Also, the best trading strategy in the world will fail to make you money in the long run without a solid money management plan. How much can you risk per trade without being fearful of losing the entire sum? One of the predominant reasons most Forex traders fail is because they risk too much.
Traders are historically great at calculating the potential profit on a given setup, but the associated risk is usually an afterthought. Even if you only write the monetary value next to the percentage, allowing your mind to grasp the magnitude of the associated risk will help you stay in control when you lose. Simply writing down your exit strategy is enough in most cases.
Your exit strategy should include defining your stop loss level as well as your profit target. And for those who pyramid , be sure to write down the critical levels at which you intend to scale into the position.
Where you keep track of this information is up to you. Daily Price Action members have access to the online trade journal I created for them, but a simple notebook or word processor will do. Doing so will not only invalidate your plan of attack, but it will also expose you to emotional decision making.
In essence, the thought of losing money clouds your judgment. I define it as the point at which you need an extended break from the market after a string of losses. It can cause you to doubt your abilities, which will inevitably lead to an even greater loss. But if you were to lose on the next trade without recouping any previous losses, your pain threshold would take effect and thus require you to take a break from the market.
Whether that break is a couple of days or a couple of weeks is up to you, as long as you return feeling refreshed and without any lingering thoughts of doubt. This level can vary from trader to trader. This allows you to account for a few consecutive losses, which are inevitable but also prevents you from losing so much that it becomes overly difficult to recover. Developing an effective Forex money management strategy with the proper risk control is a simple process when you know what needs to be defined.
Just like the price action strategies and patterns we trade, the best approach is a simple one. Please log in again. The login page will open in a new window. After logging in you can close it and return to this page. Session expired Please log in again.More...