Forex Trade Management
Do what is comfortable for you.
Trade management and risk management is a personal issue among a lot of traders. Though I cannot tell you how or what to trade, I can give you my advice and tell you how I do indeed trade.
The most common question I come across is on stop losses; how and where to place them. Each trader’s risk tolerance can be different but my suggestion is that you look at stops in one of a few ways. For instance if you’re taking an hourly buy at a support zone why not place the stop loss at the bottom of the current or previous candle’s low? If the buy signal is reversed or wiped out, you can get out for a loss… candle based. Sometimes it will be wide and sometimes a small pip amount… so choose based on how much money you can afford to lose on the trade. Great traders count what they can lose first.
Other traders have a standard loss amount like $100 or $300 on a trade. Small sized account traders that trade .05 may say that $50 is their max.
Other traders may look at a standard pip amount like: “if this trade goes 50 pips against me, I am wrong and I will take my loss and move on.
Either of these ways of looking at things is just fine. You must pick what you’re comfortable with.
Do I do this? No. I do not. I personally feel that I trade so crazy small that I can handle anything that comes my way. Maybe I take a short at a .786 fib retrace and a sell candle and if the trade goes back up and against me I may add another slice short on a stop run, or at the .886 fib or at another sell candle. Sometimes breakeven or a light loss will be my target on trade one and trade two will be the one that makes 45 pips.
Because I am so accurate and because so few trades mess up, it’s ok for me personally to hold and work on the 10% of trades that don’t work out well.
On those trades that I add to and that don’t work, and once I see I have 4 to 6 slices at .05 lots each and I am negative, my focus level goes way up and I may take a .10 at a certain good buy or sell point and as soon as it makes a decent 15 to 25 pips I will book the gain and reach into one of the losing positions and take away a micro or two of small loss. This helps me reduce open size and also helps to put money into the account. I call this “washing” and if I am not panicking or upset it’s because cause I am so profitable on other trades. I have no problem holding a trade for 1, 2, 3 or more days and working it out with this washing method. Sometimes I only wash a few slices and the trade ends up working, and goes into profits.
Sometimes I get stuck for two weeks. The worst I ever experienced was over a year ago. I worked the living tar out of a $2,000 loss on USDJPY and I think I worked it for a two full weeks and then kapowie, it moved in my direction and went so far above my original and all other entries I could almost cry over it. I turned a $2,000 loss into perhaps $800 or so of gains only to watch it move up what would have been thousands of dollars of profits. But that is the nature of the beast. Something this horrible can happen to me once or twice a year or so. I just find that when I relax I can work out of anything that happens over time.
This is the way I do things. I hope it helps, but please chose what is most comfortable for you.