Big Profit with Small Risk in forex trading.
In forex trading, the chance of a certain profit is directly proportional to the level of risk. Thus, when I intend to increase my profit, I never forget that behind that there is a risk of loss that is not less big.
Then how to increase profits without the need to fear risk-taking?
The real solution lies in our expertise in managing funds. There have been many writings that discuss money management, risk management, trading plans and trading psychology. All the writings depart from “soul” trading, namely 3M: Mind, Method, Money.
Here are some tricks that we can try, based on my knowledge while struggling with the world of trading for at least the last ten years.
1. Map the strength of funds
See how much the power of our funds, then map by compiling a trading plan.
The profit target should be realistic. For example, the average forex trader usually earns a profit of 10-20% per month from the initial fund.
We are talking about average forex traders, not super traders in the class of Ed Seykota. In the world of forex trading, it is possible to earn up to 100% profit from funds per month (we have even been up to 80%). Maybe there are those who can sustainable generate hundreds of percent of profit per month and last for years. But even if there is, it is clear that he is not the most forex trader.
Let’s talk about the fact that we often meet, where even to get sustainable profits, people are still in trouble. This is what we want to try to help.
Well, if we want to have – for example – $ 1,000 or $ 2,000 per month, it is only natural that we prepare funds of around $ 10,000. It is rather unrealistic if we target $ 1,000 – $ 2,000 per month if our funds are only $ 500.
Please understand, we are not underestimating traders with small funds. The point is: target profit according to the strength of our funds. Based on knowledge, with a fund of $ 500 (for example), it’s quite realistic if we target to get $ 50 to $ 100 per month.
2. Expand Views
Most forex traders are only fixated on one trading instrument. If he is trading forex, usually only fixes on one currency pair. if he is a securities index trader, maybe just look at the Nikkei. Or there are also those who only trade gold.
It’s not wrong if we do something like that. But that also means we will simply ignore opportunities in other currencies, or other securities indices. In fact, there are so many trade subjects that we can trade.
No need to monitor all products mentioned above. But at least try to expand our views because opportunities can appear on other products.
3. Set Risks
As stated, risk is directly proportional to opportunity. For this reason we need to regulate how much we tolerate the risks that might occur.
The risk in trading forex is of course loss. If we do not limit risk tolerance, it is tantamount to allowing all our funds (possibly) to be swallowed up by the market.
This risk limitation is also regulated in the trading plan. One technique is position measurement. With position measurement we can transact comfortably without worrying about too much loss.
At the same time, we can also maximize the opportunity of existing profits. We do not need to be afraid to open positions as much as two, three, or even ten lots at once as long as the calculation of the risk is still below our tolerance limits.
4. Immediately withdraw the profit obtained
Most traders don’t realize that profits should not be mixed with funds. If for example I start trading with a fund of $ 5,000 and I have managed to collect a profit of $ 1,000, then I immediately withdraw the profit. Leave the balance in the account back to $ 5,000.
Why is that?
This is so that we are not “complacent” by assuming our funds are still “safe” even though they are experiencing a loss. As the example above, we have succeeded in making a profit of $ 1,000 so that our balance becomes $ 6,000. In the next transaction it turns out we have a loss (floating loss) to reach $ 1,000. In this situation, often a trader thinks that the equity is still a lot and only the profit generated previously is lost.
This feeling of calm washed away. Often forex traders who are in such conditions actually actually expect prices to bounce back, so he can have a profit. Often just when he really suffered a loss, new regret arose because he thought his hard work collecting previous profits would be in vain. Even forex traders are quite often mentally dropped at the time and wonder, “Is this forex trading really suitable for me?”
Another case if we really intend to increase funds. if for example, from $ 5,000 our funds grow to $ 6,000, then immediately adjust our trading plan with the nominal funds available. If for example the risk tolerance per transaction is $ 500 per trade (10 percent of funds), it can be increased to $ 600 per trade.
5. Know the Time to Get Out
The “exit” strategy is also important. The simplest is to close the transaction after the profit target is reached, or stop-loss hit. Can also close transactions as soon as our trading system requires that.
The concrete example is this: before we have managed to collect a profit of $ 1,000. We recommend that we determine that if the next transaction causes the profit to decrease by 50%, we will close the transaction. Thus, our mental and funds will be maintained.