Misinterpretation in Forex Trading and how to limit your Risk

Feb 13 • Forex Trading Articles • 1776 Views • Comments Off on Misinterpretation in Forex Trading and how to limit your Risk

This misinterpretation in forex trading; the amount of futile effort and energy that’s been expended, the hundreds of thousands of hours spent, trying to discover the elusive holy grail of trading, is a sobering thought. The wasted time and effort that’s been consumed, is made even worse by the realisation that no such perfect 100% trading system could ever mathematically exist, in such randomly moving entities as markets.

Trading system creators, busily craft their clumsy marketing strategies to attract the naïve. They promise that with their trading strategy, you’ll have a sure fire method of taking money out of the FX markets. There is a holy grail to forex trading, but it doesn’t involve magical indicator based trading systems.

It doesn’t have much glamour, it doesn’t have the golden hue of a priceless chalice, it’s as boring as the observation and theory Dan Brown proposed in his novel and it filtrates down to one simple word and that word is “risk”. We can also quote certain overused trader statements to highlight what we mean by risk, such as; “take care of the downside and the upside will take care of itself”. If we adopt strict money management, risk only a small proportion of our account per trade, search out the tightest spreads available through a broker offering straight through processing into an electronic configured network, then we’ve identified the holy grail of FX trading.

 

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Limiting your risk to a small percentage of your account per trade, adopting a strict, highly disciplined money management technique, ensuring that you’re trading mainly the major (highly liquid) currency peers, on the basis of the lowest possible spreads, through an ECN, is the closest we’ll ever come to discovering the true holy grail of trading. Unfortunately, it doesn’t quite have the appeal of a complicated trading strategy involving plugging code into your MetaTrader trading platform, to make it light up like an Xmas tree, or fireworks on the Fourth of July.

Developing a trading method and strategy

Your trading method is an integral part of your overall trading strategy, as is money management. A profitable and successful trading strategy, involving any amount of indicators, patterns displayed on a chart, or reaching certain Fibonacci levels or pivot points, cannot possibly extract profit from the markets without a tight, precise and disciplined money management technique. Developing risk awareness, as part of the money management section within your trading plan, is the holy grail of trading. Controlling risk, controlling your losses, whilst setting realistic and achievable targets, offers traders their best opportunity for success. Your grail is out there, your challenge is to find it.

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