Maximizing Your Forex Profits
By: Terry Allen
You no doubt know about the Forex maxim that states, ‘cut your losses, but let your profits run’. Sounds great, but how exactly do you maximize your profits? If you cannot develop a trading strategy to achieve this objective, then your chances of making a good Forex living are greatly diminished.
Why is it so hard to hold on to winning trades? This is because the fears that can frequently arise at the sight of a large profit can entice you to close your positions prematurely. You could well do this action because you become scared that a sudden reversal will generate a significant loss.
You will also find that watching a profit vanish before your very eyes can invoke many mind-numbing emotions that will cripple the consistency of your trading decisions.
If you were unfortunate to suffer a series of consequent losses, then you could experience a severe drop in confidence. You may then develop a tendency to snatch at smaller profits before they can achieve their real earning potential.
Sadly, you have probably entered good trading opportunities, but either took premature profits or you were stopped out. You could well have then watched in frustration as price proceeded in your chosen direction amassing significant profits, but without you participating any further.
You must understand that in order to become a successful trader that you will have to know how to select the correct strategy and to be able to manage risk once you have opened your positions. You must realize that there are no magic rules or easily obtained secrets with Forex trading. However, a well-designed trading strategy will generate profits if applied properly and consistently.
You may be surprised to realize that many traders actually consider the maxim ‘let profits run’ to be an incorrect statement. If you are a trend follower and are hoping to catch a large price movement, then it is crucial that you let your profits run.
However, many trading strategies exit positions for other reasons such as a chosen time period, e.g. a few days after entry. Obviously, letting profits run is not an inherent part of this type of trading. You must realize as well that many traders believe that setting profit targets is one of the few ways to guarantee that you will achieve profits. This is because these actions can help to control your emotions.
In addition, you will find that if you try to attain a trading system capable of capturing large trends, then this action will generate many human emotions such as fear and greed that can have devastating effects on the standard of your trading decisions.
As you will have observed from the above, the concept of ‘letting profits run’ sounds good on paper, but is controversial and prone to human emotion. Is there a solution? Yes, there is, but you will need to enhance, tweak and test your trading strategy until it begins to achieve your objectives.