WHILE traders must accept that some losses are inevitable, there are ways to keep them to a minimum. To help you out, we have asked the experts and listed the top five tips here.
1 TRADE AT A SENSIBLE SIZE
It is important to trade a sensible amount. To judge this you must consider what percentage of your overall account you are staking on the trade in question. The appeal of trading forex is that it is extremely volatile, moving 50-100 points in a day even when the markets are quiet. David Jones of IG Index says: “Don’t make the mistake of trading too big and then panicking when a market goes 20 points against you because it translates into a large financial loss. You need to give the market time to prove you right – if you trade a sensible size you are better placed to ride out the short term volatility without panicking.”
2 TRADE WITH THE TREND
Trading with the trend is an important skill to master if you want to be successful. Many chartists believe this is easier to do in the forex markets than elsewhere since they exhibit sustainable longer-term trends. This is a good idea because you put probability on your side and therefore resist the temptation to pick the tops and bottoms off a market.
While it isn’t easy to keep emotion out of trading, you must try to stop yourself getting worked up over an unsuccessful trade. It can tempt you into going off-piste. If it starts to turn against you, step away from the trade and reassess your strategy. Many find using technical analysis a good way to stop themselves falling victim to this
3 BE AWARE OF CURRENT AFFAIRS
It is very important to be aware of what is going on in the news. Strategies sometimes known as the carry and the value trade rely on this. The carry sees traders sell currencies with low interest rates and buy those with high ones. The value trade requires a trader to make a judgement on a currency’s value.
You will need a firm grip on the macroeconomic circumstances of the countries in question to make these judgements. Economic data releases, policy decisions and political events can radically change an economist’s outlook on a country. Because of this you need to know what to look out for and then change your strategy accordingly.
4 CUT OUT OF UNPROFITABLE TRADES EARLY
Cutting out of range bound trades that are trending against you is essential. A useful strategy is to close the trade as soon as it re-enters positive territory. While it is disappointing to accept a break even position, you cannot win every time. This strategy can protect the value of your wins.
5 USE A STOP LOSS
Use a stop loss. This might sound obvious but many people still don’t. A stop loss ensures that you cannot lose an unmanageable amount. It also helps you remove the emotion involved by forcing you to choose the point you admit defeat in advance. Bear in mind that there are a number of different types of stop loss so choose yours with care.