In the online forex trading market your success will be decided by a healthy combination of foresight, understanding, luck and an ability to distance yourself from the emotions associated with success and failure. Those that are successful on aggregate over a large amount of activity generally have certain rules by which they abide and follow religiously; these factors are covered in this article and form the foundations of what it takes to be a savvy Forex trader.

Develop a Trade Plan

Developing a trade plan involves answering the following questions for each trade that you make and applying them every time…

1. When will the market move in the direction I expect? This answer will help you to form your exit strategy if it does or even if it does not.

2. How much money shall I invest? Once you have decided on this you should not be drawn towards placing more at a later stage.

3. Do you have a protective stop loss in place? This should be something that any investor should have on all transactions regardless of whether the risk is extremely limited or not.

Risk/Reward Analysis

With risk to reward analysis there are three factors that should be prevalent, however amateur investors often only consider two. Not only should you be considering how much money you should expect to gain, less how much money you could lose, you also need to introduce the likelihood of both occurring into the equation. To give an example, should someone be considering an investment with a likely $200 reward versus a $100 loss then this is only the best option if it is likely to work out positively more than half of the time. Failing to account for this can result in many beginners feeling they are unlucky when in fact they are miscalculating odds.

Implement Protective Stop Losses

If you are not implementing protective stop losses then you are likely to allow emotions and hope to enter your decision making process. For example, if you have allowed a trade to lose $100 then the only excuse for keeping that trade active is if you would consider entry at that stage if you had not made entry before. Many of us are overcome by physiological influencer at this stage, which is why hard fast protective stop losses are essential. Remember than minimizing losses is as much a part of success as maximizing profits in the long run.

Use a Trailing Stop

Like minimizing losses through overcoming physiological influences, you also need to do the same when your trade is looking up. Many inexperienced investors can experience losses on a trade that originally went up because they fail to plan and execute an exit strategy. The key is to make an exit at your predetermined profit level and to place protective stop losses at the points which will stop any losses from running. If on the other hand you are going strong, or wish to back the same trade for your next exchange anyway, then you should raise your protective stop. If you are not sure how much to raise it, then a good benchmark can be to add your profit from the last transaction onto your protective stop.

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