Forex Trading - the Secret to Making Profits From the Big Moves

In FOREX trading, it’s a fact that many traders simply can’t let their profits run - they enter trades correctly, but only ever, bank marginal profits.

"Let your profits run" is accepted market wisdom - but how do you do it in practice? How do you maximize your profits?

Many FOREX traders get in on a good opportunity, and take a marginal profit, or are stopped out - they then watch in frustration as the trade piles up $20,000, $50,000, or more - and they’re not in the market! This happens all the time, so lets look at how you can let your FOREX trading profits run.

Statistical Significance

When FOREX Trading, letting your profits run, is the only way you can cover the cost of your losses - and most traders don’t understand its significance.

What constitutes a large winner in FOREX trading? - You need to make ten times or more than your average losing trade. If you lose $500, you need to make $5000 - but how do you do this?

The only way to make money in FOREX trading is by letting your profits run - and this isn’t as easy as it sounds. You need to let your profits run with a NO profit objective. Of course, this is hard to do - and most traders don’t do it (and that’s why they lose).

There are two reasons why traders lose money in the FOREX market – one’s mental, and the other’s physical:

A Mental Dilemma

Why is it so hard to hold on to winning trades?

The emotion of fear comes into play here - the bigger the profit becomes, the more a trader wants to take it - before they lose it.

Watching a trade you are making money in, dip back is hard. Most traders simply say, any profit is better than no profit – so they take a small profit and feel happy. However, the profit isn’t big enough - and their losing trades wipe them out sooner or later.

Traders want to snatch ANY profit - in case it gets away - but this is totally wrong.

Physical Reality

The large trends simply do not come around that often.

By using an open profit objective, and a lagging exit, most of your FOREX trades will lose you money.

Trying to avoid losses by snatching profits, or running stops to close, will see you lose money in the long run, when you trade the FOREX markets.

The huge trends don’t come that often - so you need to catch them.

If you want to catch the big winners, then you need to see the majority of the trades that you enter, that are in profit, reverse - and stop you out at a loss

Because FOREX Trading offers traders fantastic long-term trends - that go on for months, or years - if you can get in on them, and hold them - you’re all set for huge profits.

Use Lagging Exits

A lagging exit is where you wait for confirmation of a trend change - before banking your profit.

Many traders try to anticipate a trend change - only to take profits early, and miss the major move - don’t fall into this trap!

Here are two exit strategies that will keep you in the trend for as long possible:

1. To exit a trade, use the 40-day moving average. If positioned long in an up trend - wait for a close below this level - and exit the position. In a downtrend, exit a short on a close above this level.

2. If long from a new 20 day high - hold position until prices make a new 10-day price low. If short from a 4 week low - hold short until prices make a new 10-day high.

These two lagging exit strategies will ensure that you are in the big trending moves, for as long as possible. In FOREX Trading, if you want to run the big winners, then you must use a lagging exit. If you do this, then you will stay with the big moves - and pile up huge gains – rather that get stopped out early.

Forex Trading – the Six Major Reasons Traders Lose Money

In FOREX trading, there are six major reasons traders lose money. If you can avoid these pitfalls then you can join the minority of winners that pile up the big profits consistently.

Here are the trading traps that will cause you to lose money:

1. The Contrarian’s Disease

You should have a contrary opinion to the other Forex traders in the market – most traders lose money, so you want to trade in opposition to the herd.

Most traders lose because they lack discipline and money management - but they’re very often right about market direction. It’s the trader’s inability to maximise these opportunities when they’re trading the FOREX - and stay with the trend, that makes them lose money.

Many traders are looking to pick tops and bottoms, and never focus on trend following. Picking tops and bottoms is impossible. You can’t predict the turning points in FOREX trading - so you need to change your focus to trend following, not prediction.

2. The Chartists Trap

In FOREX trading many traders fall into the trap of putting all their efforts into studying charts. Studying charts is important - but you must not be too subjective, or you will end up losing.

Avoid methods that need too much subjective analysis, such as Elliot Wave and cycles - and gravitate towards indicators that define trends - such as moving averages and momentum oscillators.

Be objective and not subjective in your FOREX trading.

3. Ego

FOREX trading attracts some of the cleverest people in the world, these traders are smart - but they also have big egos. An ego is a bad trait in FOREX trading - as it means you always want to see the market, as you want to see it - and not how it really is.

Traders need to ask themselves this question: Do you want to make money or feel smart? The market won’t accommodate both of these desires – if you want to make money, leave your ego behind.

The humble trader who has an objective and disciplined FOREX trading plan, realizes the market can make him (and everyone else) look stupid. However, he’s only interested in making money, and he’ll generally out perform an ego filled trader, who wants to beat the market.

4. Guru Syndrome

When you’re trading in the FOREX market, it’s tempting to follow someone who’s made money - or says they have.

It’s a fact that most traders want success given to them by someone else, and these traders can’t take responsibility for their own actions.

In the game of FOREX trading, the only way to succeed is on your own - if you can’t accept this, then do something else.

5. Chasing your Tail

Many traders get impatient when FOREX trading - they start trading using one method, get frustrated with it when it’s not performing - they then switch to a different method, and so on.

Bad periods are normally followed by good trading results (if you’re using a soundly based system) - so patience and discipline are needed. By frequently chopping and changing systems, you’ll lose money.

If you have a trading plan that you believe in, then stick with it - and stop chasing your tail. Stay focused, and be patient with your system.

6. Using Options Incorrectly

When you’re FOREX trading, using options gives you staying power - and limited risk, which makes options a great trading tool.

Many traders use options incorrectly - they focus on buying options with small time value, and that are way out of the money. This is a guaranteed way to lose money when options trading! What you need to do is focus on buying options, at or in the money - with lots of time value - also use spreads to increase your chances of success.

In conclusion - Don’t try and be too smart - the above pitfalls are made by some of the brightest traders around. In most cases these mistakes come from thinking you have to be clever, or use complicated methods to succeed - however the reverse is true.

Keep your method simple, keep your focus, accept responsibility for your actions, and accept that the market will make you look stupid at times – it does it to everyone!

If you watch out for the six pitfalls outlined above, you’ll be able to make big long-term profits - and that’s the ONLY goal in FOREX trading.

Forex Trading for Dummies

Anyone new to the foreign exchange market, through no fault of his own, will have a hard time understanding what it is all about. The foreign exchange market after all, is the world’s largest financial sector, involving an average of $1.8 trillion cash value traded per day.

The foreign exchange market is actually a vast market composed of many-tiered levels and many participants. Online traders contribute only 2% of the total cash value traded. This shows just how intricate the foreign exchange market really is.

What makes foreign exchange even more problematic is that it has developed a jargon all on its own such that its terms are no longer what they mean in common parlance. Although the task of understanding what the foreign exchange market is, is overwhelming, it is not impossible.

The Big Picture

A large company in South Africa ordered tons of marble from a small company from a province in Taiwan. In the old days, the company in South Africa would have a hard time paying for the marble as it not only would have to ship millions of South African money to Taiwan but it would also have to pay the small company in Taiwan in its own currency or else, the money will be useless.

With the foreign exchange market, paying for goods and services rendered by one country to another is no longer difficult. Through computers, there is no longer any need to ship money. All the South African company would have to do is to go to a bank and pay that bank in whatever currency and that bank will transfer the amount to a bank in Taiwan which will pay in whatever currency the small company in Taiwan wants. For profit, the bank will ask the South African company to buy the currency at a slightly higher price and pay the small Taiwan company using the current exchange rate.

The Small Picture

On the computer, a 21-year old jobless fresh graduate earned $10,000 in a few months. In April, he bought Euros to try out his luck in currency trading and to his surprise, the price of Euros soared by June and continued to soar until December. By December, he sold all his Euros, on a tip-off by an online friend that most of the European countries involved in the war in Iraq will be boycotted by those countries not in favor of the war. The tip-off was correct and in less than a month, the Euro’s value slipped lower than its original value when this jobless fresh graduate first bought them.

Many people have found, just like this jobless fresh graduate, how simple it is to earn through currency trading. Even a dollar capital can snowball into thousands of dollars if you know when to buy and when to sell. Etched in stone, all currency traders have but one motto: buy low and sell high. The jobless fresh graduate took a risk by buying Euros. He held on to the currency until it gained value and, as soon as he realized the value might lessen, he sold the currency for another.