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Three Simple Rules For Trading FX
1. Never Trade Large
In the world of FX nothing is easier than overleveraging your account. At 50:1 lever factor you are guaranteed to blow up sooner or later. In fact the whole dealing desk model, just like the casino model rests on the assumption that you will run out of money before getting lucky. The high lever factor is just like a stimulant to insure that you will crash and burn. If you day trade like me, you should never risk more than 1% of your money on a trade. So to use me as an example on a $15,000 account if I trade with a 50 pip stop then I only trade $30,000 notional per trade risking 150 bucks. Typically I trade 2 times day or about 500 times per year. If I hit 65%of my trade then I should expect to make about $3900 on $15000 basis at the end of the year. That is reality trading. Or you can always fantasize about making a million dollars from $5000 and set your dollar bills on fire every time.
2. Stay on One Side of the Market
There are only two things to do in trading -- believe in the trend or fade it. You are either a momentum trader or a mean reversion trader. Decide which one you will be from the outset. Understand the limitations of each approach, and accept the inevitable drawdowns. If you try to jump from one side to another you will inevitably get caught in a bad position, will add more money to a losing trade and will blow up your account. Guaranteed. There are only two trades to ever make -- take your setup or if you are not confident step aside. Changing your setup to chase the market is inevitably a sucker bet.
3. Be Informed by Fundamentals but Pay Attention to Technicals
Trading is all about information which is why trading on technicals or fundamentals alone is a supremely stupid thing to do. Contrary to popular perception amongst the retail traders little wiggles on a chart do not tell you where the price will go. They only tell you where the price has been. If you do not understand the big themes of the market, the key economic or political drivers of trade, if you rely solely on price action you will lose. Similarly if you trade off headline alone without paying attention to price action action you also will lose. Trading is all about being informed, which is why it is hard but also extremely rewarding.