When traders spend too much time on the analysis, especially technical, they often forget the real purpose of it. After all, the main goal of any trader is to make money by selling expensive and buying cheap.
And when the traders head is full of technical indicators and figures, probably some of them foretell falling, others — growth, the third — lack of changes, he can get into delusion from such disagreements. (Don't think that I have something against technical indicators, for some traders, they are a real rescue).
Particularly at such moments it is worth to remember that genius is simplicity. Sometimes the trader shouldn't puzzle over the analysis, but have to look at the market from a fresh perspective to respect the following 18 rules of effective Forex trading.
Despite the fact that the author of these rules is considered Richard Rhodes, he just transferred this list to the masses from the unknown trader. Having long-term Forex experience Richard Rhodes uses these rules too.
Some of these rules may appear too simple, obvious and trivial, but if you use them in your trading, you will hit the big time for sure.
Laws of the effective Forex trading from Richard Rhodes:
- The first and the main rule: in the growing market trader have to stay for long. It can sound obvious, but seldom traders leave it on the first easy recession just after the first maximum, saying that the market grew too fast and is oversold. And it turns out that having left early, the trader loses profit, which would be increased itself due his patience and long-term investments in the growing (bull) market.
- Buy that which shows potential, and sell what show its absence. Interesting, but the crowd continues to buy even if the prices fall. Professionals buy when the price has only started to increase. Under the pressure of the crowd, it showed potential and the price of a financial instrument went up. The professional bought, having waited for growth as soon as the hidden forces were shown. It is important to note that the crowd, but not, therefore, why also the professional: the crowd bought for the reason that “beginner's luck”. The rule of a survival in the market not to “buy low, sell high”, but to “buy higher and sell higher”. And when you choose from the group of companies, sell “the withering weaklings”, and buy the perspective companies.
- Treat every transaction, as the most important transaction of the year. Make sure that you consider all risks and profit. The trader has to make the trading algorithm for all outcomes and consider the influence of the transaction on your portfolio.
- Trade during short corrections on a long-term trend. On the ascending trend buy next to the support, and on the descending trend sell next to the resistance. Wait for 33-50% of last correction, enough to confirm the current correction. For bigger reliability uses proper moving average.
- Be patient: if you missed the successful moment, wait for the following correction.
- Be patient: after trade allows it time to grow and bring you profit.
- Be patient: you don't have to consider the trade as gambling and think that “you never go broke taking a profit”. The Forex market is not a casino and here this rule is worthless. If you already won some trades, it doesn't mean that you have to take away the profit and to leave. The small profit will never become a big one if you won't allow it to grow. A big profit comes when you show patience and you allow several transactions enrich you. It is important to develop patience to remain in the winning transactions.
- Be patient: after the transaction, give the financial tool to get off from a crowd, to stabilize and show all your correct decision.
- Be impatient: small and short-term losses – are the best losses. Loss of money isn't so important, as loss of moral and mental peace which will torment you during a continuance of the falling tool. Get rid of it.
- Under any circumstances don't buy anything that is going down in price. If you want to buy, each subsequent purchase has to be made at a higher price. If you sell, each subsequent sale has to be carried out at a lower price. Stick to these rules.
- Increase what works for you. Check your portfolio and buy that does for you the highest profit, and sell that brings smaller (or negative) profit.
- Don't trade until the fundamental and technical analysis isn't in full consent.
- If you have serious losses, stop trading and make a pause for several days. After big losses, you want to return lost in a rush and as a rule nothing good will come of it. Have a rest, cool down and come back with a pure and rational mind.
- If you have a consistent profit, trade more aggressively to exaggerate your earnings.
- When you increase the number of the tools in your portfolio, buy, in addition, no more than 50% of the current financial instrument quantity. For example, if you have 100 stocks of a certain company, don't increase the number of actions more than in 50.
- Think as the guerrilla: fight on the side of the winners. Don't spend time and efforts on senseless attempts to become the upstart, to earn the status or a rating, buying cheap and selling expensively. Simply think that your task consists in having profit and to be the part of the strongest.
- The market maximum is formed under pressure and violence, market minimum is formed in silent, quiet time.
- The final 10% of the time of a market usually grow will encompass 50% or more of the price movement. The rapid growth happens in the end. Therefore, the first half of the growth of the price is the 90% of the time during which will be very difficult to trade without any falls.
As you can see, these 18 rules of an effective trade at the exchange are very simple. The trading should simple. Avoid complex methodologies and trade according to the major trends only. Don't forget: “The trend is your friend”.