7 forex laws

You have to agree with me that this is very vital information indeed! All traders know this, including those who routinely trade based on fundamental analysis. Unfortunately, what followed during your education is the reason why you (and many others) do not consider candlestick analysis a very reliable technical tool. I am talking about the two and three-candlestick formations.
particularly the formations have been relegated, totally forgotten or ignored.
movement, why not simply look at candlesticks to gauge sentiment.
and years of experience, I finally discovered the principles that govern price movement. I call them the 7 laws of candlestick. These laws have not been culled from an external source. With the exception of the second law which you may recognize as another.
name, you will not find the other six anywhere on the Internet or in any published work. I will explain the first law in this article but the remaining six will be published in greater detail in subsequent articles. I will use a lot of chart illustrations, particularly real-time charts to demonstrate the effectiveness of each of the laws.

Top 10 Forex Trading Rules.
Trading is an Art, not a Science.
The systems and ideas presented here stem from years of observation of price action in this market and provide high probability approaches to trading both trend and countertrend setups, but they are by no means a surefire guarantee of success. No trade setup is ever 100% accurate. Therefore, no rule in trading is ever absolute (except the one about always using stops!). Nevertheless, these 10 rules work well across a variety of market environments, and will help to keep you out of harm's way.
Trading is an Art, not a Science.
The systems and ideas presented here stem from years of observation of price action in this market and provide high probability approaches to trading both trend and countertrend setups, but they are by no means a surefire guarantee of success. No trade setup is ever 100% accurate. Therefore, no rule in trading is ever absolute (except the one about always using stops!). Nevertheless, these 10 rules work well across a variety of market environments, and will help to keep you out of harm's way.
Never Let a Winner Turn Into a Loser.
The FX markets can move fast, with gains turning into losses in a matter of minutes, making it critical to properly manage your capital. There is nothing worse than watching your trade be up 30 points one minute, only to see it completely reverse a short while later and take out your stop 40 points lower. You can protect your profits by using trailing stops and trading more than one lot. For more on this, see Trailing Stop Techniques .
Logic Wins; Impulse Kills.
It can be a huge rush when a trader is on a winning streak, but just one bad loss can make the same trader give all of the profits and trading capital back to the market. Reason always trumps impulse because logically focused traders will know how to limit their losses, while impulsive traders are never more than one trade away from total bankruptcy. To get a better understanding of traders, read Understanding Investor Behavior .
Never Risk More Than 2% per Trade.
This is the most common and most violated rule in trading. Trading books are littered with stories of traders losing one, two, even five years' worth of profits in a single trade gone terribly wrong. By setting a 2% stop-loss for each trade, you would have to sustain 10 consecutive losing trades in a row to lose 20% of your account. For more read The Stop Loss Order - Make Sure You Use It and Limiting Losses .
Use Both Technical and Fundamental Analysis.
Both methods are important and have a hand in impacting price action. Fundamentals are good at dictating the broad themes in the market that can last for weeks, months or even years. Technicals can change quickly and are useful for identifying specific entry and exit levels. A rule of thumb is to trigger fundamentally and enter and exit technically. For example, if the market is fundamentally a dollar-positive environment, we'd technically look for opportunties to buy on dips rather than sell on rallies.
Always Pair Strong With Weak.
When a strong army is positioned against a weak army, the odds are heavily skewed toward the strong army winning. This is the way you should approach trading. When we trade currencies, we are always dealing in pairs - every trade involves buying one currency and shorting another. Because strength and weakness can last for some time as economic trends evolve, pairing the strong with the weak currency is one of the best ways for traders to gain an edge in the currency market. For more, see Using Currency Correlations to Your Advantage .
Being Right and Early Means You Are Wrong.
In FX, successful directional trades not only need to be right in analysis, but they also need to be right in timing as well. If the price action moves against you, even if the reasons for your trade remain valid, trust your eyes, respect the market and take a modest stop. In the currency market, being right and being early is the same as being wrong. Consider a scenario where a trader takes a short position during a rally in anticipation of a turnaround. The rally continues for longer than anticipated, so the trader exits early and takes a loss - only to find that the rally eventually did turn around and their original position could have been profitable.
Differentiate Between Scaling In and Adding to a Loser.
The difference between adding to a loser and scaling in is your initial intent before you place the trade. Adding to a losing position that has gone beyond the point of your original risk is the wrong way to trade. There are, however, times when adding to a losing position is the right way to trade. For example, if your ultimate goal is to buy a 100,000 lot, and you establish a position in clips of 10,000 lots to get a better average price, this type of strategy is known as scaling in. To learn more about scaling in, see Tales From The Trenches: Trading Divergences In FX and The Art Of Selling A Losing Position .
What Is Mathematically Optimal Is Psychologically Impossible.
Novice traders who first approach the markets will often design very elegant, very profitable strategies that appear to generate millions of dollars on a computer backtest. Armed with such stellar research, these newbies fund their FX trading accounts and promptly proceed to lose all of their money. Why? Because trading is not logical but psychological in nature, and emotion will always overwhelm the intellect in the end. Conventional wisdom in the markets is that traders should always trade with a 2:1 reward-to-risk ratio, the trader can be wrong 6.5 times out of 10 and still make money. In practice this is quite difficult to achieve.
Risk Can Be Predetermined; Reward Is Unpredictable.
Before entering every trade, you must know your pain threshold. You need to figure out what the worst-case scenario is and place your stop based on a monetary or technical level. Every trade, no matter how certain you are of its outcome, is an educated guess. Nothing is certain in trading. Reward, on the other hand, is unknown. When a currency moves, the move can be huge or small. To learn more on why you need a plan, see The Importance of a Profit/Loss Plan .
No Excuses, Ever.
The "no excuses" rule is applicable to those times when the trader does not understand the price action of the markets. For example, if you are short a currency because you anticipate negative fundamental news and that news occurs, but the currency rallies instead, you must get out right away. If you do not understand what is going on in the market, it is always better to step aside and not trade. That way, you will not have to come up with excuses for why you blew up your account. It's acceptable to sustain a drawdown of 10% if it was the result of five consecutive losing trades that were stopped out at a 2% loss each. However, it is inexcusable to lose 10% on one trade because the trader refused to cut his losses.

The 7 Iron Laws of Successful Forex Trading.
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Trading forex in the United States: Laws & Limits.
Just because the Forex market is decentralised does not mean it’s the wild west, and there are laws that govern the industry. In charge of enforcing these laws are the financial regulators, and every country has its own regulator. In the US, 2 bodies ensure the Forex market remains fair – the CFTC and the NFA.
Forex brokers are supposed to be registered with the CFTC and acquire a license from the NFA before operating in the US. Each Forex regulator operates within their country, and they are free to create and amend laws governing Forex trading as they see fit, even if their laws are different than other regulators’.
In the US, regulations on Forex trading are quite different from those enforced in other regions of the world. The Forex brokers often complain that the laws are prohibiting, which explains why there aren’t many brokers licensed by the NFA.
Some of the Forex regulations in the US that are different from those in other countries are those surrounding:
It was the concept of leverage that made the retail Forex market as he as it is today because it enables traders with lesser capital to participate at the same level as those with more capital. In principle, a broker can provide as much leverage as they want, which is why there are brokers with leverage as high as 1000:1.
However, the regulators can dictate how much leverage they consider appropriate, and this is what the CFTC did. In 2010, the Dodd-Frank Act was created to regulate financial markets. Among its new regulations was a cap to leverage at 50:1 on major currency pairs and 20:1 on exotic pairs. The idea behind the cap was to reduce the risk taken by investors in the markets who did not fully understand the downside of leverage.
Leverage is a double-edged sword that could increase a trader’s profits, but it also increases the losses. By capping leverage, the US regulators wanted to reduce the risk involved in trading. Obviously, this makes Forex trading in the US by many traders more difficult if they don’t have the necessary capital, but that’s just the way it is.
When you’re holding a losing trade, a trader has 3 options – close the trade, keep holding on to the order until the trend turns around, or place an order in the opposite direction. The latter is referred to as hedging, and it is an effective strategy used to reduce losses when trading. For example, you can place a sell order on a currency pair if the long order already active is in the red.
Despite being effective, US Forex regulations don’t allow hedging, instead of making use of a First-in-First-out model. This means that if you attempt to place another order on the same currency pair, the previous order would be closed first regardless of the profits or losses. Again, this trading model restricts a lot of flexibility from the trader, but that’s just the way it is in the US.
Deposit security.
When dealing with money, the clear worry has got to do with the security of the deposited funds. Every trader needs to feel that their money is safe, so the US Forex regulators set out to prevent any cases of losses. Some measures that were taken by the NFA to ensure fund security include:
A check for broker license.
As an online business, it is possible for Forex brokers to claim they are regulated by a regulatory body even when they aren’t. The NFA thus offers a regulatory status check feature on their website where you can input a broker’s NFA ID and confirm if they are really licensed.
Storage of client funds.
A Forex broker is not supposed to keep a client’s funds – this role belongs to banks and brokers should not deposit client funds into their own accounts. The fear on this is that a broker can choose to abscond with the funds, and t would be safer to keep them in a separate account. The NFA requires that brokers keep funds at a recognised financial institution based in the US.
There are clearly very different laws governing Forex trading in the US, and as mentioned before, the Forex brokers do not particularly favour them. Nevertheless, all these new laws have been put in place just so that the traders are more secure, even though it limits them. Whether these laws are actually punitive depends on a person’s perspective.
For me, it always seems like the same strategy to teach abstinence in schools instead of birth control. And as we all know by now, this strategy does not help with teenage pregnancy. It’s always better to provide people with all options and let them decide rather that limiting their reach.
2 Comments.
I want to know more about binary forex trading.
Check the article – Binary options, if you want to know more about binary trading. Forex trading is explained in the post – Currency and CFD trading.
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