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How do I prepare to trade Forex? |
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Mentally Prepare to Trade Forex
One of the first things you need to do before you place your first trade is to determine exactly what you want to achieve. Get out a piece of paper and write it down. Do you want to eventually live off your trading? Or are you just trying to outperform your 401k or Money Market account. Be as specific as you can and then pin this up by your computer.
When you sit down to trade each day take 4 or 5 minutes and review your goals before you start clicking that mouse. This will help you keep your goals in mind as you trade. It is easy to get wrapped up in the emotion of the moment and forget your larger picture. Taking a few minutes before the day starts will help you focus on your goals.
Be aware that when you start trading you may be confronted by negativity from your friends or relatives. They simply don’t understand what you are doing or the language you are now learning. Some people react to new situations with fear and frustration. You need to join a traders group, whether it be online or in person. Make sure you have friends and associates that understand the new language you speak.
Remain focused. Every new trader will hit a wall. Your actions at this stage of the game are going to help form what kind of trader you will grow to be. My advice for this situation is to lean on your fellow traders. Anyone who has been in the market for any length of time has been through this. This is what separates the men from the boys (so to speak).
If you are having emotional responses to your trades it is time to step back. Always stick to the trading rules. During these times, walk away from your computer if you can. When you lose your emotional detachment you have lost your perspective. You are now far more likely to place bad trades, second guess yourself and close out everything at a loss. Take a break, get out of the house, and come back when you can look at the charts and your account impassively.
Beware of greed. This is one of the seven deadly sins for a reason. Greed can cause you to act impulsively and irrationally. Set your goals for the trading session, achieve your goals and be grateful for another day of trading successfully.
Track your progress. As long as you can see that you are progressing down your projected path then you will continue to stick to your trading plan. This also gives you the confidence you need to see that you plan is working. Don’t deviate from your plan, remain steadfast and you can achieve your goals. Think slow and steady and you maintain your trading edge.
Technically Prepare to Trade Forex
Trading over the internet offers special opportunites,
and is subject to special risks. Trading financial instruments is serious business.
You must understand your risks, and you must develop procedures to mitigate them.
This focuses on what you
must understand and how to prepare for the unexpected, with an emphasis of preserving
your capital.
If you are trading a Demo account, you still need to take heed, because you are
training yourself for trading real money. Don't train yourself wrong.
Risks
Connecting to a broker and executing trades is done over the internet.
There are numerous potential points of failure. Some of them are:
- Failure of the broker's server
- Failure of the broker's internet connection
- Failure of the broker's software
- Failure of any of the dozen or more routers between you and your broker
- Failure of your internet provider
- Failure of your internal network hardware or software
- Failure of your router
- Physical cut of any of your wiring
- Failure of your hardware or software
- Power Failure
Precautions
There are a number of precautions you can take.
I recommend that every trader have an emergency kit which should consist of:
- A battery backup system (UPS) to run your computer during
a power outage. You should connect only your computer, monitor, modem and router to the UPS, these are all required to keep trading uninterrupted. Don't connect anything that isn't needed like printers or speakers.
- A Post-it note or other papers that includes your broker's trading desk phone number,
your account numbers and your passwords. Brokers allow you to do trading over the phone in emergencies. You probably shouldn't open orders over the phone but you can modify and close orders.
- A cell phone. You can put your broker's phone number in your speed dial
Comments on your
trading setup
As I said, trading is a serious business. You wouldn't be here otherwise. Ask
yourself the question: "How well should I be equipped? Should it be the best it
can be?"
I recognize that our traders come from all over the world and all walks of life,
so when I say "the best" it means the best available to you.
Your computer should be up to date, robust and stable. Don't ever trade on a computer that locks up or has errors. I suggest that while you can, choose
Windows XP over Vista. Personally, I buy the CPU that is on the faster end of the
scale, but just not quite the latest and greatest. If you can afford and want the
latest and greatest, then go for it. A middle class $500-600 dual core machine will do just fine.
The best internet connection is a broadband connection. Choose cable over DSL if possible but either is fine. Using dialup is possible but will lead to erratic trading. Choose the connection you can get in this order: cable, DSL, satellite and dialup.
Whenever possible, avoid making any part of your connection wireless. Wireless connections
of every kind are far less reliable than hard wired connections. Always go with wired unless wireless is the only possibility.
Trading Procedures
I will describe some procedures that you can use when trading. The principles of verification apply no matter what platform or broker you are using.
When you press the Buy or Sell button, you are attempting to place a trade. I say
"attempting" because you still need to make sure what you wanted to happen, actually
happened.
The first place you may wish to look is your open positions window. Review
this as a step to verify that your trade was placed exactly the way you wanted.
Our procedure for opening a trade is this:
- Visually confirm that the Lot Size pull down menu is set for the number of lots
you wish to trade.
- Click the Buy or Sell button.
- Now confirm that the open position is the trade you think you should have and for the size you think you should.
- Now adjust your trailing stop and take profit.
- Check the open positions window again to verify that your associated orders are correct.
I know exactly what happened
and where I am in the market.
When I exit a position, I follow a similar verification process in the closed positions window.
If at any point in your trading you think you should be in or out of the market
differently than your platform indicate, investigate immediately.
If you still can't verify that you are in or out of the market as expected, there
are a couple of choices:
If you are trying to exit a position and cannot verify if that occurred, call your
broker (only on real money accounts, never on Demo accounts).
All of these things you need to work out on Demo accounts. Know your procedures.
Practice them.
Remember:
- There are multiple potential points of failure in internet trading so prepare yourself and your equipment.
- Get the best setup you can.
- Assemble your emergency kit and procedures.
- Verify your trades in and out.
- Always stick to the trade rules.
We wish you the best success and profit in your trading.
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