Have you ever wondered why so many forex traders fail to generate consistent weekly profits? Did you ever ask yourself how you could become a better forex trader? Did you ever try to trade without emotions? Did you ever ask yourself how a few professional forex traders manage to feel neither happiness and excitement when they earn profits not sadness and anger when they record a trading loss? Have you ever questioned when and how forex profits are generated?
Most new forex traders think that forex profits are generated when they exit their currency trades. Here is the approach almost every nee forex traders as well as plenty of seasoned ones engage in when they trade currency pairs:
- They analyze chart patterns and look at technical indicators in case they favor a technical analysis or comb through fundamental data as well as economic news releases in case they favor a fundamental analysis.
- Upon completion they identify currency pairs which match their criteria in order to execute their preferred forex strategy. They try to locate entry levels into their currency trades and then place their orders, either an instant execution order a pending order.
- After they place their order and once it has been executed, they also set their stop loss levels in order to protect against unfavorable moves or they set their stop order in case they prefer a hedging strategy. Unfortunately, most novice traders tend to adjust their stop loss levels once a trade moves against them which is not a smart approach to risk management.
- Once they have their downside protection, they now search for a favorable exit level to their currency trades and set a take profit target. Most forex traders believe that they will generate profits in their forex portfolios with the trigger and execution of their take profit targets. The name take profit seems quite self-explanatory.
The above process is partially to blame for the lack of consistent profitability among forex traders. It allows them to trade with emotions, and most will adjust stop loss levels due to hope their trade will turn around and they do not have to face losses while they will adjust their take profit levels as greed will drive them to hope for even higher profits.Here is a very important lesson for everyone:
Forex Profits are generated when you enter your Currency Trade.
As soon as you enter a trade, that level is where profits are generated. Here is a sophisticated approach to order execution as well as emotionless trading which will make you a more profitable forex trader and allows you to sleep at night:
- Use a technical analysis in order to identify currency pairs which fit your trading strategy. Do not pick favorite pairs as you should trade without emotions. The forex market does not care what you think about it, it will function the way it will function so conduct an unbiased technical analysis based on what you see, based on the data you have.
- Once you have identified the currency pairs you would like to trade, makes sure you will identify an entry level for your forex trade. This is one of the most important steps you will take as this level will determine the outcome of your trade. Once you have found the entry level, do not enter your order yet.
- Take a look at your forex portfolio and make sure you will follow your risk management approach. Most conservative traders only risk 1% to 2% of their portfolio per trade, while more aggressive may opt for levels up to 5%. Calculate how much you are allowed to lose in case a trade moves against you and then identify your stop loss level or your level to set a hedge for the trade.
- Once you have your stop loss level, be very realistic with your take profit level. Do not look for percentages, but rather focus on how many pips per trade you would feel comfortable and satisfied with. Add the pips you wish to earn to your previously identified entry level.
- Remember you have not entered your trade yet which means you are 100% emotionless which is the only time you should identify all required targets for your forex trade. Once you have our stop loss as well as take profit level together with your entry level go ahead and place a pending order and enter all three levels.
- Place your pending order and once it is placed you are done with this trade. Under no circumstances adjust your levels. There is no need to continue your analysis of this currency pair until you exit your open trade. Do not worry about this trade anymore, you have conducted your analysis and identified your levels. Now you can move on to your next currency trade and repeat the process. This is how professional traders approach forex trading.