Forex Trading Rules To Live And Trade By

Its pretty simple to assume that traders are in it for the money when it comes to forex. After all, that's what their trading, cold hard currency. The largest problem with beginning to trade forex is seeing your money fade away very quickly. You don't have to be a novice trader, this happens for experienced forex traders as well. With great rewards comes risk, and that risk is what can hurt your trading and your wallet if you don't ahere to certain rules.

Keeping Risk to a Minimum

You may have heard different recommendations online or in the forex forums about minimizing risk by keeping it at a level of around 5% of your trade. Even a small 5% can be risky and dependining on your strategy more than you want to risk in single trade.

Sometimes the higher risk levels your accustomed to come from your recent transition from a demo account to a real account. Of course 5% of a $5000 trade doesnt seem like much when your playing with that funny money, but soon, when you move to a real account you find that your risk tolerance has changed dramatically. As long as you manage your risk levels as the capital in your account increases, you'll find that your funds will remain much safer.

Continuing to manage your risk and make the necessary changes as your account size grows will continue to keep you trading and keep the money flowing in. Professional traders don't typically risk more than 1% of their total account value, and why would they, when their larger account allows for a higher degree of leverage, often as much as 400%.

Simplicity Has Its Rewards

You don't have to be an island of forex knowledge, nor do you have to scour the bookshelves day and night for everything ever written on foreign exchange trading. In this particular instance, knowledge is not necessarily power. While others read, you can be trading and getting your street smarts and that insight on how to trade forex. The real time experience is by far more valuable than the book smarts. Find a simple, productive, forex trading system and mold it to your style so it can make you money.

Standing by a single currency pair is a good idea. This gives you only a single set of numbers to watch and allows you to focus on news and signals for that particular pair. If you feel your read to trade another, then add one more pair. Again, keep it simple to one, maybe two currency pair at a time.

Test - Within Reason

We all know the importance of backtesting forex systems and using a demo account the first time. All forex brokers will give you a demo account to use for this purpose. What you don't want to do is spend too much time testing, and miss a large opportunity to make a winning trade during a peak time in the market. Secondly, testing within a demo account can help you gain too much confidence, and that is something you don't want to take with you into a real money account. Use a demo account until you know how to use that broker's trading platform, then switch over to a real account and start out with small trades working your way up to larger money trades.