Ten steps to consider before executing forex trade
Forex trade can be confusing for someone who might be a beginner. This will lead to the person experiencing various challenges as you trade. Here are some of the things you should consider before trading.
1. Perform an engine check
It is wise to consider your mental headspace before carrying out a trade. Trading for the wrong reasons might bring about false expectations towards the market. Having a clear mindset will give you clarity in looking at key aspects of the trade that is waiting to take place.
2. Doing a trend check
Looking at the market trend will make it easier to choose the aspects such as the direction in which the trade is going, be it an uptrend whether it is at a consolidation phase. One can check various trend setters in the stock market, such as Elon Musk whose comment can contribute highly in the disturbance of a stock.
3. Checking for opportunities
Checking for opportunities within the market is very important as one should not just trade for the sake of trading. Trend lines should factor in as one of the reasons you choose a specific stock.
4. Checking on news
Doing a news check will let you know whether important information such as airdrops has ben announced within the past 24 hours or week, and the type of impacts they would have in the market, be it raising volatility or increasing the risk of the stock.
5. Quality check
Checking for bigger and better opportunities during trading is important as high risk leads to greater income. One should look at his/her risk to reward ratio.
6. Do a FOMO check
The fear of missing out should not determine whether an investment should take place or not. FOMO usually tends to create strong trends which have a habit of forming a positive feedback loop. Once you notice a strong trend going on, take a step back and do an analysis checking to see if the asset value meets the price or a big gap is lurking.
7. Check on risk capital
Before trading, one should define the amount of capital they want to invest in the trade. Choose an amount that you are comfortable with and acknowledge the type of risk you are taking fully while determining your invalidation point.
8. Have a trade management plan
Ensure you develop a position management plan that will help determine your next move with reference to trading stops. This should include charts and various rules to follow for investing.
9. Have a dividend policy
Having a dividend policy will help you manage your finances in terms of the allocation of profits, whether it will be going into reinvesting or how much withdrawal you should make.
10. Risk management check
So as not to fall for overtrading, one should set specific targets, be it daily or a weekly one. It will also help you determine whether or not you have room for one more trade.
In conclusion, these nine things are essential to keep in mind before carrying out a trade. You should also keep in mind that the market is volatile, hence making constant checks is vital in making sure you get a profit of your money.
Content support from Rufas Kamau, Research and Market Analyst