Four Basic Rules Of Forex Trading.

By in Intro to Forex on January 6, 2018

There are four main principles which should be incorporated in any trading strategy. They are: 1) Trade the trends, 2) Reduce the loss, 3) Let the profit increase, and 4) Manage the risks. To be successful you must be sure that your strategy includes all of these principles.

Trade of the trends refers to how you make a decision about the transaction. This principle means that you should always enter in the present direction of movement.

Mathematical analysis of the movement in the prices of stocks shows that they change mostly randomly with a small trend component.This means that any effort to trade short-term figures and methods that are not based on trend are fated to collapse.

This also interprets why intraday trade is so difficult, and why almost no one practitioner of intra-day trade is successful in the long term. The shorter the time window within which you assess the motion of prices, the lower the trend component is. Price motions are fractals. This means that when decreasing or enlarging the time window, the behavior of prices is similar. So, five-minutes have a resemble sketch with hourly, daily, weekly and monthly schedules. This similarity in the graphs persuades traders that he can trade intraday successfully with the similar approaches that are profitably applied for the trade on longer time intervals. Certainly, they also try to apply those things that really do not work on long time intervals – Japanese candles, oscillators and Fibonacci numbers.

Though even approaches that apply the trend, which work well at time intervals of moderate to long continuance, do not work with intraday trading. This is because of the fact that the trend component within a day is too small and it is needed to use very efficient techniques to at least to cover the cost of the trade.

With long-term trading you have the opportunity to let your profit flow. You do this by definition; otherwise it is not long-term trade. When you trade intraday, you are able to let your profits run till the end of the day. This means that your average earnings will be less than if you would let your profits flow for days, weeks and months. At the same time, the value of the trade – slippage, commission, spread and errors – are kept at about the same level. Therefore, your system for intraday trade should operate more effectively and steady in order to cover the value of trading than the medium or long-term system.

As the price movements are mostly random in nature, a successful trading methodology must use the properties of price movements, which are not random. Propensity of most markets to the building the trends – is the feature only possible for use in the trade, so the approach that makes a profit should apply trends. The trends suitable for intraday trade arise not often. Certainly, they do not appear every day. That is why those who try to trade every day or even more are often fated to loss. The more often you trade intraday, the more likely that you will incur losses in the long term.

Nowadays people are searching for additional or even primary sources of income as never. World economy is still in tough condition, and to find a well-paid job is quite hard. And forex is one of the ways to make some money. To trade successfully one has to be aware of events on the market, so forex news is of great help here. Those who don’t know where to receive forex market news can make use of the web network. Just type “forex news trading“, for example, in Google or other search engine and you will get many news sources to choose from.

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