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There are large piles of money to be made in currency online trading and yet most people lose money when they start. There are many reasons for this. Often the strategy that a person is following is plainly not profitable, frequently it is a matter of discipline, or feelings may get the better of you, or you may simply make a miscalculation.
The good news is that you can understand how to minimize your losses and enhance your gains. Having a calculated plan and knowing how to execute it may help you evade the worst of the loss situations, no matter what method you use.
Your Plan
Effective currency trading requires two things: a lucrative strategy and an effective execution. There are many strategies and they are too complex to list here, so we will assume you have one. The problem is that frequently traders think that the system is sufficient, and it is not. It is equally crucial to have a plan for executing your system.
Your plan should include three things:
- Your position size, that is the amount of money that you want to invest in every single trade. You will almost certainly think of this in terms of lots but it is also worth considering the margin and what percentage of your total capital it represents. The percentage amount will vary depending on the leverage you are using and the level of risk that you feel happy with.
- Your stop loss level. This will be calculated in pips but again you also ought to think it through as a percentage of your margin equity. Most people would be suggested to set a stop loss so that they never risk more than 2% of their money on a single trade. If you have a very low account balance, however, you might have to risk more, otherwise you will find the stop loss is activated by every little typical fluctuation in the market. Just be aware this opens you up to a bigger risk.
- Your exit level for a profitable trade. This is one thing that many traders do not decide beforehand, but they should. Deciding how much profit to take is the optimal way to maximize your profits in many situations. Do not be tempted to leave funds indefinitely hoping that the trend will continue going your way. Sooner or later it will turn on you and bite hard.
Sticking With Your Plan
There is no point in even having a plan for your online forex trading if you do not hold to it. There are numerous temptations: you will find voices popping up in your mind advising you deviate from your strategy in all kinds of ways.
We just mentioned the temptation to leave your trade open indefinitely when things seem to be going your way. But there are different tempting circumstances too. For example, when you have just taken a loss, it is tempting to bet more on the next transaction to try to recover your position. Don't do it.
You may also want to consider integrating the use of forex signals into your plan. There are many professional forex signal providers available on the internet, who can help you finding the best entry and/or exit price levels. But be careful, always check the track record first, before start trading the signals of any signal providers on real money accounts, as only reliable forex signals will make you profits!
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