An Invaluable Tip For Forex Newbies - Let Your Winning Trades Run
Forex trading was never designed to be easy. Just learning the basics is hard enough, but then you have to come up with a trading system that is able to generate consistent profits in the long term. So to help you achieve this goal I want to offer one valuable piece of advice and that's to let your winning trades run for as long as possible.
You would be amazed how many people are taking huge risks just to make small profits. For example I've come across people who use huge stop losses of say 500 points and are only targeting profits in the region of 50-100 points. Worst still there are some people out there who don't use any stop losses at all, which is just absolutely crazy, and will almost certainly lead to disaster.
The ideal trading system should keep losses to a minimum and use tight stop losses so that any losses that are incurred are relatively small. Furthermore you should only risk a small amount of capital (I personally suggest no more than 3%) on any one trade. For instance if you have $10,000 in your trading account, then your maximum loss on your next trade (if your stop loss is triggered) should be no more than $300.
As I pointed out earlier, you should also let your winning trades run. There are two ways you can do this. You can either patiently hold on to a long-running position until a trend appears to be over, which is quite hard to do in practice, or you can do what I do and that's to scale out of a position in two stages.
I generally close half the position for around 50 points on the major currency pairs when trading my 4 hour system and then let the other half of the position run for as long as possible in the hope that it move several hundred points in my favour.
The beauty of this approach is that the second half of the position is essentially a free trade because I will always move my stop-loss to break-even as soon as I close the first half of the position. This takes some of the emotion out of the trade and allows you to hold onto your winning trades for a lengthy period until the trend is over or until your long-term price target is reached.
Anyway the point is that the longer you let your winning trades run, the easier it is to make consistent profits (providing you use a tight stop loss of course). This is because this style of trading requires a much lower overall success rate. You don't need every trade to be a winner. You just need a few big winning trades every so often.
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