TRADING STRATEGY
rules and letting losses accumulate in hopes that a price change will make things right, failure to take a reasonable profit, carelessly betting based upon a past ‘pattern,’ leads many Forex traders to the 95% loser door.
Conscious attempts to constantly recognize and avoid the forces of human nature that influence trading decisions aren’t sufficient to minimize Forex risk or maximize trading profits.
The very nature
of the Forex trading market creates significant challenges to traders, both new and experienced. Understanding
and coping with
three fundamental elements of Forex trading present the greatest challenges to the Forex trader: limits versus the amount at risk, market signals and trends, and 24 hour global trading.
Many novice traders who don’t understand the difference in risks involved in Forex versus exchange traded securities find comfort in claims made by many Forex software trading authors who suggest starting with just $500 in a trading account. Many novices expect that it isn’t a bad deal to risk this little. But, when the system produces a signal and the trade heads the wrong way, human nature kicks in, and the novice trader becomes nervous on a 50 pip drop. They might hold, but when they’re wiped out on a second bad decision, the novice is likely to take the loss and move on. As a rule, a trader should allocate no less than
FX
If profitable trading in a 24 hour global market is difficult for the professional financial trader, it is even worse for the part-time trader.
$5,000 to a trading account and then set realistic gain/loss parameters that limit losses to an acceptable degree,
but allow gains to run, and avoid the losing process of scalping – taking quick profits.
FX TRADER MAGAZINE January - March 2012 59
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