Do You Want to be a Successful Forex Trader? Part Two
14 Years ago | October 16, 2014 9/30/23, 12:00 AM
In Part one we discussed the importance of having a business plan and suggested a strategy that would help achieve it. In Part one we focused on the revenue side. In Part two, the focus will be on the cost side, perhaps the most important factor in being a successful trader. As with any business, revenue has to exceed costs to be profitable. It is no different in trading.
I was talking to an experienced trader recently and he said, “I hate stops but they are a necessary evil.” What he was referring to was how often he had the right trading idea but got stopped, only to see the market move his way without him being on board. This has happened to all of us but what choice do we have? Using stops to protect your downside is the only way to stay in the trading business. It is like catastrophic insurance, which you need to protect your assets in case of a disaster.
Well, the forex landscape is littered with carcasses of failed traders who traded without stops. It may have worked for a while but disaster struck when the market went one way, the wrong way, and the trade had no stop. This either led to an account getting wiped out or the trader panicking, generally near the top or bottom, and hedging the losing position. In the latter case, the hedge only postpones the inevitable. It only takes one disastrous trade where you lose more than you intended to send you into the Forex Death Spiral that you will never recover from.
Is it a matter of damned if you do (use stops) or damned if you don’t (no stops)? The answer here is also an emphatic no! Stops are a necessary evil and everyone should use them. It is how you use stops and where you place your them that can make the difference.
- Where you place your stop will determine whether your trade has time to work
- Getting angry at the market after getting stopped can lead to further losses
- Letting a loser run and/or using hedging to avoid booking a loss is a losing strategy
If you treat trading as a business you need to control your expenses relative to your revenue and this is why you need to use stops. This is what I see as necessary to be a successful trader. I have written three articles covering the points made above and suggest reading each one carefully. Together these articles should give you insights into using stops, not only to protect your downside but also to achieve the goals set out in your business plan.
Avoid Dumb Trades and Dumb Stops
I Hate Hedging and So Should You
Part One:
Do You Want to be a Successful Forex Trader? Part One
Jay Meisler, founder
Global Traders Association
