How to Avoid Losing Trades in Forex
When trading in forex, it is inevitable to lose some trades. However, you can drastically improve your winning percentage by following some simple rules.
1.Determine the size of your trade.
The amount that one places on each trade should be relative to their account size. For example, if you have an account value of 100 k, the average risk per trade should not exceed 1-5%, depending on market conditions.
2.Take a break.
Avoid trading when you are tired or distracted because the chance of losing will increase exponentially. Everyone has different work and sleep schedules, so it is up to you to figure out when your energy and focus peak.
3.Look for multiple entry points.
If you find only one logical entry point, perhaps this trade doesn’t suit your plan or style well enough. Identify several entry points where it would be reasonable to enter the market and add them all up together rather than placing everything on one risky bet, which might not even get triggered.
4.Limit Entry Order vs Market Order.
A market buys order will enter you in the market at the current price. However, if the price keeps moving and doesn’t hit your entry point, then it can get gruesome and frustrating fast. So instead, try placing a limit entry order, which means that once the trade is triggered, it will only execute within a specific range of prices, so you don’t risk getting into the market at an undesirable price.
5.Use Stop-Loss Orders.
Another mistake that beginner traders make is failing to use stop-loss orders to protect their capital when entering trades. It’s far more critical than any other trading aspect, such as entry or exit timing, because it protects your capital from blowing up if your prediction was wrong.
Trading is not a perfect science, and no one can predict market prices with 100% accuracy. So avoid placing your ego in front of your trading plan because it will only lead to disaster. Be okay with giving back some portion of your profits in return for significantly reducing your risk exposure and preserving your capital.
7.Do not add to losing positions.
As a rule of thumb, do not add more money to losing trades to try to recoup your loss. It will only result in more damage. Let the losing position die and move on because there are plenty of other opportunities in the market; be patient!
If you’re familiar with hedging, then this is not for you, but if you’re new to trading, think twice about whether hedging suits your style or not. It sounds like a good idea at first to make back some losses by placing bets on both sides of an uncertain market, but it’s much harder to control than one might think, especially for beginners who lack experience. Trading isn’t easy, and sticking with your plan will prove far more satisfying over time than chasing loose money that may or may not come back.
Before entering the trade, always know your exit point; this will help you make better decisions without second-guessing anything. It’s simple, really if you think you can make 15% on a trade, then sell at 10% loss / 20% profit instead of hoping for something good to happen to hope for that last 5%.
10.Keep Good Records.
Write down all your trades with loss/profit figures to have an accurate record of your trading performance over time rather than relying on memory which is likely to fail you when you need it the most. Good records will also help you improve your trading decisions over time by looking back and reviewing what went wrong in specific trades so you can avoid making the same mistake twice in the future.
Beginners and new investors may not know when to trade forex or how, and it is recommended to use a reputable online broker to guide you through the process and help you avoid losing trades in forex.