Monday, March 11, 2013

Common Sense Guidelines for the Average Trader



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!
Don’t trade emotionally, stick to your plan and maintain discipline
  • Establish a trading plan before initiating a trade
  • Set reasonable risk/reward parameters
  • Don’t override your stops for emotional reasons
  • Don’t react to price action – means don’t buy just because it looks cheap or sell because it looks too high, Have supporting evidence to back up your trade
Don’t leave stops at obvious levels such as “big figures” (e.g. eur/usd 1.20, usd/jpy 110)
  • i.e. JUBBS stops = stops at obvious levels and thus are more likely triggered
Don’t add to a losing position in unless it is part of a strategy to scale into a position
  • In other words, don’t 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 don’t hold out for the last pip
Treat trading as a continuum
  • Don’t 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 don’t get blindsided
  • Be cognizant of what news is coming out each day so you don’t 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

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