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It
is within our
abilities to let
big winners become
huge. This is what
will determine how
we will achieve
overall during the
year. The key here
is to let a
winning streak run
and have trailing
stops that will
usually be outside
the daily noise of
the market, so
that they are not
so tight as to get
stopped out during
the regular
trading
process.
This
means that you need to
be ready to give up a
fairly large portion of
a winning trade’s open
profit. This is also
the thing that makes
this so hard to carry
out. Actually, we
should be adding to a
winner and widening
stops rather than
trying to establish how
tight our stops can be
to detain the largest
amount of
profit.
The
trade has shown you
before if it plans on
you being a winner, and
the chances are it is a
low-risk idea if you
were to add to the
position now rather
than ‘strangle it’ with
stops which are too
tight.
It is
also crucial that your
management rules leave
some space for large
winning trades, and
that the rules are
defined in advance and
understood before you
place the trade in the
first place. This will
enable you to yield to
your rules when you do
get the big
winner.
Cutting your forex
losses
short
This
rule is in fact the
sister to the one
mentioned above, and is
usually just as
difficult to accomplish
(even though it is very
easy to define). Just
as profitability comes
from a few large
winning trades, capital
preservation will come
from avoiding the few
large losers that the
market will see fit to
send you each
year.
Try
to set a maximum loss
point before you enter
the trade so that you
may know ahead of time
approximately how much
you will be risking on
this
position.
If
you happen to have an
exit price that
indicates that your
trade is a losing one
you should exit it
before it gets any
bigger. Due to gaps at
the open, or limit
moves in futures, it is
difficult to be 100%
sure that we can get
out with our maximum
loss. However, simply
having good knowledge
of the rules, and
always sticking to them
will save you from bad
trades that just keep
on going against your
position until you have
lost more than many
winning trades can ever
make back.
If
you have a losing
position that is at
your maximum loss
point, it is best for
you to just get out
straight away. You
can’t just wait and
hope that it will turn
around to your
advantage, this goes
against common
sense.Being that a
trade can either be a
winner or a loser, and
this one is shouting
‘Loser’ at you, the
chances for it to turn
around and become a
large winner is really
very small.
It is
also not reasonable to
risk any more money on
a trade that has
already shown itself to
be a loser. In these
circumstances, you
should simply close it
out (accepting the
loss) and just move on.
Despite what you may
think, this will leave
you in a much better
place financially and
mentally, than if you
hold on to your
position hoping it will
get back as you wanted
it
initially.
Even
if it does get back to
where you wanted it,
the mental energy and
negative feelings
involved are really
just not worth it. This
is one of the reasons
why you should always
keep to your rules and
exit a position if it
hits your stop
point.
Click
for the
next step in your Forex
Trading Guide - all
about losing
trades
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