subject: Forex Money Management - Key Errors Traders Make in Placing Stops Which Cause Losses! [print this page] Forex Money Management - Key Errors Traders Make in Placing Stops Which Cause Losses!
In this article, we will look at Forex money management which is the key to long term trading success. Most traders have no idea on correct money management and make fatal errors when placing stops which means they quickly join the vast majority of losers. Let's look at how to place stops correctly, to ensure long term currency trading success.
The typical losing trader can spot the long term trend he just can't hold onto it, as soon as he enters the market he gets stopped out and sees the trade immediately go back the way he thought, make thousands of dollars in profit and he's not ion the trade!
This of course happens to even the best traders at times but the losing trader suffers it all the time and eventually gets wiped out - so what errors is he making?
Most Forex traders end up trying to restrict risk so much they create it and guarantee they will lose.
First a major error is to try day trading or scalping. If you try this Forex trading strategy, you will find that all volatility in daily periods is random, support and resistance levels are not valid, you can't get the odds on your side and that means losses.
Even in long term trends, traders place stops to close and you hear many so called gurus recommending you take 20 or 30 pip stop losses. well if you want your stop to be picked off try this and you will soon see your account equity destroyed. If you are trading long term trends, your stop loss should be at least a hundred pips. I can't do that - it creates to much risk you may say! No it doesn't, unless you are using to much leverage.
Its a fact that most brokers, will give you 200:1 or more in terms of leverage and traders use it and put their stops tight as a result and lose. If you are trading Forex, use 10 -20;1 leverage and keep in mind, you can make a lot of money on this leverage and place wider stops.
If you are not prepared to take a calculated risk to make a big gain - don't trade Forex. You need to get your stop outside of random volatility and this means, placing it behind the vast majority who have their stops to close. You also need to sit out periods, when long term trends will experience pull backs which will eat into your open equity profits, if you don't like the thought of this - again, don't trade Forex.
Forex traders lose mostly due to a lack of understanding of volatility and risk, when they think they are taking a low risk, their actually guaranteeing they will lose. If you want to join the vast majority of losers, place your stops to close, if you are serious about making money in Forex trading, use stops outside of random volatility, be prepared to be patient with your trade, accept short term draw down and keep your eyes firmly focused on long term gains.
If you want to enjoy Forex trading success, you need to learn to place stops correctly and if you do, you will be on the road to currency trading success and a triple digit income in just 30 minutes a day.
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