1-Verify The Spread
It only takes a few minutes to check if the spread is tight, yet it could save you quite the headache. When big news breakout, it is common to see the volatility get crazy. Brokers usually react by increasing the spread as a measure to protect themselves.
If you were planning on scalping a few pips inside a big movement, a large spread could take you from a profitable scalp to a loss.
Another event that you should watch out for is the New York session closing time at 5 PM Eastern Standard Time. It is very common to see the spread go from regular size to over 15 pips when the Australian session opens.
These wide spreads can also affect your open positions; it is possible that the ask price triggers a stop-loss if you are in a short trade.
If the New York session spread is threatening to hit your stop-loss, and the volatility is not too intense, I suggest that you remove your stop-loss until the spread has tightened to a more reasonable size (you should monitor the trade closely to make sure that the price is not moving against you in a manner that would put you at a loss bigger than you can handle).
2-Check Bigger Time Frames
Whenever your strategy implies the use of small time frames (I would consider time frames from 1 minute to 1 hour to be small), it is wise to have a look at how the price is acting on the longer term. In general, a long term trend will have more importance over a short term trend.
Maybe you’ve entered a trade that you were certain was going to be a winner. The setup was picture perfect. Yet, price action went against you a few minutes after you opened your position, leaving you wondering what went wrong.
Of course, not every movement in the markets can be explained. In certain cases, though, you may have placed a trade at a spot where a rejection or a pullback was very probable.
Taking a quick look at the long term price action before placing your trade could make you think to yourself: “Man, was I really about to go short at that price? It’s looking like a much better long trade opportunity now that I’ve seen the broader picture!”.
3-Risk Money You Can Afford To Lose
Pressure will not help you in your trading journey. The easiest way to eliminate that pressure is to risk money that you don’t need and don’t depend on.
Trading money that you need to pay for your rent or groceries is the biggest mistake you can make. Your judgement is most certainly going to be clouded, and your trading decisions are going to be affected by the pressure.
You should set money aside and consider your savings as “trading credits”. By telling yourself that Forex is similar to a game, you detach yourself emotionally from the money you may end up losing.
Just because you compare Forex to a game doesn’t make it any less serious, though. Like in any competitive game, there has to be winners and losers. You should aim at becoming a winner.
4-Test Your Strategy
Whatever strategy you have chosen, whether it includes complicated indicators or simple chart analysis, the only way you will be confident is if you know that your strategy has a positive expectancy.
A positive expectancy can be defined as the amount of money you can expect to make for every dollar you risk in the long term. Why would you trade a strategy if you don’t know for a fact that it’s going to be making you money over a long period of time?
The only way to make sure that you really have an edge is by taking compiling enough trades to prove that any money that is made cannot be confused with luck.
To test your strategy, I suggest that you paper trade (trade the live market with fake money), or backtest your strategy (trade past data with fake money). I personally recommend that you backtest your strategy. It is the fastest way to build a large sample pool because of the option to skip any down time between entries.