Hello and welcome to another edition of the bulls vs the bears. Today we are going to look at how to manage forex trades the right way. Basically we are going to look at “Forex Trade Management 101.”
Forex Trade Management has become the elephant in the room as far as forex traders are concerned. It’s not something traders like talking about. Now don’t ask me why. I have no idea. But I’ll tell you this. Fore trade management is absolutely essential for any forex trader. It’s the difference between exponential growth and your trading account taking a humongous hit.
Once your trade entry goes live, you have to to play manager. Unfortunately a lot of traders simply ignore this simple admonition. And when you do that it’s only a matter of time before you hit the self-destruct button. What looks like a winnable trade setup could turn into a losing cause if you manage your trade properly. It’s the nature of the beast.
So without wasting much time we are going to learn a few forex trade management tips you can put to use in future trades.
Make Sure You Take 100% of Your Winnings
You want to make sure you take 100% of your winnings. Some of you are “Of course I’ll take the profits. Why would I leave them on the table?”. Point taken. However, you need to take these all your winnings to cover your losses in future trades in case the market does an unexpected 360 on you. And so, you must be consistently making winning trades. Or else, you will find yourself in a hole on your trades.
Let’s say you lose a trade at 3% risk. With multiple profits from previous winnings, you can use them to absorb your losses. Someone is probably asking”How do we do that? By using the breakeven option. If used properly, you can generate even bigger profits. I hear somebody asking this question”What happens if I take 50% at the first profit target? I move my stop loss to break even, only to be stopped at break even?
Let’s look at this illustration in the graphic below
Ladies and gentlemen this is a classic illustration of a breakeven situation. As I stated, 50% profit is taken at target one. But the rest of the trading position gets stopped out at break even point. If let’s say 3% was risked for the trade you’ll end up with 1.5 % profit.
On the surface of things someone may say”That’s not too bad. However, things become a little hairy when you make a loss on the very next trade and lose another 3%. Next thing you know, you are hemorrhaging money. That’s why it’s absolutely crucial that you make full profits regularly on your trades so you can absorb huge losses from these trades. Even more important, it helps in your overall risk reward strategy.
Next We’ll learn how to manage trades the right way using a sell position and a buy position. Let’s start with: the
Stop Loss in Buy Position
Make sure your stop loss is at the tip of the downtrend. If you want to move your stop loss further up, make sure the pattern is higher than the current stop loss. You absolutely must not move your stop loss when you are in a buy position. Let’s look at an illustration
Ladies and gentlemen, this is the uptrend for the Eur/USD pair. As you can see the initial stop loss is placed at the tip of the down pattern along the line of support,. Now let’s look at the next chart to see the break even situation
This time the stop loss has moved higher up at break even point around the line of
resistance. Once either the profit target or stop loss is hit, the trade is completed and
the profit or loss will reflect in your account balance.
Last but not least is:
Stop Loss in Sell Position
If you find yourself in a sell position, you move your stop loss to the tip of every new pattern. If you want to move your stop loss to breakeven make double sure that the pattern is lower than the stop loss. Let’s take a look at the illustrations below.
This is an illustration of the breakeven situation using the the same EUR/USD pair. As you can see the stop loss has been placed at the tip of the pattern at the line of resistance. Now let’s look at the break even situation.
As you can see the stop loss has been relocated to the new breakeven point at the line of support. And just like the buy scenario, once the profit target or stop loss is hit, you will make a profit or incur a loss. Of course, either of these scenarios will reflect in your trading account.
For information on trade management, look up What Next After Entering A Forex Trade?
That’s a wrap for “How To Manage Forex Trades The Right Way.” It’s absolutely crucial that you have a trade management policy when you trade. Failure to do that could bring you eternal misery, not to mention, a nuclear-sized crater in your trading account. If you utilize your breakeven policy properly you could make yourself a handsome profit and save yourself a humongous headache.
Til next time take care.
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