Forex Trading for Beginners
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Finance > Investing
Apr 18, 2007
Forex Trading for Beginners
A number of years ago I did a survey of over 1,000 people who had replied to adds I placed in local newspapers advertising various stock market information. This is what I found out: over 73% admitted they were losing money trading their own accounts. Is it any wonder 95% of private traders lose money? It shouldn't! Now lets look at rules that will dramatically help your trading: Rule 1 -- If you are a beginner or have no market profits to your credit, trade only in an imaginary way rather than with actual money; if after reading Momentum Share Trader, you think that you have learned a great deal, prove it to yourself by buying and selling stocks but without money. Neither fool yourself nor your ledger. "Know thyself and unto thyself be true." Rule 2 -- Should you trade without first laying the foundation by a few years study of the scientific aspects of the market, you might as well set your mind to the inevitable result that a good part of your capital will be lost before you succeed. Rule 3 -- Do not deal in inactive stocks. Trade in live ones. Rule 4 -- Do not hold on to a stock if the trend is against you. You may be able to buy more stock later for the same money. Rule 5 -- Do not be overly enthusiastic about your prospective profits, they may never come, or when they do may disappear because of "pride of opinion" or "hope", "Hope is your worst enemy in the market." Rule 6 -- Do not trade with someone else's money, whether your brokers or your friend's. Do not trade with money, which you can ill-afford to lose. Before attempting to trade, make certain that all your obligations are taken care of. Rule 7 -- If you attempt to make money in a hurry, you will not succeed'. 'There is money in Wall Street for you - If you do not get it today, it is there for you a week or month hence. You have a better chance to get it, however, if you wait'. Trade when the TIME is ripe. Rule 8 -- Do not be discouraged if you make a mistake. The best traders make them. But learn to profit from those mistakes and try never to repeat them. Attempt to find out the underlying cause. When you have thoroughly reasoned out what you did or failed to do, resolve not to repeat the same error again. Do not place faith in luck. Rule 9 -- Be skeptical about any trade that appears to be a dead-sure winner. When you are one hundred per cent certain that you will come out ahead that is just the time to look about with a critical eye. The market may have many surprises in store for you. Rule 10 -- Do not guess the market. Trade only AFTER you have come to definite conclusions. By an analysis of the situation. Do not arrive at these conclusions hastily. Measure every possible angle first. When these are in your favor, determine if it is the psychological moment to act. Rule 11 -- Bear in mind that the market is in the strongest technical position when it is 'Weak' with Prices down and news gloomy. It is in an, extremely weak position when it appears to be strongest, as when prices are up, business booming, and newspapers full of prosperity psychology. Following the theory of cycles, it works out thus- the strong factors have potential weaknesses, which must assert themselves sooner or later; Rule 12 -- If you want to come out ahead, do not repeat your mistakes. In that way you will eventually succeed. Remember, also, that the market always gives you a thousand and one opportunities for new errors. So be on guard! Rule 13 -- It is advisable to trade in not more than ten stocks. Study these stocks painstakingly, their actions for months back, there resistance points, and their behavior, so that you may know exactly what they are capable of doing. Rule 14 -- Do not "average" your stock if it goes against you. Do not buy more of the same stock at a lower price if it has already dropped. Close it out instead. Rule 15 -- Place your "stops" so that they will be 1/4 below even figures on a "long" buy, and a 1/4 above even figures on a "short." Place your stops below resistance points on a "long" buy and above resistance points on a 'short' sale. The study of resistance points on individual stocks and on the Averages is of utmost importance. Rule 16 -- Success in speculative operations on the Exchange is based on the following. First, on your ability to determine economic and political conditions, not as they are today, but as they will be three to six months hence. Second, on your ability to determine what 'they' in Wall Street are doing or intend to do with the stocks they have on hand or with the stocks in the hands of the public. If, after a thorough -study of the situation, you decide that they are interested in buying, then do the same as if you suspect they are disposing of their holdings. Do likewise. Go short if you detect the move at the top. Follow them and you will succeed. Buck them and you wilt fail. Rule 17 -- Begin a trade with the expectation that your profits shall be four or five times your risk. If you anticipate only a two-point rise, do not buy. Wait until your analysis shows a possible advance of 8 to 10 points. Then risk two points on a five to one shot. This is much better than a one to one chance. Rule 18 -- Money can best be made when buying on the down of a move and then selling close to the top. If you have predetermined by analysis the resistance points on the particular stock you are dealing in and on the Averages, the possibility of error is limited. Rule 19 -- Purchase stocks in the strongest groups only. As a general rule some groups are stronger than others. At a time tech may be strong and oil weak. Trade in the strongest groups for a rise. This you determine from the market action its-self. In each sector there are always a small number of stocks that perform the best. Your job is to recognize these stocks and profit from them. Rule 20 -- Trade evenly. Always keep your risk the same in every trade. It's tempting after a number of wins to really go for it. Yet this is when you are most likely to have a loss. Taking a loss when you are over extended is not good money management. Rule 21 -- The most important thing to know about the market is the "trend." Do not attempt to trade until you are certain of the direction of the trend by a thorough analysis. Always trade with the trend and not against the trend. If the trend is doubtful, stay out of the market entirely until it is visible, even if it should take weeks or months. Rule 22 -- Learn to be patient Guard against hurry-skurry (get rich quick). If you have calculated that your stock will move up a certain number of points and you think that you are correct in your analysis, have the patience to wait. Your opportunity may arrive a few days after you have sold out your stocks at a lower figure. Rate 23 -- Do not permit your opinions about political matters to influence your market judgment. You may have a soft spot for the underdog and sympathize with the New Deal. Do not allow political wish fulfillment to interfere with your stock. Rule 24 -- When the tape has been going in a certain direction, either up, or down, and it comes to a stop for a few days that usually signifies that a new chapter is starting. Sometimes it may be a stronger continuation in the same direction. Rule 25 -- Remember that the reason stocks go up and down is basically because of supply and demand, If there are more buyers than sellers, stocks will go up, even though they were heading downward. Some may wish to sell, but if those who buy are more numerous or have more purchasing power, stocks naturally will go up. Rule 26 -- Do not ride up and down with a stock indefinitely. You may have bought with the idea that it will go up ten points. But that is no reason why you should not take profits beforehand. Rule 27 -- Watch commodity prices especially wheat and cotton. Take particular note of bank issues. If they go down, most likely all other stocks will go down, a sharp drop in commodity prices usually foretells a drop in stock prices. Another item to watch is foreign selling. Many breaks in the market were attributed to foreign sailing. Rule 28 -- It is advisable to place, a time limit on stocks. If a stock does not come up to your expectations within a certain time, sell, even at a loss. You cannot afford to have your capital tied up for too long a period. Rule 29 -- Do not take money out of your business for trading on the market unless your business can unquestionably do without it. Do not trade if it will cause you too great anxiety. You will never succeed in that state of mind Rule 30 -- Do not try to squeeze your stock for the last quarter or half Point. If You have made a substantial profit, it is best to cash it. Rule 31 -- When you decide to take profits by selling, do it on the up-move, while the stock is climbing. Do not wait until the movement exhausts itself, as you will then have to sell for one-half or one point less. Rule 32 -- When the market is in an up-trend and you wish to take advantage of a little shakeout to come, trade short, but only with a small % of your profits from the long trades. Rule 33 -- When buying on a reaction, it is best to place orders at stipulated prices under the market instead of "at market." When buying while the market is advancing it is best to buy "at market," as otherwise you may not get stocks at your price and an opportunity may be lost.
Martin Chandra is a full-time investor. He has been researching investment strategies and make his own living. For more information please go to here.
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