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Saturday, June 21, 2008

Author : Irena Whitfield

Forex, ie foreign exchange market has become very popular due to its immense size, liquidity, currencies moving in strong trends plus, an easy online access, relatively low starting capital and a big leverage. But it's got its pitfalls...

Forex, ie foreign exchange market has become very popular due to its immense size, liquidity, currencies moving in strong trends plus, an easy online access, relatively low starting capital and a big leverage.

All this is very attractive to many sorts of investors, speculators and also amateur people, especially online success chasers who imagine easy and fast profits. BUT it has its pitfalls and the Internet hype sellers and scammers make the situation even more dangerous.

Forex has enormous profit potential but since there is a substantial leverage involved working both ways, the same is the loss potential - the higher the profits, the higher the risk involved. And that is exactly the core of success in forex which is hidden from people seeking fast online profits.

People lacking basic character streaks like discipline, risk evaluation ability, experience and even basic information and training fall prey to false promises and start trading their last money on forex expecting quick riches.

It is necessary to be aware of the fact that trading currencies is not easy. If it was, no one would lose money and everyone would already be a millionaire. Many traders with years of experience still incur periodic losses. Everyone interested in trading forex must realize that trading takes time to master and there are absolutely no shortcuts to this process.

Yes, of course, it is possible to make it a long-term, profitable and sustainable source of high income and even a proper home business BUT the following are the basic rules for success in forex trading:

1. Discipline
it seems easy but the lack of discipline is the profit killer no 1. It is important to set your own rules and goals and stick to them. Do not panic if not everything goes the way you imagine and strictly keep the rules. One of the basic situations is losses: If you know you can lose only $1000, the discipline will help you stop trading if it happens, and not borrow and go on and on... Also, it is the discipline which helps you avoid magic profit calculations.

2. Responsible risk-taking and risk-evaluation ability
Forex trading is an investment method not a casino. It is not possible to invest properly if you are not able to take up a calculated risk, if you are not able to calculate an acceptable risk, and if you are not able to even recognize a risk. The good news is that you can develop this ability.

3. Spare money
Never trade your last money, always invest either profit or a reasonable amount of money you can lose. Always behave responsibly and never borrow money to trade.

4. Thorough education and training, incl practical training
It is imperative that before you start trading live, you get proper education and training, that you acquire working knowledge and develop your own working system on which you can build your investment strategies, routines and practice.

5. Never trade in a live-or-die situation or under any stress
Many gurus say that you can make instant riches from forex investing your last money. It is one of the biggest lies I ever heard. Unless you feel absolutely comfortable, knowing what you are doing and why, enjoying the trading, you cannot trade successfully. Any stressed, unbalanced or anxious mind and brain is not able to evaluate situations correctly, react competently, and it is a paved road to failure and losses.

6. Always do your homework
Another hype you can hear around says that everyone can trade just following someone else's advice and instructions. I can tell you only one word as an answer: rubbish. You must realize that you must be able to evaluate every situation, every trend, every forecast, create all the analysis, follow necessary trends, incl, of course, hearing specialized analysts BUT the decision and the money is yours only, so the responsibility is yours. The better your homework, the higher and more reliable your profits.

7. Learn from your mistakes and remain flexible
You must know that you will make mistakes, you will even lose in some trades but you must be a great trader and you must know it. When you make a mistake you must analyze the situation, find out why it happened and see to it that you will not repeat the same mistake in the future. You must not despair and fall into depression. You must stay positive and simply do better next time.

Plus a little closing note to only make you aware of these important topics which, however, exceed the scope of this basic informational article:

- yet another risk is here: it is vital to choose the right market-maker, big enough to allow you to make full use of currency moves. I stress a market-maker and not a broker,

and also,

- avoid managed accounts.

In case you are interested in mastering forex trading and start with the above points seriously, you are on the right way to trading success.

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