Foreign Exchange Online Trading: What You Should Bear In Mind To Make Profits
by Chris on February 15, 2010
There is a lot of money to be made in currency online trading and in spite of it most individuals lose money when they start. There are countless reasons for this. Often the system that a trader is following is simply not profitable, frequently it is a matter of selfcontrol, or sentiment may get the better of you, or you could simply make a mistake.
The great news is that you can learn to minimize your losses and enhance your profits. Having an exact plan and learning how to execute it can aid you avoid the worst of the loss situations, no matter what method you apply.
Your Plan
Winning currency trading needs two things: a lucrative system and a precise plan. There are many strategies and they are too complicated to discuss here, so we will assume you have one. The difficulty is that frequently people believe that the system is enough, and it is not. It is equally crucial to have a strategy for using your system.
Your plan should consist of three things:
- Your position size, that is the amount of money that you will bet on each trade. You will almost certainly think of this in terms of lots but it is also worth thinking of the margin and what percentage of your total equity it represents. The percentage amount will vary depending on the leverage you are applying and the level of risk that you feel happy with.
- Your stop loss level. This will be calculated in pips but again you also should consider it as a percentage of your funds. Most people would be suggested to place a stop loss so that they never risk more than 2% of their capital on a single position. If you have a very low account balance, however, you may have to risk more, or you will find the stop loss is triggered by every little typical fluctuation in the market. Just bear in mind this opens you up to a bigger risk.
- Your exit level for a winning trade. This is one thing that many traders do not think about beforehand, but they should. Deciding how much profit to take is the best way to maximize your gains in most situations. Do not be tempted to leave funds indefinitely hoping that the trend will continue moving your direction. Sooner or later it will turn on you and bite hard.
Sticking With Your Plan
There is no point in even having a plan for your online foreign exchange trading if you do not hold to it. There are many temptations: you will find thoughts popping up in your mind suggesting you deviate from your strategy in all kinds of ways.
We just mentioned the temptation to keep your position open indefinitely when things seem to be going the right direction. But there are different tempting situations too. For instance, when you have just taken a loss, it is tempting to risk more on the next transaction to try to win back what you've lost. Don't do it.
You may also want to consider including the use of forex signals into your plan. There are a lot of professional forex signal providers available on the internet, who can help you getting the most profitable entry and/or exit points. But be careful, always check the track record first, before start trading the signals of any signal providers on real money accounts, as only reliable forex signals will make you money!
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