Trading in forex markets really as simple as as cutting your losses off quickly and letting your profits run? Ask any profitable trader and the answer may surprise you. (See also: How to plan a forex trade ?)
One portion of the proverb may hold true – cut your losses off quickly. But letting your profits run may be easier said than done, as it relies on the trader’s ability to make profitable moves in the first place. In my opinion, the right side of the chart may be the hardest section to predict with any precision. The fundamental and technical pundits battle for supremacy on what school of thought will win the trade, while actual traders are in the trenches grasping at profits or getting slaughtered as the next wave unfolds. Traders who are positioned correctly have the ability to manage profits, while traders who are fighting the flow are either pressing their eject buttons or experiencing margin calls. Letting your profits run requires a disciplined indifference to P/L fluctuation, and that is certainly an adjustment for the traders who are identifying opportunities to manage winning trades. (see also: Avoid Losers Find Winners )
The Forex market is a rather technically pure market with global transactions occurring around the clock. The market’s structure generates an intricate puzzle of support, resistance, trends, ranges, channels, patterns, highs and lows, and they are all interconnected and explanatory in real-time, and certainly in hindsight. If a trader ever asks why in the Forex market, there is most likely a headline, news announcement, or technical reason for the movement – making it great for after-the-fact explanations. But live trading perplexes and fakes out traders with nasty unanticipated volatility. This simply means that managing risk and trade size is important to reduce the noise and capitalize on the actual movement or direction the market has to offer.
The Bottom Line
The most important part is to remember to cut your losses quickly. Losing is the worst part of trading, but when the losses are manageable, small and seemingly insignificant relative to your total equity, you’ll be fine. If you find a way to let your profits run, congratulations on doing something that most traders don’t. But most importantly, find a way to cut your losses quickly and you have a chance to survive the chaos the market throws your way. Then, aim to take advantage when it’s behaving to your liking.
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