Forex trading is a fantastic career or hobby, but if you don’t consistently win, it can be a short-lived career or an expensive hobby. The thrill of winning is often accompanied by multiple losses if you don’t have a serious approach to your money management strategy and control your emotions. In this article, we are going to develop a money management strategy and psychological strategy that will help you win consistently when trading Forex.
First of all, let’s take a look at the trading settings themselves. This article is not intended to identify a winning strategy; but to show you that even a strategy that only wins 50% of the time can produce consistent results. Perhaps you already have a winning strategy, but you have poor money management and psychology.
It is important to strive for a risk / reward ratio of 3: 1. Simply put; you need to look for trades that can offer you 3 times the potential loss. If you take this approach, you only need to win 50% of the time, because you are winning instead of losing 3 times. Having mastered this rule, you are on the right track to a winning strategy.
Research your trades well and don’t jump into the markets without doing some analysis, be it fundamental or technical. If you can stick to these rules, you too are halfway to winning the psychological battle.
The biggest problem traders face is entering trades too early because they think they will miss a trade, or too late because they were afraid to pull the trigger. It is too early to exit the trade because they believe it is about to turn against them, only to later see it hit their, possibly take profit level. Or, equally often, they let the trade run and run, expecting more and more profits, only to allow all profits to reverse. There is an old adage among successful traders: “Plan your trade and trade according to your plan. This is exactly what you should be doing.
Don’t let your emotions allow you to profit early if that wasn’t your original plan. Make sure you plan to reverse the trade before reaching a profit target and have a pre-established plan to take profit. A good plan is to take profit if the trade hits 90% of the target and there are signs of a reversal. If you have correctly set your stop loss based on your original analysis, do not expand it as you compromise a 3: 1 risk / reward ratio. Keeping these rules to a minimum is the first step to consistently winning Forex trading.