When starting to trade the forex market, what rules should the young trader follow in order to be successful? What are the guidelines that will enable the trader to build a solid foundation for his home forex business? What should the trader consider prior to even thinking of trading?
In this article, I am not looking at the skills required to perform technical or fundamental analysis, or a review of which indicators to use. All these are good and should be mastered, but Rome was not built in a day. Neither has a trader become successful just by reading a book or attending a course.
The following are a few of the key consideration that need to be thought about prior to trading.
- The size of your account with the broker. The larger the account, the more the trader can put on each trade. I would always strongly advise traders to start with a small account and grow it until the trader’s level of competence and confidence increases. The key here is to minimise the amount of money you put in and let your successful trades drive your business.
- The traders appetite to risk or more specifically how much he is prepared to risk on a single trade. At a very maximum, I would never trade more than 5% of your account in a single trade; in fact aiming to trade at 1% makes a lot more sense. Where multiple trades are taking place, no more than 10% of the bank. However, a word of warning, running multiple trades should not be attempted by junior traders.
- The size of your stop-loss. I use the size of my stop-loss to determine how much I will place per trade. So for example if my 5% of my account (from point 1 in the article) is 50 dollars, and I have set myself a stop-loss of 25 pips, then the amount I will place per pip will be 50/25 which gives 2 dollars per pip.
- The target that you have set yourself. One of the biggest mistakes that new traders (as well as the not so new) make is that they measure their success based on the actual amount of money they make. This I would suggest is not a good idea. The target ought to be setting a fixed number of pips and increasing ones profits by increasing the amount placed on a pip.
- A successful trading strategy. The question that needs to be asked it, if you require to make say 100 dollars, pounds, euro or any other currency per day, is it easier by looking for a growth of 100 pips at 1 dollar a pip, or 10 pips growth at 10 dollars a pip. For many beginners, it seems initially better to go for 1 dollar pips. However, the ability to regularly make 100 pips is much more difficult than making 10.
By adopting these key considerations, the new trader will find that he is laying a solid foundation for the development of his forex trading career. The author has learnt and implemented these points to great success in building his own home forex business.
