Over the years of the forex industry, it already caused massive losses to a lot of inexperienced and undisciplined traders. And to avoid being one of those losing traders, here are some trading tips that every trader can try to prevent such disasters and at the same time, to maximize the potential in the currency exchange market.
A Dependable Methodology
As a trader, one must be familiar with the decisions that need to be made to execute the trades even before entering the market. A trader must have an idea about the information required to make the appropriate decision on entering or exiting a trade.
Other people choose to look at the underlying fundamentals of the economy and the charts to know the suitable time to execute the trade while some use the technical analysis only.
Now, whatever methodology a trader chooses, always be consistent and make sure the methodology is adaptive. The system needs to keep up with the changing dynamics of a market.
Calculating the Expectancy
People use the expectancy as a formula in determining how reliable the system is. Try to go back in time and evaluate all trades that were winners versus losers. After that, know how profitable the winning trades were against how much the losing trades lost.
For this, try to look at the last ten trades of a trader, and if there are no available trades yet, go back on the chart where the system would have indicated in entering and exiting a trade. Then, if there is a profit made or a loss, write the results down. Finally, get the sum of all the winning trades and divide the answer by the number of winning trades made.
Here is the formula:
Here, E stands for Expectancy, W for Average Winning Trade, L for Average Losing Trade, and P for percentage Win Ratio.
Where to Place Focus and The Small Losses
If a trader finishes funding the account, the next important thing to keep in mind is the money is at risk. Thus, the money funded should not be needed as a regular living expense. And think of the money as vacation money. If the vacation is over, the money is spent already. This attitude must be applied to trading.
With this, it psychologically prepares a trader for accepting small losses – the key to managing risk. If a trader focuses more on the trades and accepting small losses instead of continually counting the equity, this will result in much more successful trading.