How To Avoid Losing In The Forex Market

The Forex market and it’s huge leverage cuts two ways. With a large amount of leverage, you do not need a lot of money to make a lot of money.

However, that can work against you should you trade without discipline. Always use profitable formations and make sure you practice your knowledge in paper trading (practice trading) before jumping into the forex markets.

It is recommended that you should start with at least $5,000 dollars, if not $10,000, but the fact is many do not have that type of money to invest initially.

If you start with trading capital of less than $5,000, you’ll have to prepare and analyze the market with much more scrutiny. Practice your trading techniques and understand every aspect of the forex market before you enter in with real money.

Another bad characteristic of new forex traders is that they tend to be very impatient. Remember, wait for specific trading formations to form before you place an order to get into the market. If there is no obvious reason to enter, than don’t. It’s better to miss an opportunity in the forex markets, than to lose because you chose the wrong opportunity.

The fact is, you will lose money. The determining factor is that when you lose, how much will you lose? If it’s minimal, than your winnings can out pace your losses. Use smart order placement and don’t chase the market if it starts to move away from your entry points. Use support and resistance levels to enter and exit markets.

Also try not to use common whole numbers to enter and exit your positions, because where the majority of people will always enter and exit their trades. For instance, if you want to buy or go long the market and you see resistance at 122.00 in the EUR/USD market. Instead of buying right at 122.00, buy it at 122.07 or 121.93. The same would be true as to where to exit.

Do not get greedy. If you’ve made a fair amount of money, either exit the market, or use a tight trailing stop-loss order. Assume you were in at 122.07 and now the market is at 123.07. You’ve now made $1,000 per lot. Tighten your stop-loss as the market begins to accelerate. Markets that accelerate quickly, also decelerate just as quickly when market conditions change.

Again, let’s assume that you are long from 122.07 and the current market is up 100 points at 123.07. You should have a trailing stop-loss maybe 10 pips away from the current market price.