How to Manage Your Forex Trades
We were talking with some forex traders about one of the problems affecting them while their trades were ongoing and found a common issue — watching winning trades become losing trades.
As we’ve talked about before, if you aren’t managing your forex trades, from entry point to exit point, you’re going to see this happen to you – and it will likely happen often.
Here’s the root of the problem:
A trade is entered along with an initial stop loss. What most traders do is try to get ALL their profit at once, but they don’t actually have a ‘target’ –
When the trade initially gets profitable, many traders will ’screengaze’ — they get focused on how much they’ve made or are making at that moment. What they don’t do is plan for exiting the trade — they overstay in the trade and frequently watch their profits evaporate when the market turns against them (and then compound that error by staying in EVEN LONGER to ‘get back’ those lose profits). This is a losing proposition in forex trading.
In short, they let GREED cause them to lose sight of the purpose of the trade.
What is the purpose of a trade? To maximize gain and minimize risk – it IS that simple.
Maximizing gain does not mean you exit a trade at the absolute ‘Top’ – it does mean that for the duration the trade is on, you have a set of rules that determine where you’ll exit for profit – and it isn’t where YOU think it is! More on that in a bit…
Minimizing risk means more than just setting that initial stop loss — you MUST manage your stop losses throughout the duration of a trade.
When forex traders enter a trade they must protect their capital first and think profit second. When their position starts trending up, they can take the right action to protect their capital AND their profits.
In fact, most successful forex traders ASSUME they’ll lose on every trade. They perform this psychological trick to make sure their risk strategy is always top of mind! Once a trade turns in their favor (much to their surprise), the first steps they take is get themselves into a break-even trade situation; followed by aggressive stop loss management to maximize their profits on the trade.
They think risk first, profit second.