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The Secret To Profitable Trading

May 25, 2008
What is the real secret to being a profitable trader?

What is the key to trading that will turn even average forex systems into winners every time?This is nothing magical or secret and you have probably heard it all before, but it is the most important part forex trading.

In fact it is so important that if you only understand and apply this one thing correctly, you will be successful in the currency markets.

A very wealthy trader once said that he can flip a coin to enter the market, and he still will have trading success.

It is all because of his risk management strategy.A good risk management strategy can be the difference between succeeding as a trader and losing all your money as 90% of all traders do.

Even if only 50% of your trades are a profitable trade you should still make money.It does not matter if you rely on forex forecasts,auto forex trading or the best system trading, if you do not know what you are doing on the risk management side you will never join profitable traders.

It is all about getting the odds on your side.If your risk management strategy is correct you will cut your losses and let your winners ride.This is a very difficult practise for most traders.You tend to hope the loss will turn around and do not take the loss.On the flipside you are only to glad to make a small profit and take the profit much too soon.

Here are the Golden Money Management Rules you should stick to if you want to ever profit trading:

Always use a stop loss. Trading without a stop loss are either for the very brave or very stupid, and I tend to favour the last one. Do not place your stop loss at any level. Your stop loss should be at a logical point where you know your trade is wrong if price violates that level. The best places are normally just above resistance levels or below support levels.

You should never risk more than 2% of your entire account on any one trade. This means that if you have a couple of losses in a row you can still trade afterwards. If you see your stop loss is too far away, and you will be risking more than 2% on the trade then pass on it. If you want to gamble then go to the casino!

When doing your forex analysis, your risk reward ratio should be 2 to 1 or greater. This means that if your stop loss is 20 pips then your profit margin should be 40 pips or more. By doing this a traders profit is maximized, while keeping losses to a minimum.

By all means-if your account is not at least $10 000 then open a mini forex account. Mini accounts gives you far more options in controlling risk than a regular account. Trading a regular forex trading account with 100:1 leverage with a small balance is trading suicide-one mistake and your trading live is over!

If you practise this rules you will be succesfull as a trader
About the Author
Jan Nieuwoudt Is a forex trading education Expert. Visit forex trading education for expert reviews of the best forex trading systems
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