Throughout the month we’re giving you a few Forex Profit Hacks to help increase your profit potential. There are 5 parts in all, so if this is the first one you’re reading, be sure and catch up!
Tip 1: Utilize Stop-Losses for Your Wins
How familiar does this sound?
You buy into the market and like a good trader, you set your stop. But for some reason, you find yourself constantly being taken out just before your big win.
It’s a common problem that has one easy solution: A stop-loss
stop-losses prevent traders from losing their entire account in one trade by setting a minimum number for the market to hit. Once the market hits that number, the trade is automatically ended and the loss is taken.
You need to change your stop-losses as the market changes!
As the market fluctuates, stop-losses grow larger in size. This volatility creates higher highs and higher lows, which could spell higher profits for smart traders.
Smart traders adjust their stop-losses to mirror the market.
The way to properly use a fluid stop-loss number is to move the minimum number in accordance with the market moves.
Let’s look at an example.
The chart below has several yellow circles. These circles represent the stop-loss price at different times in the trading time frame. Starting from the furthest left circle, you would adjust your stop-loss to match the next lowest number the market hits, which is the new yellow circle.
Even without seeing the actual numbers, you can see the difference between the furthest left and the furthest right circle. This pip difference would be lost if you didn’t utilize a moving stop-loss number.
How do you know when to move your stop-loss?
It’s easy. Look for a high or a low that has two candlesticks to the left, and two candlesticks to the right that are higher or lower from that point.
A high will have two lows to the left and right:
A low will have two highs to the left and right:
Tip 2: Using Reversals to Your Advantage
Trading occurs in a 24-hour window consisting of 3 major trading sessions: European, U.S. and Asian sessions. The European session has the most movement, followed by the U.S. and then the Asian markets. More often than not, the market will reverse directions when one session ends and the other begins. It’s by playing off these reversals that the most pips are captured.
It stands to reason that if the European session is trending bullish once the American session kicks in, it will set up a reversal and the market will turn into a bear.
By utilizing this strategy you can pinpoint the reversal points, take advantage of the market movement and identify when a market high or low could occur. With 3 trading sessions happening per day, there is the potential for 2 reversal points per day, which means using only one strategy can dictate how you look at three different markets.
Tip 3: Pinpointing your trading personality
There are four distinct types of trading personalities. Finding yours could be the key to trading your strengths and limiting your weaknesses. It’s rare for a new trader to know their personality, so read the explanations and see if there is one, or multiple, personalities that describes you.
The Now Trader: The now trader wants to get in, get their pips and get out. They generally use smaller time-frames, spend less time per day trading and capture smaller pip numbers. However, because they trade in such short time frames, the now trader tends to trade more often and have more straightforward trading strategies.
The In-The-Game Trader: These traders love to check the market daily, but prefer their action to be longer-lasting and tend to favor larger pip captures over a longer period of time. The in-the-game trader often trades in more mid-range time frames and pays close attention to reversals and predictive fibs.
The Adrenaline Junkie Trader: These traders only trade once, or a couple times per month based on major announcements such as quarterly or earnings reports. They love taking risks and tend to trade for only a couple hours at a time. They could end up winning big if their strategies hold true. This is also known as being a swing trader.
The Low-Maintenance Trader: The ultimate set-it-and-forget-it trader! They like to trade long-term by utilizing strategies that end up with big profits over many months. They aren’t looking for the thrill of the high-risk maneuver or the commitment of a daily trading schedule. Rather, they are banking on safer picks that will benefit them in the future.
How do I know if I’m trading the right way?
There is no right or wrong way of trading. There is potential to make money in all of them, as long as you embrace your trading personality. What matters as a trader isn’t when or how often you trade, but how you manage your risk, develop your strategy and make smart decisions based on the charts.
This is the second in a series of posts covering Forex trading tips.