Hello and welcome to another episode of the forex versus the bears. Today we are going to look at a few rules on taking profits from forex trades. A lot of traders jump into trades like “Hmmm…I could make a lotta doe here.” Yet there is no thought process behind how they are going to mak that profit, or any profit for that matter. They rely on pure emotion rather than logic. Consequently, the market does a 360 on them, r and blows their trading positions to smithereens. And please don’t blame it on the market. The market is, well, just being the market.
So here is what we are going to do. We will look at a few price set ups and how to profit from those setups. And then we’ll also look at mistakes you should avoid making when trying to profit from the market. By the end of this lesson you should know how to profit from your trades and mistakes you’d do well to avoid,
Impulse Vs. Sound Decision Making
The one thing you do not want do is to take profits based on emotional impulse. Instead, how about taking your profits based on sound decision., By sound decision I mean you decide beforehand where on the price chart you’re going to take your profit, based on an exit strategy. When you exit on emotion, you end up making smaller profits. Because you didn’t pre-determine your profit target, yo hit the panic button the moment the market turns against you. And when you panic, you end up with pocket change rather than a sack load of cash.
And here is another consequence of emotional trading. When you exit emotionally,you are looking to squeeze every last drip out of a trade. Such that even if a healthy profit is staring you in the face you won’t even notice it. But once you accept the cold hard reality that you cannot sweep up every pip there is ou there, you can set your targeted profit and exit rather than panic at the last minute out of fear of the market crashing on your position.
Let’s take a look at a example of trading with emotion vs sound decision making
Take a look at the second graphic. That is an illustration of what happens when you sell your profits too quickly. You hit the panic button the moment you sense(falsely this time) that the market is turning against you. If you had a pre-determined your profit target, there will be no need to panic. Just wait for the price to hit your target and then you make your exit.
Now take a look at the first graphic. Here you see sound decision making in effect. Price has hit the profit target at the very top of the graphic. And once that happens you can pick your profits and head out the door. This can only happen when you determine in advance what your take profit in advance. In fact it should be part of your trading plan. Once you do that, there is no need to activate the panic button.. You will be laughing all the way to the bank.
Taking Profits In A Trending Market
There is no better feeling than taking profits in a strong trending market. It’s like hitting home runs in a baseball game. Once you get hit that ball high into the stands there is no better feeling. It’s a same feeling when you’re taking profits in a strong trend. Once the trend seems to go on forever, the profits just accumulate like coins in a piggy bank.
But how do you take those profits in a strong trending profit? Forex wisdom has it you use a trailing stop. The only problem her is that there no sure way of trailing your stop loss. Your stop will get hit no matter how hard you try to trail it. The moral of using a trailing stop is to give the market some room to breath while you pile up the profits. One way of trailing a stop is using the Exponential Moving Average(Look up Moving Averages I and II) We’ll take a look at the 5 EMA and 8 EMA. Let’s see how it’s done.
We have a crossover situation with 5ema and 8 ema. Here is what you do in such a setup. If you’re buying in the uptrend,just place your take profits at the close of the candlestick as indicated by the arrow inside the yellow stick. When the candlestick is full, consider it closed.
But if you’re selling when the bears are heading down the slope(on the downtrend), put in your order at the close of the candlestick, as indicated by the arrow in the red circle(I know it sounds repetitive,but bear with me). And then place your trail stop about 5-10 pips above the candlestick. Like I mentioned,earlier, the whole idea is to give your trading position some breathing space while you rack up your profits.
How Do I Take Profits?
Well you can take your profits in two ways:
- Set your profit at least three times the risk on the current trade
- Or you set your take profit at the previous swing low your bu of your sell order and previous swing high of your buy order. Not sure of swing lows and swing highs, look up Let’s Do A Little Swing Trading.
How Do I Manage A Profitable Trade?
Well if you want to manage your profits on your open trade using 5 ema and 8 ema crossover, you could try the following options:
- If you’re still hitting home runs on your trading position and you want to secure your profits move your stop loss and place it behind the high/low of each candlestick that forms. so if you are into short trades, move your stop loss and place it above the high of each candlestick that continues to create lower highs. You could try a stop loss of loss 50-80
- But if you are into longer trades, you move your stop-loss below the high of each candlestick creating Higher Lows. For a longer trade you’d be better off with a trailing stop of 25-40 pips.
That’s a wrap for ”A Few Rules on Taking Profits From Your Forex Trades” As you can see, it’s possible to take profits from trades if you do it the right way.You have to have a plan in place to take your profits instead of exiting on impulse or in panic mode. When you do that you leave a lot of money on the table. So make sure you take all your cash instead of leaving some behind.
Till then take care.
Looking To Join The Forex Trade Gravy Train?
If you’ve stumbled in here looking to join the forex trade gravy train, here is what you need to do . First, look up Why Forex Trade Is So Popular. Next, you learn the fundamentals of forex trading by reading Forex Trading Basics – Top To Bottom Part I and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis. And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns, Dual Candlestick Patterns, and Triple Candlestick Patterns . Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis, instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading?
Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels. And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know How To Read Candlestick Patterns using Support and Resistance Levels.
However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch of several weeks, consult How to Spot High Probability Trades. And if you are still not sure about price action trading, find out Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the suggested posts above are the most important posts to get you started.
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