A lot of new traders focus on making money, but ignore the other side of the trade as well which is the reduction of losses. Losses are part of forex trading, but knowing how to reduce them will in the end impact your bottom line favorably. I think it is equally as important as to focus on how to increase your earnings. Your best starting point is your trading journal, comb through it and see what you have done wrong, find similarities and then work on a way to reduce your losses. This allows you to attack both ends of the trade.
Agreed. Between increasing earnings and capital preservation, the latter is the most important. Everyone starts out lured by the idea of making a lot of money, but anyone who has stuck it out for any amount of time will find that one of the ways to get ahead is to do something quite contrary and that is to have the mindset of how NOT to loose money. Those who can see this and can adapt get to move on, those who don’t, say things like the market is rigged. It isn’t, it is how the [B][I]mind[/I][/B] is rigged and how [B][I]we[/I][/B] are hard wired to see things and react to things in a certain way. If you can pin point and master your own psychology, you have a most definite edge.
Good luck all!
Totally agree, it’s just that this is much easier said than done. Sometimes it’s hard to admit that your analysis was wrong or that market environment has changed and that it’s time to cut your losses. More often than not, you could be crossing your fingers that price action eventually goes your way. I do agree that reviewing your trade journal would help in this regard and that practice is still key.
Agreed as well, but the real trick is first realizing you will make mistakes that will result in a loss, then review and work on making the same mistake the least amount of times as possible. Risk part of Risk Reward, is based on odds which are calculated mathematically; however the Reward part is based on projections using probabilities. So start with risk first, then measure to see if the projected reward is worth taking the risk.
I noticed a really big change when I measured risk first. For example; If you determine the trend for what ever time frame you’re trading is up, and if you use a gib strategy to enter between the 62 and 50 retrace levels and place your stop loss at the 75% level, the most you could loose on the risk side is about 12 pips, but if the pull back the trade goes on to keep trending, and if your first profit target was at the 23% retrace for your risk of about 12 pips your return could be 12 to 15 pips. However if you’ve done your trend right after the retrace for the trend to continue price would have to go back to the zero level which gives you a potential of risking 12 pips to get a possible 25 or so pips.
But for sure measure risk first.
Gp
It doesn’t pose a problem for me to estimate risk of trade. Just allocate size of stake and that’s it. Set SL and TP and you are a step ahead with your risk management. Hotforex allows me to hedge positions as an additional measure of fallout prevention, I tend to go without it and use only basic risk management tools…
honestly i think reducing the loses s the key to a bigger profit, I focus more on avoiding what makes me lose money than on gaining more profit… some might think its the same, but in my opinion success in forex is to work on reducing loses more than gaining profit. just my two cents.
I focus more on how to make profits, because successful trading is all about making consistent profits and minimize losses. I believe that what you concentrate on you attract, so I rather focus on making more pips and profits.