The typical mindset that new Forex traders get into markets is to make money. If we are all honest, that’s why everyone is here, and there is not a problem with that mindset. The problem occurs when making the profits are the first thing that the new trader thinks about. Instead, you the first thing that you should be thinking of is how to limit the Forex trading losses.
Getting your mindset right in manner is the most important thing a new Forex trader must do to be consistently profitable. Limiting your Forex trading losses always come before setting profit targets.
While you are never going to avoid forex trading losses, you can greatly limit them by considering the following points.
Setting Stop Losses Appropriately
The first way to limit your Forex trading losses is the obvious namesake: Setting a stop loss order accordingly.
If you are Forex trading without a stop loss, then you are just asking for trouble. Before you have entered your trade, it is prudent to have a plan in place for your stop loss and hard stop loss level applied to your order.
While more advanced Forex traders might simply use the mental stop, having the speed, discipline, and patience to be able to close your order where the Forex trading plan says you should take a high level of skill.
Battling the human emotions to lock in a loss is one of the toughest things to overcome as a Forex trader and if you cannot do it, then plan your trade with the stop loss level.
Money Management in Forex Trading
Another phase of how to limit Forex trading losses is to make sure that you are on top of your money management at all times.
Money management is the broad topic that encompasses many aspects of keeping the trading capital safe, but the first thing that you must do when setting the money management parameters in your trading plan is to define your risk.
Ask yourself the following two questions:
- What percentage of overall capital are you going to risk to target how much?
- What is your win rate expectancy?
By answering those two questions, you can calculate your money management strategy within the overall Forex trading plan and take the huge stride toward limiting your Forex trading losses.
Managing the Forex Trade
The last point to consider when trying to limit your Forex trading losses is how you go about managing the trade.
Do you place any trade, set your stop loss/take profits levels and then walk
Do you simply place your trade, set your stop loss/take profit levels and then walk away from the screen? Or Do you instead stay glued to a 1-minute chart and ride every bullish or bearish single pip tick that the market prints
There is not the right or wrong way to go on managing your Forex trade and whether sitting at the screen helps or hinders your decision-making process depends solely on your personality.
The important thing in deciding how you manage the Forex trading positions is whether you can follow your original trading plan and whether have the discipline to stick to it if things are not going your way.
Remember that you had a plan for the single reason of limiting your Forex trading losses, so follow it!
Just remember that you are never going to avoid Forex trading losses entirely, but you can limit them. Plan your trade, follow your rules and you will be on the path towards consistently profitable Forex trading in no time.