You can make money on Forex even when the number of losing trades exceeds the profitable ones. In order to do that, you need to follow the golden rule - “Every trade should work out to the maximum”. It can determine whether you will become a successful or a losing trader.
The Essence of the Golden Rule
When the price moves against you, the position needs to be closed. Don't wait for a possible market reversal. However, if the price is going in the right direction, don’t exit the trade until it gives you the highest possible profit. Let your positions work out! This is the essence of the golden rule.
Inexperienced traders often exit trades too early. When analyzing beginners’ trading history, you see that the potential profit on unworked transactions could be several times higher than the received one.
Reasons for Premature Exit
It all happens due to psychological aspects. When traders see real profits in their accounts, they want to take it before the market turns around, so they forget about exit points. The unwillingness to give what is already yours is much higher than the desire to receive something new. From a psychological point of view, the fear of loss is stronger than the euphoria of gain.
Let Your Trades Work Out
The way you exit the market is more important than the way you enter. One successful trade can cover the loss from many failures. To see this, you must start analyzing your trading history.
Keep a trading journal. Describe there all your actions and the characteristics of each trade. Pay due attention to the way you open and close your positions.
Make sure to include the copies of charts in your journal. If you keep records online, attach the screenshots of your trades. If your trading journal is handwritten, print the screenshots you make. If the price on that chart continues to move in your direction after the position is closed, wait for the market to reverse. Only then take a screenshot. This way you’ll see how much you could earn.
On each chart, mark and calculate in dollars the profit you made and the profit you missed out on early exit. Add up the results for all your trades. At some point, the amount of unrealized profit will become so high that you’ll manage to cope with your inner fears.
Also try to compare the unearned profit to your actual losses. You will see that the potential earnings could more than cover your losses and take your balance into a plus.
Bottom Line
A skill of timely position closure doesn’t come immediately. It’s a process. Professional traders advice to print and analyze charts for at least 500 trades:
- Check the correct and incorrect entries for each position
- Find the wrong exit from a losing position. Calculate how much you could save by closing it on time.
- Note the wrong exit from a positive transaction. Write down how much you could earn from it.
A meticulous analysis of your actions will help you realize that your trading results mainly depend on the wrong exit from the market. The amount of unrealized profits will show that success in Forex comes to those who are willing to take risks. It doesn't mean that you should mindlessly enter into any trade and hope for a positive outcome. You must build a clear risk management system, follow its every point, and track all your trades to build your own exit strategy that allows exiting at the perfect time.