The old saying goes “Run your profits to cover your inevitable losses” most forex traders simply never do this, for 3 main reasons. They could but they don’t because they make fatal errors which means they lose all their money. Let’s look at the reasons.
Let’s first of all look at a common scenario that happens.
A Common Scenario
A forex trader sees a good trading opportunity and his forex trading system says enter - so he does, his trading signal is in the market and the trade moves into profit.
In the next few days he moves his stop up to protect profit - his stop is hit by a pullback and he is stopped out, with marginal profit or loss.
The trade then goes back the way he thought and goes onto make $10 – 20,000 or more in profits and the trader is not in! Despite in his head knowing that the trade was going to take off.
Why does this happen?
Its rooted in human nature and errors made in judging volatility.
Human Nature
When a trader makes a small profit he gets excited and the bigger it gets the more tempted he is to take it – before it gets away.
Rather than take the profit, he moves his stop up to “lock it in” and then gets taken out by normal volatility.
The forex trader has a marginal profit and is happy, after all it’s a profit and you never go broke making those – WRONG!
If you only make marginal profits you will never win - as your profits will never cover your losses and most forex traders fail to appreciate this:
Risk to Reward
With risk goes reward – if you don’t take a risk you wont make money – PERIOD Forex trading is risky don’t let anyone tell you otherwise.
Most traders though try to restrict risk so much they actually create it.
They place stops to close, or move them too quickly and get stopped out by normal market volatility.
If you can’t accept pullbacks against you in open equity – don’t trade forex.
You need to accept pullbacks in equity to get and bank the really big moves – its tough but there is no other way. Take meaningful, calculated risks and have your stop far enough back not to be clipped out and trail it way behind the price until you have built your position up.
Day Trading and an Illusion
Many traders simply think they can make small regular profits day trading but this is an illusion – no one makes money day trading longer term.
All short term volatility is random and you have no idea where prices will go in a day session as support and resistance is meaningless.
In hindsight prices seem to have order but that’s after the event and an illusion.
You will never get the odds in your favour and lose – this is why you never see a vendor selling a day trading system with a track record of real profits and the reason for this is they don’t work.
If You Want To Win
If you want to win at forex trading you need to catch and hold the big trends.
This means taking risks when the odds are in your favor and taking dips in equity when the trade progresses, but if you can do this you will make a lot of money.
Take calculated risks at the right time, accept dips in equity and you will pile up the big profits from the big trends and make big overall profits.
