A generation ago, the thought of a woman around town popping home to make a little money on the financial markets would have seemed absurd. A brief chat with one’s stockbroker over cocktails might have been the sort of afternoon engagement casually alluded to in certain circles, but Forex? Surely that’s a world inhabited by people like Jordan Belfort, the city trader memorably portrayed by Leonardo DiCaprio in The Wolf of Wall Street.
This is 2018, though, and things have changed. In part, that is through necessity being the mother of invention. After all, 20 years ago, as long as you had a reasonable pension plan and maybe a little money salted away in a savings account, there was nothing more to worry about. Financial tools like these are failing to deliver today – interest rates might be rising, but they are still low, and as for pension funds – the deficits reported to date could be the tip of the iceberg and expert commentators see a crisis looming. In other words, you might as well be hiding your money under the floorboards. The search for alternatives, then is certainly one driver for increased focus on the global Forex machine. The other change is technological. The internet has brought unheralded knowledge to billions of people and has provided easy access to things that were otherwise out of reach. Forex is a great example of that. All you need is the right app and you can get trading.
That’s true so far as it goes, but trading and making money are two different things. To take on the markets and win, there are some basic rules that every trader needs to follow.
Rule 1: Take time to learn
Alexander Pope famously wrote that fools rush in where angels fear to tread. It’s a great piece of advice to remember when you’re getting into Forex. You might have read that the majority of Forex traders are unable to make any sort of returns initially, and that most actually lose money. That’s because they rush in full of enthusiasm throwing money at trades and expecting to become millionaires.
It doesn’t work like that. Set up a demo account, find yourself a good broker and then start learning about the most important Forex technical indicators and what they mean. The thing about Forex trading is that there are millions doing it, and the ones who make money are those who spot what’s happening in the market and buy or sell at the perfect time, before everyone else twigs. Making those sorts of insights consistently is simply not possible unless you really know what you’re doing.
Rule 2: Keep it simple
The Forex market encompasses hundreds of currencies being traded by millions of people in hundreds of complicated and convoluted methods. It all sounds very exotic, and is fine for the Leonardo DiCaprios of this world. However, serious traders who make serious money are more likely to follow what US Navy officers termed the KISS strategy. It stands for “Keep It Simple, Stupid!” The vast majority (around 85 percent) of trading involves just seven currencies, so there’s one simplification to get you started.
Rule 3: Avoid day trading
This one is a little controversial, as day trading is often the area that newbies find most attractive. Isn’t buying and selling within a matter of hours and watching the money come pouring in on the basis of daily shifts what playing the Forex market is all about?
Again, Hollywood has a lot to answer for. Day trading is certainly as tense and dramatic as it appears on the big screen, but the problem with it is that the signals and indicators we were talking about earlier are so difficult to read with any accuracy. If you are trading in a longer window, you can analyze the trends and base your decisions on some solid statistical analysis. For the amateur in particular, however, day trading has more in common with heading to the casino and putting everything on red.
Rule 4: If you want to win, be ready to lose
Follow rules one to three, and you will be well on the way to have more successes than failures. However, nobody, not even the best trader in the world, wins all the time. Some trades are going to go your way and some are not, it’s a cast iron certainty.
Having more winners than losers is obviously the ultimate goal, but there’s an even more important rule you need to keep in mind here. This is that whatever happens with a particular trade, even if it goes as badly as your worst nightmare can imagine, then as long as you can carry on to the next one, it really doesn’t matter. This mean managing your risk, observing the two percent rule, and always sticking to it.
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