It often happens that after having several failed trades, beginner and not-so-beginner traders abandon or renounce investments because by not following any rule to avoid losing money in forex, those negative experiences seriously affect their psychology.
Typically, newcomers to trading dream of achieving financial independence, quitting their job, and earning enough income to transform their life. The good news is that this is a realistic goal, but only if you fully meet three fundamental standards.
Earn to trade with and against the trend
Indeed, you have already seen many videos in which they always recommend you to invest with the trend. I want to make an extraordinary wake-up call in this regard. Every trend has a point of exhaustion, which means that it will end at some point.
Therefore, as important as investing with the trend knows how to determine the right time to stop doing it; this is a rule that professional traders understand perfectly. If you see that the market is skyrocketing, has been up for a long time, and is very close to its exhaustion point, it is time to make the decision to invest down or against the trend. Next, you will see in more detail what I mean:
Always reduce the size of your positions when you are trading poorly.
Every good trader follows this rule. Why keep losing trading five contracts when you could save a lot of money by reducing your position to a single agreement on the next trade? If I make two losing trades in a row, I permanently reduce the size of my positions to a single contract. If my following two trades are winners, then I go back to the usual number of contracts. It is like a hitter who has racked up two strikes – next time; he will focus on hitting the ball, slowing the spin, and trying to beat it.
Always calculate the risk of your operations.
I have lost count of the times I have heard people talk about buying assets without having any idea of how to manage the risk of a trade. This is serious when you are trading forex.
Suppose you just bought an asset; what is the first thing you should do? The main thing every investor should do, even more so when he is a novice, is to define when he will exit the trade in profit and when he will exit the business in the loss.
If you do not know what your maximum risk is, you not only run the risk of losing your money but of doing it in a single operation when buying a good, such as a Forex pair. For a trader who is just starting out in the markets, it is vital to learn to precisely define the maximum amount that he is willing to lose if the market goes against it.
Never let a leading trade turn into a lost trade.
We have all violated these rules. However, it should be our goal not to break it further in the future. What we are talking about here is actually the greed factor. The market rewards us by moving in the direction of our position, but we are not satisfied with such a small profit. Therefore, we decided to hold the position expecting a significant profit. Soon afterward, the market turns sharply against us.
Inevitably, now we will have doubts, and finally, we will end up closing the operation with a significant loss. You do not need to be greedy. It is just an operation. There are always opportunities in the market. Remember: no process should be solely responsible for your profits or losses. Do not be greedy.
Close your losing positions
You are a loser when you do not close a losing trade once you realize that the trade is bad.
It is amazing how accurate your stomach can be as a market indicator. If you feel that the operation is not good, it probably is not—time to get out.
Every trader has losing trades during the session. A typical trading day has one-third losing trades, one-third no-profit trades, and one-third winning trades. I permanently close my losing trades quickly.
They do not have to cost me more money than I already lost. Thus, even if I have not won or even lost in two-thirds of the operations, I am sure to return home with benefits.
Do not speculate. If you do, you will lose.
Throughout my trading history, I have not met any successful speculators. It is impossible to speculate and have great benefits. Do not be a speculator. Be a trader.
Short-term scalping is the best strategy: the probability of winning increases by operating in the short term, obtaining small profits and few losses.