Chapter 4: What do I REALLY need to know about Trading the Forex Market?
What do I REALLY need to know about Trading the Forex Market?
There are certain things that no one will tell you before you start trading the forex market, the solitary nature of trading in general leaves much of the learning process up to trial and error. Unfortunately this trial and error can become very expensive over time. Here are some things that all beginning forex traders should keep in mind that might just help you save some money and time:
• Simplicity is best
There is a very large amount of trading methods out there for you to get lost in and confused from. Keep in mind that trading success is mostly a result of how well you can maintain your self-discipline each time you open up your charts, not so much a result of the particular trading strategy you employ, as many traders erroneously believe. It is very possible, and indeed much easier, to trade the forex market using simple trading strategies that are based on time tested technical analysis methods. Try to avoid getting caught up learning multiple lagging indicators or spending a thousand dollars on the latest and greatest sounding forex trading “robot”. These methods all look fancy and sound nice on their web pages but they have little bearing on whether or not you actually make money each month in the market. After all, the best trading strategy in the world will not make you a dime if you don’t manage your risk effectively one every trade.
• Don’t over-trade
Over trading is probably the biggest trading mistake made, maybe only second place to risking too much. However, even traders who correctly and consistently manage their risk on each trade often end up trading too much. The bottom line is that you need to know exactly what you are looking for in the market before you start trading. You need to define your trading “edge”; your trading edge is the method you use to enter the market to give yourself the best shot at making money. Many traders start out with a solid trading edge but then get lazy with it and start entering trades that only partially meet their trading-edge parameters, instead of waiting for A+ setups. You must learn to think like a lion on the plains of the Serengeti, laying patiently in wait for the easiest trade to present itself for your taking. Lions do not try to force a kill by going after the strongest gazelle; instead they wait for the most obvious meal by waiting for easiest prey that requires the least effort on their part. Similarly, you need to wait for the most obvious trading signals that seem to “jump” off the chart at you. Don’t force a trading signal simply because you want to make money fast, this will almost always result in you losing money and thus making money slower than if you had exercised the patience of a stalking lion.
• Forex will test your discipline
Related to the last paragraph is the fact that forex trading will give you the best test of how disciplined a person you are that you will ever encounter. If you can consistently manage your risk and consistently not over trade while simultaneously enduring multiple losses each month while still keeping your cool and sticking to your trading plan, you will make money in the markets. However, the simple truth is that most people cannot do this, and as a result most traders lose money in forex. Forex trading is a reflection of your own self-mastery, the extent to which you have control over your own behavior will be reflected in the monthly profit and loss statement of your forex trading account.
Proceed to Chapter 5 by clicking here: Forex Trading Tips for the Beginner
