Forex trading is largely a speculative activity where you need to make your market predictions and execute trades in the hopes of generating a profit. Although losses are a natural part of online trading, there are a number of measures you can adopt to improve your chances of a successful trade.
Before you enter the trading platform and open a trade you first need to analyse the market using fundamental or technical analysis (or a combination of the two). Once you have performed market analysis and feel confident to open a trade, you should then place your stop loss and take profit orders in order to protect your forex trading account once the order is live.
Why use Stop Loss & Take Profit Orders when trading?Stop loss and take profit orders are used because the forex market is an incredibly volatile place where prices rise and fall sporadically and often unexpectedly. A stop loss order closes the trade once the price drops to a certain level while a take profit order closes the order once the price rises beyond the point that you predetermined.
Stop loss and take profit orders therefore form a protective barrier around your trading account, preventing it from being completely wiped out in the event of unstable price movements.
Closing that Winning or Losing TradeHaving huge profits on an open position is a good feeling for any trader and can ignite a sense of confidence in them that they didn’t possess before. During this time it is not unusual to let your emotions get the better of you. This can quickly prevent you from letting go of a trade, whether because you are scared, hopeful or because you are greedy.
Decisions made during forex trading should never be based on emotion. They should be based on objective market analysis and current market conditions.
For example, if the current market is strongly trending then it usually makes sense to keep your position open until you see a clear signal to exit. By setting a trailing stop or stop loss order, this ensures that your trade is closed at a reasonable level before the trend experiences a reversal.
You should also look out for opposing price action. If you see a large bearish pin during a rising market, this is usually a signal to close your trade and take your profits. Likewise, if you have already made notable profits and see support and resistance levels, this is another clear indicator that the time is right to take your profits.
On the other hand, if the market is pointing in the right direction and you see signals that reaffirm a trend, then you may wish to consider staying in the market a while longer.
Whatever decisions you take with regards to closing a winning or losing trade, it’s critical that you have a reliable risk management strategy in place that will protect your account from any market activity. Learning how to correctly read the market – instead of trading based on your emotions, is a guaranteed way to enhance your trades and generate stronger profits.