Most traders lose because they fail to appreciate the risks of forex trading and also make key errors in trying to manage them. Here we will give three crucial money management facts you need to be aware of to enjoy currency trading success.
1. Most Traders Lose Because they Over leverage
Today, most forex brokers will give you 200;1 leverage or even as high as 500:1 the new trader has no idea how much leverage to use on 1,000 I would say 10:1 is plenty for a novice trader.
If you leverage to high, you have to sit your stop in the way of normal daily volatility, or the noise of the market and the odds are against you wining and small random moves clip you out the market.
2. Most Traders Trade to Much
Most traders start off day trading or scalping and this is doomed to failure as your stop is based upon daily ranges and all short term volatility is random meaning there going to lose sooner rather than later. All the foolproof day trading systems you see from vendors will have simulated track records in hindsight ( check the disclaimer) why? Because they don't work - don't fall for this forex myth.
Other traders like to be in the market all the time, in case they miss a move and get chopped to pieces.
On the other hand, I know traders who trade less than 12 times a year and yet make 100% + annual gains and this is the way to trade - be patient and wait for high odds trades.
3. Your Risk / Reward is Not Your Stop - Your Profit Objective
This is a common error traders simply take one from the other but this is just your opinion and is not relevant in the real world. Fact is you should assume the worst on every trade and things can only get better furthermore, if you stop is within normal volatility, you may as well not bother trading.
UNDERSTAND THIS:
To make money at forex trading you need to de leverage ( don't worry if you use 10:1 you can make a lot of money) and put your stop back outside of daily volatility and only trade high odds trades on long term trends. If you do this, you can target 100% annual gains and while you may appear to be taking more risk than the day trader, this is offset by the fact you are likely to win ( if you are trading the odds), while they are likely to lose, as their not.
Forex trading is all about taking meaningful calculated risks at the right time and most traders fail to achieve this.
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