Trading currencies with a strategy

Currency trading or any other type of trading has to be done via a strategy; that is, a set of steps and principles that the day trader or position trader will follow with strict discipline to improve his chances of succeeding. A trading strategy is like the floor plan of a house. The floor plan has to exist before the building begins. Imagine building the house from scratch with no floor plan. What a successful endeavor that will be, right? (Find out more about the live currency trading training that Currency Trading USA customers get for FREE. You will learn strategies that you can apply to trader currencies). Consequently, this section was put together to give prospective and experienced traders alike important do's and don'ts about trading currencies online. Taking these steps will improve a currency trader's chances of trading profitably.

Currency trading is only for part of your investment money

In the realm of investing, foreign currency trading could be considered speculation. Only a portion of an investor's portfolio should be earmarked for speculation while the rest should be in long-term, fundamentally sound investments. Therefore, online currency trading should only be done with a part of your entire portfolio (not with all of it).

Having a systematic way to control trading losses

If an online currency trader wants to survive in the business, he must learn to limit his losses. This is one of the keys to smart money management. We recommend that a trader has systematic ways to limit his losses and become familiar with their implementation. By limiting his losses, a currency trader may protect a greater part of his trading capital. This may allow him to stay in the game a lot longer.

A way to limit a loss is by using a stop order. The currency trader will set his stop levels depending on the time frame he is trading (tighter for day traders and less restrictive for swing or position traders) and his technical analysis assessment of the currency market. Live account customers of Currency Trading USA will receive free currency trading training that will include the setting of proper stop-loss levels to limit losses. Find out more about our FREE currency trading training.

It is important to note that using stop orders does not eliminate the risk of loss. Using stop orders does not guarantee that a trader get out of a losing trade exactly where he wants. Nevertheless, we recommend that stop loss orders always be used as a precautionary measure.

Online currency trading is a business that requires proper training and practice

Foreign currency trading is a business that may not be appropriate for everyone. Nevertheless, it makes sense that a person that's running a business obtain relevant knowledge and experience about his business. The same is true for trading currencies. A person should take the time to learn important trading principles and practice on a trading demo. Currency Trading USA provides free currency trading training to customers who open an account and our free currency trading demo allows a person to practice currency trading in a lifelike environment.

Know the trends of the foreign currency market before trading

Every currency trader should identify the existing markets trend before trading. The reason for this is that trading in the direction of the existing trend will increase a currency trader's probability of making money. Furthermore, knowing the existing trend will also prepare the trader to take action when a currency changes trend direction.

The currency trader should have answers to questions such as, "What is the long-term trend of the dollar versus the yen?" or "What is the euro doing in the short term versus the dollar?", before jumping into the market. The currency trader should also decide the time frame that he will be using to trade in order to determine which trend will be the most important. For example, a currency day trader should be more concerned with the trend in the very short term, than with the trend for the past year.

Decide what type of currency trader you will be

Is your goal to trade actively in the short-term, not holding positions for more than a few hours, or do you want to trade occasionally while holding positions for a few days? Your answer to questions like this one will have important implications on the way you should trade currencies. For the most part, a currency day trader should be more concerned with short-term trends and near-term support and resistance levels. A longer-term position trader, on the other hand, will not pay much attention to very short-term fluctuations in currency prices and focus instead on the longer-term perspective, as far as trends and technical price levels go. Each of these trading styles requires a different approach to the market and a a different implementation of stop loss levels.

Trade currencies in multiple lots

It is safer to get into a currency position in multiple lots than to do it all at once. Rather than to risk all he's got into one trade, a trader can scale into a position in parts, adding more lots if he is right and risking less if he is wrong.

Lose the urge to trade currencies every day

A common mistake of a beginning currency trader is to force himself every day because of daily goals or excitement. Not all days are good to trade. Sometimes the currency market is not moving or the currencies are in a level where it does not make sense to take a position. If a trader still forces himself to enter a position on that day because of excitement, his chances of losing money increase.

Sometimes day traders also force themselves to trade because they have daily goals to meet. This is not a wise thing to do because the market does not always provide good profit opportunities. A trader who forces himself to trade on that day is like a treasure looking for treasure in a place where no treasure exists. That is the reason that daily goals are dangerous. A trader should look to make whatever the market provides on that day rather than a set money figure.

Stick to your trading plan

Sticking to a logical trading style that a currency trader has studied and practices is essential in currency trading. Many traders get paralyzed by overanalyzing everything and always looking for another magical trading indicator to enhance their current system. This is a frequent reason why many traders don't make money. Sticking to your trading system is a must to build discipline in currency trading.

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