The following section contains a number of basic trading rules. These are critical if you want to make profits. The Forex Trading Rules can give you small risks and big rewards. On the chart below you will see a FX trade returning a large profit.
1. Be prepared to lose some trades. There’s no escaping it, some trades may lose you money! You are betting and as it is with horses, dogs, football teams and stocks, Forex pair trading will result in some bets which may lose you money.
If you’re not prepared to take a risk, stop reading now and put your money into a savings account. If these rules worked 100% of the time we would all be millionaires. These rules will help you profit more, more of the time…..but maybe not all of the time!
2. Have a plan for the day and stick to it. This is vitally important. Do not get carried away. Set clear profits and loss targets for the day and stick to them. e.g. allow only a 30 pip loss and then stop for the day and plan to take a 30 pip profit then stop.
More profit is great, more loss is not! It is very easy just to “carry on” but sometimes the markets are un-predictable, so if it’s not working, stop and come back tomorrow.
3. Trade with your profits. This is a good technique to adopt where by you risk an initial amount each day. Set yourself an initial target profit and when you reach that, bank it. You then use that banked money for the rest of the day to trade with. In this way you’re not eating into your own bank and you are using the profits you have made to trade on.
Some people take this further and only trade with 80% of the initial profit, meaning you are guaranteed to end the day 20% of the profit up. This works well if you are working with high value trades.
4. Leave emotions at the door. This is really difficult especially for inexperienced traders but don’t let your emotions rule your trades. Don’t enter trades unless you’ve got a valid signal, don’t try and second guess the market.
Stop if you hit your loss target for the day, stop when you hit your profit for the day. There are plenty of trades to make back what you lose, don’t react and forget the rules.
5. Be aware of daily announcements. Check daily to see what announcements are due that day and at what time. Sometimes the market has already taken the announcements into account so there may not be much of a market reaction, but it’s not always the case.
You should be wary of trying to enter trades during volatile market conditions as a 20 pip stop losses can be quickly wiped out (in seconds!), on the other hand, large profits can be made. Generally try and avoid entering just prior (10-20 minutes) or during major announcements and then wait 10.20 minutes and see what the market does before re-entering trades.
6. Stick to the rules. These rules have been designed to maximise the chance of making profit. If you start to bend the rules they may not work.
7. Stake only 1% of your bank per trade. That way if you do lose a couple of trades, you will be able to continue trading. If you divide your bank by 2000 that gives you 1%. Stick to the 1% at all times.
8. Always use a pre-determined stop loss (unless you are going to be glued to the screen during your trades). Our recommendation is a 20 pip stop loss, no more and no less.
As a trades go into profit you can move the stop loss to reduce the potential size of any loss. A trailing stop is also a good idea but you’ll need to configure this on your trading platform.
9. Don’t over-trade. This is a very common problem with inexperienced traders. Only enter when the rules say so. Don’t force the rules, and allow the trade to run until a suitable exit, and hopefully a profit.
10. Don’t panic if a trade starts losing money. Some trades take 3-6 hours to reach a profit, and some may do it in 10 minutes. If a trade reverses (goes into loss) you have to consider your options… a. has an opposite sell or buy signal occurred b. are you nearing your stop loss c. have you hit a line of resistance e.g. has the market got to this point before and reversed It is vital not to exit trades too quickly and miss the opportunity to make profit. Be patient, you will see from the examples sometimes it takes a while for trades to hit their target.
11. Exit a profitable trade when you’ve reached your target. Look for signals in the trends to see when a trend is slowing or reversing. Generally our advice is during the recommended
trading hours try for profits of between 10 and 30 pips and out of those hours, take 5-15 pips. You can always enter a trade again as long as the trend is continuing and you see another valid signal.
12. Always trade with the trend of the market. This sounds a bit simple, but fundamentally you won’t win easily by betting against the market. You can determine the trend using the indicators explained in the next sections.
13. The system should work at all time, however, for best result we recommend only ENTERING trades during the following times… a. 0700-1000 GMT b. 1300-1530 GMT The only reason forthese times is they tend to be the best periods for price movements and the rules work well. You can EXIT trades at any time.
But BEWARE the FALSE START….see the EXAMPLES section for more detail on this.
14. Finally, take time to understand these rules and the signal rules. Paper trade for a couple of weeks to make sure you understand. If you jump in without understanding the rules you are likely to lose a lot of money quickly
1. Stick to the rules and a daily plan — all professional traders do this…it’s how they make money!
2. Know the market— check for announcements, look at trends — be aware of the market and what’s going on.
3. Always use a stop loss and bet with only 1% of your bank — limit your losses
4. Keep calm — it can be very exciting, but keep calm, accept a loss and accept the fact you can make it back on the next trade.
Be patient if you are starting out trading. Build your bank trade by trade, and never risk more than 1%.
If you only ever target 10 pips per day, this system will work very well for you. 10 pips may not be much, but it is easier to be trading £10 per pip for a 10 pip profit (£100) than trying to trade £1 per pip for 100 pips profit per day (£100), but to be able to trade £10 per pip you need to build your bank.