There is really only one reason why an individual would choose to start trading in a market as volatile as the foreign exchange and that is the need to make profits. Notably, the one thing that every individual in the world knows about foreign exchange rates is that they are extremely unpredictable and difficult to project.
This is both a good thing and a bad thing for individuals looking to make profits. The reason for this dual nature is that if foreign exchange rates fluctuate a lot then many opportunities to make money will show up. However, at the same time the fact that they fluctuate so much means that losing money becomes more of a threat.
This is the schizophrenic monster that most forex traders have to cope with on an everyday basis. In fact, whether a trader makes profits from fluctuating foreign exchange rate or not is primarily dependent on how they deal with this monster. Consider the following tips.
Always Try to Follow the Trend
Many traders think that they need to pick tops and bottoms of foreign exchange rates to profit when all they need to do is ride a trend to profit and repeat the same action as many times as they can without losing money.
Picking tops and bottoms is almost like predicting the future movement of forex rates which is extremely difficult. Therefore, all you need to do to make sure that you profit is follow the trend and never go against your signals.
Start with Small Position Sizes
You will be extremely jittery about your trades in the early stages of your forex trading career. Moreover, when following trends it can be difficult to be entirely sure whether a trend is true or false. This can make putting up a lot of money in the beginning very hard to stomach for most traders.
The best thing to do to cope with both these situations is to start with small position sizes and only add to them when the trend being followed by foreign exchange rates becomes obvious.
Never Forget to Use Stop Losses
Even with certain trends of foreign exchange rates, you can never be 100 percent sure of their invincibility because trends can change at a moment’s notice. This uncertainty is best countered with the help of stop loss special orders.
Stop loss orders are like your safety net. Their use would ensure that you only lose what you can tolerate losing and your losses do not get blown out of proportion because you were not around to time your exit. You should also look to use trailing stops to lock in profits.
Establish and Follow Your Rules Religiously
If you are a consistent individual then it is highly likely that you will slowly develop a process of trading. You must jot down this process into solid rules and restrictions designed to keep you objective and on the right path. This means weeding out impulses and emotional reactions because impulsive and emotional decisions about foreign exchange rates always tend to go wrong.