Discipline in Forex Trading: A Must For Traders

    A successful trading experience in the field of Forex currency trading is possible not only through the strategies one has but also through the kind of discipline he/she has in performing such strategies. Discipline is one single factor why most traders lose. By consistently having discipline while trading, a trader can lessen the risks involved with the trade.

    Having a money management plan along with the trading plan can lessen the risks involved in the Forex trade. However, implementing the plan can be burdensome and even unpleasant. Constant monitoring of one’s trade positions while taking only necessary losses can be very difficult for traders.

    A new Forex trader enters the market hoping that he/she can make millions in order to retire early. Consciously or unconsciously, this trader can visualize about that instance where he/she can snatch a really big win in the market in just one single transaction in one single day. But the truth is, although it can happen, there is really a very slim chance of it happening. The thought of making a big win in a single transaction is what drives a trader to lose everything.

    Risks can be controlled through stop losses. Experts do advice not to risk more than 1% of the trader’s equity in one single trade. But this may be very difficult to do especially when one is in the middle of trade and his/her hopes are up about this transaction being the “big one”. The big one which can make him/her super rich. Discipline is indeed in order to enforce the 1% rule which will eventually protect one’s wealth.

    Money management styles depend on the trader’s personality. Some will put many small stop losses and hope to have profits from the few huge winning trades while some go for small gains and take few but large stops hoping that the small winnings will outweigh the few huge losses. In both styles, the key to trading success is discipline.

    An equity stop is the simplest of all stop losses made available to traders. A percentage of capital is allocated on a single trade. Once the preset stop is breached, the trader must stop trading. Conservative traders use 2% while more aggressive traders use 5%. Prudent money managers do go beyond the 5% upper limit because going beyond 5% can prove to be disastrous.

    The chart stop is more commonly used by technically oriented traders. Stop losses are preset on the basis of the price action of the charts or through different technical indicator signals.

    The volatility stop is more sophisticated than the chart stop because it uses volatility rather than price action. High volatility environment allow more room for risks so that intra-market noises do not stop trading while low volatility environment requires compression of risk parameter. The Bollinger bands are used to measure volatility.

    The last and the most extraordinary of all money management strategies is the margin stop which allows FX brokers to liquidate traders’ positions as soon as they elicit a margin call. Judicious use of this stop loss can be effective in Forex transactions.

    Discipline plays an important role in all these strategies because without discipline, a trader can suffer huge losses in the Forex market.

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