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Tuesday, March 2, 2010

Forex Trading Tips (Part 2)

Tip 8. Not trading or standing aside is a position.
When in doubt — stay out. If it is not clear where the market will move — don't trade. In this case saving your present capital is a better choice than taking additional risks and losing money.

Tip 9. Learn to use protective stops. Respect your stops and don't move them.
Hoping that market will turn in your direction is a very delusive hope. By moving a stop loss further a trader increases his chances to end up with a much bigger loss. When holding to a losing trade too long (even if funds permit) traders as a rule are very reluctant to accept big losses, thus often continue "hoping for the best". In the meantime invested money is stuck in a trade for unknown period of time (weeks and even months) and cannot be used for opening new positions. Not working money = dead money. Also this will result in constant interest payments for holding open positions (good if that interst is paid to you, but not good when you have to pay).

Tip 10. "Keep it simple, stupid" — applies to indicators, signals and trading strategies.
Too much information will create a controversial picture of when to trade and when not to. To avoid lots of confusion create a simple but working method of trading Forex.

Tip 11. Think about risk/reward ratio before entering each trade.
How much money can you lose in this trade? How much can you gain? Now, make a decision if the trade is worth entering. Example: if trader is looking for possible 35 pips gain and possible 25 pips loss, such conditions are not worth trading. Compare it with the situation when a trader has 50-100 pips of potential gain and only 10-20 pips of possible loss. This is the trade to open!

Tip 12. Never add positions to a losing trade. Do add positions when the trade has proven to be profitable.
Don't allow a couple of losing trades in a row become a snowball of losing trades. When it is obviously not a good day, turn the monitor off. Often not trading for one day can help to break a chain of consecutive losses. Trying to get revenge can often make things worse.

Tip 13. Let your profits run. Let your position be open for as long as the market wishes to reward you. Of course, for this traders need a good exit strategy, otherwise they risk to give all profits back...

Running two or more open trades gives an option to close some positions earlier and keep others running for higher profits.

Tip 14. Cut your losses short.
It's better to finish unpofitable trade quickly than wait for the situation to get worse. Don't put a stop loss too far — it's your money you risk. Better calculate the best spot to enter when a potential loss would be minimized. Again: respect your stop and don't move it "cherishing hopes".

Tip 15. Trade currency pairs in respect to their active market hours.

Learn about overlapping market hours: when two markets are open and highest volume of trades is conducted.

For example, Australian and Japanese trading sessions are overlapped from 8pm to 1 am EST. At that time trader can successfully trade AUD/JPY currency pair.

(Source: www.freeforextips.net)

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