Top 10 Tips on How to Trade Safely

| 29 Jun 2012 | 2 Comments

Over recent years, an increasing number of people are engaging in the foreign exchange industry as a lucrative form of investment. This is mainly because the potential of profit is immense and can be attained quickly under all market circumstances. Nevertheless, while the foreign exchange market can lead to considerable profits, it can also lead to enormous losses. There are a number of safe trading techniques to adopt than can turn a novice trader into a highly successful forex expert.

Trade SafelyIn forex trading, the risks involved are limitless and there is a high probability to lose a large amount of your initial investment or even all the profits attained. Therefore, traders need to establish risk management practices in order to protect their assets.

Below are listed the top10 safe trading tips that individuals should follow in order to cut losses and maximize their trading profits.

1.      Determine your trading strategy

There are a broad range of factors that affect currency performance. Determining the factors to take into account when making your trading predictions will help you to form your trading strategy. There are two main approaches to adopt; fundamental and technical analysis.

Fundamental analysis is a technique of market analysis that is based on a country’s macroeconomic position. This type of analysis assesses basic economic data, such as policy decisions, political events, central bank decisions, inflation and unemployment rates.

Technical analysis utilizes market data numbers, such as the volume of supply and demand, charts, quotes, indicators, overnight interest rates, equity markets and previous market technical data.

2.      Manage your money properly 

Money managementMoney management refers to a set of rules that traders need to establish in order to maintain control over their money. Being able to control your funds is imperative, as it will assist you in avoiding needless losses. Every trader has to be aware of the amount of money they can afford to lose, as well as of the amount of risk to take, in order to plan their money management accurately.

Engaging all of your money in forex is considered as a risky decision to make, as forex trading should only be a part of a mixed investment portfolio. Moreover, traders are recommended not to trade repeatedly within a short period of time, or place all of their money in a single trade, as the probabilities of losing their entire investment balance is extremely high.

3.      Follow the trends 

Following the trends is key to being successful in the forex market. A skilled trader has the ability to recognize a rising trend, as well as the time when the trend is going to change. It is widely accepted, that a person who sticks to the trends is far less likely to lose money in the long term.

A good way to always stay in touch with the latest trends is by using forex charts. A forex chart is a weekly or monthly statistical analysis that assesses the fluctuations of currencies. They provide practical information with regards to the current trends in order to facilitate traders to determine the most profitable move.

A useful tip to remember when using charts is known as “the upside down rule”. The upside down rule alleges that when a chart’s trend line seems to be the same in either direction, it is considered as a bad choice to make.  Another thing to bear in mind is to close all open trades when a high-impact news item is expected to hit the newswires, as there is absolutely no indication of how it is going to affect the market.

4.      Take control of your emotions 

While trading in forex markets, it is a common practice to lose control and get overwhelmed by feelings of greed. It is critical to learn how to control negative emotions that may affect your initial trading strategy.

If you are upset about losing a trade and want to quickly recover your loss, or if you are on a winning streak and find yourself trading over and above your limitations, then it is imperative that you consider your next trading move very carefully. Whenever you reach this point, it is prudent to stop, disengage from your emotions, and cautiously evaluate if your next trade is going to be profitable. If you do not have concrete reasons to support your decision to continue trading, then you are essentially gambling your money with increased risk. Traders must learn to be disciplined, and get out of the market when it takes an adverse course.

5.      Seek the assistance of an online forex broker 

Forex traders who wish to trade profitably are advised to seek the professional assistance of an online forex broker in order to enhance their profit opportunities. Online forex brokers offer up-to-the-minute currency information and useful statistics to traders.

Selecting the best online forex broker is critical for your success. You have to ensure though that they:

  • Have a good track record
  • Offer a wide breadth of services
  • Provide support and customer service assistance
  • Are fully licensed by the relevant regulatory body
  • Are credible, as there are many unlicensed brokers in operation
  • Execute orders in a quick manner

6.      Set up a stop loss

A stop loss can be placed in every trade order so as to safeguard your funds when they reach a certain limit. This tool is programmed to automatically close the order as soon as it reaches a particular price. Setting a stop loss enhances traders’ control over their money. Moreover, it helps them to mitigate the risk of losing large sums of money in the event of a dramatic devaluation. While small losses are always anticipated, clever traders should always take precautions in order to restrict their losses from getting out of hand.

7.      Trade with major currencies 

major currenciesAnother useful tip is to trade along the major currencies. The most common currencies are:

  • USD (United States dollar)
  • JPY (Japanese yen)
  • EUR (European euro)
  • GBP (United Kingdom pound)
  • AUD (Australian dollar)
  • CHF (Swiss franc)
  • CAD (Canadian dollar)

It is advisable to trade with these currencies as they have better liquidity and lower volatility compared to less stronger currencies. It is prudent to select only a few pairs to trade with and conduct in-depth research on them.

8.      Trade with low risk and proper leverage 

It is commonly accepted, that the only way to prevent your investment from experiencing a disastrous loss, is to trade with very low risk. It is wise not to trade with more than 5% of your investment amount. This is why it is much easier to recover from a 5% loss than from a 40% loss. Individuals who trade with such high percentages in a single order are far more likely to experience margin calls.

Another safe tactic is to use a leverage of 100:1. By using higher leverage, for example 500:1, the trader has to take more risk per trade order. It is better to reduce your leverage and take less risk in order to minimize prospective losses.

9.      Trade only at certain times and days 

Many people mistakenly think that because forex markets operate on a round-the-clock basis, they can trade successfully at any time, at their own convenience. What they do not consider however, is that the market is operating profitably only at certain times. The largest trading volumes occur when there is an overlap between the two trading zones. Thus, traders need to find out those specific times and trade during them.

There are also specific days which are more favorable to trade than others.  It is highly advisable to avoid Monday and Friday, as there are no new trends on Monday and everybody closes their trade orders on Friday. The best days to trade are regarded to be Tuesday, Wednesday and Thursday.

10.  Make full use of every resource available 

Foreign exchange trade is an ever-evolving industry which demands traders to be constantly up-to-date regarding the latest trading practices. This is why all successful traders continuously strive to develop their strategies and expand their knowledge base. An effective way to master effective trading techniques is by utilizing every resource available, such as:

  • Forex websites- including online calculators, FAQ sections and educational resources
  • Industry specific magazines and journals
  • Foreign exchange newspapers
  • Online tutorials

It is also very helpful to join online forex forums in order to interact with other traders and exchange ideas with them. You can follow experienced traders who have a similar strategy to yours and study their trading activity in order to learn all about their techniques.

Play it safe…

Apart from offering great investment opportunities, the forex trading arena can cause substantial losses. Therefore, traders should be aware of all the risks associated and engage in the above mentioned safe trading practices in order to increase their profits and also protect their assets.

VN:F [1.9.20_1166]
Rating: 10.0/10 (1 vote cast)
Top 10 Tips on How to Trade Safely, 10.0 out of 10 based on 1 rating

Category: Asset Protection, Hottest Articles

Comments (2)

Trackback URL | Comments RSS Feed

  1. Carlos E. Pagano says:

    Too complicated and risky. I don’t trust Forex.

    VA:F [1.9.20_1166]
    Rating: 0.0/5 (0 votes cast)
  2. Forex indicator says:

    I have fun with, cause I found just what I used to be having a look for. You’ve ended my 4 day long hunt! God Bless you man. Have a great day. Bye

    VA:F [1.9.20_1166]
    Rating: 0.0/5 (0 votes cast)

Leave a Reply