How to Limit Risk & Take Profits

When beginning in forex, the main goal is to make profits. Who doesn’t want to quit their day job, grab a laptop and go to an island with internet to work and live? Unfortunately, that’s not a realistic goal for most of us. It usually makes the most sense to get into trading gradually. Instead of quitting your day job, set aside a few hours before work or after to begin experimenting and practicing with trades. If you enjoy the challenge and do well, you can gradually make trading a larger part of your life. Once you’re coming away with consistent wins and can realize a steady income, then you can actually begin thinking of cutting back on your regular job and increasing your trading time. To get to that point, you will want to guard your account carefully so that your trading account will steadily grow.

Setting Stop-Loss Points and Take-Profit Points

Not every profit that a trader makes is going to follow the expected pattern. From the beginning of setting a trade, it’s wise to think ahead to the scenario where the price might go the wrong direction. Will you lose your entire trade in that case? Not if you have set a stop loss point from the beginning. The tend is to think that if you just hang on, the tide will turn and your trade will be saved. Unfortunately, that is rarely the case. Yes, it could turn and you could get your money back, but if it doesn’t, you could lose all of the funds. Rather than take such a big hit, be brave up front! Set a point at which you are not willing to pass. Then if the trade does go south, you will be out once it hits the pre-set point. The same goes for take profit points. This is good for times when you want to grab your profit before the price begins to drop. Grab it while you can, instead of holding out for more.

Put Ample Time into Planning Your Trades

From the beginning, you need to think through to the end. Think of your trade as a military maneuver, or a challenging game of chess. Before you risk your queen or your front line troops, think through the different results you will get from various foreign currency sets or markets. By planning ahead of time, you will increase your chances of profiting. This is where the stop-loss strategy comes into play. It is well worth the time spent to study the charts and to check out news or current events that might affect your trade. This also means working with a broker that follows your same game plan and can advise you well, according to your trading style. Before you make your trade, determine the price that you are ready to pay and how much you can stand to lose. By not leaving your account to chance, you are increasing your chances for a slow and steady growth pattern.