We’ve all been told a million times that there are certain things we need to learn before starting to trade Forex. Usually, these include technical analysis, fundamentals, etc. But the thing is, in order to be successful, you need to build up the proper attitude. This is by far not as easy as it sounds, and requires strong discipline and certainty that you will succeed eventually. To help you along, here are our 10 Forex Commandments you need to remember and follow:
I. Get educated
Well, you wouldn’t try riding a bike before getting a few pointers on how to go about it, would you? Everything you’ve ever done in your life, you’ve had to learn first, and Forex is no different. There are plenty of sources, too – educational websites, books, various trading webinars and courses, even live trading sessions where you observe how things are done first-hand. Our personal opinion here is that webinars are generally the most useful source of Forex education. But whatever method you use, we always recommend going for the free stuff. Whenever someone is asking you to pay to be taught to trade, make sure you check out whether you can’t find the same information for free. Never forget, Google knows everything!
II. Start off with a demo account
Once again, allow me to use my bike metaphor. A demo account is like your training wheels – you could skip them, but you’d fall down a lot. Jumping straight into the deep end of the Forex pool is a pretty quick and sure way to lose all of your money. No matter how much you read about it, it’s not the same until you get your hands dirty and start to trade, and a demo account at least guarantees you’ll have no losses. Of course, you must keep in mind that, just like training wheels are different from the real deal, so is a demo account different from a live one. For one thing, the sense of security you have is something you will never experience once you put your actual money on the line. Also, the way a trading platform performs is always slightly different with a demo. You will be able to take advantage of much faster execution, allowing you to react almost instantaneously to the market. Once you start using a real account, however, you no longer have this advantage, so make sure you take this into consideration when you create your trading plan.
III. Make a trading plan and stick to it
This brings me to commandment number three: you need a trading plan, strategy, system or whatever you wish to call it. Otherwise, you’re just gambling, and it’s only a matter of time before your luck runs out. Your trading plan needs to clearly state things like what your goals is, like making 40 pips a week, for example. You also need to decide what timeframe you prefer to use, what indicators you want to use to get your signals for the position you wish to take. It might also be a good idea to make up your mind about whether you will be following trends or taking advantage of high volatility, whether you wish to trade during major economic releases or not, etc. But, most importantly, you need to be very firm that you will under no circumstance trade unless all points of your plan have been met. No gut feelings, no emotions, no rash decisions. Your motto once you get into Forex is: “Plan your trades and trade your plan”.
IV. Learn from your mistakes
Obviously, this is what you need to do with everything in life. After all, no point in just repeating the same blunder over and over again. Accept the fact that you will inevitably mess up and learn to live with it. Log your trades. This should be pretty easy – Metatrader 4 (MT4), for example, does this for you automatically. You can use a service like Myfxbook, which also will log your trades and give valuable information. Or, if you’re a bit old-fashioned, you can even make yourself an Excel table and use that. The point is to have a visual of what you’re doing and study it in depth. And, since the wisest of men learn from others’ mistakes (the implication being that they themselves make none), you can find yourself a blog or two to follow where people share their trading experience. Of course, you’d have to make sure they are being honest and not just boasting.
V. Use proper risk management
We already established that you will make mistakes and lose money. However, you should be doing the best you can to avoid losing too much. Though this generally varies from person to person, there are several points to keep in mind. First of all, stop-losses are you pal. Use them properly and they will protect you from hitting a huge downside to your trades and using a lot more than you can. Second, don’t trust leverage. I know it sounds awesome when a broker proposes a leverage of 1:1000 but please, before taking advantage of it, calculate how much you would lose if you do. Scary, huh? The golden rule here is not to risk more than 2% on a trade. Of course, we know there are times when the market gives you such strong signals that you know you can risk a bit more, which is fine. But in most cases, the 2% practice is the safest way to go.
VI. Don’t trade what you can’t afford
Is it your rent money, kid’s college fund, wife’s inheritance? Then it’s off limits! Trading money that you need for something else puts too much pressure and is just too risky. I mean, are you willing to bet your child’s education on a single trade? And, what’s more, is it fair to do it? Any money you put toward Forex trading should already be considered more or less lost – let it go, get over it, try to make the best of it. Any profit you earn will be that much more of a pleasant surprise.
VII. Be confident
You need to stick to your decisions and know in your hear of hearts that they are right. Of course, to do that, you had better follow the previous commandments closely, otherwise you’re being cocky, not confident. If your signals are right and you’ve placed a trade, stick with it even if you feel panicky and your heart and soul are screaming at you that you’ve made a mistake. No matter what other traders are doing, you do your own thing. This isn’t a competition and even if it were, just because some Forex guru or analysts is doing things differently, it doesn’t mean they are right. If your trading plan has worked for you so far, be confident that it will do so again. After all, if a great mind like your made it, it must be true.
VIII. Be realistic
Most people, when they start to trade, immediately expect to double, triple and quadruple their account in the first week, first month tops. The thing is, that’s not very likely to happen. You need to be realistic in your expectations. I know you’ve heard in school that you should reach for the stars, but in this case it’s best to set your goals lower than you’d like, so you can be sure to achieve them. Generally speaking, the best you can expect is between 30% and 100% in the course of a single year. Disappointing I know – you were hoping to be a millionnaire by then.
IX. Be patient
No matter how low you set your goals, it’s still going to take time. Especially if you start out with zero knowledge of Forex trading, you’ll have to invest a lot of time in getting to know your way and starting to earn money. Accept the fact that all things good take time and live with it. Don’t jump the gun, wait for the signals to line up properly according to your master trading plan before placing an order. It may be hard to stop yourself sometimes, but it will pay off. This is particularly important when you open long-term positions. The whole point there is to wait the market out. Perhaps the best way to avoid making rash decisions would be to avoid spending all of your time starting at the computer screen, waiting for the opportune moment. A watched pot will never boil, you know, and successful trades will happen when they happen. It’s as simple as that.
X. Do not give up too early
This one more or less goes with being patient, only on a grander scale. You need to accept the fact that achieving sustained profit through Forex will take a certain amount of time, typically between three and five years. This means you will have to suffer through many failures before you get there. This is perfectly fine, and a single setback (or even ten) does not mean you should despair and give up. Stay positive, stick to your commandments and eventually things will work out for the better!