Common sense guidelines for an average trader!

Friday, November 9, 2007

Common Sense Guidelines for the Average Trader

Here, i whipped up an article outlining the basic things an average forex investor should be watching out for....

Looking for a reputable broker

  • Ability to trade effectively depends heavily on consistency in the spreads and ample liquidity
  • Anyone can establish a position quite easily.
  • The Ability to close out a position at a fair market price is more important than anything else

Live to trade another day

  • Always apply prudent money management skills
  • Avoid using excessive leverage that puts your investment capital at risk.. Refer to the leverage articles that i will be posting soon.
  • And very importantly Always trade with a stop!

Don’t trade emotionally like an emotional fool, Just stick to your plan and maintain discipline

  • Establish a trading plan or strategy before initiating a trade
  • Set reasonable risk/reward parameters
  • Don’t override your stops for emotional reasons
  • Don’t react to price action – means don’t buy just because it looks cheap or sell because it looks too high, Have reliable evidence to back up your trade

Don’t punt

  • Don't punt( Punting is trading for trading sake without a view)

Don’t leave stops at obvious levels such as “big figures” (e.g. eur/usd 1.20, usd/jpy 110)

  • i.e. JUBBS stops = stops at obvious levels and thus are more likely triggered

Don’t add to a losing position in unless it is part of a strategy to scale into a position

  • In other words, don’t double up in the hope of recouping losses unless it is part of a broader trading strategy

Trading with and against the trend

  • When trading with a trend, consider the use of trailing stops.
  • When trading against the trend, be disciplined taking profits and don’t hold out for the last pip

Treat trading as a continuum

  • Don’t base success on one trade
  • Avoid emotional highs or lows on individual trades
  • Consistency should be an objective

Forex trading is multi-currency

  • Watch crosses as they are key influences on spot trading
  • Crosses are one currency vs. another, such as eur/jpy (euro vs. jpy) or eur/gbp (eur vs. gbp)
  • Crosses can be used as clues for direction for spot currencies even if you are not trading them

Be cognizant of what news is coming out each day so you don’t get blindsided

  • Be cognizant of what news is coming out each day so you don’t get blindsided
  • Beware of trading just ahead of an economic number and be wary of volatility following key releases

Beware of illiquid markets

  • Beware of illiquid markets
  • Adjust strategies during holiday or pre-holiday periods to take into account thin liquidity
  • Beware of central bank intervention in illiquid markets