How to Take Your Profits from Forex Trades

How to Take Your Profits from Forex Trades

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Developing a trading strategy with an acceptable risk reward profile that the trader is able to adhere to is the key to taking full profits from trades.

Introduction:

The truth is that for all the education that you as a trader went through before starting to trade and for all the trading strategy tweaks you made, the one thing that you continue to find difficult is keeping your emotions in check. How many times have you taken your forex trading  profits on an emotional whim instead of getting out of the market by following your exit strategy or at a pre-determined goal? I would guess quite a few times. When you exit trades emotionally you are very likely taking less profit than you would otherwise have taken if you had exited the trade using your exit strategy and being disciplined about it.

How to Take Your Profits from Forex Trades:

The psychology behind an emotional exit is clear. Traders want to pinch every last pip they can from a trade. However in reality when emotion sets in and you wait too long, the prices reverse and you end up exiting the trade with less profit than you expected.   

Take the following example. Here we have a 30 minute EUR/USD price chart. The trader has bought Euro at 1.2915 and the trading strategy is a risk/reward ratio of 1:2, so the stop loss is placed at 1.2895, 20 pips below the entry point and the target profit rate is 1.2955.

When the target rate is reached instead of exiting the trade the trader decides to hang on a little longer. The price goes up another 15 pips before plunging back to 1.2937. The trader has now missed his strategic exit point at 1.2955 with a 40 pip profit and now has a 22 pip profit. At this point the trader has two choices, he can stay in and see if the price rises, which it in fact does or get out with only a 22 pip profit, which is in fact what the trader does. Now you might be saying to yourself ‘well the trader made a profit on the trade’, and indeed that was the case, but look at the emotional turmoil the trader went through to land up with the 22 pips. If the trader had kept to his strategy he would have had a 40 pip profit and a stress free trade.

Apart from the scenario described above there are other scenarios which you have probably found yourself ensnared by? There must have been times you exited a trade because the price moved against you slightly and then you watched in horror as the price raced on in your direction. Also there must have been times when you have exited a trade at your break even point because you feared that it was a losing trade and then to your surprise the price raced away in your direction while you watched in dismay.

You are not alone as many traders exit the market outside the parameters of their forex trading strategy simply because they ‘believe’ they know what will occur next. As a trader you should never try to fight the risks. The risk reward ratio you set when you develop your trading strategy should be an acceptable risk. It should be a risk you feel comfortable with.

Only then can you can you take profits from your trades and discipline yourself not to exit too early or too late whilst suffering from stress or anxiety.

Source: www.etoro.com