James Stanley of DailyFX.com walks through a single setup on the EUR/USD, as it was managed while the trade was moving in the trader's favor. He illustrates scaling-in, scaling-out, and stop movement in an effort to properly manage risk in a heavy news environment.
Trading can be a difficult sport to master. Not only are markets unpredictable, but can also, at times, almost seems as if human nature were working directly against us.
The common advice to 'learn from our mistakes' can often help educate us to what NOT to do, but how are we ever going to learn what we want unless we have any solid examples of successfully managed positions?
In the DailyFX Traits of Successful Traders research series, The Number One Mistake that FX Traders make is taking too large of a loss when they are wrong compared to the small wins they usually make when they are right. This disparity is so huge-that even if traders were able to win in 70% of instances in some pairings, they would still be losing money, on average.
Is this because these traders line into positions willing to lose $2 for every $1 that they might gain? Probably not: More likely is the fact that retail traders go into positions without a plan-instead relying on their own reactions to make the best choices for them.
So they react. A position moves against them, and often they want to 'hold on for just a little longer to see if it comes back.' Or perhaps they bargain: 'If only it moves back to break-even, I'll never do this again!'
In the event that the trade actually moves for them, they often close it off real quickly; fearful of giving back that profit to the market.
There isn't anything necessarily wrong with the above behavior. It's fairly standard human nature. But these types of actions can be the worst enemy of those that wish to become successful traders.
Thereby-outside of the trading strategy, all that we really can control is our trade management. And this is the very thing that often separates professional from amateur traders.
What follows below is an account of a single trade that was successfully managed by a trader when the market was working for them.
Of course, not every trade will work out profitably; but when trading defensively in an effort to avoid the number one mistake that FX traders make, the goal is to maximize wins, while mitigating losses.
NEXT PAGE: Adjusting Your Position