BEWARE OF TAKING PROFITS TOO EARLY

“You can’t go broke taking a profit” is something I’ve heard many times
over the last 30 years. But what I’ve found is that you can go broke taking
a profit.

Every method has a certain number of losses and a certain number
of gains. That is the nature of every method. There can be variances
around that number for short periods of time but not over the long run.
Let’s go back to our example of losing $1.00 on each losing trade and
making $2.50 on each winning trade and 45 percent of our trades are
winners.

We know through simple math that this is a winning method. But what
if we took profits every time we had a $1.00 profit? That would make this a
money-losing method immediately. We are losing on more trades than we
are winning so making/losing equal amounts of money on each trade is a
surefire way to lose money.

Realistically, though, taking quick profits will likely boost the number
of winning trades to losing trades. This may be enough to make this a profitable
system. However, we would have to boost the number of winning
trades compared to the losing trades by a large amount to equal the profits
of the original ratio.

All methods have losing trades. That is the price of playing the game.
We need a certain number of winning trades of a certain size to pay for
those losses. The winning trades that are beyond that level create the profit
for us.

Every method has a natural profile of winning and losing trades, their
size and frequency. Let’s assume that you are using a winning method.
Cutting the size of the winners will usually cause a higher number of
winners but at a much smaller size. I may cut the size of the winner from
$2.50 to $1.00. The average size of my winner is now just 40 percent of
the previous size. That means that I must have 150 percent more winners
than I did before to equal the dollars that I had made before in my trading.

Remember that I was making only 45 percent of my trades as profits with
the remainder being losses. Adding 150 percent of the 45 percent winners
would mean that I would have to have more winners than I have trades to
equal the profits of the original method. That’s impossible.

Basically, the base method lost on slightly more than 50 percent of
the trades but the winning trades were 2.5 times the size of the losing
trades. It is impossible to make as much money as this method if I cut
the profits to only 1 times the size of the losing trades because I would
have to have more winning trades than I have trades to make that much
money.


It comes back to the old trading adage of letting your profits run and
cutting your losses.
We need to be careful when we take profits too early. Most of the
techniques in this book are trend-following techniques. That means that
we want to follow the trend as long as it is trending. Generally, we have
no idea of how far a trend will go. So we want to give that method
as much room as possible to let the trend make us as much money as
possible.

Basically, we let the trend run until we are stopped out. I have said
that protective stops should have two attributes. First, they should filter
out random noise. We don’t want to be stopped out because of some blip
in the market, only because something significant has happened. Second,
we only want to be stopped out when we are wrong.

In the case of a trend-following technique, we only want to be stopped
out when the trend is no longer our friend and the market has turned neutral
or bearish. So why would we ever want to take profits before getting
stopped out? There are two reasons: psychological profits and confirmations.
We’ll explore both in the pages that follow.
Source:  How to Make a Living Trading Foreign Exchange: A Guaranteed Income for Life (Wiley Trading)

Why Minimizing Loses are importance?

Reducing the number of bad trades can dramatically enhance the profitability
of a method even though we have strictly limited the size of the potential
losses. A typical trend following system, which I prefer, will only make
money on about 45 percent of trades but the winning trades will be about
2.5 times the size of the average loss. Let’s assume, for simplicity sake, that
each loser is $1 and each winner is $2.50. That means that you should have
a profit of $57 (45 times $2.50 minus 55 times $1.00) after 100 trades.

Reducing the number of losing trades by 10, or about 20 percent, improves
the profitability dramatically. The percent of the 100 trades that are
now winners increases to 55 and the number of losing trades drops to 45.
Now the profit is $92.50 (55 times $2.50 minus 45 times $1.00). That is a
dramatic increase in profit of 62 percent! A small change in the ratio of winners
to losers can create a dramatic change in the profitability of a method.

This suggests that we must be always searching for ways to decrease the
number of losers compared to the number of winners in order to boost
profitability.

Note that the rejection rule and last bar method increase the number of
losing trades significantly but the total dollars lost declines. We have substituted
a larger number of small losses instead of a fewer number of large
losses (or kept the size of the losers constant but dramatically boosted the
size of our winners). These changes sharply enhance our profits.

It is profitable for you to keep track of these kinds of statistics for your
own trading. Then you can concentrate on fixing that part of the equation
that you really need to work on. Is it cutting losses? Increasing the size of
your winners?

I mainly focus on eliminating losses or minimizing the size of losses.
The reason is that this enhances my psychological ability to trade. I’ll talk
more about that in a later chapter but let me mention a few things here.
One of the most difficult things for traders to do is to suffer through a
string of losses. Most people will stop trading a method if they have three
losing trades in a row. They will say that the system is flawed or they are
flawed and stop trading. So it is particularly important to attack the inevitable
losses that come with trading. Reducing losses in a method by
several a year could mean the difference between my psychologically continuing
to trade, or stopping.

Psychologically, a small or miniscule loss may be the same as no loss
so it is also important for me to strive to reduce the size of losses. My goal
is always to reduce the size of my losses to a level that I won’t remember
tomorrow if I had a loss today. I am not likely to have any psychological
bad effects from a trade that I can’t remember!
Source:How to Make a Living Trading Foreign Exchange: A Guaranteed Income for Life (Wiley Trading)

Profit and Loss , what does it mean?

Profit and loss (P&L) is how traders measure success and failure. A clear understanding of how P&L works is especially critical to online margin trading, where your P&L directly affects the amount of margin you have to work with. Changes in your margin balance determine how much you can trade and for how long you can trade if prices move against you.

Margin balances and liquidations
When you open an online currency trading account, you’ll need to pony up cash as collateral to support the margin requirements established by your broker. That initial margin deposit becomes your opening margin balance and is the basis on which all your subsequent trades are collateralized.

Unlike futures markets or margin-based equity trading, online forex brokerages do not issue margin calls (requests for more collateral to support open positions). Instead, they establish ratios of margin balances to open positions that must be maintained at all times.

Here’s an example to help you understand how required margin ratios work. Say you have an account with a leverage ratio of 100:1 (so $1 of margin in your account can control a $100 position size), but your broker requires a 100% margin ratio, meaning you need to maintain 100% of the required margin at all times. The ratio varies with account size, but a 100% margin requirement is typical for small accounts. That means to have a position size of $10,000, you’d need $100 in your account, because $10,000 divided by the leverage ratio of 100 is $100. If your account’s margin balance falls below the required ratio, your broker probably has the right to close out your positions without any notice to you. If your broker liquidates your position, that usually means your losses are locked in and your margin balance just got smaller.

Be sure you completely understand your broker’s margin requirements and liquidation policies. Requirements may differ depending on account size and whether you’re trading standard lot sizes (100,000 currency units) or mini lot sizes (10,000 currency units). Some brokers’ liquidation policies allow for all positions to be liquidated if you fall below margin requirements.

Others close out the biggest losing positions or portions of losing positions until the required ratio is satisfied again. You can find the details in the fine print of the account opening contract that you sign. Always read the fine print to be sure you understand your broker’s margin and trading policies.


Unrealized and realized profit and loss
Most online forex brokers provide real-time mark-to-market calculations showing your margin balance. Mark-to-market is the calculation that shows your unrealized P&L based on where you could close your open positions in the market at that instant. Depending on your broker’s trading platform, if you’re long, the calculation will typically be based on where you could sell at that moment. If you’re short, the price used
will be where you can buy at that moment. Your margin balance is the sum of your initial margin deposit, your unrealized P&L, and your realized P&L.

Realized P&L is what you get when you close out a trade position, or a portion of a trade position. If you close out the full position and go flat, whatever you made or lost leaves the unrealized P&L calculation and goes into your margin balance. If you only close a portion of your open positions, only that part of the trade’s P&L is realized and goes into the margin balance.

Your unrealized P&L continues to fluctuate based on the remaining open positions, as does your total margin balance. If you’ve got a winning position open, your unrealized P&L is positive and your margin balance increases. If the market is moving against your positions, your unrealized P&L is negative and your margin balance is reduced. Forex prices change constantly, so your mark-to-market unrealized P&L and total
margin balance also change constantly.

Calculating profit and loss with pips
Profit-and-loss calculations are pretty straightforward in terms of math — they’re all based on position size and the number of pips you make or lose. A pip is the smallest increment of price fluctuation in currency prices. Pips can also be referred to as points; we use the two terms interchangeably.

Looking at a few currency pairs helps you get an idea what a pip is. Most currency pairs are quoted using five digits. The placement of the decimal point depends on whether it’s a JPY currency pair, in which case there are two digits behind the decimal point. All others currency pairs have four digits behind the decimal point. In all cases, that last itty-bitty digit is the pip.


Here are some major currency pairs and crosses, with the pip underlined:
EUR/USD: 1.2853
USD/CHF: 1.2267
USD/JPY: 117.23
EUR/JPY: 150.65

Focus on the EUR/USD price first. Looking at EUR/USD, if the price moves from 1.2853 to 1.2873, it’s just gone up by 20 pips. If it goes from 1.2853 down to 1.2792, it’s just gone down by 61 pips. Pips provide an easy way to calculate the P&L. To turn that pip movement into a P&L calculation, all you need to know is the size of the position. For a 100,000 EUR/USD position, the 20-pip move equates to $200 (EUR 100,000 × 0.0020 = $200). For a 50,000 EUR/USD position, the 61-point move translates into $305 (EUR 50,000 × 0.0061 = $305).

Whether the amounts are positive or negative depends on whether you were long or short for each move. If you were short for the move higher, that’s a – in front of the $200, if you were long, it’s a +. EUR/USD is easy to calculate, especially for USD-based traders, because the P&L accrues in dollars.

If you take USD/CHF, you’ve got another calculation to make before you can make sense of it. That’s because the P&L is going to be denominated in Swiss francs (CHF) because CHF is the counter currency. If USD/CHF drops from 1.2267 to 1.2233 and you’re short USD 100,000 for the move lower, you’ve just
caught a 34-pip decline. That’s a profit worth CHF 340 (USD 100,000 × 0.0034 = CHF 340). Yeah but how much is that in real money? To convert it into USD, you need to divide the CHF 340 by the USD/CHF rate. Use the closing rate of the trade (1.2233), because that’s where the market was last, and you get USD 277.94.

Even the venerable pip is in the process of being updated as electronic trading continues to advance. Just a couple paragraphs earlier, we tell you that the pip is the smallest increment of currency price fluctuations. Not so fast. The online market is rapidly advancing to decimalizing pips (trading in 1⁄10 pips) and half-pip prices have been the norm in certain currency pairs in the interbank market for many years.



Factoring profit and loss into margin calculations
The good news is that online FX trading platforms calculate the P&L for you automatically, both unrealized while the trade is open and realized when the trade is closed. So why did we just drag you through the math of calculating P&L using pips?

Because online brokerages only start calculating your P&L for you after you enter a trade. To structure your trade and manage your risk effectively (How big a position? How much margin to risk?), you’re going to need
to calculate your P&L outcomes before you enter the trade.

Understanding the P&L implications of a trade strategy you’re considering is critical to maintaining your margin balance and staying in control of your trading. This simple exercise can help prevent you from costly mistakes, like putting on a trade that’s too large, or putting stop-loss orders beyond prices where your account falls below the margin requirement. At the minimum, you need to calculate the price point at which
your position will be liquidated when your margin balance falls below the required ratio.
Source: Currency Trading For Dummies

WHY DO YOU LOSE?

In my lectures, I ask the audience members to tell me why they lose money trading forex. I am always fascinated that they know exactly why they lose. Let me repeat. They know exactly why they lose.

I suggest you stop reading right now and write up a list of reasons why you lose. Go on, stop reading and start listing!

Back to the lecture. The traders quickly jump up and list off the reasons why they lose while I write them down. Let me show you the list from the last lecture:

• Overtrading
• Greed
• Not following system
• No system
• Too tight stops
• Lack of understanding
• Too emotional
• Not paying attention
• Lack of time
• Going against pros
• No goal
• Lack of plan
• Lack of confidence
• No analysis of mistakes
• Lack of capital
• Compulsion to trade
• Preconceived ideas

Sound familiar? I would imagine that you can find the reason why you don’t make money somewhere in that list. I know I can find the reasons why I have gone through losing streaks.

Typically, the audience is firing these reasons at me so fast I can’t keep up. It is always clear to me that they have thought about why they are losing and have a pretty clear idea. (Otherwise, why would they be sitting in this lecture?)

I think that this list can be grouped into three major categories: lack of self-discipline, lack of knowledge, and lack of capital. Some of the items fall into two categories.

I can’t say that where I place each of these reasons is the final word. Some of these reasons flow between different categories. I think that not having a plan is probably a combination of a lack of discipline and knowledge, but others might argue that it is simply a lack of either of these separately. Ultimately, how the reasons for losing are categorized is almost irrelevant because what we really want to do is focus on the three main categories and how to deal with them.

The three main categories are lack of discipline, knowledge, and capital. The latter two are probably the easiest to deal with and lack of discipline is usually the hardest. Why? Because it involves a change in your
character. Money and knowledge can always be acquired, but changing one’s character is usually extremely difficult.

Let’s talk first about the two lesser problems before going to the issue of self-discipline. I think you will soon see that self-discipline is the real key to success in trading because it permeates even the two lesser problems.
Source: WHY DO YOU LOSE?

How To Use The Slingshot for Profits

I went through this preamble because I wanted to give some of the flavor behind the concept of the slingshot. It was designed to not trade unless there are multiple confirmations that the coast is clear to trade.

Every technique in this blog is complementary with the other techniques. They may all be profitable by themselves but are far more profitable when combined. For example, the main purpose of the channel breakout is to ensure that we catch the big move.

One of the purposes of the slingshot is to take profits on strength. It is there to boost the number of winners in relation to the number of losers. In addition, it shows the concept of confirmation and how it can be used in a trading method. It is similar to trend analysis in that we are always looking for similar swing highs and lows and looking for breakouts using those highs and lows. But it differs from trend analysis in that it is looking for confirmations and also takes profits.

Let’s start to look at the rules. In Figure 8.1, the first data point is to identify what I have labeled Key High. The key high is any high that is higher than the previous high. So in this case the key high is the first swing high since early December.

We then identify a Key Low. It is also a swing low. This key low must be at least a two-bar swing low. My preference is a three-bar low but I’ll take a two-bar low.

The Slingshot High is the critical high in the technique. Let’s examine it a little closer. Note that this slingshot high is a failure. This had been a strong bull market to this point but this bar failed to make new high. The slingshot high doesn’t have to be a failure, but it helps.

There are two confirmations for the slingshot high. The first is that the slingshot high must be at least three bars from a previous higher bar. In this case, the previous bar with a higher high is actually the key high. It won’t usually be the key high, but it was in this case. The second is that the previous high bar must not be more than 20 days from the slingshot high. Once again, the previous high bar is the key high bar and it is six days from the slingshot high.

These two confirmations sharply reduce the risk in the trade by ensuring that you are only getting into the trade with the odds in your favor. The first confirmation makes sure that you are not in a running market and that the market is creating a solid formation. In effect, it is ensuring that you are not buying the top of a formation but the beginning of a new trend. The second confirmation makes sure that you are not trying to pick the bottom in a market. Note that these two confirmations make sure that you are not trying to get in on the key high but only after certain price action has shown that the bull leg is over.

I haven’t put it on the chart but we are also going to use the ADX Filter on this method . We now look to sell on a break of the key low. This confirms that the trend is now down and we can get short. Your first protective stop loss is the slingshot high. In fact, I like to make this a reversal stop so that we not only exit our short position but go long. Remember, a failed signal is a signal!

Unlike trend analysis, which is designed to try to stay in the position for as long as possible, we are going to enter a profit-taking limit order.

The first profit objective is calculated this way. Take the difference between the slingshot high and the key low. Now subtract that value from the key low. You will take profits at that point on half of your position. Yes, you really should be using at least two contracts on this method because we are using several methods to profit from this method. Let’s carry on.

Raise the stop to a level that protects 25 percent of your profits when you hit the first profit objective. In this case, the slingshot high was at 1.4363 and the key low was at 1.3826 so the difference was 537 pips. I call this the profit target. We subtract 537 pips from the key low and we get a profit objective of 1.3289, which we hit where I have placed an arrow labeled Take Profits. At this point, we would move the protective stop down to 134 pips below the key low of 1.3826 or 1.3692.

We are now going to use a trailing stop based on the factors we have just outlined. Move the stop to the original profit objective of 1.3289 if the price moves down 1.5 times the profit target from the key low. Keep it trailing after that by 50 percent of a profit target. In this example, the profit target was 537 pips so use a trailing stop that is roughly 268 pips from the low of the move.

We will also use the Bishop as an exit technique for slingshot. That will often be the normal exit plan should we really get into a major bear or bull market. We will also be taking profits as the market moves lower. But it depends on how many contracts you have.

At the point where we have reached the profit target, we will have liquidated half of our position. Liquidate another half if we reach a level of two times the profit target. Liquidate another half if we reach a level of three times the profit target and so on until you are left with just one contract. The final contract will be exited only on a stop out or a Bishop signal.

Source: How To Use The Slingshot for Profits

Businessman’s Risk vs. Loss

Years ago, when I began my recovery from losing, each morning I held what I called a Losers Anonymous meeting for one. I’d come into the office, turn on my quote screen, and while it was warming up I’d say, “Good morning, my name is Alex, and I am a loser. I have it in me to do serious damage to my account. I’ve done it before. My only goal for today is to go home without a loss.” When the screen was up, I’d begin trading, following the plan written down the night before while the markets were closed.

I can immediately hear an objection—what do you mean, go home without a loss? It is impossible to make money every day. What happens if you buy something, and it goes straight down—in other words, you’ve bought the top tick of the day? What if you sell something short and it immediately rallies?

We must draw a clear line between a loss and a businessman’s risk. A businessman’s risk is a small dip in equity. A loss goes through that limit. As a trader, I am in the business of trading and must take normal business risks, but I cannot afford losses.

Imagine you’re not trading but running a fruit and vegetable stand. You take a risk each time you buy a crate of tomatoes. If your customers do not buy them, that crate will rot on you. That’s a normal business risk—you expect to sell most of your inventory, but some fruit and vegetables will spoil. As long as you buy carefully, keeping the unsold spoiled fruit to a small percentage of your daily volume, your business stays profitable.

Imagine that a wholesaler brings a tractor-trailer full of exotic fruit to your stand and tries to sell you the entire load. He says that you can earn more in the next two days than you made in the previous six months. It sounds great—but what if your customers don’t buy that exotic fruit? A rotting tractor-trailer load can hurt your business and endanger its survival. It’s no longer a businessman’s risk—it’s a loss. Money management rules draw a straight line between a businessman’s risk and a loss, as you will see later in this blog.

Some traders have argued that my AA approach is too negative. A young woman in Singapore told me she believed in positive thinking and thought of herself as a winner. She could afford to be positive because discipline was imposed on her from the outside, by the manager of the bank for which she traded. Another winner who argued with me was a lady from Texas in her seventies, a wildly successful trader of stock index futures. She was very religious and viewed herself as a steward of money. Each morning she got up early and prayed long and hard. Then she drove to the office and traded the living daylights out of the S&P. The minute a trade went against her, she’d cut and run—because the money belonged to the Lord and wasn’t hers to lose. She kept her losses small and accumulated profits.

I thought that our approaches had a lot in common. Both of us had principles outside the market preventing us from losing money. Markets are the most permissive places in the world. You may do any- thing you like, as long as you have enough equity to put on a trade. It’s easy to get caught in the excitement, which is why you need rules. I rely on the principles of AA, another trader relies on her religious feelings, and you may choose something else. Just make sure you have a set of principles that clearly tells you what you may or may not do in the markets.
Read More : Businessman’s Risk vs. Loss

Why You Lost Money In Trading?

You risked too much on one or more trades.
You probably started trading currency for the same reason I did: to make money. While that’s a worthy goal, and one that you’re likely to reach, it’s just not wise to try and make a year’s worth of profits in one trade.
Most of us, at one time or another, have risked 50% or more of our account on one or more trades. Most of us try that on our demo accounts, and then we start to feel invincible (look! See what I can do! I can double my money in just a week!). Of course, this led you to try something similar in your live account. That was a bad idea (but you already know that now).

Solution: Never risk more than 1% of your account on a single trade. Preferably less. Yes, you read that correctly. When you are just learning how to do this, you want to risk very little on each trade. The time will come for you to risk a greater percentage on each trade. That time is not now.
This is a money-management solution. If you don’t put a lot of money on the roulette table, you can have a lot of your money taken off the roulette table. I guess that’s a bad analogy, however. You should never play roulette, anyway. It’s a game meant to always take away from you, no matter how good you think you are.


You set a lame stop loss, or none at all.
Setting a stop loss is like zipping up your pants in the morning. It’s not required, but you can feel really embarrassed, really quickly, if you don’t do it. To tell you the truth, you could conceivably set a stop loss 100 pips wide just to get 10 pips. If you are not risking more than 1% of your account on the trade, it doesn’t much matter. I have done this before. I don’t do it any longer, because that is a dumb risk:reward ratio. The point here is that you must set some type of stop loss so that if the market really gets wild, that you don’t get crushed.

You traded on emotion, not reality.
You and I sometimes get a good string of trades put together, and then we start walking around like we’re the Warren Buffet of forex (we’re not). A good thing to remember at a time like that is this: you are not the Warren Buffet of trading – and the longer you keep up that attitude, you’re more likely to end up looking like the ENRON of forex. Bring yourself back down to earth before every trade. Make sure you take your time before every trade. Make sure that if you’re making what you believe to be a “sure bet,” then you better not risk more than 1% of your capital and set appropriate stop loss orders. Especially at the beginning of your trading career. You can start to risk more when you learn more. When you have a track record.

You just started trading with real money.
Your first trades with real money are the most amazing opportunities to lose money. You and I both did it – one week after I opened my first live account, I lost 90% of my account. I felt like crawling under a rock. Or smashing my head with one. It’s like magic: open a live account, lose money.


Realize that no matter how good you were on a demo account, you’re going to trade on emotion as soon as you open a live account. Mostly, you’re going to feel afraid to follow the same hair-brained strategy that you used when you were on the demo account. Here are five ideas that will help you avoid this:
1. Open your next live account with $2,000 or less. Trade for less than $1 per pip.
2. If you built a strategy / system while on a demo account, use it! It worked then, right?
3. If you didn’t build a system already, use that new small account to build one.
4. Don’t be afraid of losing money. Be afraid of making stupid trades.
5. NEVER, EVER, EVER, EVER trade when you’re emotional.


Something weird happened.
Well, it’s true: sometimes the market does things that it’s not supposed to do. Take Japanese intervention in the Yen – it’s not supposed to happen in a perfect world, but it does, and it can really throw off your perfect short trade. Or your forex dealer, like Refco, declares bankruptcy. These are the unpreventables, as I call them, and they don’t happen as often as we suspect. When you get burned by a totally unpredictable movement in the market, just sit back, relax, and ask yourself: did you only risk a small amount of your capital? Did you have a stop loss? If you had a stop loss and you only risked a small portion of your account, you will be just fine.
Read More : Why You Lost Money In Trading?

Risk Can Be Predetermined; But Reward Is Unpredictable

If there is one inviolable rule in trading, it must be “stick to your stops”. Before entering every trade, you must know your pain threshold. This is the best way to make sure that your losses are controlled and that you do not become too emotional with your trading.

Trading is hard; there are more unsuccessful traders than there are successful ones. But more often than not, traders fail not because their idea is wrong, but because they became too emotional in the process. This failure stems from the fact that they closed out their trade too early, or they let their losses run too extensively. Risk MUST be predetermined. The most rational time to consider risk is before you place the trade - when your mind is unclouded and your decisions are unbiased by price action. On the other hand, if you have a trade on, of course you want to stick it out until it becomes a winner, but unfortunately that does not always happen. You need to figure out what the worst case scenario is for the trade, and place your stop based on a monetary or technical level.

Once again, we stress that risk MUST be predetermined before you enter into the trade and you MUST stick to its parameters. Do not let your emotions force you to change your stop prematurely.

Every trade, no matter how certain you are of its outcome, is simply an educated guess. Nothing is certain in trading. There are too many external factors that can shift the movement in a currency. Sometimes fundamentals can shift the trading environment, and other times you simply have unaccountable factors, such as option barriers, the daily exchange rate fixing, central bank buying etc. Make sure you are prepared for these uncertainties by setting your stop early on.

Reward, on the other hand, is unknown. When a currency moves, the move can be huge or small. Money management becomes extremely important in this case. Referencing our rule of “never let a winner turn into a loser”, we advocate trading multiple lots. This can be done on a more manageable basis using mini-accounts. This way, you can lock in gains on the first lot and move your stop to breakeven on the second lot - making sure that you are only playing with the houses money - and ride the rest of the move using the second lot.
The FX market is a trending market; and trends can last for days, weeks or even months. This is a primary reason why most black boxes in the FX market focus exclusively on trends. They believe that any trend moves they catch can offset any whipsaw losses made in range-trading markets. Although we believe that range trading can also yield good profits, we recognize the reason why most large money is focused on looking for trends. Therefore, if we are in a range-bound market, we bank our gain using the first lot and get stopped out at breakeven on the second, still yielding profits. However, if a trend does emerge, we keep holding the second lot into what could potentially become a big winner.

Half of trading is about strategy, the other half is undoubtedly about money management. Even if you have losing trades, you need to understand them and learn from your mistakes. No strategy is foolproof and works 100% of the time. However, if the failure is in line with a strategy that has worked more often than it has failed for you in the past, then accept that loss and move on. The key is to make your overall trading approach meaningful but to make any individual trade meaningless. Once you have mastered this skill, your emotions should not get the best of you, regardless of whether you are trading $1,000 or $100,000. Remember: In trading, winning is frequently a question of luck, but losing is always a matter of skill.
Read More : Risk Can Be Predetermined; But Reward Is Unpredictable