If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
Twice this week I have had forex trading friends write to me via this forex blog or through my forex training program.
These people did incredibly well. For example, trading a $30,000 account up to $130,000 in just a few weeks.
But then they lost the entire account - totally wiped out…
That is why we use a money management tool called a stop-loss in forex trading.
A stop-loss will close your trade at a level where you are not willing to stay in the trade even though it means exiting at a loss.
You can also use a stop loss to lock - in profits in a trade that goes very well where you want to let profits run, but make sure a profit is locked in.
For example, you enter a trade intending to make 15 pips and the market very quickly moves 30 pips and looks to be strong. So you can set your stop loss at the price where you have 15 pips of profit already for a guaranteed 15 pips.
You can also use a trailing stop which edges up as the market moves. So a 15 pip trailing stop will follow the market 15 pips behind the price.
So if your trade is 30 points in profit, your stop loss will have crept up to where you would be 15 pips in profit. If it goes to 40 pips in profit, your stop loss will be at 25 pips profit etc.
Identifying your risk tolerance then is how much you are willing to see the market go against you before cutting out altogether.
My risk tolerance is 10-15 pips. Sometimes it is just 7-8 pips. This is because I identify very high probability trades and take profits at 10-20 pips normally, other times, my trades will make 30-50 or more pips.
This way I don’t really care if I get stopped out. The next opportunity is going to be worth waiting for. And I know how to find it. So that is the solution.
Good luck with your forex trading.
Post a Comment