Tuesday, June 21, 2011

How to Trade Forex Smart

Trading is a business, it can be played like a game but it really is a business .I you do it well, trading can potentially outstrip any conventional business in terms of monetary returns. But you should know this already, that's why you are reading this in the first place. What you probably don't know at the moment is how to trade Forex smart so that you will be a top earner and not a top loser. The definition of top earner I'll leave that to you to define and find out, as each person differs in their profit expectations. But we can define a top loser as someone who has their account wiped out by more than 70% in 6 months time. We certainly want to avoid being in that situation! Now most traders never really see great profit growth because of some factors and these factors are: • Lack of discipline both mental and emotional • Under funded account • Over Leveraged account • No or money management plan
The above mentioned are by no means exhaustive they are the most common factors but there are others that do cause failure as well.
1. Lack of discipline. This is a big issue and one that many traders cannot overcome easily. Having discipline is also the most important and fastest way to grow your account. I would suggest that you keep a trading journal, write your thoughts and your emotions you experience before, during and after the trade. After a week of entries reflect on each entry. You will build discipline and learn a lot about yourself this way.
2. Under funded account. If you wish to remain in the Forex game, then you must have the financial means to do so. If you take the money for your daily expenses to trade, that is foolish and will lead to you making emotional decisions that are risky\ and most likely lead to an account wipe. Try to start your trading account with at least $500 and no less, the optimal starting amount would be $1,000 and at regular periods of time try to pump in some funds. For example, you start out with $1,000 and every month you increase your capital by $200, so by the end of 12 months you would have $1,000 +$2,400=$3,600 as your trading capital. Of course the profits you earn by your trading will only cause your account to swell even further.
3. Over Leveraged Account. A good leverage for starters to take is no more than 1:100. Even if the brokers offer you leverages of 1:500 it doesn't mean that you have to take such a large amount. Remember the higher your leverage, the more you have to pay out when you make a losing trade. Losing trades are so common that after a while with an over leveraged account you will be faced with an account wipe!
4. No or lousy money management plan. This is your holy grail to trading, money management coupled with tight discipline will give to a trader consistent profits. With consistent profits you will experience the power of compounding. That is what really grows an account. Money management is defensive, you seek to protect your account before anything else, focus on your account on not on your possible profits. When you have guarded your account then look to making profits.
Keep in mind the above points when you next trade, at the onset it may seem a little difficult. Grit your teeth and push on, build your discipline and always trade with money management rules at the top of your head. You will see your just rewards at the end of the day!
About the author: Dr. Joshua Geralds is a successful investment specialist with over twenty years experience increasing the income of people world wide.

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