Forex for Dummies
In the cyber world, as in real life, there are available dozens of books, e-books, manuals and guides to successful forex trading. Certainly, an instruction manual or guide of any type can be invaluable, but it is only effective and useful if it is comprehensible. Think about how often you have attempted to learn the nuances or intricacies (or even just the basics!) of some new electronic gadget only to throw the instruction manual aside in disgust, bemoaning your lack of an engineering degree. You may have decided that you’d just “play” with your new toy a bit, and found that trial and error worked just fine. An instruction manual should be easy enough to understand so that “playing” doesn’t put you or your money at risk. In that spirit then, we offer these simple forex for dummies rules.
Forex for Dummies Rules
#1: Put your emotions aside. A newbie forex trader often follows his heart (or gut) rather than his head. While it’s generally right to follow your instincts, remember that instincts are not infallible.
#2: Create an effective money management strategy, define your goals, know your risk threshold, and stick with it… even if your instincts tell you otherwise.
#3: Use only your “mad” money. Never, ever, under any circumstances should you trade with money that you have earmarked for budgetary items, e.g., mortgage or rent, utilities, insurance, groceries, gas, etc. The money that you use for forex trading should be the money you’d fritter away on trivialities or frivolities – things you can afford to be or do or live without.
#4: See, hear and read everything. Consider forex trading as something not unlike comparison shopping; you learn everything you can about the product, compare it to like items and make an educated decision based on what you’ve learned. A good education is your best weapon.
#5: Don’t believe everything you see, hear or read. It’s very easy to get caught up in the forex trading propaganda; you see it flashing in bold bright banners on website pages, and even your social networking friend’s status update announced the killing he’d made while trading currencies. You will want to believe that it’s true. What is true is that, with very rare exceptions, it’s all a lie; the vast majority of forex trades are not successful.
#6: You can successfully trade forex. We’re not suggesting you ignore Forex for Dummies Rule #5. Absolutely not. Rather, let us offer you a caveat to that statement – you can successfully trade forex, over time. A single successful trade will not make you a millionaire, but over a period of time, successful forex trading can result in substantial profits.
#7: Watch where you put your eggs. You’ve heard it before: the egg and the basket concept. And it’s a good concept as it applies to forex trading; simply put, spreading your assets will minimize your risk and/or cushion a fall.
#8: Be humble, and don’t press your luck. It’s very easy to become conceited when you’ve had a string of successes; often that conceit becomes greed. Don’t let that happen to you. The forex markets are fickle – very fickle – and a bull trend can become bearish in a New York minute. If you’re sitting on a profit, take it, sit back and bask in the afterglow.
#9: Act responsibly. Nothing teaches you moderation like your first big loss (that is, if you can withstand your first big loss). Avoid testing your mettle by trading responsibly; though you shouldn’t consider investing (all at once) the same amount of money as you might on the purchase of a house or a new car, you should still give it the same due consideration. Think long and hard before you put your money down.
#10: Understand that it’s not personal. The forex market is not out to get you, but it can chop you up and spit you out in little bits. It’s the nature of the beast that is the forex market to take advantage of forex trader ignorance, stupidity or recklessness. Provided that you follow this and all of the other Forex for Dummies rules, you can succeed.
Forex Risk Exposure
The Importance of Managing of Your Forex Risk Exposure
Reducing and minimizing your forex risk exposure should be one of the keys to your forex trading strategy. Without a good forex trading plan in place and utilized, you are more prone to suffering a trading loss, perhaps even a significant one which could wipe you out. All seasoned forex traders have heard (if they’re lucky) or experienced (if they’re not) a forex horror story at one time or another. There are no absolutes in forex trading; any trade can go wrong, but a bad trade doesn’t have to become a horror story, provided you understand your own forex risk exposure. There are several ways you can minimize your forex risk exposure, and a few of them will be discussed here.
How to Minimize your Forex Risk Exposure
The simplest way to minimize your forex risk exposure is to reduce your leverage risking, say, just 1% or 2% of your account balance. This may be a difficult concept to grasp for the novice forex trader, who is anxious to make his or her first big trade. Just remember, trades can go in any direction, and risking much more than 2% may make your first big trade your last.
Another way to minimize your forex risk exposure is by putting in a stop for your trade. A stop is the ultimate protection should a serious market or price reversal occur, and a very effective way of minimizing your forex risk exposure, however, normal stops tend to be quite rigid and you may miss out on an opportunity if you need a little more breathing room.
Finally, yet another very effective way of minimizing your forex risk exposure is through forex hedging, whereby you set up more than one trade, each using different currencies, yet still relative to the other so that an impact on one currency will affect another in an inverse direction. For example, if you set up buys with EUR/USD and USD/JPY you will learn that even if the USD appreciates, your loss will be offset by the probable appreciation of the JPY. Effectively, in this way, you’ve minimized your forex risk exposure to loss. Forex hedging offers the trader the breathing space that a normal stop might not.
The actions that you take to minimize your forex risk exposure, whether a singular or combined, are critical to your long term investing goal – to achieve success and profits in your forex trading.
Forex trading tips
Essential forex trading tips
Seasoned forex traders have a whole host of forex trading tips that they draw upon and put into good use, depending on the market conditions. The most important forex trading tip, however, comes in two parts: 1) a forex trader should create a trading system that will allow him to trade consistently (and ultimately, profitably) and 2) incorporated within that trading system a trader will have established a money management strategy that will allow him to cope with potential trading losses.
What does all that mean? First, understand that the goal of forex trading is to generate a profit – not the millions overnight that some unscrupulous websites “guarantee” through use of “their” so-called trading methods – but a steady regular stream of profits earned over a long period of time. Understand, too, that it is only over a long period of time that real forex trading success can be achieved. An experienced trader will have learned that the best forex trading strategy is one that is developed even before the first trade is established. Further, it is a trading strategy that can be consistently applied, yet still be adaptable to changing market conditions.
A well-constructed compilation of forex trading rules will give you the confidence to trade regularly and consistently, allowing you to achieve the trading success you desire over the long term. With your own set of forex trading tips at your disposal you will how to handle nearly every trading scenario that you may encounter.
Common sense forex tips
The forex market offers immeasurable profit potential, but it is important that you act responsibly, much in the way you go about the rest of your life. Consider these last few forex trading tips:
- Take baby steps, one at a time
- Be thankful for successes
- Take a deep breath and move on after a loss
- If it ain’t broke, don’t fix it
As applied to forex trading (and life!), they are simply good common sense tips.