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Trading forex requires a solid investment strategy. Not just that. There is no guaranteed system to find the best currency pairs with the best entry and exit points. Besides that, trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. If you think you could enter the forex trade riding on the back of a guaranteed system of profits, then you are terribly mistaken. That is because, no “safe” trading system has ever been devised, and no one can guarantee profits or freedom from loss. There exists the possibility that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you simply cannot afford to lose. One of the biggest pitfalls of forex you should never fall into is that, your past performances in forex trading does not guarantee positive results in future. If you have doubts or questions about your own investment capabilities consult an independent financial adviser who could assess your risk appetite, evaluate your level of experience and streamline your investment objectives. Although there is no guaranteed system to make profits in forex trading, there are a few time- tested principles, which if followed would minimize losses and put your forex trading on a profitable path.

Concepts

In forex trading, it is better to make big out of something small. So start small meaning start with a small investment. There are brokers out there who would want you to start with an initial investment of $300. That’s risky. Never go in for such offers. Then what do you mean of trying to make big out of something small? Forget the $300 initial investment to get into forex trading. Instead experienced traders advise that you start forex trading with an initial minimum investment of $1000. Having done that, try to make big profits with smaller risks. Another concept in forex trading is that most traders even if they make losses, remain in the forex market for the simple reason that statistics have shown that the probability of making profit is bigger than the probability of making losses.

Stop loss and profit making

If you don’t use these two factors in forex trading wisely, you are unlikely to make any profit. Imagine that you buy a currency, which you think will rise, but in fact starts to fall. But if you still believe that the currency will start rising soon, you refrain from setting “stop loss”. What that means is, if the currency still keeps falling your losses become larger and larger simply because you have not set a stop loss. Now suppose the currency reverses the trend and starts to rise, you find the situation still hopeless. Why? That is because the losses acquired are so heavy that it does not make up with subsequent profits from the rise of the currency. Hope you got the importance of stop loss.
Another situation can arise. Supposing you set the stop loss and you took the currency out of the market so quickly that you missed the best opportunities that subsequently arose. Yes it could happen to any trader. The point is you must know the nuances of the market to set the stop loss.

Margin Allocation for trades

When you open more than one trade in the trading platform, keep an eye on the margin requirements. It’s possible that losses in one trade could be eating away your entire margin, so you might have to step in and close some positions, which otherwise you could have continued speculating with, had it not been for the inadequacy of margin. That is assuming you had not set stop loss in the first place. Again hope you got the point. It’s the stop loss setting again. Be careful on that or else your trading strategy would border on the wild. Don’t let that happen.

Choosing the time to execute a forex order

Start your forex-trading day by reading the fundamental analysis of the currency pair you are interested in. Then decide the best time to enter the market and buy or sell the currency pair you are interested in. Supposing a currency was rising and it had reached the end of its trend, then that’s not the time to enter the market with a buy order. Or else the trend would reverse leaving you holding on to losses. Don’t let that happen. You must devise your own method after consulting forex trend charts and a website on currency analysis that you feel comfortable with. Understanding all these technicalities would require only intermediate knowledge of forex trading, so don’t leave everything to chance thinking that you don’t have the capability. Believe me, you are sure to acquire skills in this area with your own inquisitiveness. Remember, your actions and the results of your actions in forex trading are entirely your own.

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