CUT LOSSES

The single most important characteristic found within successful Forex traders is the ability to exit losing positions quickly. Losing trades are inevitable for high volume traders. Many novice traders are unwilling to recognize and accept when a position goes against them. Seasoned traders have learned to cut their losses on an adverse trade quickly. A reduced loss is no less valuable than a gain from a winning position. However, human psychology skews our perspective making a loss infinitely more painful than a gain is pleasurable. Overcoming this inherent human flaw is the first critical step towards becoming a Forex pro.

MONEY MANAGEMENT

Professional Forex traders employ detailed and strict money management regimens. Novice traders often get overly excited at the prospects of a given trade and plow into it full force. This behavior almost always translates to account blow-ups and Forex losers. Forex winners learn quickly that there isn’t any trade, no matter how attractive, that is worth risking more than 4% of your account balance. Those just starting out are advised to limit the risk associated with any single trade to 2% of the account balance. Forex professionals manage their risk assiduously.

KISS

Follow the famous advice of McDonald’s found Ray Kroc who said to “keep it simple, stupid!”. Many Forex traders fall victim to information overload, especially with many of the trading “command centers” available today which can display hundreds of data points. A Forex pro becomes a specialist in trading given pairs or spotting a specific group of indicators. By keeping it simple, you are able to become an expert in your Forex niche able to outwit other traders who do not possess your level of experience and knowledge within it.

PRACTICE MAKES PERFECT

The best Forex traders rigorously test their trading strategies before putting real money at risk. Myriad simulation programs exist, and most Forex brokerages provide for a “testing mode”. Overly anxious traders jump right in and often take losses while refining their strategy. A Forex pro fully tweaks the strategy in practice mode avoiding these initial losses thus positively impacting their net ROI.

KEEP YOUR COOL

Emotions are the enemy of all traders. Fear can often prevent a trader from executing upon a correct thesis at the right time. Greed can lead a trader to deviate from their money management rules in pursuit of the proverbial grand slam. Frustration can cause traders to chase losses and engage in the mortal sin of averaging down on losers. Impatience can cause traders to take positions before their strategy would otherwise dictate. All of these emotions prove detrimental to professional level Forex trading. Pro Forex traders execute their strategies remaining cool, calm and collected despite the often chaotic nature of the Forex market.

USE STOP LOSSES

A stop loss order is one which you define an amount of acceptable loss on a given trade. Pro traders religiously use stops and do not rely upon manual executions when it comes to limiting loss. Without a stop loss already in place, novice traders often allow the trade to keep going against them in the misguided hope it will soon turn thus preventing a loss. A stop loss works hand in hand with the rule dictating that traders seek to cut their losses on their bad trades. A stop loss is an effective tool which can be used towards enforcing discipline in this arena.

SET UP A POSITIVE RISK/REWARD EQUATION

Forex professionals ensure that each trade entails a positive expectation. The likelihood of success and potential pay-off must outweigh the odds of failure and the commensurate amount of loss. Shrewd Forex traders do not engage in coin flips. They seek trades where their research and strategy indicates that they have an edge. If you are able to maximize reward while minimizing risk, then mathematics dictate that you will profit nicely over the course of time.

LEVERAGE: YOUR BEST FRIEND OR WORST ENEMY

Many are drawn to the Forex market due to the extreme leverage that can be deployed within it. When the trade goes your way, leverage can produce obscene profits from only a small investment. Conversely, if a trade using 400:1 leverage goes against you, then it can wipe out your account in the blink of an eye. New traders should use leverage with extreme caution. Using leverage sparingly in order to juice your ROI is the sign of a pro Forex trader.

STUDY YOUR LOSSES

A normal human reaction to a loss is to try to forget it and put it behind you. However, pro Forex traders study their losses in order to derive lessons which can prevent the same scenario happening again. Oftentimes, analysis of your losing trades can help you glean critical information used to further tweak your trading strategy. Losses obviously aren’t fun, however, the ability to learn from them is the sign of a pro trader.

TIPS ARE FOR HORSE RACES

Novice Forex traders scour message boards and other chat forums seeking “tips” from random posters telling them which currency to buy or sell. It is a truism for both stocks and Forex that if anyone truly had any information of value, then they would not be sharing it for free in the Internet. This is even more salient in the realm of Forex where “inside information” regarding the movement of major currencies is a complete myth. Many forums can yield valuable information about strategies, indicators and money management techniques. However, view any outright trade advice posted on them with a huge grain of salt.

In the coming weeks we will further explore differing forex strategies, software, and brokers.

It is theoretically possible to manually discern the multiplicity of Forex signals that emanate from the currency markets on an hourly basis. What you need to know about trading using Forex signals ranges from macro-economic events and trends to technical expertise in reading charts and spotting patterns. Traditionally, small retail traders had no choice but to manually formulate their trades and were at a great disadvantage trading against institutions that could avail themselves of automated trading software.

Fundamental Analysis is when Forex signals are influenced by a given sovereign’s economic circumstance. There are many factors that go into determining the strength or weakness of a particular country’s currency, including inflation outlooks, trade deficits, unemployment rates and GDP estimates. Substantive information and statistics are released around the world in a never ending news flow.

The second facet of Forex signals relates to Technical Analysis. Technical analysis involves the complex charting of small fluctuations of a given currency’s valuation against its peers.  Various patterns of recent activity trigger either Forex signals to buy or to sell. The trick is to recognize the applicable pattern quickly and take advantage of the short-term projected movement that the given Forex signal portends.

After reading this, you might come to the conclusion that trading based upon Forex signals is complicated and requires years of study.  You are both right and wrong within this conclusion.  As indicated, to manually track all the salient macro-economic statistics around the world while keeping eagle eye out for technical Forex signals requires both substantial time and expertise.  However, there is another alternative that allows traders to capitalize on Forex signals without the grueling work and years of study.

Experts have taken their years of experience and have crafted software that quickly captures all you need to know to trade based upon Forex signals. Automated trading systems can absorb macro fundamental events in addition to being able to recognize technical patterns and act upon them in nanoseconds. Nowhere is the old saying “the early bird gets the worm” more applicable than in the Forex markets. Those seeking to manually effectuate Forex signal-based trades often find themselves only armed with a slingshot in a battle against cruise missiles.

The most important thing you need to know about Forex trading signals is that you cannot go it alone. Unfortunately, many novice Forex traders learn this lesson the hard way. Many automated Forex signal-based trading programs allow for a free practice account, which allows you to quantify expected results before risking any of your hard earned money. The choice is clear between guesswork and science when it comes to Forex signals. Do not let yourself end up on the wrong end of that continuum.