Forex Trading Rules: Introduction
Why Trade in Currencies?
There are 10 major reasons why the currency market is a great place to trade:
1. You can trade to any style - strategies can be built on five-minute charts, hourly charts ,daily charts or even weekly charts.
2. There is a massive amount of information - charts, real-time news, top level research - all available for free.
3. All key information is public and disseminated instantly.
4. You can collect interest on trades on a daily or even hourly basis.
5. Lot sizes can be customized, meaning that you can trade with as little as $500 dollars at nearly the same execution costs as accounts that trade $500 million.
6. Customizable leverage allows you to be as conservative or as aggressive as you like (cash on cash or 100:1 margin).
7. No commission means that every win or loss is cleanly accounted for in the P&L.
8. You can trade 24 hours a day with ample liquidity ($20 million up)
9. There is no discrimination between going short or long (no uptick rule).
10. You can't lose more capital than you put in (automatic margin call)
This tutorial is designed to help you develop a logical, intelligent approach to currency trading base on 10 key rules. The systems and ideas presented here stem from years of observation of price action in this market and provide high probability approaches to trading both trend and countertrend setups, but they are by no means a surefire guarantee of success. No trade setup is ever 100% accurate. That is why we show you failures as well as successes - so that you may learn and understand the profit possibilities, as well as the potential pitfalls of each idea that we present.
The 10 Rules
1. Never Let a Winner Turn Into a Loser
2. Logic Wins, Impulse Kills
3. Never Risk More Than 2% per Trade
4. Trigger Fundamentally, Enter and Exit Technically
5. Always Pair Strong With Weak
6. Being Right but Being Early Simply Means That You Are Wrong
7. Know the Difference Between Scaling In and Adding to a Loser
8. What is Mathematically Optimal Is Psychologically Impossible
9. Risk Can Be Predetermined, but Reward Is Unpredictable
10. No Excuses, Ever
Trading is an art rather than a science. Therefore, no rule in trading is ever absolute (except the one about always using stops!) Nevertheless, these 10 rules work well across a variety of market environments, and will help to keep you grounded - and out of harm's way. (If you have questions about currency trading you might want to check out, Common Questions About Currency Trading.)
An economic theory that estimates the amount of adjustment needed ...
The spread of market changes or disturbances from one region ...
Currency is a generally accepted form of money, including coins ...
A rapid and often unanticipated drop in stock prices.
An agreement between an asset manager and the Federal Deposit ...
The risk that a local currency cannot be converted into the currency ...
Arbitrage is basically buying in one market and simultaneously selling in another, profiting from a temporary difference. ... Read Full Answer >>
Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
The goals of covered interest arbitrage include enabling investors to trade volatile currency pairs without risk as well ... Read Full Answer >>
In economics, a negative externality happens when a decision maker does not pay all the costs for his actions. Economists ... Read Full Answer >>
According to the Bureau of Economic Analysis, or BEA, disposable income is the amount of money an individual takes home after ... Read Full Answer >>
Presidents George W. Bush and Barack Obama, in conjunction with Congress, signed into law several major legislative responses ... Read Full Answer >>