Do's and Don'ts for Forex Trading

FOREX trade, although being the quickest profit-maker in the trading business, it comes with a price. Foreign Exchange trade is characterized by the dominant factors such as currency volatility, political crisis, fluctuations in the exchange rates, varying interest rates, discrepancies in the purchasing power and many more. An imbalance in any of them can lead to major losses for the traders.

To keep the dynamic market conditions from affecting your trade and for maximizing the profits, one needs to follow the golden rules. These rules will guide you through the DO's and DON'Ts for executing a successful FOREX trade.


Do's and Don'ts for Forex Trading.

To begin with, DO have a trade-plan ready when you are all set to trade in the market. You should have sound knowledge about the end-to-end Foreign Exchange Trade lifecycle. Being abreast of the current financial market scenario which deals with FOREX trades and studying its dynamics will ensure a smooth start to your trade. Do not make impulsive decisions.

DO invest your time to get a feel of how the actual FOREX trade happens before taking a leap into the market. There are a number of e-tools to assist you in receiving hands-on real-time experience of the entire trading cycle right from creating a dummy demo account for you, provide technical charts, analysis tools, presenting the exchange rates and bidding/asking rates that can influence your selling/buying decisions respectively, all the way to executing your foreign exchange trades. Do not be in a hurry to earn profits, take your time to learn the trick of the trade.

Although the FOREX markets are open to trading all 24 hours a day, you need to set your trade time at an hour when the markets are abuzz with action. You can count on the overlapping market hours i.e. when the different FOREX markets are open to trade to pocket the profits. A passive market may not generate the extra income for you. DO choose the time when the volume of trades in the financial market is at the peak and the currencies are active. Do not indulge in trades at the inactive market hours.

e.g. The New York Markets are open for trade from 8.00 am to 5.00pm

The London Markets are open for trade from 3.00 am to 12.00 noon.

So the best time for trading in these markets for EUR, USD currency pairs is in the overlapped time zone i.e. from 8.00 am to 12.00 noon.

DO take calculated risks and trade only when the currencies are gaining a strong foothold in the market. A thorough fundamental & technical analysis of the ongoing trade patterns with the help of the charts, trend reversal/continuation patterns, gaps will be of considerable use in gauging the market risk. DO not risk your present capital, if you are unsure of the market trends.

DO consider the gain/loss ratio while entering a currency trade.

DO have an understanding of the Fibonacci Analysis which can predict the market fluctuations and help you determine the best entry/exit times to conduct a trade.

Opt for trade on the positions only when the market is showing a steadily growing trend.

DO follow the patterns on the charts to guide you through a reliable trade. Do not enter into a currency trade if the bars in the charts are not well-formed and are unstable or dipping.

The market closure days, that is the weekends are sensitive days as speculations for the following day can go wrong. DO backup your speculations by a stop-loss order, which can ensure that your existing capital position is taken care of if the markets show an unfavorable trend.

Finally, to get the best output for your FOREX trade, understand the pitfalls, follow the statistics, analyze the risks, anticipate the best, but be prepared for the worst. Time your trade wisely and you will reap the benefits of a good trade in no time!