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. The Law of Probability – this principle is based on the assertion that sooner or later a trend will reverse direction. This pattern is particularly evident in exchange rate movements. Trends are constantly changing, and exchange rate fluctuations occur almost continuously. Therefore, one cannot be 100% certain that the current trend will last for any length of time.
2. The law of chance – price changes don't always follow a logical pattern, so stop orders should always be used to limit losses, as price movements can be so rapid that your trade will be forcibly closed, losing your entire deposit. Sometimes it seems like the price is moving completely randomly, but even in chaos, there is a pattern .
3. Murphy's Law – no matter how confident you are in a given situation, when you open a trade, the price will often move against you. Therefore, before trading, you should develop a clear strategy for entering the market and managing losses. Don't forget about the concept of correction; perhaps your luck will turn around again.
4. The Law of Optimism – every trader is initially set up to win, but this approach is fundamentally wrong. Always be prepared for losses, plan at what level of loss you will close your trade, and strictly adhere to this rule. The standard is to lose no more than 2% of your deposit on an unsuccessful trade.
5. The Law of Time – this is based on a trader's impatience with trades: the more often you enter the market, the greater the likelihood of losses. Develop a willingness to wait and trade only at the most opportune moments. Don't trade for the sake of it, but rather trade only for profit. Don't cheat or be late, especially when closing existing positions.
6. The Law of Cause and Effect – if you adhere to this law, success in forex trading is guaranteed. First, understand that every action has a cause; a sharp price movement is always based on some event. Therefore, try to focus not on the effects, but on the causes that cause them. An example of this is the news trading strategy : strong news always causes a clear price movement.
7. The Law of Capital - the saying "Money makes money" is familiar to everyone, and 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 psychological and technical aspects of trading.
