I have been trading in currency trading business for 5 years now. From my short, yet breathtaking and sometimes devastating experience I can say that staying alive in forex and even making money is a tricky thing. There are so many new traders nowadays popping out and literally playing with their money that I cannot help but ask myself, do they really know what they’re doing. I am sure that almost the same number returns down-and-out. Only a fraction of successful traders prevails and then there is a question why. What makes them so different?

The truth is: some traders stick to the trading rules and trade according to some plan, and others just turn into a reckless money wasting machine. The only possible explanation to this phenomenon is that the ones who suffered painful loss in the past usually tune their actions and methods according to the strict and effective forex trading rules. Newcomers and beginners very often fly high with their hopes and dreams of „earning a million“ in a month. So why should they bother to stick to some boring „do‘s and don‘ts“? Here are some answers and tips for survival J…

Do not risk big. The classic capital management rule in forex trading is to risk just 2 % of your capital or less per one trade. It means even if you make 5 wrong trades you only lose 10% of your capital. This kind of trading in crazy and unpredictable market happens quite often and you have to be prepared for losing more than once in a day. Just imagine what it would be like, if you started risking 5 or even 10% of your account. You could lose all your capital in just a few weeks or even sooner.

The next thing is to trade according to your plan. Never enter the market just because you „feel like it“. Feelings will not help when the currency pair movement moves against you; what helps is a pure mathematical calculation and a chosen indicators signaling possible trade entry or exit. If you have just started trading, my advice would be taking some practice in forex demo account for some time until you come up with a decent, time tested, profitable forex trading strategy. If it works in demo account, you can use it in real account, only keep to your trading methods and stay away from emotions.

Cut your losses short and let the profit run. It‘s the essential and core rule that turns the statistical wrong/right trades percentage into the plus. Say, you are making some calls and had 4 loses in a row, with a stop loss of 80 pips, totaling 320 pips. In order to regain your balance you will need either the same number of winning trades with the same profit target or just one good trade with a profit of 320 pips. Naturally, it might take more time, but if you cannot tell where the loosing trend will stop the same goes for a trend in your direction. It could stretch for 500 pips or just go for 50. Anyway, as you move your stops to break even, you don’t have anything to loose, it’s just the patience and indicators that can signal when the profit will be taken.

Those are just the core things, but you would still be able to succeed even with that simple trading tactics. Simplicity sometimes is undervalued in this business, which seems trickier than it actually is.

Imagine, there is a stock that everybody is excited about. Its price has be pushed up to US$150. Now the share is be traded at a price that is around 25 times of the yearly earning. What this implies is even if the company give all its earnings to the shareholders, you still need 25 years to recover your capital. Yes, that is a high stock price.

If you can hold a stock and sell it at such a high price and watch its price dive in the next 6 months, with at least 5% fall every week, what would happen? At the end, this stock is selling at $5 which is 8 times of its earning. You buy back the stock at this price. Then you have bought the stock at $5 and sold it at $150 which is $145 profit per share. You just did it reversely. You sold high and bough low.

Can we actually do that? Yes, we can. And we call this short selling. We can borrow stock from the brokers and sell the borrowed stock and later buy back the stock.

For example, you researched and found that 3M’s price of $82 per share is overrated. So you short sell 3M. This means your broker help you to borrow the stock and allow you to sell it at $82. You have a cash income of $82 per share, however, at the same time you owe your broker the amount of stock you sold. And someday later, you have to buy back the stock. If the price fell to $42, you can buy back 3M at this price. That means you have bought 3M at $42 and sold it at $82-$40 profit per share. You just did it reversely. You sold before you bought.

One thing to bear in mind is that this kind of short selling is extremely risky. But still short selling, if utilized correctly, can help you profit even during bear markets.

Learn more about Security Trading, visit Forex Trading Systems Centre and Forex Pips