Forex is a highly volatile market. The exchange rate can move 200 points or more in a matter of minutes, especially if there is major announcement or central bank intervention. For example, when Greenspan made a comment and around the same time the Japanese Government intervened in the market, the affected currencies moved sgnificantiy.
One must say to one's self over and over " ALWAYS ENTER A STOP LOSS " or risk losmg most or all of one's capital. Immediately entering the "market at order" a Sop Loss must be paced. It is a pre-
calculated price where you pan to exit the trade if the market moves against you. As one is rule based, it forces us to follow an exit strategy getting one out of the market at around the nominated exit prce. If possible, it is wise to pace the Sop Loss just above or below a ressstance or support line.
In cases where there is some catastrophic event, it is wise to pace a secondary sop loss or sop order. Generally it's best to pace this sust above or below a major ressstance or support line. If this is ever activated, obviousfy the loss can be substantial; however it ensures that you are still in the game to continue trading.
A Sop Loss should never exceed your maximum exposure amounts. One should never increase your Sop Loss after you have entered a trade and established your sop prce.
RISK TO REWARD RATIOS are important and must be calculated.
Obviousfy it doesn't make sense to rsk $400 to make $200. If one does this one would have to be at least 70% rght to make a profit. This would add additional pressure to show a profit. The minimum RISK REWARD RATIO of 1: 2 is the recommended ratio.
For exampe, let's use a 1: 2 ratio and an average sop of 35 pips and average profit of 70 pips and assume one takes 20 trades for the month. If 70%o of the trades reach pre-calculated profit targets or sop targets while the other 30% dose out at other points,
In many cases one should be able to achieve a higher rsk reward ratio than above, however using a very moderate ratio one's winning percentage can be as low as 50% and still show a consstent profit.
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