Common Mistake We Must Avoid In FX Trading

Others will use multiples of their stop – targeting 100 pips if they have a 25 pip stop, so they have a 4-1 r/r ratio....

While this second approach is preferable to saying “higher” or “lower”, it is still flawed. It’s easy to set a 1,000 pip target to give you a huge r/r ratio, but if that target is never going to be hit, the trade is doomed from the start.......

Sometimes the target is a result of a measured move, and sometimes it’s merely the next major area of support or resistance......

Now that we’ve discussed what stops are, and how they should be placed, we need to discuss another major mistake made by new traders when it comes to their stops......

Nobody likes to be wrong, and nobody likes losing, but unfortunately, both being wrong and losing are a major part of being a forex trader......

The problem that new traders (and even some more experienced traders) often encounter is that they let their aversion to being wrong and losing interfere with their trade setups.............................

If a trader sets their stop correctly, at the invalidation level of their trade setup, there should never be any reason to move the stop.....

Traders will often widen their stops to avoid being stopped out of a position (losing), because of the natural aversion to being wrong......

Stops should be placed where they are for a reason, and if so, should not be moved .if we use stop without reason then it is useless........

Widening stops leads to greater losses and destroys the all important risk / reward ratio for the trade. Place your stops at a meaningful price, and then don’t touch them.......

Accept that being wrong and losing is all part of being a trader; the most important thing is to preserve your capital for future use......

While many traders make the mistake of moving their stops, an equal number (or more) make the mistake of moving their profit target, or closing their position manually, before the profit target is reached......

Occasionally there can be good reasons to do this, a piece of news, for example, but often traders take profits because they are afraid of losing the money they’ve already made......

The problem with taking profits too early is that it alters with the risk / reward ratio, meaning that the trader risked more money than they made.......

Over the long term, this is a recipe for disaster. While forex traders should always be on the lookout for opportunities to reduce risk, they must do so carefully......