Mike over at The Financial Blogger recently offered up his seven tips for staying safe while trading forex. They go something like this:
– Stick with what you understand, from both a positive and negative perspective.
– Know your risk tolerance and how you emotionally handle your exposure in the markets.
– Have a clear strategy and stick to your trading plan
– Never add to a losing position
– Keep things simple
– The trend is your friend
– Control your emotions and minimize their effect on your decision-making
I can see folks taking some umbrage at the trend one. There are many who consider themselves mean reversion traders. Certainly, those types of strategies can work. The aren’t so good in trending markets, though, just as trend systems get hurt in ranging markets. That’s why having a multi-phase approach can be very beneficial.
The controlling your emotions advice is something you often here. The trouble is, it’s harder to say than do. Further, emotion is an important part of our decision-making process, whether we realize it or not. In fact, I’ve seen research which suggests we actually make decisions emotionally much more quickly than we can consciously, and as a result what we end up doing in what we think is the decision-making process is just rationalizing the decision. Something to think about.
Beyond that, Mike’s got some fairly good, if not particularly new, advice or traders – forex or otherwise.