Forex trading may become a much easier activity if you follow your own guidelines. Alternatively, you can borrow some well-formulated guidelines from another trader. I have based my guidelines on my past Forex trading experience and knowledge gained by listening to some of the best stock and Forex traders. What is important is that the guidelines are not the laws and rules — they are not the only way to success, they just help the traders in their endeavor. Here are my four main Forex trading guidelines:
- Risk only 3% of the total trading capital with each trade. Generally, it is quite hard to come up with the comfortable risk percentage value for your trades if you want to stick to a good risk management practice and still let your funds grow at a steady rate. For me, 3% is the optimal level — safe enough to save and high enough to gain.
- Risk-to-reward ratio should be no lower than 1. Many currency traders prefer trading with a risk-to-reward ratio of 2 or even higher. This is also a problem of risk/gain balance. For me, the opportunities with the ratio higher than 2 are quite rare — perhaps, because I prefer high accuracy trades. If your accuracy rate is far from 90%, then sticking to a risk-to-reward ratio of 2 or 3 would probably be a better decision.
- Do not leave the positions open through the weekend. A weekly opening gap can be a killer. Do not underestimate it. As a swing trader, I prefer to open my positions at the start of the week, and I always close them before trading ends on Friday. The gap in the price rates, which usually occurs after a weekend, can make your stop-loss trigger far from the levels you had planned.
- Wait before opening a new order after you have just traded. If you jump into another position right after you closed or opened a previous order is a straight road to overtrading and an empty balance. I always wait some time analyzing opportunities and resting from the Forex market before setting up my next order. Maybe, for extreme scalpers, this is not the best decision, but for the absolute majority of medium-term Forex traders it is.