Tuesday, 29 July 2008

Forex Trading Rules To Live By

Forex trading can be very exciting. Sometimes it is so exciting that I can get carried away and trade with no care in the world. The only problem with this is that when I get carried away, I tend to make losing trades. To take care of that, I have drawn up a few rules that I always follow before and after and a forex trade.

1. Trade less

Every time a forex trader places a forex trade, he incurs trading costs. These trading costs can add up to a large figure the more one is trading. I am lucky in this aspect as my automated forex system is very selective in the trades it makes. Over time, reducing my trading frequency has enabled me to make more profits and also have a life outside forex trading.

2. No News Trading

Since I discovered that trading the news can be very stressful, I have avoided it as much as possible. My automated trading system can also not be able to properly take advantage of any news events. I have programmed it to wait for some 20 minutes before making any trades after any news items.

The stress is now gone and the forex trading is more profitable.

3. Find the Trend

It’s very exciting to identify prices where the market turns. However, I am not into forex trading for excitement. I am after profits and trading in the direction of the market has been the most profitable thing I have ever done. Why would anyone wish to sell when everyone is buying anyway?

4. Get Out

This is the hardest thing to do. When a forex trade is done, it is important to get out. There is nothing more annoying than seeing a trade that was profitable turn into a losing trade just because you were greedy for more. If my automated forex signal tells me to get out of the market, I get out.

5. Have a Reason for a Trade

Trading for the sake of it is harmful to your pocket. One must always have a reason for each and every trade that one is making. If you only buy when the rsi is below 45, then that is your reason. If you have yet to get a reason for your trade, consider getting a forex trading robot. It will take care of this rule every time for you.

6. Losing is Ok

I used to beat myself up every time I would make a losing trade. That is until I realized that losing in forex trading is all part of the fun. Each and every loss brings me closer to a winning trade. Each and every losing period brings me closer to a long winning period. It actually becomes more fun to trade forex when you know that you might actually lose an otherwise perfect trade.

Every forex trader has their own basic trading rules that they use. I have mine next to my computer just incase I forget them. A good forex trader should find trading principles that allow him to profit without putting too much of their funds at risk.

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Automated Forex Trading Vs Discretionary Forex Trading

There is a debate whether forex trader should use automated forex systems or have discretion in their trading. Purely automated forex trading involves the use of back testing and rules to generate every trade they make. Discretionary forex traders on the other hand use signals as an alert and then make a decision on whether to trade or not.

Automated forex trading involves having your computer make clear cut forex trading signals and the trader will not second guess the system. They will ignore all emotions and thoughts about the market and are disciplined enough to make the trades when the system alerts them to do so. Obviously not everyone is that disciplined and as such automated forex system software has been developed to completely remove the trader. These are also known as forex trading robots.

The major problem in automated forex systems is that it is impossible to program proven forex methodologies into an automated forex trading system. A good forex trader can see patterns in the market that a forex robot can not see. For example, I have yet to see a forex robot that can identify a hunch. Believe it or not but there are times when I can get a hunch that the market is not doing the right thing and I am correct. An automated forex system will never be able to do this. At least, not yet.

Another weakness of automated forex robots vs. discretionary systems comes in situations in the market that are fundamental in nature. I have yet to see an automated forex system that can identify how I should trade if there is an earthquake in Saudi Arabia that increases the price of oil. Many forex trading situations are created by fundamental reasons and the forex robot will probably not be able to identify these situations.

Automated forex trading is especially useful for the forex trader who has problems in executing forex trades. Many a forex trader never follows their own forex systems and end up getting paralysis when they are supposed to trade. The forex robot will aid such a trader in such a scenario by placing the trade as long as the trading signal has been generated.

If you have a problem finding time to trade your forex system, an automated forex system will ensure that you never miss any signal generated by your trading methodology. The forex market is a 24 hours market making it impossible for a forex trader to follow all the trades that his system is producing. Having a forex trading robot should take care of that.

Overall, it is hard to say what approach works. Forex traders make money both ways. I make an effort to have both a forex robot to trade for me, especially if I know I will not be following the forex market for long and discretion when I have time to follow the currency market. If you have a forex trading methodology that works, then stick to it.

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