Forex trading has always been one of the highly profitable businesses that regular people can have access to. The profitability in the financial markets can reach up to several hundred percent annually. That, in turn, means that you have a chance to build and increase your starting capital multifold.
But there is one problem. Trading involves high risks. And the higher the profit prospects, the greater the likelihood of losses. However, this is nothing out of the ordinary and in no way should be a reason to stay away from trading. In this piece, we are going to explore the ways to avoid sending your forex deposit down the drain and learn how to make profitable trades consistently.
1. Can forex trading be safe
2. How to make money trading forex when the price goes against you
3. Stop loss as a safeguard for your deposit
4. Risk Management will protect your forex deposit
5. What has not been written down cannot be tracked
6. Let’s sum it up
When trading in financial markets, you basically profit from the difference in asset prices. You need to buy financial instruments at a cheaper price, and sell at a higher cost when they go up in value, or vice versa. To do that, you need to master the art of predicting the price movement direction.
Forex trading may lead to losses when the price goes against an open position.
1. First reason lies in the fact that the forecast was inaccurate since there was a mistake in the analysis.
2. The second reason is that “anything can happen in stock markets.”
Even if the market analysis strategy you have picked works perfectly fine, there is no guarantee that it won’t fail at some point.
That being said, despite these two reasons, you can still make money trading forex. What you need is a profitable trading strategy and risk management tools. We will cover them below.
Professional traders know well that the key to solid gains in any financial market is sticking to a profitable strategy. Chaotic trading is a recipe for deposit loss. Why is that?
The majority of sufficient trading strategies produce a positive outcome as a result of 100 or 200 deals. This means that their overall result will be in the black. However, there will still be a certain percentage of losing trades. But as long as the total loss does not exceed the total profit, you are fine. It is hard to say for sure what the outcome of a single trade will be. That’s why you always need to look at a bigger picture.
Now suppose a trader opens one trade according to the level trading strategy, another one based on the moving averages, and then one more using the price action, etc. The chances are that he or she will encounter unprofitable signals. What’s more, according to Murphy’s law, that’s exactly what is going to happen.
So, if you wish to save the forex deposit, it is important to open all trades, where there is a relevant signal, according to a particular trading strategy that has proven to be effective. That way, even if the price goes against you in some trades, the strategy’s positive mathematical expectation will ultimately produce profits.
What else helps make money, even when the price goes against you in forex? This is a stop loss which is essentially a protective stop order. When you place it, the broker will close your position as soon as the price hits your stop.
Why do you need the stop loss? As previously mentioned, the stock market is a place where anything can happen. Your forecast may turn out to be inaccurate or may not work out at all. In this case, the total loss can reach up to the deposit size if you don’t close the losing trade at the right time.
In order not to get kicked out of the right position by the stop-loss order, you need to learn how to use this tool correctly.
It may seem that after getting kicked out by the stop loss in forex, the trader has lost. But that’s not true. Stop loss will protect you against major uncontrollable losses. As we all know, the trader’s task is not to be right but to make a profit even if not every single trade turns out to be successful.
So, you are already using a specific trading strategy and placing stop-loss orders expertly. But this is not enough. What you need to bulletproof your trades is have smart capital and risk management in place.
As the system suggests, the stop loss and take profit ratio in a trading position should be at least 1:3, or, better, even higher than that. You also need to be able to calculate the entry volume the right way. E.g. when entering, the risk (or the amount of stop loss in money terms) must not exceed 1-2% of the deposit.
Also, keep in mind that the emotions have a huge impact on traders. In essence, not all of your market entries are based on your strategy alone. Some decisions are driven by emotional state. This is why you can run into a series of unprofitable trades and lose a deposit when trading forex.
So, how to make money in forex when emotions take over and it is hard to stop? Good news, there is a way. The Risk Manager software solution brought to you by Gerchik & Co will protect your deposit from yourself. Being in a calm and sober state of mind, you enter your money management parameters in the settings such as the number of losing trades per day, week, month, etc. Once your emotions get the upper hand, the Risk Manager will not let you open any trade in violation of preset values.
It stands to mention that it is not always possible to use this deposit protection system in forex right away. The traders need to have their own experience, and a sufficient amount of trades to analyze. That’s why it is important to keep track of your trading positions and enter them in a special trading log so that you can analyze mistakes made and improve the trading strategy later on.
However, even traders with the strongest self-discipline sometimes ignore this rule even though every forex trading course urges to do that. What can help is automating the entire process using the Trader’s Statistics. By connecting this solution to your trading account, you will have all your trades recorded in the trading log automatically. That way, you will be able to analyze them later and make relevant conclusions.
Despite the fact that Forex trading is a high-risk activity, there are ways to protect your money. It is said that the market is like an ocean you cannot control. However, you can manage your own account, and not only avoid the deposit loss but also ensure consistent trading gains.
Here’s what you can do to achieve this:
This is how you will be able to improve your trading strategy and earn consistent profit from forex trading.