In any business, there are strategies and rules that you need to follow to survive and thrive. Forex trading is no different. There are some specific rules and techniques that you need to apply in your trading. These separate the many “temporary” forex traders who only survive until their accounts are wiped out, and those few who make millions from the forex market.

Want to know more about how successful traders do it? Then read on to learn about the profitable forex trading rules.

Have a trading system

It is difficult to trade by the “seat of your pants”. Successful traders have a system, and stick to it.

A good forex trading system has the following characteristics:

• It shows you the entrance point
• It tells you when to exit at a profit
• It tells you when to exit at a loss (using a stop loss)
• It tells you how much to trade (the number of positions) relative to your trading capital
• It has positive expectancy – this is your equivalent to a casino’s house advantage

Trading systems should be extensively backtested before use.

Follow the trends

The traders who make thousands every week from their trades follow the long term trends of the market. This means that their trading systems are able to identify and trade long term trends.

There are small, medium and long term trends available in the forex market. The best way to make profit from forex trading is by following the medium and long term trends as they are very easy to recognize and keep track on. The long and medium term currency trends of a currency occur due to economic changes in the economy and these are necessarily gradual.

Some traders break this rule and try to trade the small sudden movements that occur in the market. These positions often reverse direction as quickly as they occur, leading to quick losses. Also, the cost of trading rapidly eats up any gains.

To maximise your profit and chances of survival, trade the long and medium term trends and avoid constantly jumping in and out of the market.

Pages: 1 2

Tags: forex trading rules

This entry was posted on Friday, January 2nd, 2009 at 11:16 am and is filed under Forex Basics. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.