Forex Trading Tips - Part 5

Part 5: These forex trading tips may be of help to the budding or hardened professional trader. Knowledge is certainly power.

Welcome to part FIVE. If you haven’t read part one, two, three or four please take some time to read and understand them at forextradinghq.com. If you have - congratulations, you probably understand more then most traders gambling their savings away on the forex markets. Take notes of what I say, but it is your choice whether to follow them or not. I am simply sharing my personal experiences, so some of my ideas and opinions may not cover your overall goals in trading forex. So we shall start off to rehash the forex trading tips we covered in part 3.

In part four of our forex trading tip series we discussed three major points. We told you to have a trading goal of at least 20 pips a trade. Why? Simply because of your risk and reward ratio – it is worthwhile holding out for a larger profit if you are going to lose out every so often.. Just as long as you have a system with a stop loss, this goal should work for you. Impose a trading goal of 20 pips a trade. Risk reward; KISS, exits in profit and loss

It would be perfect if you can pick tops and bottoms perfectly. But you would be extremely lucky if you did. Lucky because it is purely by chance that you happened to enter into or exit a position at the absolute high or low of the trend. Everyone would love to pick out tops and bottoms. This is where amateur forex traders falter and professionals exceed. Professional forex traders do not pick bottoms or tops. It is more wise to ride trends, with the aim of getting a small piece of the action at a time. It is just human nature to want to buy at the absolute rock bottom bargain price and it is also human nature to want to sell at the highest price. But in the markets, aiming to always squeeze out the money in the ‘tops’ and ‘bottoms’ are just an equation for failure. Think about it – it is simply greed in play there. Greed, just a human emotion of greed to want more, when you can already have a slice of the action.

Don’t forget your technicals. A large part of forex trading is understanding and analysing your technicals. Understand what the market is doing – whether it is in a long term uptrend or downtrend or if it is bouncing around a tight support/resistance zone. Also remember that there can be spikes in the day to day movement of forex, and that these spikes can lure you away from the bigger picture. Of course, this tip all depends on your trading goals, namely your time horizon for the trade. For example, if your goal was to make a profit off an intra day trade, and the technicals were showing you a long term downtrend, but in that particular day there is a short term breakout or spike in the other way around. So you take your chances. But suddenly the trade goes sour. What should you do? Think now, and not when the heat is on and prepare your trading plan.

Emotional trading. All traders are at the whim of their emotions. Fear and greed are the main culprits of failure at trading the markets for a profit. Even professional traders who have been in the business for years have succumbed to the evils of fear and greed. It is simply human to be tempted by fear and greed and the only weapon traders have against them are having a trading system in place. Without the trading system that will tell you when to get into the forex market and when to exit most of your trades will be decided from the gut – that is from your emotions. The success of your trading without having a system lies on how good your gut feeling is. And let me tell you, trading the forex markets in that way is highly stressful and inconsistent. Systems are all the rage – with people selling them as black box trading systems and people educating traders about their successful system… but that is a totally different story.

We’ll see you soon for part six of the forex trading tip series.