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Common Sense Guidelines for the Average Trader
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Common Sense Guidelines for the Average Trader

Provided by GVI

Common Sense Guidelines for the Average Trader

Look for a reputable broker

  • Ability to trade effectively depends on consistent spreads and ample liquidity
  • Anyone can establish a position
  • Ability to close out a position at a fair market price is more important

Live to trade another day

  • Apply prudent money management skills
  • Avoid using excessive leverage that puts your investment capital at risk
  • Always trade with a stop!

Donít trade emotionally, stick to your plan and maintain discipline

  • Establish a trading plan before initiating a trade
  • Set reasonable risk/reward parameters
  • Donít override your stops for emotional reasons
  • Donít react to price action Ė means donít buy just because it looks cheap or sell because it looks too high, Have supporting evidence to back up your trade

Donít punt

  • Don't punt( Punting is trading for trading sake without a view)

Donít leave stops at obvious levels such as ďbig figuresĒ (e.g. eur/usd 1.20, usd/jpy 110)

  • i.e. JUBBS stops = stops at obvious levels and thus are more likely triggered

Donít add to a losing position in unless it is part of a strategy to scale into a position

  • In other words, donít double up in the hope of recouping losses unless it is part of a broader trading strategy

Trading with and against the trend

  • When trading with a trend, consider the use of trailing stops.
  • When trading against the trend, be disciplined taking profits and donít hold out for the last pip

Treat trading as a continuum

  • Donít base success on one trade
  • Avoid emotional highs or lows on individual trades
  • Consistency should be an objective

Forex trading is multi-currency

  • Watch crosses as they are key influences on spot trading
  • Crosses are one currency vs. another, such as eur/jpy (euro vs. jpy) or eur/gbp (eur vs. gbp)
  • Crosses can be used as clues for direction for spot currencies even if you are not trading them

Be cognizant of what news is coming out each day so you donít get blindsided

  • Be cognizant of what news is coming out each day so you donít get blindsided
  • Beware of trading just ahead of an economic number and be wary of volatility following key releases

Beware of illiquid markets

  • Beware of illiquid markets
  • Adjust strategies during holiday or pre-holiday periods to take into account thin liquidity
  • Beware of central bank intervention in illiquid markets

Jay Meisler, a partner in Global-View.com, says one problem of trading with too-high leverage is that one piece of surprise news can wipe out one's capital. "Those who treat forex trading as if they were in a casino will see the same long-term results as when they go to Las Vegas," he says, adding: "If you treat forex trading like a business, including proper money management, you have a better chance of success." ÖNewsweek International, March 15, 2004

Treat this business as a marathon and not a sprint so you avoid burnout and maintain stamina for the long haul.

   

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Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

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