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Wednesday, February 24, 2010

Profits Run

Let Your FOREX Profits Run

Once you’ve designed and tested your system, there are a few trading fundamentals you will want to become familiar with. The first one is to always let your FOREX profits run. Let your trade go as long as it can and then take your FOREX profits once it moves back a bit from it’s high. This way you will be sure it has peaked, and you won’t be watching a position you closed keep climbing up, offering other traders higher and higher profits.

However, this is easier said than done. When a trade starts to become profitable, many traders quickly give in to their natural fear of losing the profits and close out the position. While it may seem reasonable to quit while you are ahead, it’s better to let your profits get as large as they can before you exit a trade.

Most trading consists of long stretches of small wins and losses that are followed by a few highly profitable trades. It’s these trades that can make the difference between realizing profits and simply breaking even; or even suffering a loss because of your trading costs, such as commissions, spread, and slippage. The key here is to let your profits run when you have a chance to.

You can do this by having trailing stops that are placed outside the daily noise of the market. This will ensure that the stops are not so tight that you are stopped out during ‘normal’ trading process. Moving the stops up as the price goes up, always keeping the same margin for noise, will make sure that you take your FOREX profits, not loose them.

This means you won’t get the maximum profit out of a winning trade, which is another reason why so many traders find this rule hard to implement. In fact, you should consider adding to any trade that is a winner, and think about widening your stops on it rather than trying to figure out how tight your stops can be to capture the largest amount of profit. If the trade has already shown you that it will be a winner, chances are it is a low-risk idea to add to the position now rather than ‘strangle it’ with stops that are too tight.

Make sure your trading system has room to let profitable trades run. If you have a procedure in place for these types of trades, then you won’t be tempted to take your FOREX profits too early when they do occur.