Keep Your Forex Trading Losses Small
One of the most important rules of Forex trading is to keep your losses as small as you possibly can. With small Forex trading losses, you can stick it out longer than those times when the market moves against you, and be well positioned for when the trend turns around. The one proven method to keeping your losses small is to set your maximum loss before you even open a Forex trading position.
The maximum loss is the greatest amount of capital that you are comfortable losing on any one trade. With your maximum loss set as a small percentage of your Forex trading effort, a string of losses won't stop you from trading for any particular amount of time. Unlike the 95% of Forex traders out there who lose money because they haven't begun to use wise money management rules to their Forex trading system, you will be OK with this money management rule.
To use as an example, If I had a Forex trading float of $1000, and I began trading with $100 a trade, it would be reasonable for me to experience three losses in a row. This would reduce my Forex trading capital to $400. It would then be decided that they're going to bet $200 on the next trade because they think they have a higher chance of winning after having lost three times already.
If that trader did bet $100 dollars on the next trade because they thought they were going to win, their capital could be reduced to $250 dollars. The chances of making money now are practically nil because I would need to make 150% on the next trade just to break even. If the maximum loss had been determined, and stuck to, they would not be in this position.
In this case, the reason for failure was because the trader risked too much money, and didn't apply good money management to the play. Remember, the goal here is to keep our losses as small as possible while also making sure that we open a large enough position to capitalize on profits and minimize losses. With your money management rules in place, in your Forex trading system, you will always be able to do this.
Forex is a complicated and unpredictable market. It requires a participant to be experienced in market trading and be very patient. Beginners often make mistakes by entering this market thinking that they are experienced enough in trading that they can easily make money on this transaction.
Forex trading is the largest and fastest market in the world. Deals in this market are often very large with different countries and financial institutions participating, and often lasts only a day.
Experience will enable you to know your way around the forex market and enables you to predict the outcome of the trade. However, it takes months and years of experience to be successful in this market.
Losing is part of the trade in this market, to minimize your lose, here are some tips that you should remember upon entering the forex market:
- Most beginners or novice forex traders often fail in this trade because they do not take ample time to learn about the forex market. It is recommended that a beginner forex trader should first take at least a course on forex trading to understand the market thoroughly.
- Understanding how the forex market works can give you the knowledge and the edge to be successful in this field. It is also recommended that a beginner should first observe how a seasoned forex trader does their deals. By doing this they will know how to buy and sell currencies at the right time.
- Avoid trading often with tiny profit targets and tight stops. To be successful in this market you should not just think of tiny profits, most beginner traders often has fears of losing money, therefore, only targets small profits.
- Always have a trading plan. You might think that making money is the plan. But, there is more to it than just making money. You should know what strategy to use in a particular day and particular currency pairs to choose. With no trading plan, your trades will be unfocused and direction less. Make a trading plan with goals and strategy, and be sure you follow them.
- Don't be over confident, this will spell disaster in your trade. Keep the trade simple, and not overly complicated. Keep your trades manageable. Trade only a few currency pair that you can manage.
- Often, beginners tend to acquire large amounts of trade thinking that they can make more money out of it. The result: unmanageable trade and often loses.
- Do not be emotionally affected by losing. Take lose as an advantage and a learning experience. Determine what mistakes you made and find out how you can manage them. Remember that the forex market is very unpredictable and loses are expected. Be professional.
- If the trade forecast is wrong, stop trading immediately and trade again another day.
- Don't be scared on losing, this will often get you to target small profits. Risk and losing is part of the trade. Remember that courage means trading and trading means profit.
- Don't rely heavily on trading computer software that predicts the outcome of the trade. Remember that forex trading is often unpredictable and relying heavily on these machines can make you miss a good trade. Use these machines as a guide and it is good if you rely on your gut feeling.
- Demo trading or simulated trading is a great way to learn forex trading, but, it can also develop bad habits for traders.
- Because simulation lets you deal with simulated money, there is no risk, therefore it makes forex trading easy. This can develop to bad habits by not caring about losing real money and also develops over confidence. Keep in mind that your greatest teacher is your experience.
Trade in real markets that deal with real money to get the real feel on winning money or losing it.