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One
of the few trade
management rules
that you should
always apply is to
‘Never add to a
losing trade’.
Trades are divided
into winners and
losers, and if a
trade is losing
the chances of it
turning around
completely and
becoming a winner
are too small for
you to want to
risk even more
money.
If
it actually is a
winner disguised
as a loser, it is
best to wait until
it shows it is a
winner before you
decide to add to
it. If you do this
you will realize
that nearly every
time, the trade
ends up hitting
your stop loss and
doesn’t change its
direction.
Sometimes
the trade can
change before it
hits your stop and
becomes a winner
and you can count
yourself very
fortunate if it
does. And
sometimes, the
trade can hit your
stop loss and then
turn around and
become a winner
and you can count
yourself rather
unlucky.
Whatever
happens to you, it
is never worth
adding to a losing
position, hoping
that it will
eventually turn
into a winner,
this is because
the odds of
success are just
too low for you to
risk even more
capital in
addition to the
initial
risk.
Do
Not Take Too
Much
Risk
One
of the most distressing
mishaps that any trader
can make is when he
risks too much of his
capital on a single
trade. Remember that
one thing is certain in
trading, and that is
that if you lose your
entire capital, you
will be out of the
game. Therefore, don’t
risk too much so that
you are not prevented
from
continuing.
A
useful saying in poker
is that going all-in
works every time but
once. With trading,
it’s pretty much the
same. If you risk all
of your account on each
trade it will only
takes one loser to wipe
you out completely, so
it will only be a
question of time before
you are out of the
game.
Generally,
you should only risk
1-3% of the available
capital given to a
system on any
individual trade. This
is calculated through
the size and, the
difference between our
entry price and our
maximum stop price, and
the amount of capital
that is allocated to
the system.
With
these elements combined
you will be almost
certain to never lose
all of our trading
capital. In actual
fact, the chances of
you hitting your
maximum drawdown for
the year will be
extremely
low.
All
the trades that you
take up should be of a
small size, a size that
almost seems pointless
to your future fortune.
If you are concerned
about the size of your
trades then they are
probably too big and
you should immediately
switch to a lower
amount.
Remember
that in any trading
market longevity is the
key to making money by
trading. You should try
to trade slowly over a
long span of time with
a minimal risk. This is
always preferable to
proceeding rapidly with
a higher
risk.
Click for more in your
Forex Tarding Guide -
Positive
Trades
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