Currency Trading: Follow Currency Trading Rules. Stay Alive
August 20th, 2008
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Marc Trimble asked:
A lot of people have found success and fortune in currency trading. If you want to follow the same path, you should learn to follow the rules first. Here are some good rules to remember about currency trading:
Rule #1: Find out what stirs the market.
Currency is just like other kinds of assets. There are a number of conditions, circumstances and situations that affect the way a currency performs in the market. One of the most important influential factors is the country of origin’s overall economic condition. The political climate, government policies and general economic performance may all affect the opinions of economists which in turn determine the level of desirability of a currency. Aside from getting a good grasp of economic aspects, you should also look into such conditions as the flow of global trade, the rates of interest and the market for equity.
Rule #2: Get a grasp of the proper techniques.
Currency trading may seem like a set of risks taken on impulse. This is farthest from the truth. Different traders use a variety of techniques and strategies to ensure their profits. Aside from individually developed strategies, you may want to consider using three major ones. The first strategy is called carry. Currencies with top rates are bought and those with minimum rates sold. The second strategy is known as momentum. This is where traders keep tabs on the movement of markets. The last strategy is value trading. This one takes into account the opinion of the investor regarding the currency.
Rule #3: Determine what strategy to use.
There are two different ways for you to arrive at a trading decision. You may either choose to look at general factors affecting pairs of currencies or you may opt to look at the future or long term implications of variations in currency pairs. If you tend to look at general economic and international factors you are a macro trader. If you tend to study the future impact of currency changes, you are a technical trader.
Rule #4: Decide on how much you can lose.
One fundamental truth about trading any asset is that it will always involve risks. You have to accept this first but this doesn’t mean that losing any amount of money is acceptable. You have to set a limit on acceptable losses. In other words, you should not allow yourself to lose more than you can afford or to lose everything. Once this aspect is clear to you, use the right strategies such as stop loss to limit your loss.
Rule #5: Don’t trade if you are not familiar with a currency.
There are many currencies from different countries that can be traded. Each currency and currency pair has specific traits and factors affecting it. A successful trader would always be deeply familiar with the pairs he trades with and should continue to study these pairs. Among the most important currency traits to be familiar with include volatility, spread and liquidity. Do not attempt to trade currencies that you only have a shallow understanding for. This is especially if you are not a full time currency trader.
Rule #7: Constantly study, monitor and keep track of currencies and events.
Even if you are only trading part time, you should make it a point to be updated every minute of the day. Currencies, their traits and the factors that affect them shift and move swiftly. Fortunately for the modern trader, there are now a number of online services and tools that will provide real time developments and information that may affect currency pairs.
Rule #8: Don’t let your feelings ruin your strategy.
Trading strategies and techniques help you make logical trading decisions. Human as you are though, you are not immune from bursts of emotion especially if you missed a good trade or overlooked some factor that led to a loss. When this happens, remember to put a cork on your feelings of disappointment and frustration. Otherwise, you may be driven to make an impulsive decision that is not guided by your strategy. This may result in more losses.
Rule #9: Have realistic expectations.
One of the most enduring rules in life applies very well to currency trading. You can’t expect to always be a winner. You will win some and you will lose some. This is true even for those who have been trading for quite some time. The best step to take when you do lose is to carefully assess where some of your trades went wrong and what you can do in the future to prevent a similar loss. It also helps if you keep your long term goals in mind. This will help put your current minor losses into perspective. Losing some is all just part of the path to your bigger goals.
Rule #10: Invest in other asset types.
Currency trading is not meant for every trader. Even if it were meant for you, you still have to face the same considerable risks as all other currency traders. This means you could be on dangerously shaky ground if you choose to risk everything in the currency market. You will be ensuring better financial health if you invested in other assets too. If currency trading isn’t good for a period of time you are at least assured that your other trading assets are doing well.
This is by no means a definitive set of rules, however it does encompass the top 10 principles of trading that one should follow. Finally, remember the most important rule of all: Emotion kills traders. Do not get emotional! The markets will serve up a piece of humble pie faster than you can cancel your order. Stay cool and calm and if you’re wrong on a trade, take the lumps and protect your money so you can come back to trade again.
Use a demo account until you’re batting 66%- 70%+ winning trade average. Measure success using this average and not your account balance % gains.
SCHONBERG
A lot of people have found success and fortune in currency trading. If you want to follow the same path, you should learn to follow the rules first. Here are some good rules to remember about currency trading:
Rule #1: Find out what stirs the market.
Currency is just like other kinds of assets. There are a number of conditions, circumstances and situations that affect the way a currency performs in the market. One of the most important influential factors is the country of origin’s overall economic condition. The political climate, government policies and general economic performance may all affect the opinions of economists which in turn determine the level of desirability of a currency. Aside from getting a good grasp of economic aspects, you should also look into such conditions as the flow of global trade, the rates of interest and the market for equity.
Rule #2: Get a grasp of the proper techniques.
Currency trading may seem like a set of risks taken on impulse. This is farthest from the truth. Different traders use a variety of techniques and strategies to ensure their profits. Aside from individually developed strategies, you may want to consider using three major ones. The first strategy is called carry. Currencies with top rates are bought and those with minimum rates sold. The second strategy is known as momentum. This is where traders keep tabs on the movement of markets. The last strategy is value trading. This one takes into account the opinion of the investor regarding the currency.
Rule #3: Determine what strategy to use.
There are two different ways for you to arrive at a trading decision. You may either choose to look at general factors affecting pairs of currencies or you may opt to look at the future or long term implications of variations in currency pairs. If you tend to look at general economic and international factors you are a macro trader. If you tend to study the future impact of currency changes, you are a technical trader.
Rule #4: Decide on how much you can lose.
One fundamental truth about trading any asset is that it will always involve risks. You have to accept this first but this doesn’t mean that losing any amount of money is acceptable. You have to set a limit on acceptable losses. In other words, you should not allow yourself to lose more than you can afford or to lose everything. Once this aspect is clear to you, use the right strategies such as stop loss to limit your loss.
Rule #5: Don’t trade if you are not familiar with a currency.
There are many currencies from different countries that can be traded. Each currency and currency pair has specific traits and factors affecting it. A successful trader would always be deeply familiar with the pairs he trades with and should continue to study these pairs. Among the most important currency traits to be familiar with include volatility, spread and liquidity. Do not attempt to trade currencies that you only have a shallow understanding for. This is especially if you are not a full time currency trader.
Rule #7: Constantly study, monitor and keep track of currencies and events.
Even if you are only trading part time, you should make it a point to be updated every minute of the day. Currencies, their traits and the factors that affect them shift and move swiftly. Fortunately for the modern trader, there are now a number of online services and tools that will provide real time developments and information that may affect currency pairs.
Rule #8: Don’t let your feelings ruin your strategy.
Trading strategies and techniques help you make logical trading decisions. Human as you are though, you are not immune from bursts of emotion especially if you missed a good trade or overlooked some factor that led to a loss. When this happens, remember to put a cork on your feelings of disappointment and frustration. Otherwise, you may be driven to make an impulsive decision that is not guided by your strategy. This may result in more losses.
Rule #9: Have realistic expectations.
One of the most enduring rules in life applies very well to currency trading. You can’t expect to always be a winner. You will win some and you will lose some. This is true even for those who have been trading for quite some time. The best step to take when you do lose is to carefully assess where some of your trades went wrong and what you can do in the future to prevent a similar loss. It also helps if you keep your long term goals in mind. This will help put your current minor losses into perspective. Losing some is all just part of the path to your bigger goals.
Rule #10: Invest in other asset types.
Currency trading is not meant for every trader. Even if it were meant for you, you still have to face the same considerable risks as all other currency traders. This means you could be on dangerously shaky ground if you choose to risk everything in the currency market. You will be ensuring better financial health if you invested in other assets too. If currency trading isn’t good for a period of time you are at least assured that your other trading assets are doing well.
This is by no means a definitive set of rules, however it does encompass the top 10 principles of trading that one should follow. Finally, remember the most important rule of all: Emotion kills traders. Do not get emotional! The markets will serve up a piece of humble pie faster than you can cancel your order. Stay cool and calm and if you’re wrong on a trade, take the lumps and protect your money so you can come back to trade again.
Use a demo account until you’re batting 66%- 70%+ winning trade average. Measure success using this average and not your account balance % gains.
SCHONBERG
