In my 15 years of trading the forex markets I have seen many traders
enter and then leave the forex marketplace due to being unable to
sustain long term profits. Many traders become profitable, but once they
become profitable, they get overconfident and careless and often lose
their entire account. Statistically, about 90% of forex traders will
lose their whole account.To get more news about
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In this article I want to highlight my two key pillars, which will
ensure long term success. If a trader makes these points as the 2 most
important aspects of their trading, losing an account will be an event
of the past.
Risk Management
Overcoming greed
When I started trading 15 years ago, my mentor pushed this point
into my head, over and above everything else, even before we started
trading, risk management was discussed in great detail. This concept has
stayed with me since then.
Firstly, it is important to understand that the market is
unpredictable, but the one thing we can control and predict, is how much
do we lose if the market goes against us and I guarantee there will be
many times this will happen.
A trader needs to learn how to lose and when you do lose, that the loss is minimal.
This is a very difficult concept to accept as normal life does not
teach us to lose. The only other profession where losing is part of the
job, is playing sport, every sports competitor will lose in competition
many times.
Many traders cannot accept losses, therefore fighting the market
and letting loss trades run, become an obsession with some traders, at
the expense of their account. I have witnessed traders increase their
account over a sustained period of time, only to lose their entire
account with one bad trade, simply because they were obsessed with
winning all the time.
How do you manage risk in a professional manner？
Firstly set an amount you are willing to lose per trade, 1% to 2%
per trade is very common and follow this rule 100% of the time.
Always use a stop loss. A stop loss is a predetermined level that the trade will close if the market goes against the trade.
Set your stop loss at a pre determined pivot point. The stop loss
cannot be random, it needs to be at a pivot point, whereas if the market
goes beyond that point, it is clearly changing direction, which means
‘get out of that trade and consider trading the other direction.’
How is stop loss calculated？
This article was not meant to be an in depth look at trading, but
in answering this question quickly and easily, there is phone
applications and desktop software that will make the calculations
automatically.
Let the profits run
Overcoming fear
This concept sounds very simple but it is one of the most
difficult techniques to master. To be able to maximise your profit,
otherwise known in trading terms as risk/reward. During this phase of
trading the fear aspect of your emotion will take control, fear of
losing, I am in profit but will the market reverse and take my profit
away. If fear controls the trade, the trader will often close the trade
at a small gain, rather than risking a loss.
The most effective method to counteract fear is to understand
candlestick formations and which formation will result in a trade
reversal. A good trader will check the close of every candlestick and if
there is no indication of a reversal, to have the discipline to allow
the profit time to continue.
If a trader allows his profits to be large and the losses to be
small, the need to be right all time will become irrelevant, as the
winning trades value will by far outnumber the losing trades value.
Conclusion
Forex trading is a discipline and needs to be treated that way, it
is not gambling. With trading you are always battling with the raw
emotions of fear and greed. Scammers always prey on those emotion.
Master these two techniques and you will become a Forex master.
Author: Tony Camilleri
Profile:
Tony Camilleri is an Australian based forex trader. He has been an
active trader in both the retail and institutional sector. As founder
of 4xfusion, Tony has developed automated algorithm based trading
systems, he is an active educator and fund manager for the past 15
years. Tony is also a crusader against the forex scammer and is often
asked about his opinion regarding trading systems and their
sustainability. Tony has an in depth knowledge of the inner workings of
the forex industry and brokers. Tony is a regular contributor to
Linkedin with his thought provoking articles and is quickly becoming a
key person of influence on that platform, which his often trending
articles.
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