Four principles to becoming a good trader:

The problem with many traders is that they take shopping more seriously than actual trading. For instance, an average businessman would never buy a product that he could not with relative certainty sell later for a higher price.The average trader, on the other hand, whose decisions are unfortunately often based on gut feelings, frivolously makes a trade that he cannot exit at a higher price. That is why you should play it safe and come up with a plan before you start trading. Your plan has to include stops and limits for your transactions, since your expectations have to include the possibility of both potentially negative and positive developments.

Very few traders employ this simple concept. Too many newcomers to trading simply do not stick to their plans and take their profits before their original earnings target is reached. And they often do so merely because they apparently feel uneasy about holding a profitable position. Other traders stick with positions that are running hundreds of pips against them in the hope that the market will recover. In addition, some traders refuse to place new stops after the experience of having their stop triggered several times in a row, and then have to look on as the market recovers following their exit. They remove their stops, thinking that this will always happen. The purpose of stops, however, is to be triggered and prevent traders from losing more than a pre-determined amount. A trader who can profit from three out of six transactions is doing very well. But how can you earn money if only half of your transactions are making a profit? You’ve got to let your profits run and make sure that you keep your losses to a minimum. Even though you will have a lower number of successful transactions, the profits that result will be far greater if you simply let them run their course.

Trade strictly according to a plan. That is the number one rule to master. The average trader objectively analyses his trades. Once a trader holds a position, he tends to evaluate the market in a biased manner in the hope that the market will move back in his direction, instead of objectively examining the changing factors which may contradict the original analysis. This phenomenon is particularly common when a trade turns against a trader. In such situations, some traders tend to irrationally cling to their positions, ignoring all of the signals pointing to a loss.

Many investors are tempted by the high degree of leverage. Just because the lot for a currency pair with the default account only requires 50 euros of margin for the length of the trade, does not mean that traders with an account balance of 2,000 euros should trade with 10 lots, or even more, at one time. A lot equals 10,000 units of the base currency in the pair being traded and needs to be viewed as such, and not an investment of the 50 euros required to meet the lot margin requirement. Many traders analyse their charts correctly and make reasonable trades. However, some tend to over-leverage their accounts by entering into trades too large for their account balance. As a result they are then forced to close positions at the wrong time. For example, a trade of 5 lots with a leverage of 200:1 and an account balance of 2,000 euros represents a significant risk based on trading volume in relation to the size of the account. Professional money managers are not permitted to make trades with ratios on this order of magnitude. Long-term success can only be achieved by trading at conservative volumes.