Discover Quality Suggestions About the Foreign Currency Market

It’s not easy to give suggestions that are beneficial to a wide range of people. But when it comes to the foreign currency market, everybody has the same goal, to find a trading system with an edge, or in simple terms to be able to make a profit consistently.

Cardinal Base – Forex

There can be a base of rules in Forex, which you can consider suggestions, because they’re more like directions on a map. The following cardinal base of rules for forex is probably decent enough for a wide range of traders, so you will definitely find at least a few helpful rules.

cardinal base forex

1. Don’t trade against the trend

As the saying goes: The trend is your friend. This is also a style of trading, maybe you have heard of the famous turtle traders, but regardless, the idea is that it’s not worth the risk to countertrend when you can get bigger and longer moves going with the trend. This doesn’t depend on the timeframe necessarily, because every timeframe has a trend.

Sure, you could trade in either direction when you’re in a horizontal channel (or a flat trend). But that’s when the market isn’t trending and likely the volatility is low, so better not trade at all at that time.

Usually if the higher timeframe is trending in one direction, it’s good to trade the immediately lower timeframe in the same direction. But let’s take an example. If there’s an ascending trend on the daily chart and you’re trading the 4H, then it’s easier to gain profit by finding long positions. However, if you’re trading the 5 minute chart, then it’s not that relevant what happens on the 1D timeframe, so make sure you look at the 30M or 15M charts instead.

2. Use predetermined stop losses

You can’t let the market decide how much you’re going to lose in a given trade. You need to know how much you’re willing to risk with each trade. This isn’t really a suggestion, more like a necessity for good risk management (read more about this here).

A new trader might be tempted to trade without any stop loss whatsoever. It’s not uncommon to get stop loss aversion in the beginning because you’re not used to it. If your stop loss is too tight it’ll get triggered too often too fast and you might think stop losses are bad in general. But even when you use SL, you might be tempted to change it when you see the price getting to close to it. This is how you lose more than you anticipated. But in the long run it’s much better to predetermine your stop losses.

3. Don’t try to trade forex while you sleep

I know it’s tempting to “make money while you sleep” but it’s not so easy to achieve this in Forex trading unless you already have experience and you’re using expert advisors or trading robots.

Sometimes your trading system has a fixed stop loss and a fixed take profit, but usually with take profits it’s better to let them run as much as you can, preferably using a trailing stop if not manually, but it’s much better than a predetermined take profit order.

For stop losses it’s ok to be predetermined but for take profits not so much. If you trade overnight, you’ll have to set a fixed take profit order before you go to bed, which means you’ll leave money on the table. And you can’t set a big TP order either because then you risk hitting your SL before getting close to your TP.

4. Don’t join the bandwagon

If you’re part of a trading group on Facebook, a subreddit or a forum, there will be times when people enthusiastically share a system or a software that “made” them a lot of money. Now, I’m not saying this can’t be genuine, sure it can, but people tend to follow other people thinking there’s a shortcut or an “easier way”.

Success stories are great, but people are different and their circumstances also differ greatly, so one man’s success might be caused by a multitude of factors that aren’t known and not necessarily caused by the “new system” they recently tried.

Usually a community has the power to suck you in their trends, but a trendy indicator isn’t going to help you to become a better trader. The shiny objects syndrome is very powerful and can waste a lot of your time. Avoid the bandwagons and try to improve your own trading system little by little.

5. Don’t break your own rules

When you start trading consistently, you already have an MO, if not a trading system, at least a set of rules that you follow. These rules are set by you alone, so it’s tempting to break them. But every time you break your rules, there’s a subconscious mental note to lose trust in your own system. This is important to consider when your system has a positive edge (aka it’s profitable).

Obviously if you don’t have a system yet and aren’t making money either, then you should change your rules, or at least try to improve them.

To conclude…

This set of suggestions can smoothen your start in forex trading. With time and experience in the market you’ll find these to be just common sense or maybe even challenge some of them from a superior perspective. But for now, you can turn these suggestions into your cardinal base for forex trading and with a little discipline you’ll be able to see the difference.

Leave a Reply

Your email address will not be published. Required fields are marked *