Basic laws of Forex.
In order to successfully trade on the foreign exchange market, you should clearly know what the laws of Forex are.
In essence, these are the basic principles under the influence of which the exchange rate changes - the price of a currency pair is what a trader’s entire work is based on.
These laws are based on the theory of probability and the history of exchange rate movements; it has long been known that any market is subject to patterns and any situation has a tendency to repeat itself in the future.
This is what allows us to predict the direction of a trend over time.
Forex laws are the basis on which the entire construction of a trading system on the currency exchange should be carried out.
1. Law of probability - this principle is based on the assertion that sooner or later the trend will change its direction; this pattern is especially clearly observed in the example of the movement of exchange rates. The trend is in constant motion, exchange rate fluctuations occur almost continuously. Therefore, one cannot be one hundred percent sure that the current trend will last for any time.
2. The law of chance - price changes are not always logical, so you should always use stop orders to limit losses, since price movements can be so rapid that your transaction will be forced to close with a complete loss of the deposit. Sometimes it seems that the price moves absolutely chaotically, but in the chaos there is a certain pattern .
3. The law of meanness - no matter how confident you are in the current situation, when opening a transaction, in most cases the price begins to move against you, so before you start trading you should develop a clear strategy for entering the market and counteracting losses. You should not forget about such a concept as correction and perhaps luck will turn its face to you again.
4. The law of optimism - any trader is initially determined to win; this approach is fundamentally wrong. Always be prepared for losses, plan at what level of loss you will close your deal and strictly follow this rule. The standard is to lose no more than 2% of the deposit in case of an unsuccessful transaction.
5. The law of time - it is based on the trader’s impatience in making transactions; the more often you enter the market, the greater the likelihood of losses. Cultivate the desire to wait and make trades only at the most opportune moments. Do not trade for the sake of the process itself, but trade only for the sake of profit. Don’t write off or be late, especially when it comes to closing existing positions.
6. The law of cause and effect - if you follow this law, you are guaranteed success in forex trading. First of all, you need to understand that any action has a specific reason; a sharp jump in the exchange rate is always based on a certain event. Therefore, try to follow not the consequences, but the causes that cause them. An example of this is the news trading strategy ; strong news always causes a clear movement of the exchange rate.
7. The law of capital - the saying “Money makes money” is familiar to everyone, it is especially true in relation to the Forex market, the more money you have, the more you will earn.
Try to use the laws of Forex when creating your trading strategy , they will help you correctly understand some of the psychological and technical aspects of trading.