Are you making money in the FX markets or are you losing?

by Cynthia Macy, Co-Author of The Day Trade Forex Trading Systems

Not every trade can be a winner but in order for you to be a consistent winner, you need to do two things:  keep your losses small and manage your margin conservatively.

Here's an illustration of how important these two things are:

Loss Recovery Formula:

When the market doesn't go your way, it is vital that you stick to your rules and take the small losses. If the market goes against you, it will likely keep going further in the wrong direction. It is important that you let the fear of greater losses motivate you to leave that trade and find a better one. If you let the losers get away from you, this is what can happen:

Suppose you have $10,000 in a trade and the trade goes against you 10 percent. Your loss is $1,000. You now have $9,000 with which to trade. In order for you to get back to even, you must make a 12 percent return on the $9,000 in order to get back to the $10,000 you started with. This is why I often look for a 12 percent return on the upside.

It will equalize my downside trades.

If you lose $2,500 on a $10,000 trade (25 percent), you will have $7,500 left. This will require a 33 percent return to get back to even.

A 50 percent loss will require a 100 percent gain to break even.

Now you hopefully understand why in our Advanced course, we recommend that you trade no more than 5-10% of your account size in each trade.  5% is safer.  It's easier to make up the losses, when they happen, and they will happen!!!  And ALWAYS use stops!

Learn to manage your money wisely...invest small amounts each time and keep your losses small and when you're in profit, let your profits run with a trailing stop.

I hope you can see the danger of "hoping" that your trades will go back up. While this is a challenge, it gets worse.

The longer you leave your money in a trade like this, the longer your money is tied up...unable to be placed where it could be growing. Therefore the Opportunity Cost of being in the trade grows with each day your money sits in a losing play. Stay out of this trap. Welcome small losses in the short-term.   Celebrate them!

To Your Trading Success!