You’ve heard the phrase “Defense wins championships.” Let me tell you why these three words can save your career as a forex trader, writes Steve Kruse.
Why become another statistic whose bad decisions cost them the passion of their life? The best and most successful traders adhere to these basics tenets: cut your losses, let your winners run and trade the market in front of you, not what you think or want it to be.
All great talking points but I would submit that the hardest or most difficult decision to make is how to manage your risk or just how do you cut your losses. Especially when you know it’s going up or down. Sound familiar?
Let me suggest a way to actually cut your losses and not let your emotions get the best of you: let a robot do it for you. Robots are designed to do exactly what makes most forex traders find another profession. They limit your risk. Their settings allow you to limit your losses to a miniscule 5-10 pips plus the spread and adjust the number of tries you trade the pair from 1-6.
They also let you take profit on a predetermined setting, as an example 50 pips, plus put a stop in on the balance and let your profits run. And they do this without any human emotion or influence from other traders.
There are several robots or automation tools on the market, but my favorite is the Forex Forager.
I can’t guarantee that you will make money, that would be irresponsible, but I can say with certainty that it will change the way you approach the market and increase dramatically your chances of success.
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Think about the decisions that you make on any given trade. Other than a predetermined exit strategy, the amount of risk you take and the appropriate position sizing on each trade will greatly affect the profitability of that trade.
Automation tools will help you manage that risk with your indecisions about moving a stop or having no stop at all. The markets have always moved in a way that rewards traders who buy strength and sell weakness. Automation tools help you accomplish that goal.
Another strategy that helps traders become more successful is that you use the appropriate position size for the account balance that you trade. For example, a 1 lot in GBP.NZD is quite different from a 1 lot in AUD.USD. The price of the GBP pair is more that double the price of the AUD pair.
If your risk per trade is constant you must adjust your position size to keep your risk the same. The best robots have multiple settings including one that can adjust the lot size for each trade as well as the many options discussed previously.
I hope that this article has at least made you rethink how you manage the risk in your forex trading and make you aware of a new tool available to you to consistently help keep those loses under control and let your profits run.
Steve Kruse is director of education and training at Currencies, Coffee and Croissants. CCC is a group of 95 forex traders from 30 different countries who meet on Skype daily to discuss strategies and specific trades. You can reach Steve on LinkedIn or at skfibonacci@gmail.com
The Currencies, Coffee and Croissants group is open to all traders interested in currencies. Just contact Jeff Wecker here to join CCC.
