The Sneaky Way To Managing
Losses In Your Forex Trading
By: David Jenyns
One of the cardinal rules of Forex trading is to
keep your losses small. With small Forex trading losses, you can
outlast those times the market moves against you, and be well
positioned for when the trend turns around. The 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 float, a string of losses won`t stop you
from trading. Unlike the 95% of Forex traders out there who lose
money because they haven`t applied good money management rules
to their Forex trading system, you will be far down the road to
success with this money management rule.
What happens if you don`t set a maximum loss? Let`s
look at an example. If I had a Forex trading float of $1000, and
I began trading with $100 a trade, it would be reasonable to experience
three losses in a row. This would reduce my Forex trading capital
to $700. What do you think those 95% of traders say at this time?
They would reason, “Well, I`ve already had three losses
in a row. So I`m really due for a win now.”
They would decide they`re going to bet $300 on the
next trade because they think they have a higher chance of winning.
If that trader did bet $300 dollars on the next
trade because they thought they were going to win, their capital
could be reduced to $400 dollars. Their chances of making money
now are very slim. They would need to make 150% on their next
trade just to break even. If they had set their maximum loss,
and stuck to that decision, they would not be in this position.
Here`s a perfect illustration why most people lose
money in the Forex trading market. Let`s start out with another
$1,000 float, and begin our Forex trading with $250. After only
three losses in a row, we`ve lost $750, and our capital has been
reduced to $250. Effectively, we must make 300% return on the
next trade and that will allow us to break even.
In both of these cases, the reason for failure was
because the trader risked too much, and didn`t apply good money
management. 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. With your money management
rules in place, in your Forex trading system, you will always
be able to do this.
About the Author:
Discover BIG profits from the market by downloading
your FREE copy of David's new Ultimate Stock Trading Systems course.
http://www.ultimate-trading-systems.com/forex.htm