Forex trading is a special activity that you can manage from your home and computer. However, too many novice traders quickly break their teeth in this business because they approach it as a casino game rather than the real deal. Here are 4 golden rules if you want to maximize your chances of success in this business and make it one of your main sources of income.
Rule 1: Don’t trade a lot
Rule 2: Have a correct risk-reward ratio
If you practice day trading, prefer an approach that allows you to generate during profitable operations, a gain equivalent to at least double the risk taken (stoploss). If you are used to risking 10 pips per trade, work on your strategy to make sure you earn at least 20 pips on winning trades, so your risk / reward ratio will be greater than 2 and you will easily outrun losing trades. If you are more interested in scalping, be careful not to have a risk-reward ratio of less than 1 as it will become very difficult to be profitable. Swing traders are generally used to having higher RRRs (between 2 and 10 for example).
Rule 3: Respect your money management
Controlling and containing risk is important in forex trading. Most novice traders sometimes risk 5%, 10% or 20% of their capital in one trade, which is completely crazy because at this rate if they accumulate several losing trades they quickly risk suffering a burnout of the I count. You prefer a risk of 1% per trade or 2% at the most, which will leave you 50 to 100 trades leeway and will be much easier for you psychologically.
Rule 4: Master your trading strategy
Make sure you know how to correctly interpret the market. If you don’t understand the charts and can’t read them, you are a long way from generating profits in forex trading. Study price action and fully understand all components of your strategy to make smart investment decisions.
You therefore need a complete and concise trading plan to make successful trades that will partly lead to profits. You can’t just jump into trading without researching it first. Replicate what works for experienced traders and, through experience, make changes to strategies if you feel the need. Also do not forget to speculate on the financial markets through an authorized forex broker such as Etoro, for example, it is possible to open an account starting from a deposit of only € 200.