Currency Trading – How to make a consistent profit|Winners limit their losses
Jan
21
Filed Under (Money Management) by admin
If you are trading on the forex market or are considering doing so, you are already aware of the great profit potential that exists in forex. While the profits can be wonderful, they only exist because of the great risks also involved with forex trades. There are many systems that can be used which have demonstrated good results in back testing or previous live trading, but the reality is that no system is 100% and the market can move in any direction unexpectedly at any time. Therefore, it is essential to use proper money management techniques for long term growth potential to avoid large losses which may cause you to lose all or most of your investment capital.
These tips should help you to minimize losses while maximizing profits. Almost all forex traders will tell you that money management is the primary key to success in forex.
1. Always use a stop loss. Some traders may feel that they are sure of a trade based on several indicators pointing to a trend, and that they don’t want to use a stop loss to allow the trend to develop fully. While it may be true that eventually the price of any currency pair will reach a certain profit target, the fact remains that it may make a major move in the opposite direction first, which may lead to a margin call by your broker or other losses which cannot be sustained.
2. Determine the weekly or monthly profit level goals you would like to achieve based on the projected results for the system you are using. Take into account the success rate (percentage of winning trades) and average number of trading opportunities your system is likely to present. It is recommended to be conservative in your goals to allow some room for weeks or months when the results do not fully meet the projections.
3. Determine the risk you are willing to take or need to take to achieve the profit goals you set. Keep in mind both the percentage amounts of your total balance that you will risk in each trade and also the maximum you are willing to risk at any one time combining all of your open positions. Figure your stop loss according to your system, some systems will recommend a stop equal to or less than your profit target, others may recommend a a larger stop to allow some cushion before the price hits your profit target. Then, determine the number of lots you will trade so that if your trade is a losing trade, the amount of money lost will equal the percentage of your balance you are willing to risk on that trade.
4. Once you have these limits in place, execute your trades with these stops and targets every time. Stick to your plan, don’t get greedy when things are going well and don’t fear when some of the trades don’t go your way. Stick to your resolve and have faith in your system. All traders experience losses, you will be no different, but if you stick to a predetermined risk plan as a percentage for each trade, you will always live to trade another day.
Putting these tips into action will put you on the path to the discipline needed for success in forex. Believe in yourself and the rewards can be great for you, not only financially but personally as well.
By: Joe Phelps
These tips should help you to minimize losses while maximizing profits. Almost all forex traders will tell you that money management is the primary key to success in forex.
1. Always use a stop loss. Some traders may feel that they are sure of a trade based on several indicators pointing to a trend, and that they don’t want to use a stop loss to allow the trend to develop fully. While it may be true that eventually the price of any currency pair will reach a certain profit target, the fact remains that it may make a major move in the opposite direction first, which may lead to a margin call by your broker or other losses which cannot be sustained.
2. Determine the weekly or monthly profit level goals you would like to achieve based on the projected results for the system you are using. Take into account the success rate (percentage of winning trades) and average number of trading opportunities your system is likely to present. It is recommended to be conservative in your goals to allow some room for weeks or months when the results do not fully meet the projections.
3. Determine the risk you are willing to take or need to take to achieve the profit goals you set. Keep in mind both the percentage amounts of your total balance that you will risk in each trade and also the maximum you are willing to risk at any one time combining all of your open positions. Figure your stop loss according to your system, some systems will recommend a stop equal to or less than your profit target, others may recommend a a larger stop to allow some cushion before the price hits your profit target. Then, determine the number of lots you will trade so that if your trade is a losing trade, the amount of money lost will equal the percentage of your balance you are willing to risk on that trade.
4. Once you have these limits in place, execute your trades with these stops and targets every time. Stick to your plan, don’t get greedy when things are going well and don’t fear when some of the trades don’t go your way. Stick to your resolve and have faith in your system. All traders experience losses, you will be no different, but if you stick to a predetermined risk plan as a percentage for each trade, you will always live to trade another day.
Putting these tips into action will put you on the path to the discipline needed for success in forex. Believe in yourself and the rewards can be great for you, not only financially but personally as well.
By: Joe Phelps
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