However, there will always be a core group of principles that you need to comprehend. Grasping these three basic forex trading concepts allows you to make smarter decisions while you are trading:
- Technical analysis
- Money management
- Trading psychology
Technical analysis
Technical analysis is a method of analysing price movement on a chart to determine possible future price action by using things like indicators, channels, divergence, and much more. I teach you how to analyse Japanese candlestick charts using many different methods. The strategy you use will depend on your personal trading style.
For example, one trader may prefer to use moving averages while another may choose to use the Fibonacci indicator.
You can know more about Technical Analysis from my old post .
Money management skills
Money management, also called risk management, is a core concept that protects your trading capital from losing trades. It should be part of your trading strategy immediately when you begin your trading career.
Money management encompasses concepts like stop losses, scaling in and out of trades, and risk to reward. Understanding these methods can help you maximise your profits and avoid losing your trading account.
For example, most professional traders do not advocate risking any more than 1% to 2% of an account on a single trade. This protects your account from performance downturns and allows you to trade safely with leverage.
Trading psychology
It is not analysis of the markets alone that allows a forex trader to become successful, it is the psychology of a trader. By overcoming psychological influences, such as fear and greed, a trader has a better chance of being successful.
A trader must stick to the rules of their system and not let psychological influences distract them. The path to becoming a good trader is not necessarily an easy one, however, working through your psychological issues will allow you to trade with a disciplined approach.
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