The Main Rules of the Forex Market
Trading is a game of probabilities. On the Forex market, all traders need to do is to choose one of the two possible directions: up or down.
In Forex trading terms, it means that the trader goes LONG when buying, and SHORT when selling. Also, it means he/she is bullish, respectively bearish.
One of the unwritten rules of currency trading and part of any Forex education program is the ability to understand the Forex glossary. Or, the jargon, specific terms that traders use.
A bullish trader, for instance, buys or go long, while a hawkish central banker or a hawkish speech sends the currency higher. The GBPUSD pair is also known for its nickname (cable), while inflation is also referred to as the CPI.
This is not the time and the place to list all the terminology, but one of the main rules of the Forex market is to understand what’s been said or written in this world. Terms like mt4 or mt5 mean something for every retail trader.
Another fundamental rule is to know how to pick the suitable Forex broker. The leverage used, the regulation, the trading account type, deposit methods, and so on, all play a vital role in the profitability of a trading strategy.
Forex for beginners programs start with the terminology, continue with the brokerage house terms, conditions and offering and end with risk management and Forex psychology.
Risk management is more important than the trading strategy. A trader may know where the market goes next (up or down), but it doesn’t mean the trade will be profitable.
Human nature intervenes most of the times. Things like greed and fear come and affect the initial trading strategy and the logical process behind a trade.
As a consequence, rookie traders end up making unforgivable mistakes. Overtrading and over-leveraging are just two of them.
Overtrading refers to opening too many positions in the trading account so that a small move against the desired direction ends up with the account being wiped out. The same thing happens with over-leveraging when traders end up using colossal leverage from the desire to gain too much in a short time.
Money or risk management handles all these. Many risk management strategies exist, and not all are suitable for every trading strategy and setup.
However, the core of money management is to protect the capital first. And only second, to try to make a profit.
Finally, one of the catastrophic Forex beginner’s mistakes is trading without stop-loss and take-profit orders. This is, by far, the most terrible trading decision and strategy, and should be on top of the list of Forex market rules to obey: always use a stop-loss and take-profit.
How else is the trader supposed to protect capital? Embracing losses is normal, as not all trades end up in a profit.
What matters the most is to have more winning than losing trades. Next, the winning trades to exceed the losing ones. Finally, to accept losses as part of the trading game.
Trading is a rule-based game. Following them does more good than bad. In the end, the trader ends up learning discipline, patience, and strategy, essential attributes when trading the currency market.