Choose your tactics
The first thing you should do is choose one of the main Forex market tactics. There are only 4 of them symbolically named with animals:
“Bulls” are traders who prefer trading on speculation that values will increase. They have been called so, because a bull strikes upwards with his horns. It is psychologically easier for bulls to enter the market when quotations are growing. It is more comfortable for them to purchase at cheaper prices in order to sell more expensively afterwards.
“Bears” are traders who prefer dealing for a fall. They got their name because a bear strikes downwards with his paws. It is more comfortable for bears to enter the market when rates are falling. They prefer to sell at more expensive prices in order to buy cheaper a little bit later.
“Pigs” are traders without any strategy who simply follow their own greed. They gamble quickly and in disorderly ways Usually pig traders go bust very fast but there are always more pigs waiting to take their place.
“Sheep”. Traders of this type are indecisive persons who deal out of fear. They play in disorderly ways but calmly. Usually “sheep” hesitate until the last moment, supercharging the situation in the market. They start trading too late even if a trend was clearly defined.
If you have read the previous chapter carefully and paid attention to the advice given you will understand to choose your tactics from the first two types of tactics. Then start trading with a demo account or trade with micro-lots (lower than 0.01) in order to try out different strategies before finding the one you are comfortable with. You shouldn’t try to use both tactics until you have celebrated a couple of wins. Also remember that self-confidence is one of the features of greed that most often leads to loss.
Please read this chapter carefully and avoid allowing your emotions to act as your trading adviser. Always use your reason, never act impulsively or out of greed (although this can be tricky to define) and act out of caution – which is based on rationality, rather than fear.
Building a trading system
The most important feature of a personal trading system is the application of money-management rules. This will help you to control the instinct to gamble. Even if you think the whole world is headed to hell in a hay-cart and the indices are going to nosedive in the biggest bear market known to humanity, stay your hand – don’t put everything on one trade or even half your savings. Always trade the same amounts and make them reasonably sized – perhaps 10% max. Success usually comes through slugging it out for the full 10 rounds, rather than making one knockout punch in the 1st and walking off with a fortune.
The exchange market is a kind of ocean. A wave tosses you up and you become happy like a trader is happy when the currency he has bought rises up. When a wave strikes your eyes and makes you choke, you become scared and angry like a trader who bought a collapsed rate. You should remember that your emotions are only yours and live inside of you. The ocean is independent and heartless as is the Forex market.
It is important for you to understand that when in troubled times, your emotions will try to persuade you to blindly obey the crowd or to fight against it, to run away with fear or to crave for profit. You should remember that you can’t influence the crowd. You can only manage your own actions.
The main features of a good strategy
Now that we have introduced the importance of self-control we can amplify our description with some details that are necessary to complete the picture:
- Try to make a commitment to Forex trading for the long-term – make it your destiny to be a successful trader, otherwise you might be better off quitting this venture altogether.
- Never stop learning. Read books and magazines and maintain a skeptical eye. It is also worth testing the techniques and strategies you learn before believing in them.
- Use your own set of instruments based on your personal preferences. Nobody can forbid you to from using wave analysis and fundamental analysis in combination, for example, or maybe you would like to use some exotic methods of technical analysis instead.
- Check the effectiveness of instruments and methods chosen on demo accounts using small amounts of money. The more you train on your demo account the more confident you become and the more able to resist you emotions in real trading.
- Be oriented to the practical result and not to the weight of explanations of the methods chosen.
- Define the exact part of money from your account in percentage terms which you will allow yourself to risk in your trading. Professionals prefer to limit their individual orders to not more than 2% of their account capital. So if you have $300000, for example, you would risk a maximum of $6000, and if you have $1000 the maximum sum you would risk will be only $20.
- Initially, your main mission will be to preserve your capital so you can trade Forex for an extended period of time, gaining experience and understanding. Your second goal might be to gradually enlarge your capital. Your third aim might eventually become to make a “big kill,” that is, a significant profit on one or a few trades. But again, this kind of strategy usually leads to bankruptcy.
- Always remember that any strategy, even a “super-well thought-out” one, will have a weak link, and it is you and your emotions. Pay attention to the advice given in the chapter “Psychological aspects of Forex market trading” because hardly one person out of a thousand is able to reach the level of self-control required to master trading all by himself. Faultlessness is a zero-risk strategy. If all the traders in the market had impeccable self-control only the banks would lose because they have to trade under any condition and.
Many exchange players think that the aim of market analysis is to forecast prices. Professionals simply analyze the result of a potential deal in order to decide whether to arrange it or not. You don’t have to be able to predict the future in order to gain profit in the Forex market. It is enough to gather information about the price action and find out who is driving the market – the“bulls” or the “bears”. After you have worked out which is the dominant group you can estimate the probability that the tendency will keep going and then decide whether you should make a trade or not.
You may become a successful trader by following this rule alone, and it is not just a personal point of view. The authors of this book share the market trading giants’ opinion and ideas that you can find yourself in books they have written. The words of one famous Hollywood actor, Michael Douglas, who is also known as having been a successful trader, might summarize this chapter and act as a short resume to the whole study-book: “If market actions seem mysterious to you it means that it is your actions which are mysterious and uncontrollable. How can you predict the next possible step of a market if you are not sure of yours? Traders who are able to regularly enlarge their capital only gamble from a position of self control. The only thing you can manage is yourself. You’ve got the power to enrich yourself or others.