Every profitable forex trader has his own rules and commandments he follows. I have decided to select 10 most important (holy) commandments. These are chosen according to my opinion and they are not sorted by any key. So commandment number 1 can be as important as commandment number 10.
Commandment #1: Stop Loss
In my opinion every profitable forex trader needs to use stoplosses. Either mental or hard stops. I prefer hard stops, because when you use mental stops you have to monitor your position 24 hours a day.
Commandment #2: Money Management
Forex trading is a marathon, not a 100 meters sprint. It is true that you can double your account in one trade, but also you can lose all in one trade. This approach is called gambling. Profitable forex traders apply a sound money management so their accounts can survive bad times and losing streaks. A good example is risking max. 2% of your trading capital per trade.
Commandment #3: Emotion Control
Controlling your emotions is probably more important than what kind of trading strategy you use. If you let your emotions to drive your trades, your profits will suffer as you take trades you shouldn´t be taking, overtrade or try to revenge market. There are many ways to get your emotions under control. One of them is being in a present moment while opening your trades.
Commandment #4: Stick To Your Trading Strategy
If you know that your strategy is profitable because it was backtested, just stick to it during hard times. It is no problem when things go well, but once a losing streak comes it can be more difficult. Doubts and fears come to your way and you can be tempted to change something.
Commandment #5: Risk vs. Reward
Many aspiring forex traders tend to risk more than their reward is. For example: they risk 5 units but their profit is only 1 unit.
Pro traders do opposite. Their risk is lower than their profits. For example they risk 1 unit and take 2 units profit. In this case they need to be right only 40 % of times to be profitable.
Commandment #6: Know Your Battlefield And Enemy
Learn from a legendary general Sun Tzu who said:
“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat.
If you know neither the enemy nor yourself, you will succumb in every battle.”
Applying to forex market: Choose the currency pair you know the most about.
Commandment #7: Do Not Overtrade
Sometimes in life less is more. This is also true in forex trading. Rather than executing a lot of trades on lower time frames (5min, 15min…1hour) it is wiser to switch to higher timeframes (4hour, 1 day) and take less but more accurate trades. You will not get hurt by trading noise, save on spreads and make more profit longterm.
Commandment #8: Prepare Yourself
Before you jump straight in to the market and risk real money, take your time and prepare yourself. Demo trade for some time. Then go live with a small account and micro lots and once you gain confidence you can risk bigger money.
Commandment #9: Choose The Right Broker
There are many brokers available to you these days. So do some reasearch and choose the one that suits your needs best. One of the most important factors are spreads. Every pip counts and it can adds up to many hundreds or thousands of dollars over time.
Commandment #10: Leave It To Pros
Sometimes it is better to leave things to pros. If you are not a confident forex trader yourself but you would like to make some nice profits from currency market you can auto copy some of the best traders and gurus on social investing networks. Two largest networks these days are: eToro OpenBook and Zulutrade.