Trade Like a Forex Time Machine

One of the cardinal rules of Forex trading is to keep your losses small. With small Forex trading losses, you can outlast those times the market moves against you, and be well positioned for when the trend turns around. The proven method to keeping your losses small is to set your maximum loss before you even open a Forex trading position. The maximum loss is the greatest amount of capital that you are comfortable losing on any one trade. With your maximum loss set as a small percentage of your Forex trading float, a string of losses won`t stop you from trading. Unlike the 95% of Forex traders out there who lose money because they haven`t applied good money management rules to their Forex trading system, you will be far down the road to success with this money management rule.

What happens if you don`t set a maximum loss? Let`s look at an example. If I had a Forex trading float of $1000, and I began trading with $100 a trade, it would be reasonable to experience three losses in a row. This would reduce my Forex trading capital to $700. What do you think those 95% of traders say at this time? They would reason, “Well, I`ve already had three losses in a row. So I`m really due for a win now.”

They would decide they`re going to bet $300 on the next trade because they think they have a higher chance of winning.

If that trader did bet $300 dollars on the next trade because they thought they were going to win, their capital could be reduced to $400 dollars. Their chances of making money now are very slim. They would need to make 150% on their next trade just to break even. If they had set their maximum loss, and stuck to that decision, they would not be in this position.

Here`s a perfect illustration why most people lose money in the Forex trading market. Let`s start out with another $1,000 float, and begin our Forex trading with $250. After only three losses in a row, we`ve lost $750, and our capital has been reduced to $250. Effectively, we must make 300% return on the next trade and that will allow us to break even.

In both of these cases, the reason for failure was because the trader risked too much, and didn`t apply good money management. Remember, the goal here is to keep our losses as small as possible while also making sure that we open a large enough position to capitalize on profits. With your money management rules in place, in your Forex trading system, you will always be able to do this.

In this article I will be answering the most common question that people ask me: what is a good trading method and what features to look for? I shall be delving upon why certain methods are not good and also a simple way to evaluate a trading method.

If you look closely you will find that some alleged Forex trading systems and methods have the following features that I consider to be inadequate.

* They are not complete systems of teaching. They focus more on hours of theoretical teaching and do not incorporate lessons for systematic plans that help you trade for profits. You simply have to look up a well known course to learn about systematic trading.
* They lack in risk management. This is the biggest mistake that any Forex trading method can commit. Risk is inherent to trading in the markets and unless it teaches how to minimize it, the trading method is of no use. A well known Forex mentor on the other hand has risk management as a primary lesson in his course.
* Misplaced focus. They mostly focus on basic analysis. Reading fundamentals is a time consuming activity and understanding it is a subjective matter. Every person reads them differently and also requires a deep understanding of the economic and financial issues. If you fail to understand them correctly you will not be able to succeed.
* They require you to day trade. Day trading requires you to sit before your computer for endless hours and wait for an opportunity to exit or enter the market. This is practically an impossible task for many people.

Now that you know the inadequacies of these so-called trading methods, have a look at what comprises a good method.

After having studied many trading systems I have short listed four criteria that must be part of a good Forex trading method.

A good Forex trading system must teach how to setup conditions that leave nothing to chance. It should teach you rules of entry, stop loss and exit strategy rules. Also, in line with its trading method it should also incorporate financial and risk management. It must use technical analysis. At the same time it should neither be totally mechanical nor totally automated. Personally, I prefer a Forex trading system that takes only 20-40 minutes of your time on daily basis.

Using these simple guidelines you can evaluate a Forex trading method and sift the pretenders from contenders. In short, only those methods can be rated as good methods that incorporate an exhaustive explanation of how to apply strategies, how to trade and protect them from risks. In this regard, the guidelines provided a well known Forex mentor can give you the instant profits that you are looking for.