Rules are made to keeps things organized–in any sphere of our lives. When it comes to a highly sophisticated profession like Forex, the retail traders are bound to abide by certain rules to protect their investments.
But sadly, the majority of traders become emotional and break the basic rules of investment. They take huge risks after losing a few trades and make things much worse.
According to experts, losing trades are very common in Forex trading. Therefore, to realize success, traders must develop the necessary mental strength to embrace losing trades without any emotional breakdown.
Though there are many different rules you can use to protect your investments, there are four simple rules that can save your day as a Forex trader.
Understanding these rules is very easy but following them is the hardest part.
Let’s learn more about the four basic rules of spread betting Forex.
1. In-depth market analysis
Market analysis is very crucial in currency trading. We all know that the Forex market is extremely volatile and it can cause devastating losses to the retail traders.
You need to use the technical and fundamental tools very precisely to avoid a huge loss.
Technical analysis will help you to find the best trading spots in the market. When you do technical analysis, use the daily or weekly time frame so that you can easily eliminate the false trade setups.
Fundamental analysis will help you to understand the overall strength of the market trend.
Based on these two factors, you’ll need to develop a simple but effective trading strategy.
Without doing in-depth market analysis, it will be really hard for you to find the perfect entry and exit point of the market.
2. Create an effective plan
You must have a backtested trading system before you start trading the live market.
Trading can be extremely challenging prior to the high impact news release.
So, if your system is weak, you are most likely to face a big loss. Spread betting Forex is just like an art.
You have to devote yourself to create the best plan. Consider your trading personality when you develop your trading strategy.
Sounds confusing?
Let’s make it clearer. If you prefer day trading, you need to focus on a trading strategy that will allow you to trade the lower time frames.
On the contrary, if you prefer position trading, it’s better to trade the higher time frames.
Based on your specific needs, craft your trading system. Never start trading the live market with a new strategy unless you have backtested it sufficiently.
Use a demo trading account and see how your trading strategy works with the live market feed.
If you can make a profit for at least one month in the demo account, you are good to go in the live market.
3. An effective risk management plan
Risk management is the most vital thing in spread betting. Even if you manage to win 90% of the time, a poor risk management plan can ruin your trading career.
You have to minimize your risk exposure in every possible way. If you risk 1-2% of your account capital, you can easily wait for the next trade setup without facing any emotional breakdown.
Learn the advanced art of trade management, since it is one of the easiest ways to protect your trading capital.
Stop thinking about the complex nature of the market. If you can understand the simple market language, everything will become easy for you.
4. Be disciplined
Discipline is the key to success in the spread betting profession. You might have a 90% win rate but this doesn’t mean you will become a Forex millionaire.
You have to follow a strict discipline plan regardless of the outcome of your trades.
Write down your trading rules and start maintaining a journal. It will help you to track your entry and exit points.
During the weekend, assess your trading history and try to find major faults.
Learn from your mistakes and bring necessary change to your system.
Happy trading!
