Defend yourself at all times when trading FX

Aug 13 • Forex Trading Articles, Market Commentaries • 3477 Views • Comments Off on Defend yourself at all times when trading FX

There are certain team sports where defence is as important as attack, or “offence” as our American cousins prefer to call it. In football we’d be left highly entertained and breathless if Barcelona and Manchester City played out a 6-5 game with the emphasis on out and out attack. But the purists amongst us would also admire a game between Real Madrid and Juventus with the accent on defence which ended 1-0.

In boxing a referee often uses the expression “protect yourself at all times” as he’s delivering his final instructions to the two boxers, before they head back to their corner to have their gum-shields inserted. Similar to how purists will admire a terrific defensive performance in football, watching an elite level skilled boxer hit but not get hit, as they concentrate on the defensive aspect of their sport, can be a delight to watch.

It’s interesting to note that e-sport competitors are now being regarded as athletes, these mainly young male players, who play virtual games to huge audiences both online and in stadiums are beginning to monitor their: diets, wellbeing, exercise routines and their playing technique. Nothing is left to chance, they’re giving themselves the best opportunity available to win the huge prizes which are now available. They also develop playing strategies whereby they concentrate on protection as much as attack.

Whilst forex trading should not be regarded as a highly competitive sport like e-sports there are certain similarities and in many ways FX trading is a competitive activity. You undoubtedly need to have a can-do, positive mentality and a competitive streak to succeed. You have to develop controlled aggression, the market doesn’t give you have to take. You also have to learn how to defend yourself at all times to ensure you’re protected from market blows.

Forex trading success won’t suddenly arrive, it has to be worked on, you will require significant levels of stamina to progress and bank sustained profit. You need to develop an attack minded strategy while paying strict attention to defence, you also need to quickly learn to protect the money in your trading account at all times.

An elite level boxer fully realises they’ll take blows in their contests, but they constantly recalculate the risk they’ll take when planning to land their own blows. Similarly, an experienced FX trader knows that perhaps out of 10 trades only 6 will be winners, one of the critical success factors is to ensure that the money banked through your winners is greater than the money lost through your losers, this simplistic rule ensures you’ll always be profitable. So how can you defend yourself at all times when you’re actively trading the markets?

Consider always trading with the trend rather than employ counter-trend trading methods

It may read as simple methodology and it is. If you’re a day-trader then it’s not too difficult to identify if a daily trend is in play. The market for a security will either be ranging or trending, in simple terms price will either be moving up, down or sideways. If price is oscillating around the daily pivot point it’s probably moving sideways, if price is trading above the first level of resistance, R1, then it’s most likely continuing to trade in a current  bullish trend, or developing a new trend. Taking trades in the direction of the prevailing trend should always reduce your likelihood of incurring a loss.

Protect your capital with stops, daily loss limits and tight drawdowns

With every trade you take you must have a plan to exit by way of a stop and a take profit target or limit order. You must only risk a small amount of your account capital per trade. You must set a reasonable daily loss limit before you admit that today your strategy is not compliant with market behaviour. You must also set a drawdown level which if breached will encourage you to go back to the drawing-board and revise your current strategy, or to create a new method and strategy.

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