Currency Trading : Profitability
Currency Trading – How to Improve your Profitability in 5 Simple Steps
Why do people get involved in currency trading? The answer of course, is that they want to make big consistent profits. Unfortunately very few traders are able to achieve consistent profits - and they usually end up with mediocre gains, or even lose their equity altogether.
Let’s look at how to increase profitability, with some simple tips that all Forex traders can use.
Here we’re going to assume you already have a methodology, or a Forex trading system whose performance you are confident in - and you have the necessary discipline to apply it correctly.
You can simply incorporate the tips below into your existing Forex trading strategy, to help increase overall profitability.
1. Accept Volatility and Risk
All successful Forex trading systems incorporate volatility. You can't have a profitable Forex trading method without taking calculated risks - and this also means taking losses.
If you can’t accept risk, then don’t get involved in currency trading. Many traders try to restrict risk so much, that they actually create it – they’re simply stopped out all the time by normal volatility.
To make profits, the secret is to take a risk at the right time - and risk meaningful amounts of equity.
2. Trade Infrequently
One of the best ways to make big gains in currency trading is to be patient - and wait for the opportunities that offer the best risk to reward, to come along.
Many traders trade frequently and always like to be in the market. Their logic is, “if I’m not trading, I’m missing something” – but they’re wrong!
Focus only on the trades that make the big gains (the longer term trends) - and these don’t come around every week.
There’s no correlation between how often you trade, and how much money you’ll make - so be patient, and trade infrequently.
3. Don’t Diversify
Diversification is an accepted wisdom - and we’ve all heard the phrase, “don’t put all your eggs in one basket” - but it won’t make the average Forex trader big profits. The average Forex trader is generally investing small amounts of money - and diversifying simply dilutes gains.
If you see a trade and it looks good, then risk as much as you can - and focus on that one trade. If you believe in it, then back it with as much equity as you can afford.
4. Have the courage to Accept Big Gains
You hear a lot about how important risk control is in any Forex trading strategy - but having the courage to accept profits is just as important.
Do you really need courage to accept profits? Yes you do!
When a trader makes a profit they get excited – and the bigger the profit becomes, the more they’re tempted to bank it.
As volatility causes dips in their open equity, the trader panics - and snatches a marginal profit. In many cases however, if the trader had the courage to hold the trade - they could have made a spectacular profit.
It’s not a nice feeling when your open equity is being eaten into by thousands of dollars - but if you can hang on to the big trends, the end result will be worth it.
Many traders lose - not because they were wrong in the direction of the market - they just were stopped out by a volatile counter move, or snatched profits too early.
5 Money Management
Trading Forex involves confronting risk and volatility cheerfully - and using sound money management techniques. This enables you to deal with the risks currency trading presents.
Here are some Forex trading money management tips to keep in mind:
· Most traders start to trail their stops to close, or snatch profits too quickly as we have just seen - make sure you don’t make this mistake. Keep your stop in its original position - until the move is well in profit, before moving your stop - to avoid being stopped out by normal volatility.
· If you’re trading a small Forex account, don’t diversify - concentrate on one trade, and risk as much equity as you can.
· If you are following the longer-term trends, don’t exit a trade until your Forex signals tell you to do so. Have the discipline to hold on longer term.
To make big profits in currency trading, you only need to focus on the best moves. Don’t be tempted to diversify too much - have the courage to hold on. Also, use money management techniques that will control risk - and at the same time, take into account the volatility that currency trading presents.
Currency trading involves risk - and you need to confront it. Try to accept risk cheerfully - rather than being fearful, as this will help you make big gains in currency trading.
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