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Revealed
- Million Dollar Forex Investing Mistakes
Anytime that
you are investing in the Forex market, you are going into the Market
blind. You don’t know what point of the investing trend you
are entering in at. You might be investing in a Forex stock just
before the trend changes. Smart investing means you need to protect
your trading float and set up a stop loss. This needs to be done
before you enter a trade, so that there is no room for error, or
last minute indecision. A stop loss is simply a predefined point
at which you exit the stock.
Effectively,
it’s like drawing a line in the sand underneath the share price,
saying, “If the share price falls below this line, then the
stock hasn’t done what I thought it was going to do, and I’ll
exit the position.”
This allows
you to protect your investing trading plan, because it cuts your
losses short, and guards against an all too human tendency to want
to believe you must be right.
95% of investing
in an entry Forex position means you are expecting to profit from
the trade. If, however, the share-investing price goes against you,
you might feel the need to justify why you bought the stock by holding
onto it until it turns a profit. You might have heard the idea that
all big investing losses once started as small losses. Well, while
the share price continues to go in the wrong direction, those losses
grow in lockstep. This is why you need to have a stop loss in place
– it’s like having an ejector seat that tells you when
to abort the mission.
One of the most
common question I’m asked when traders are introduced to a
stop loss is “How wide should I set my stop?”
In other words,
how much room should I give the stock to move? There are no definitive
answers to this question because it depends on what time frame you’re
investing in. If you’re a shorter-term investing trader, you’re
going to have a stop loss that’s set closer to the share price.
If you’re a longer-term investing trader, you’ll give
the share price a little bit more room to move and set your stop
loss lower.
Once you’ve
identified what time frame you’re looking at trading, you need
to be able to remove the normal market noise (volatility) in that
particular time frame. You don’t want to have to close out
of an investing position just because a share price moved a little
bit due to its normal trading volatility.
In fact, there
are some serious drawbacks to setting tight stops.
First, you’ll
decrease the reliability of your system because you get stopped
out more often.
Second, and
probably a little bit more importantly, you dramatically increase
your transaction costs, because you’re trading transaction
costs make up a major proportion of your business expenses.
To give yourself
a fighting chance, you want to trade a system that doesn’t
chew through excessive brokerage fees. This is one of the major
reasons I steer my clients into developing a trading system that
runs over a slightly longer time frame. With the correct system
in place, and your investing risk minimized, you are well positioned
to maximize your trading profits.
About the Author:
David Jenyns
Discover the "secret formula" of trading that anyone can
use to consistently generate BIG profits. http://www.ultimate-trading-systems.com/stocks.html
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