What is the golden rule in forex?

When learning any skill, especially online, where the people we learn from aren’t necessarily experts, we’ve been conditioned to look for ‘golden rules’. Whether you’re learning an instrument, a trade job, forex trading, or a physical skill like knitting or crocheting, you’re likely to come across people presenting one key aspect that will either unlock the skill for you or bring you closer to mastery.

And it’s easy to see why these messages are so appealing. Learning a skill, especially as an adult with obligations like housework, your job, and perhaps children, is a massive undertaking. In that scenario, it’s normal to hope that learning one thing will alleviate a significant part of the difficulty.

Unfortunately, it rarely works like that for any skill. And since forex trading is a skill, there’s no single golden rule we can point towards either. However, while that may make you feel misled by the title, don’t worry, we don’t intend to let you walk away with nothing gained.

Instead of a golden rule, we’ll present you with something that we believe is much more useful for forex (and any skill, for that matter). We’ll outline a set of ground rules that you can use to build your skills upon.

We’re not talking about a one-stop shop that will make you a pro trader. Instead, we aim to provide you with a framework you can work within to get the most out of the time you commit to learning and trading.

Trade with a clear head

This is a good rule in general, but it’s especially meaningful for those on the beginner side. Trading, among other things, is a highly psychological process. Your success largely depends on two things: your forex trading and the ability to apply it in real time.

The latter is something a lot of traders neglect. Trading is a highly psychological game, and even a sound knowledge base may disappear in high-pressure situations. Markets can take sudden turns, your portfolio may look fine one day and be red all over the next. This can cause a significant emotional response, that overrides reason when it comes to decision-making.

You’re much more prone to this when you’re already at less than 100%. Not sleeping well, not eating, having an especially stressful day, or general exhaustion can all amplify the already significant emotional impact trading can have.

That may not happen in a single session, but it can have significant consequences if it does. And even if it doesn’t, it makes the session much more difficult to go through, cumulatively creating a risk of burnout.

Now, we’re not saying never trade unless you’re in top shape. Even if you’re feeling horrible, some account upkeep like opening or closing positions as planned may be required.

But if you’re going for a high-focus, high-intensity trading session, make sure to take care of your basic needs first. And if you can’t, consider postponing since a missed session will do far less damage than a catastrophic one.

Prepare yourself for forex trading with a demo account

Most brokers, including us here at IronFX, offer a demo account. A demo, regardless of trader level, is a fantastic tool.

For complete beginners, it lets you dip your feet into trading without the risk of financial loss. The ability to gain experience without losing money puts it near the top of trading tools for beginners alone.

However, it has many more uses. You can test strategies, explore a broker’s service in detail before signing up, and try any new concepts you learn without pressure. For something so simple to get, it’s extraordinarily potent across all trading levels.

One thing we do implore you to remember, however, is that trading on a demo isn’t the same as trading with your real money. We already explained how emotional regulation is a significant part of trading, and you can’t fully learn that from a demo. Since you aren’t putting anything at risk, the impact is far less significant.

However, that’s the biggest (and realistically, probably the only) downside. All that means is that traders may want to consider transitioning their knowledge to a real account once they become comfortable. And of course, this is something most traders would do regardless.

Allocate time to forex and general trading education

Many traders hit a plateau at some point in their careers. The only thing you can do when that happens is to stay there or push past it.

Trading creates such a varied and rich environment that it’s impossible to really know everything. Since traders, and especially forex traders usually start by focusing on a small group of assets, they may feel like they’ve peaked when they become skilled at that group.

However, the job is far from done. Diversification and widening your skillset are among the most important things a trader can do. Not only do they make you a better trader through development, but they expose you to more situations.

Market conditions can change in the wildest ways at the drop of a hat. If you’ve only traded a handful of assets, these new situations may be entirely unfamiliar.

However, the more trading instruments you’re familiar with, the more diverse conditions you’ll experience. Through that experience, you’ll be able to internalise your knowledge and avoid feeling completely lost.

Essentially, we’d recommend creating room for education and testing in your forex trading schedule. Creating a routine ensures consistency and makes it easier to plan around.

You may decide to become familiar with a new asset and its drivers, a new trading strategy, or indicator patterns. For more experienced traders, there’s the option to test new EAs, for instance. Even a few hours a week goes a long way and ensures you won’t get stuck in a rut.

Commit to at least basic risk management

This piece of advice is much more practical and actionable than the previous ones. The Take Profits (TP) and Stop Losses (SL) features available on most trading platforms are invaluable. Even though they are a very basic form of risk management, they help you avoid disaster scenarios. And while these aren’t common, a single disaster may wipe out days, or even months of progress.

The SL feature is especially meaningful here, as it’s the more protective measure. It’s suggested that every trade should have stop losses in place until a trader becomes very, very confident. Even then, they should be on most trades.

The great thing is that TP and SL features can grow with you. As you become more competent you can adjust the levels to fit your strategy or use their trailing variants. Of course, as you progress, you’ll likely want to introduce more complex risk management tools as you move forwards as well.

Be smart with your money

This piece of advice is, strangely, more applicable to experienced traders than newer ones. When you’re new, you’re most likely aware that you still have a lot to learn. As such, you’re much more conscious of the money you put into trading. As you improve and gain confidence, that feeling may start to dim and eventually disappear entirely for pro traders.

If we were to pick one golden rule for forex trading, it’d be don’t trade what you can’t afford to lose. And while you may have read that a hundred times by now, it’s integral to keep in mind. Trading is unpredictable, and even professionals with years of experience can miss and suffer massive losses. As a retail trader, you should never let your trading regime compromise your livelihood.

Disclaimer: This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.