I initially came across the foreign exchange over 10 years ago, quite by accident. I had been scouring the internet looking for business opportunities, when I stumbled across a page extolling the virtues of trading on the FX. I was smitten. I looked at the figures involved and I thought “I want a slice of that pie.” Needless to say, I jumped in with both feet, and with both eyes tightly shut. Yup!!! I got badly burned, and I suspect you lot did too... Yeah, I thought so.
Over the next year or so though, I have learned quite a lot. I was by no means an expert. However, these days I am a lot more in control. Below are 7 Golden Rules that I’ve developed years ago. They will not make you rich beyond your wildest dreams, but they will help you tread carefully, and with both eyes wide open.
1. Finance: It goes without saying really, but it rightfully earns its place at #1 in this list. I do agree with the folk who say that you need a starting account of at least £1,500. As you should only be risking 1 or 2% of your trading account on any 1 trade. Unfortunately, not all of us are blessed with that sort of money to start with. I have actually started with as little as £50.00, and built up from there in the past, but it was damned hard work, and fraught with anxiety. So my personal recommendation for a starting account would be at least £250.00, trading with .25p per pip, but the more you can start with the better.
2 Experience: When you’re just starting out your experience is going to be zero! To gain experience I would advocate opening a demo account. That way you’re trialing a system at no financial risk. In the meantime you can be building up your trading account, whilst getting a feel for what you will be doing for real. The beauty of demo trading is, you can make your mistakes without the emotions of trading for real.
3 Knowledge: This will come with experience, and is fundamental to your trading activities. You need a basic understanding of how to read the charts you’re looking at, remember those burned fingers! This is another reason to gain experience on a demo account. You don’t need to be a Mervin King, but you do need to learn what the indicators will do to help you in your trading. You only really need 3 – 5, any more will just complicate things and confuse you.
4 Strategy: Know in advance what you plan to do. Watch the charts, read what the indicators are telling you. Plan your entry and exit strategies in advance and stick with them. Be prepared to take a loss on the chin. If the system you are using has proved to be a good system, stay with it. All systems will experience losses. The market is going to do what it’s going to do, it’s not going to do what your indicators are telling it to. Plan your strategy in advance of your trade.
5 Awareness: By this I mean be aware of any news announcements that could affect the pair you’re working. Some news announcements have a higher impact than others on particular currencies. However, I have traded during major news announcements, and there didn’t appear to be any impact. On other occasions, there has been a sharp spike either way, before the level returned to where it was prior to the news breaking. It is the latter scenario that has been the death of a few of my trades, as the spike can penetrate your stop loss DOH! I’m not saying don’t trade here, just be aware of it. My favourite mantra here is “If in doubt, leave it out!”
6 Patience: Trading FX can be quite a waiting game. I’ve actually waited for almost a full day before a trade order has opened, let alone hit my profit target. Sometimes I’ve actually gone 2 or 3 days without trading. Remember too, you don’t have to trade religiously every day. Sometimes the market is too volatile to trade successfully, so take a break and let it settle.
7 Accept Your Losses: It’s hard to take but your stance should be “I was prepared to lose that amount anyway.” If that is not the case then forget about trading FX. I personally take that stance, I write the money off as though it has already gone.
