Forex Tips & Basic Strategy
(1) Use a Stop-Loss as a Trading Shield
This is not a trading tip, this is a golden rule for any Forex trader. A stop-loss order is able at any time to minimize your losses to the desired level in case everything goes bad. You can never be 100% sure regarding your potential loss and that is why you must always place a stop. For example, consider that you may face a computer-related problem that may disturb your capability to trade. In addition, any trend may reverse given the news, so put always a stop-loss order at any trade as all the Forex professionals do.
(2) Don’t Trade the News unless you are a Pro
Many traders are trying to trade the news but actually only a few are able to evaluate it. Usually, news, after they are realized, are incorporated in tiny fragments of time. In Forex news-trading we are talking about millisecond markets. My tip is to avoid trading 1 hour before and 1 hour after important news is realized in the market.
(3) Managing Risk & Diversification
When you trade Forex with high leverage even tiny changes may lead you to total capital losses. Given that you always put a stop-loss order you need also to diversify your positions. For example, you can make a rule never to trade more than 5% of total funds in a single trade. Diversification is a golden rule in Financial Markets and it is strongly recommended to respect it at any time.
(4) Use Trading Leverage Wisely
High Trading Leverage can lead to great profits but most commonly it leads to great losses. The reason is obvious. Trading leverage does not just increase your profit & loss potential, it increases also your trading cost. Think about that.
(5) Don’t Become Emotional
To feel emotion is a key characteristic of human nature. To feel emotions about other humans is a wonderful thing. But don’t get confused, this is valid for humans not for everything. Become emotional with your trades is the shortest way to lose your funds.
(6) Choose the Right Trading Strategy
Many novice traders face trading strategy as a boring issue. Actually the existence of a trading strategy is a very important issue for all traders and a 100% trading characteristic of all Forex winners.
A strategy should be seen as a vehicle that can drive you with safety as long as you trade. If you don't implement any strategy you will join the majority of all traders that eventually lose their funds after some time. The trading strategy that you will choose must be compatible with your lifestyle and with your personal character. For example, if you are a risk-averse personality you shouldn’t try to implement a short-term strategy, instead, you should implement a long-term strategy based on hard facts and not simply on technical analysis.
Here are some general tips when you are seeking for a Forex Trading Strategy:
Follow The Trend
This is very important for all Forex traders. We may say that long traders are after strong interest rates and short-traders are after strong trends. Short traders should always follow the trend. The opposite strategy of Follow-the-Trend Strategy is to trade the reversals. To indicate reversals is very difficult to even for Pro Forex Traders, and that is why if you are not very advanced you must always try to follow the master trend. In order to define the master trend, you must consider the larger timeframe, but in order to define the optimal entry-exit points, you must focus upon smaller fragments of time. Seek also confirmation. For example, if you evaluate the trend on 1-Day charts seek confirmation from 1-Hour Charts.
Depending on your selected time-frame, the trend you have to consider may be intraday, daily or even monthly trend. My advice here is to evaluate a currency pair trend according to the distances between major support & resistance levels. Let’s see an example on the following EUR/GBP Chart.
Scalpers are traders that are after tiny changes in the pricing of currency pairs. Usually, scalpers are focusing on the most popular pairs in order to be charged with the lowest spreads. The most ‘scalped’ pairs are EUR/USD and GBP/USD. Be aware that many Forex Brokers forbid strictly scalping, so be sure you will not face any legal issue with your broker before commence scalping. Also, avoid scalping popular currency pairs using popular indicators. It is what everybody does, and what everybody does can hardly prove profitable in long-term periods.
Automated Trading (Expert Advisors)
If you decide to use the automated trading option (Expert Advisors) don’t forget to test any strategy hard with historical trading data. A trading strategy must be compatible with your demo account and should work with mini-lots. By commencing with mini-lots you will be able to test this strategy at low risk. After some time and given that this strategy has been proven profitable, you may use standard lot sizes.