There are huge amounts of money to be made in foreign exchange online trading and still most traders lose money when they start. There are countless reasons for this. Often the strategy that a trader is following is just not profitable, often it is a matter of preparation, or emotions may get the better of you, or you could simply make a miscalculation.
The great news is that you can master to minimize your losses and boost your profits. Having a crystal clear plan and learning how to execute it may assist you evade the worst of the loss situations, no matter what strategy you apply.
Your Plan
Successful currency trading needs two things: a lucrative strategy and an exact execution. There are many strategies and they are too difficult to list here, so we will assume you have one. The difficulty is that frequently traders believe that the system is sufficient, and it is not. It is equally essential to have a strategy for executing your system.
Your plan should consist of three things:
- Your position size, that is the amount of money that you want to commit to every trade. You will usually think of this in terms of lots but it is also worth thinking of the margin and what percentage of your total funds 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 ought to consider it as a percentage of your capital. Most people would be recommended to place a stop loss so that they never risk more than 2% of their funds on a single position. If you have a very low account balance, however, you might have to risk more, or you will find the stop loss is being hit by every little ordinary fluctuation in the market. Just bear in mind this opens you up to a bigger risk.
- Your exit level for a successful trade. This is one thing that many traders do not think about beforehand, but they should. Deciding how much profit to take is the optimal way to maximize your gains in many situations. Do not be tempted to leave funds indefinitely hoping that the trend will continue moving your way. 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 numerous temptations: you will find thoughts popping up in your mind advising you deviate from your system in all kinds of ways.
We just mentioned the temptation to keep your trade open indefinitely when things seem to be going the right direction. But there are different tempting circumstances too. For instance, when you have just taken a loss, it is tempting to bet more on the next transaction to try to win back what you've lost. Don't do it.
You may also want to consider integrating 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 finding the most profitable entry and/or exit price levels. 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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