3 Golden Rules of Forex Trading Strategies

Once you have had the chance to read up on forex or participate in the various forex trading forums, one thing becomes crystal clear. There are practically as many forex trading strategies as there are forex traders. Aside from variations due to personal style, currency trading by itself is comprised of many methods to generate profits.

Therefore, there is no single king of the hill solution that must be followed by the traders looking to maximize profits. There are however, a few guidelines that are true for any trader and these can be applied to your trading approach. These are my so called Golden Rules Of Trading.

1. Be A Trend Follower

The objective of most fx trading systems and strategy is the identification of trends. This is because getting in early on the trend is key to this market. Regardless of whether trends indicate a rise or fall in prices, going in long or short, it is important not to buck the trend. Defying the trends will likely result in quick losses for your account.

2. Protect Your Money

Putting all their eggs in one basket has taken down a large number of otherwise promising traders. Regardless of your conviction that this is THE TRADE that will not go wrong, resist the urge to risk large funds on a single transaction. Things can and will go wrong when you least expect them too.

The determination of the amount you can risk is dependent on your trading strategies and how much a total loss will matter to you. But a good rule of the thumb would be to risk no more than 5% of your total balance. A more conservative trader may opt for 2% to play it safe.

This percentage is maintained by many traders even as their funds increase. In this case, they are actually risking more money per trade because the actual monetary base is larger. It may be wise to reevaluate this because while you have a larger balance in your account, you may be very displeased when a larger loss is incurred due to keeping the percentage constant. If this is the case, it may be prudent to use a percentage reduction so as to risk only the same amount even if your funds are increased.

3. Have Goals For Every Trade

Each trade must have clearly defined profit targets. This means that even before entering the market, you must already know at what level you will close. Avoid overstaying in the market because of greediness.

On the other hand, when the market turns unfavorable for you, avoid keeping a death grip on your trades hoping that it will turn around. It is best to cut your loss and trade another day. A strategy that involves setting stop losses to automate this process is highly recommended.

There you have it. The 3 golden rules of fx trading. Regardless of your trading system, these guidelines will be invaluable in formulating your fx trading strategy.