There are four main principles which should be a part of any trading strategy. It is:
1) Trade trends,
2) Reduce losses,
3) make your profits grow
4) Manage risks.
You should be assured that your trading strategy includes all these principles necessary for success.
To trade trends concerns determination of rules of opening of positions. This requirement means that you should open always in a direction of existing movement of the prices.
Mathematical price analysis shows that the prices change basically in a random way with a small trend component. This fact is very important for those who want to base the trade on the rational scientific approach. It explanes that any attempts to trade short-term figures or methods not based on trends are doomed to a failure.
Good example of such doomed system is Japanese candles. This theoretical conclusion is based on my pregoing researches. Many years ago, when the candle analysis has become fashionable, I tried to create the profitable trading system based on candles. I have tried weight of variants absolutely unsuccessfully. I as didn’t meet anybody who could show efficiency of the candle analysis using strict rules. Successful traders use the methods giving to them statistical advantage. This advantage occurs from a tendency of the prices to form trends. In the long-term plan you can gain money only trading on these trends. Therefore when the prices are on a raising trend you should buy only. When the prices are on a lowering trend you should only sell.
Though this important principle is widely known, traders surprisingly often neglect it. In search of additional profit they try to buy at the very bottom and to sell at the top before the new trend will be established. Successful traders were learned to wait before reception of confirmation of formation of a new trend before to take of a position according to it.
Here is what was said about those four main principles of trade:
From all main principles I put Trade on a trend on the very top. It is a lesson which I am forced to learn and retrain every year. All traders have methods of a finding of trends. That is even more disappointing when we go against a trend or we try to catch the top or the bottom.
In the second part of these series of articles we will talk about another alternative to these four methods that calls the prediction. So just keep reading the second part of the article.
For the practical knowledge about forex trading – please visit this site.