Your Forex Trading Philosophy

Your FOREX Trading Philosophy
Easy money is​ the​ allure that captivates many beginning FOREX traders .​
FOREX websites offer risk-free trading, high returns, low investment .​
These claims have a​ grain of​ truth in​ them, but the​ reality of​ FOREX is​ a​ bit more complex .​
Mistakes of​ the​ Beginning Trader
There are 2 common mistakes that many beginner traders make: trading without a​ strategy and​ letting emotions rule their decisions .​
After opening a​ FOREX account it​ may be tempting to​ dive right in​ and​ start trading .​
Watching the​ movements of​ EUR/USD for​ example, you may feel that you are letting an​ opportunity pass you by if​ you don't enter the​ market immediately .​
You buy and​ watch the​ market move against you .​
You panic and​ sell, only to​ see the​ market recover .​
This kind of​ undisciplined approach to​ FOREX is​ guaranteed to​ lose money .​
FOREX traders must have a​ rational trading strategy and​ not make trading decisions in​ the​ heat of​ the​ moment .​
Understanding Market Movements
To make rational trading decisions, the​ FOREX trader must be well educated in​ market movements .​
He must be able to​ apply technical studies to​ charts and​ plot out entry and​ exit points .​
He must take advantage of​ the​ various types of​ orders to​ minimize his risk and​ maximize his profit .​
The first step in​ becoming a​ successful FOREX trader is​ to​ understand the​ market and​ the​ forces behind it .​
Who trades FOREX and​ why? This will allow you to​ identify successful trading strategies and​ use them.
There are 5 major groups of​ investors who participate in​ FOREX: governments, banks, corporations, investment funds, and​ traders .​
Each group has its own objectives, but 1 thing all groups except traders have in​ common is​ external control .​
Every organization has rules and​ guidelines for​ trading currencies and​ can be held accountable for​ their trading decisions .​
Individual traders, on the​ other hand, are accountable only to​ themselves .​
Large organizations and​ educated traders approach the​ FOREX with strategies, and​ if​ you hope to​ succeed as​ a​ FOREX trader you must follow suit .​
Money Management
Money management is​ an​ integral part of​ any trading strategy .​
Besides knowing which currencies to​ trade and​ how to​ recognize entry and​ exit signals, the​ successful trader has to​ manage his resources and​ integrate money management into his trading plan .​

There are various strategies for​ money management .​
Many rely on the​ calculation of​ core equity -- your starting balance minus the​ money used in​ open positions .​
Core Equity and​ Limited Risk
When entering a​ position try to​ limit your risk to​ 1% to​ 3% of​ each trade .​
This means that if​ you are trading a​ standard FOREX lot of​ $100,000 you should limit your risk to​ $1,000 to​ $3,000 .​
You do this with a​ stop loss order 100 pips (1 pip = $10) above or​ below your entry position .​
As your core equity rises or​ falls, adjust the​ dollar amount of​ your risk .​
With a​ starting balance of​ $10,000 and​ 1 open position, your core equity is​ $9000 .​
If you wish to​ add a​ second open position, your core equity would fall to​ $8000 and​ you should limit your risk to​ $900 .​
Risk in​ a​ third position should be limited to​ $800 .​
Greater Profit, Greater Risk
You should also raise your risk level as​ your core equity rises .​
After $5,000 profit, your core equity is​ now $15,000 .​
You could raise your risk to​ $1,500 per transaction .​
Alternatively, you could risk more from the​ profit than from the​ original starting balance .​
Some traders may risk up to​ 5% against their realized profits ($5,000 on a​ $100,000 lot) for​ greater profit potential .​
These are the​ kinds of​ strategic tactics that allow a​ beginner to​ get a​ foothold on profitable trading in​ FOREX.

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