Forex Trading Strategies: 3 Golden Rules

When you have read a few forex books or visited a few online currency trading forums, you will quickly realize that there are almost as many different forex trading strategies as there are traders. People have their own style; but more than that, in currency trading there are many different ways of making money.

So there is not one top forex system that you must follow to profit from foreign exchange trading. However, there are some guidelines that apply to the way in which you approach your trading and these are true for just about anybody. I call them the golden rules of trading.

1. Follow The Trends

Most forex trading strategies and systems focus on identifying trends and there is a good reason for that. Whether the trend shows a rise or a fall, get in to go long or short as appropriate and do not go against it. Bucking the trend will see you losing money fast.

2. Safeguard Your Funds

Risking too much on one trade has been the downfall of many a promising trader. Never risk a lot of money on a single trade, however strong your feelings may be that this one cannot go wrong. They can all go wrong.

So how much do you risk? It depends on your strategy and how much it matters to you if you lose all of your funds, but never more than 5% of your balance. 2% per trade is a safer option.

Some people maintain the percentage as their funds increase, so that they gradually risk more in real terms on each trade. That is up to you but consider carefully before you do this. When you have more money in your account, you will probably be more unhappy if it is wiped out, so you may want to keep the same position size (reducing your percentage risk) as your funds increase.

3. Set Goals For Each Trade

Have a clear profit goal for each trade, so that before you enter, you have already decided when you will take the profit and close. Do not get greedy and try to stay in there for more and more.

In the same way, if it turns bad, do not try to hold on in the hope that the market will turn back your way. Cut your losses and get out. Using stop losses to do this automatically is a very wise strategy.

Those are the first three golden rules of currency trading: the guidelines that can help you develop profitable forex trading strategies, whatever your system.