Experienced traders face a dilemma when offering up tips, not only are tips personal and often contentious, there are the argument and theory that; if you don't experience the most common mistakes as a unique individual, then you're unlikely to build the 'psychological armor' necessary to succeed at retail Forex trading.
There's also the other contention; that no matter how many times you offer up professional advice, most traders fail to take it up, believing they'll eventually find their own way. Novice traders generally make the common mistakes most of us made at the outset and only then do they begin to search out viable solutions.
However, as we've stated many times; as an STP/ECN broker, it's in our interest to assist our clients in whatever way we can to become successful. Therefore we'll continue to offer up what we're convinced is credible and worthwhile information, as to how our clients can avoid many of the most common mistakes and pitfalls. So here are our first five guidelines covering aspects such as broker choice, platform choice, realistic expectations, trading plan and risk level.
If you're retail trading Forex then you should opt for an ECN broker rather than to trade Forex through a broker who operates a dealing desk; making their own market for their clients and in effect trading against you. You do not trade Forex through a spread betting firm and re-consider if you are going to trade through an organization offering fixed spreads, because it may be a con.
It is important to know that the 24/5 Forex market has variable spreads quoted in direct correlation to the volume of business being transacted, you're not getting fixed spreads from spread betting firms, you're getting poor fills and it only looks as if you're getting a fixed spread based on their "indicative" pricing. Somewhere, somehow you're paying far more than the headline price you're actually being quoted. Successful traders trading through spread betting firms don't exist. The 'successful' ones have learned how to game the spread betting firms' business model, however, eventually their accounts are closed and they're shown the door.
Risk can be involved when choosing a broker that has their own "proprietary platform". Do we really need to spell out how and why a broker would offer this and the license to create mischief it allows them? You may always choose a broker that allows you to trade through an independent platform and software program, such as MetaTrader.
Consider not to risk more than 1% of your account on one trade, and not to have more than 3% at risk. Try to limit your daily loss to 3%.
Now we're using arbitrary examples here, and in many ways, your risk tolerance is a personal issue. You may be entirely comfortable risking 2% per trade and be prepared to suffer a 10% account daily drawdown because you have absolute faith in your overall trading strategy and trading plan. However, we're aiming this article at novice and intermediate level traders, who need to be taking tentative and careful steps early on in their career and into our industry. A 10% loss can be harmful psychologically it will also take an unlikely series of successful trades to recover from. Your ambition should be to make your first account last as long as possible.
Keep your targets realistic
When trading it is essential to first set your targets and make sure they are realistic and within fair chances to reach them. Try not to set the targets too high at the beginning stage of your Forex experience, as expected 100% annual growth from trading are minimal and highly unlikely in terms of probabilities.
Create the trading plan
It's a subject that many analysts will never tire of advising on; "fail to plan, plan to fail". As a retail trader you're operating a small business, would you operate a small business without a business plan and expect to succeed, or would you simply 'wing' it on a daily basis? Even if you're not the most diligent and meticulous individual, believing it may hinder your entrepreneurial animal spirits, you'll still have a vision and basic plan to work from, the same mindset and personal code should apply to trade.
Decide what Forex pairs you'll trade, what risk per trade you'll put on, your daily loss limit, your drawdown tolerance (before amending your method), what times of the day you'll trade, whether (or not) you'll automate. These are just some of the decisions you'll need to commit to a trading plan, and this exercise in thought development will help to concentrate your mind on what's required in order to aim for trading success.