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Do You Want to be a Successful Forex Trader? Part One

14 Years ago | October 15, 2014 1/28/23, 12:00 AM

It is easy to suggest a business plan that would lead to success as a forex trader. It is easy to point out the errors that traders make and what they need to do to succeed. The challenge is to put this into practice and this is what I will attempt to do in the following article. I want you to come away with practical strategy that you can apply to your everyday trading.

I have written about the need to treat trading as a business with a business plan that produces profitable results. This means evaluating winners vs. loser vs. the # of profitable trades vs. the # of losing trades. In theory, you can be right 99% of the time and still lose if the 1% loser is one without a stop loss that wipes out your account. You can be wrong 99% of the time if losses are small and the one winner produces an outsized profit. Of course, neither example is a practical one but it does highlight that you need the proper mix in your business plan to succeed as a trader.

The key is to put into practice what you outline in your business plan. The challenge is to execute your plan in a way that gives it a chance to succeed. This means setting realistic goals and trading in a way that has a chance of meeting them. The tendency of many retail traders is to take profits too soon and let losses run.

Let Your Profits Run

Winning traders tend to let their profits run but this is not a clear cut strategy. How many times have you set a risk/reward goal for a trade and have come up short of your target? This occurs either with an unrealistic profit goal or taking your profit too early. Now, before I go on, I will never begrudge someone taking a profit, whether it be 1 pip or 100 pips but when you leave profits on the table when things line up, you risk upsetting your business plan. What I mean is say you look for a 2:1 profit/loss ratio on a trade, odds are you will come up shy unless you hold out for your target. On the other hand, the more you go for on a trade, the greater the chance your target will not be reached and the trade will end with a smaller profit or a loss.

So there is a fine line between letting your trade play out and your profits run and making sure you walk away with a profit on a winning trade. A common strategy is to take half profits when the market goes your way, let your profits run and put a stop in at breakeven for the remaining position. Others use trailing stops to insure a profit. These are prudent strategies but you need to recognize that you may be reducing your risk/reward results by employing them. In any case, your actual results are likely to fall shy of your stated goals for the reasons I outlined above. This does not mean you cannot run a profitable business but you may not be as successful as planned.

You may then ask whether I am suggesting to go for the moon on every trade. The answer is an emphatic no! What I am saying is that there are times when you let your profits run and there are times you take a more prudent strategy. It may be once a week, once a month, once a quarter or once a year that the stars align for the way you look at the market that you look to let your profits run. In those times, you can set a good risk/reward for a trade and go for it. In those cases you can consider letting your profits run and see how that works out. If that works out, then incorporate the strategy into your trading mix and see how it affects achieving your business plan. This may make a difference

Suggested Reading:

Traits Of Successful Traders Guide

What Differentiates a Winning from a Losing 

Professional Trading Strategy for the Retail Trader

Jay Meisler, founder

Global Traders Association

 

 

 

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