by Holly Stubbs
Before you trade, have you made sure that you are not just making an emotional decision? When traders are running a business trading stocks, futures, options, or currencies they should know specific information. Trading is a business that requires planning and preparation. Trading is not gambling, unless you are just making decisions blindly without a plan. Every time you trade you should already know your target price, the risk level, and the strategy you are using. This article explains in detail three keys that, ultimately, are the difference between success and complete failure.
The first key is quite simple. Before you buy or sell you should know your target price level. This is important is because you need to know where you are going if you want to be able to get there. If you have a target you are more likely to stay in a trade until you reach that target. Most traders close their trades as soon as the price moves in the their favor making their gains much smaller than they might be. To be profitable long term in the Forex market you should have your winning trades be as large as possible. Having targets keeps you in your trades longer. Another trick that skilled traders use is to open more than one lot at a time. This enables the trader to reach the profit target with one lot and let the other lot ride for greater profits. Letting your winners ride enables long term profitability.
The next key to long term profits in trading is risk management. Before you ever make a trade you should know how much risk is involved with that trade. For example, let’s say your account size is $1,000 then you should know how much of that total amount you are willing to risk on that trade. The way to achieve success is to limit risk to two to five percent of your total account balance. So, in the case of $1,000 you should risk no more than twenty to fifty dollars per trade. That will help your profitability and stop you from blowing your account. One other key point about figuring risk is to make sure that you have at least a one to one risk reward ratio. Your target has to be equal or greater than your risk.
Lastly, it is important to know what the strategy behind each particular trade. If you have a proven strategy that can be used over and over again this will help you achieve successful trading results. The best way to develop a strategy is to read and learn about different strategies and then test the results for yourself. Make sure when you are testing the strategies that you are following all the two previous rules to each strategy.
In conclusion, by these three key principles you will be profitable enough to use trading as a way to earn a living. Once you have mastered these techniques you can refine your trading skills and go from just earning a living to building wealth. You just have to be systematic in your approach and follow your plan.
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