Many traders are right about market direction but simply put their stops in the wrong place and clipped out the trade and then watch as it goes onto make thousands of dollars and their not in! Placing stops is as important as picking trade direction in terms of making Profits.
Risk and Trading.
Most traders try so hard to restrict risk they actually create it. A great example of this is forex day trading where you have tight stops by predicting the daily range.
Te problem is all movements within a day are random and the apparent small risk is a guaranteed lose as volatility is random and takes them out.
There is a big industry in telling you that forex can be traded safely – Rubbish! It’s risky and if you don’t like taking calculated risks put your money in a high interest account.
To make big returns, you have to take risk that’s simply the reality of trading.
Placing Stops
Place stops behind heavy valid resistance or support – that means if they trade recoils back you may be out but your stop is in a logical area. Another point to keep in mind is to use a stop close ( I use New York stock exchange times ) this means that you have more chance of winning it may look more risky but longer term its not.
How often do you see stops picked off in the day session for the market to settle back the way you thought? It happens often so don’t do what the majority do run a stop close if you can keep an eye on the market.
Moving stops
Beware of moving stops to closely – if you try and lock into quickly you will get taken out by normal volatility. Hold your stop back and make sure you have the discipline to take dips in open equity and keep your eye on the bigger prize. Accept that you’re never going to sell the top and buy the bottom, but if you get 70% of the big trends you will pile up profits.
Be selective
Only trade those trades that have high odds chance of winning forget trading frequently you don’t get paid for that you get paid for being RIGHT and that’s all.
If you are selective you can risk more on these trades and give yourself a bigger chance of winning. Never fall for the risk reward of trade is your profit target, your stop – its NOT.
This is just your view and bears no relation to the trade’s outcome.
Don’t Diversify
If you have a big account fair enough but if you have a small account diversification simply dilutes your profit potential and ensures you make mediocre gains. On a small account load the trade and risk as much as you can.
Be realistic
There is a big difference between taking calculated risks and being rash. Do not over leverage your trades. Keep in mind the best traders in the world make 100% and if you made that to then you would compound a lot of money over time. Don’t go for broke and get blown out.
Money management and stop loss placement is all about trading the high odds trades at the right time, placing stops and trailing them logically not to get taken out by volatility and loading the trades with the best potential.
If you do the above you will have a simple way of taking calculated risks and getting handsome returns and that’s what Forex trading is all about.
Article Source: http://www.articlesbase.com/currency-trading-articles/forex-money-management-and-placing-stops-correctly-for-bigger-profits-215993.html
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