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The 7 Undeniable Rules of Forex Trading

Before we go into 7 rules of Forex trading, that have been approved by a number of full time and successful traders, please read this short story.

There was a lion, a donkey and a fox all keen to go out rabbit hunting together. After a productive day of hunting, the three of them sit around the pile of rabbits and the lion asks the Donkey, "Mr. Donkey, would you please divide the pile into equal shares for the three of us?". The Donkey obliges and counts the rabbits into three equal piles for each of them. The Lion immediately roared and pounced him. He then piled all the rabbits on top of the donkey and asked the Fox "Mr. Fox, would you please divide the rabbits up evenly between us?". The Fox takes out 1 scrawny rabbit from the pile and puts it in a pile for himself then say "There you go, Mr. Lion, that's your pile" pointing to the large pile of rabbits. The lion says "Mr. Fox, where did you learn to divide so equally?" and the fox says "The Donkey taught me."

The moral of the story is to learn from others' mistakes. Now we proceed to our 7 rules. These are for you benefit as mentioned earlier, from experienced, successful traders.

Rule #1 Never risk any more than you can afford to lose. You will lose money, all traders do, so make sure you are not sacrificing anything more important in the process.

Rule #2 Never risk more than 2% of your trading account balance on a single trade. It can also be a good idea to limit your overall risk (based on multiple trades currently active) to a total of 5-6%. These are the basics of risk management.

Rule #3 Always use a stop-loss order. If you haven't figured out where your stop-loss order and take-profit order should be at the start of your trade, then you probably shouldn't be trading this setup.

Rule #4 Know your exit point before you enter a trade.

Rule #5 Demo trade first. Become successful with paper trading when there is nothing on the line before you open a real account.

Rule #6 Take a breather when your equity has taken a dive.

Rule #7 Don't let your emotions call the shots: stay cool, calm, and collected. Patience and a clear head will win the game.

Based on the article by Sorna Devadas.

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