FOREX QUANT

August 21, 2006

The Secret to Making Profits from the Big Moves

Filed under: Uncategorized — by TraderMade @ 10:56 am
Tags: , , ,

Nice reading. Post this here to find them easier, just in case the original page is removed.

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The Secret to Making Profits from the Big Moves

In FOREX trading, it’s a fact that many traders simply can’t let their profits run – they enter trades correctly, but only ever, bank marginal profits.

“Let your profits run” is accepted market wisdom – but how do you do it in practice? How do you maximize your profits?

Many FOREX traders get in on a good opportunity, and take a marginal profit, or are stopped out – they then watch in frustration as the trade piles up $20,000, $50,000, or more – and they’re not in the market! This happens all the time, so lets look at how you can let your FOREX trading profits run.

Statistical Significance

When FOREX Trading, letting your profits run, is the only way you can cover the cost of your losses – and most traders don’t understand its significance.

What constitutes a large winner in FOREX trading? – You need to make ten times or more than your average losing trade. If you lose $500, you need to make $5000 – but how do you do this?

The only way to make money in FOREX trading is by letting your profits run – and this isn’t as easy as it sounds. You need to let your profits run with a NO profit objective. Of course, this is hard to do – and most traders don’t do it (and that’s why they lose).

There are two reasons why traders lose money in the FOREX market – one’s mental, and the other’s physical:

A Mental Dilemma

Why is it so hard to hold on to winning trades?

The emotion of fear comes into play here – the bigger the profit becomes, the more a trader wants to take it – before they lose it.

Watching a trade you are making money in, dip back is hard. Most traders simply say, any profit is better than no profit – so they take a small profit and feel happy. However, the profit isn’t big enough – and their losing trades wipe them out sooner or later.

Traders want to snatch ANY profit – in case it gets away – but this is totally wrong.

Physical Reality

The large trends simply do not come around that often.

By using an open profit objective, and a lagging exit, most of your FOREX trades will lose you money.

Trying to avoid losses by snatching profits, or running stops to close, will see you lose money in the long run, when you trade the FOREX markets.

The huge trends don’t come that often – so you need to catch them.

If you want to catch the big winners, then you need to see the majority of the trades that you enter, that are in profit, reverse – and stop you out at a loss

Because FOREX Trading offers traders fantastic long-term trends – that go on for months, or years – if you can get in on them, and hold them – you’re all set for huge profits.

Use Lagging Exits

A lagging exit is where you wait for confirmation of a trend change – before banking your profit.

Many traders try to anticipate a trend change – only to take profits early, and miss the major move – don’t fall into this trap!

Here are two exit strategies that will keep you in the trend for as long possible:

1. To exit a trade, use the 40-day moving average. If positioned long in an up trend – wait for a close below this level – and exit the position. In a downtrend, exit a short on a close above this level.

2. If long from a new 20 day high – hold position until prices make a new 10-day price low. If short from a 4 week low – hold short until prices make a new 10-day high.

These two lagging exit strategies will ensure that you are in the big trending moves, for as long as possible. In FOREX Trading, if you want to run the big winners, then you must use a lagging exit. If you do this, then you will stay with the big moves – and pile up huge gains – rather that get stopped out early.

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