should not feel upset because he or she has prevented the loss from getting worse.

12. Do not enter the FOREX market after making loss
Do not eagerly open a new reverse market position in order to recoup from loss. 
This will only make the situation worse. Do not play with the FOREX market by guessing.

13. USE MONEY THAT YOU CAN AFFORD TO LOSE
Trade only with "extra" money, i.e, money that is not earmarked to pay bank loans, car installments,

 housing loans, telephone and electricity bills, etc. One of the major reasons for investing only 
with extra funds is that your trading judgment will remain objective.

14. DON’T RISK YOUR ENTIRE CAPITAL ON ONE TRADE
Divide your trading capital into 10 equal parts and never lose more than 10 percent on one trade. 

If you lost the first trade, you still have nine more opportunities to be right. Putting all your capital 
on one trade is suicidal.

15. Never Risk More Than 2% Per Trade
Never risk more than 2% per trade. This is the most common and yet also the most violated rule in trading
and goes a long way toward explaining why most traders lose money.


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