FX Strategy Secrets
Taking Profit
There are several approaches to taking profit in forex trading. For example some traders will put on several lots
on a trade then when the market reaches a predetermined level they will close a small portion of
the trade. They leave on the remainder lots so they can continue to be in the market and gain
profits. Then there are the traders that put on a small number of lots, add to the trade when they
get additional entry signals and when the market tells them that the current trend is coming to an
end then they close all of the positions.
If a trader is making money we can’t say the way they take the profit is bad. As long as we are
trying to make money on a trade why not maximize the profits on that trade. We have been thinking,
when the market reaches the point that a trader wants to take some profit and the market is still
moving why not put a stop loss at the predetermined exit point and let all of the lots continue to
run. There are a couple of ways the trade could be ended with a maximum amount of profit and a
minimum amount of loss.
The stop loss could be moved up as the market moves up to protect even larger amounts of profit.
When the market gives a strong exit signal then close all of the lots on the trade. If the market
retraces then continues in the original direction of the trade, at that point the trade can be
reentered and make profits all over again. We know there is no wrong or right way to make money.
Pick the way that fits your emotional ability, and trading style. In any event continue to make
money and have fun trading.
The Number One Reason For Washing Out As A Trader
The time a trader usually blows up his account comes when he has had a series of good forex trades
over the course of a day, week, or month. He starts to be confident and does not put his stop
on. It is late in the week he is a little tired makes one more trade leaves off the stop and
then the whole market turns and goes against him. He loses all he made and more. He did not
take time to use good risk management.
He is feeling low emotionally and his account is a wreck.
He should not dwell on the big mistake but go back to the basics of his trading plan. Review
the risk management and get back to the discipline that made him money the first part of the week.
When you over look risk management you have a greater risk of washing out of trading than any
other single thing. When you pay close attention to risk management you have the greatest
potential to make it as a trader.
A few small losses will not hurt the big wins that come along on a regular basis. This will
cause your account to grow on a steady basis.
TAKING THE NEWS TO SERIOUSLY
Reading the financial news papers, listening to all the financial television stations,
studying the economic reports, and visiting all of the chat rooms can be a big challenge.
You can lose prospective of why you are trading in the first place if you get caught up in
to much news. It is a good forex strategy to know some of the major things that are going on but to be a
good trader you do not need an over dose of news.
You need a combination of fundamental and technical. I lean more to the technicals.
Some of the things that I see happen to the traders that over dose on news are: Trying
to pick which way the market will go. Getting hooked on an opinion of what is going
to happen and lose all objectiveness as to what might happen. The market moves in
trends and the news will cause little bumps in the direction of the trend. When the
news dust settles the market returns to the major trend it was on. You can get spike
fever, chase the market movement and get caught from both directions in the market.
Even with all the news research one will not be the first to know what the market will
do based on the news alone. So by the time the trade comes along you are trading
discounted news that has already been factored into the price of the market. So By
using news to trade forex you are taking a gamble on which way the market will go.
The Market can make a positive move with bad news and a negative move with good news.
It is all tied to the sentiment of the market the way people react to the news not what
the news is.
Set Yourself Low Forex Goals
One of the common misconceptions that I have run across is that people think that if
you’re not hitting big home runs in your trading that you can’t make much money.
Nothing could be further from the truth. If you continually re-invest your money,
and you risk only a small percentage of the total on every trade, huge returns can
be realized. The following examples are only for illustration, and obviously they
are just hypothetical. I simply want you to understand that the returns can be
exponential without exposing yourself to a dangerous level of risk.
Example 1
Starting equity: $10,000
Monthly return: 6%
Compounded return after 1 year: 100%
At this rate of 6% per month, you would have about $1.2 Million after 7 years.
To break it down further, suppose you needed a 25 pip stop loss and you were only
risking 2% of your total equity. That’s $200 on a starting account of size of
$10,000, which means you could trade 8 minis. If you only made 20 pips net all
week that would be $160 per week, or $640/month, which is more than 6%! You see,
you don’t need to trade a lot, just be patient.
Example 2
Starting equity: $10,000
Monthly return: 10%
Compounded return after 1 year: 300%
At this rate of 10% per month, you would have about $1 Million after 4 years
Remember, have a realistic plan and think longer term. This isn’t a race, and as
you can see, the power of compounding can be very effective, so be patient and set
reasonable goals. All you really need to do is be consistent in the execution of
your trades, realize that there will be losses, but stick to the game plan. As
always, controlling risk is of paramount importance! Above all, do not trade with
money that is not truly risk capital. This means that if you lost it, it would not
change your life!
Islamabad Time
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