One of the biggest factors in determining your success in running a home forex business - especially in the early days of trading - is to minimise the losses that you make. There is one feature of forex that stands head and shoulders above the rest that is used by experienced and successful traders follow and that is always ensure that a stop loss is used for every trade. If this is important for professional traders, how much more important is it for those working from home.
However, just to clarify an important point, a stop-loss is not there to ultimately define how much a trader will lose as part of the normal trading strategy. A top loss is there as a safety net, to prevent large losses when either totally unexpected movements occur or where the trader is for whatever reason not able to be present to close the trade.
A stop-loss will ensure that exit levels are handled in a controlled manner and as such reducing the loses.
One of the biggest mistakes new traders (as well as experienced ones) make is to move the stop-losses further away to avoid a loss. In many cases all this does is increase the loss - although as always there are exceptions. Sometimes it is possible to identify the times when the market turns and moving the stop-loss as required, however, the probability is quite low that this will happen.
And of course, by moving stop losses the trader does in fact defeat the purpose of having them set at that level in the first place. Before placing the trade, the trader should be clear about their exit strategy and set the stop-loss appropriately. Trading is, however, a highly volatile environment hence it is important that moves take place.
Now one of the most frequently quoted sayings in trading is to cut your losses and run your profits. The wisdom in this is obvious: even the weakest trading strategy will be profitable if you can make the winning trades yield substantially greater amounts than the losing trades. We are all human, though, and it is very tempting to grab a profit as soon as it appears. How, then, to avoid doing this?
Another, perhaps more effective, technique is to use stops to lock in a profit. If a position has moved into profit, moving a stop closer to the market can lock in what you have made so far whilst still allowing you to have exposure on the upside. This needs to be done manually.
Depending on the trading platform that you use, it may be possible to use a trailing stop. What this means is that as a trade moves in the direction you want, then the stop-loss is moved by the trading platform automatically to follow the trade every 5 or 10 points. This is particularly useful for those who are unable to watch their trades due to work commitments. As most things there are two sides of the coin, as sometimes potential profits ay be reduced due to closing the trade too early.
All these strategies I have learnt whilst watching two experienced traders - neither of whom were professionally trained but who have made substantial incomes. It proved to me that learning the basic of forex trading is not something restricted to the professionals. Anyone can learn these strategies and make a significant income.
However, just to clarify an important point, a stop-loss is not there to ultimately define how much a trader will lose as part of the normal trading strategy. A top loss is there as a safety net, to prevent large losses when either totally unexpected movements occur or where the trader is for whatever reason not able to be present to close the trade.
A stop-loss will ensure that exit levels are handled in a controlled manner and as such reducing the loses.
One of the biggest mistakes new traders (as well as experienced ones) make is to move the stop-losses further away to avoid a loss. In many cases all this does is increase the loss - although as always there are exceptions. Sometimes it is possible to identify the times when the market turns and moving the stop-loss as required, however, the probability is quite low that this will happen.
And of course, by moving stop losses the trader does in fact defeat the purpose of having them set at that level in the first place. Before placing the trade, the trader should be clear about their exit strategy and set the stop-loss appropriately. Trading is, however, a highly volatile environment hence it is important that moves take place.
Now one of the most frequently quoted sayings in trading is to cut your losses and run your profits. The wisdom in this is obvious: even the weakest trading strategy will be profitable if you can make the winning trades yield substantially greater amounts than the losing trades. We are all human, though, and it is very tempting to grab a profit as soon as it appears. How, then, to avoid doing this?
Another, perhaps more effective, technique is to use stops to lock in a profit. If a position has moved into profit, moving a stop closer to the market can lock in what you have made so far whilst still allowing you to have exposure on the upside. This needs to be done manually.
Depending on the trading platform that you use, it may be possible to use a trailing stop. What this means is that as a trade moves in the direction you want, then the stop-loss is moved by the trading platform automatically to follow the trade every 5 or 10 points. This is particularly useful for those who are unable to watch their trades due to work commitments. As most things there are two sides of the coin, as sometimes potential profits ay be reduced due to closing the trade too early.
All these strategies I have learnt whilst watching two experienced traders - neither of whom were professionally trained but who have made substantial incomes. It proved to me that learning the basic of forex trading is not something restricted to the professionals. Anyone can learn these strategies and make a significant income.
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