Currency Trading

In currency trading, the primary objective is obviously to make money, but it is important to have other objectives that are not strictly cash-related. We must always remember that reward and risk go hand-in-hand in currency trading and that we can’t expect to achieve high returns without planning.

The following currency trading tips article outlines a few rules that can significantly improve your chances of success in currency trading if they are understood, practiced, and implemented consistently in your currency trading.

Few things are more important to your currency trading success than having set specific goals and objectives for what you are trying to achieve. Generally traders who have well-defined currency trading objectives will be much more successful than those that do not have pre-defined goals. Your objectives and goals have to be very specific to you, but here are some actual currency trading objectives to consider:

• Create 2 new positive-expectancy trading strategies each and every year;
• Seek to make less errors implementing your trading strategies each year;
• Work to achieve a return to maximum draw-down ratio of 1.5:1;
• Take 2 weeks vacation from trading during each year;

Our top 10 currency trading tips:

1. Practice consistency and discipline;
2. Let your profits run;
3. Cut your losses short;
4. Never add to a losing trade;
5. Don’t take too much risk;
6. Only trade positive expectancy systems;
7. Minimize your trading business costs;
8. Educate yourself;
9. Avoid trading scared money;
10. Deal with your losses;

Practice consistency and discipline – In order for you to be able to realize the full potential of your currency trading strategies it is very important that you take every trading entry, adjust every stop, and close out every trade when your pre-defined trading system says you should.

Let your profits run – This rule is undoubtedly the key to being successful in currency trading. When we get a profitable trade going it is our natural fear of losing the unrealized cash starts and we truly want to close it out now and quit while we are ahead. The key here is in letting a winning streak run is to have trailing stops that are generally outside the daily noise of the market so that they are not so tight as to get stopped out during ‘normal’ trading process.

Cut your losses short – This is actually the sister rule to the one mentioned above, and is usually just as difficult to do. In the same way that profitability in currency trading comes from a few large winning trades, capital preservation comes from avoiding the few large losers that the market will see fit to send you each year. Setting a maximum stop loss limit before you enter the trade so you know ahead of time approximately how much you are risking on this position is pretty straight up. You just have to have an exit price that tells you that your trade is a losing one you should exit before it gets any bigger. If you have a losing position that is at your maximum loss point, you should just get out right away.

Never add to a losing trade – One of the few currency trading management rules that you should never break is ‘Never add to a losing trade’. Currency trades are split into winners and losers, and if a trade is a loser, the chances of it turning right around and becoming a winner are too small for you to want to risk more money on. If it actually is a winner disguised as a loser, why not wait until it shows it is a winner before you add to it.

Don’t take too much risk – One of the most devastating mistakes that any foreign currency trader can make is in risking too much of their capital on a single trade. One thing is certain in trading and that is if you lose all your capital you are out of the game indefinitely.

Only trade positive expectancy systems – If you have a positive expectancy currency trading system, the only factors that will decide how much money you will make per year are the number of trades the system actually makes, how much capital you allocate to the system, and how accurately you use the trading signals.

If you do not know whether your currency trading system is positive expectancy then it makes no sense for you to be trading it in the first place. Expectancy is calculated using the profit or loss on each trade; divided by the initial risk, and then taking the average of this number of a series of trades. Systems that have positive expectancy will make money most of the time and those with negative expectancy will lose money.

Minimize your trading business costs – Some currency trading systems can offer you only marginal profitability, and trading implementation costs such as commission, spread, and slippage can be the difference between making a profit and making a loss.

Educate yourself – In order for you to be able to compete at the highest level in the currency trading business and be a successful player, you must be well-educated about what you are doing. Being well-educated means that you have thoroughly researched and tested your trading ideas and know why your trading system worked in the past and is still working.

It means that you understand all the technology and applications that your currency trading system needs to perform with accuracy. It means understanding your goal and objectives and how trading will help you achieve them. It means understanding yourself and how your personality will affect your results.

Avoid trading scared money – No one ever made any money trading when they had to do it to pay their bills at the end of the month. Having a requirement to make a certain amount of dollars per month or you will be financially in trouble is the best way I know to completely mess up all trading discipline, rules, objectives, and leads faster than you’d expect to disaster.

Currency trading is about taking a reasonable amount of risk in order to achieve a good reward. The markets and how and when they give up their profits is nothing that you can control. You should never trade if you need the money to pay bills. Do not trade if your business and personal expenses are not covered by another income stream or cash reserve.

Dealing with your losses – One of the most important rules of currency trading is to keep your losses as small as possible. With small forex trading losses, you can outlast those times when the market moves against you, and be well positioned for when the trend turns around.

The one proven method to keeping your losses small is to set your maximum loss before you even open a forex currency trading position. The maximum loss is the greatest amount of capital that you are comfortable losing on any one trade.