Forex lesson #1: Trading Forex and Being Right

Many Forex traders, and may be you as well, believe that the only way to succeed in Forex is to be right on most of your trades. Right? Wrong!

90% losing trades and only 10% winners can easily yield a winning trading, and, in fact, it is so for many successful Forex traders.

How is it possible? Let me bring the numbers: 10 losses and 1 win. Bad? Not at all if those 10 losses had only -35 pips each (total is -350 pips) and 1 win had 355 pips profit.
We’ve even made +5 pips on top. Funny, huh? But the reality is, we’ve managed to cover 10 losses with the one shot. Well, that was only 10:1 ratio, let’s make it 9:2 (or 4.5:1) and we’ve got -315 pips in loss and over +700 pips in profit. That’s much better!

It does not matter how many times you win, it does not matter how many times you lose… The size of the win and the size of the loss is what matters!

“Keep your profits run…” You’ve probably heard this thousands of times, but may be couldn’t find the roots behind it. If you manage to create a system that will never stop you out before it finally IS the time to get out, you will be on the winning edge no matter how many times you were wrong before you caught your winning opportunity.

You see, my friend, good Forex traders have learned to pick high probability trades and take only calculated risks. Nonetheless, often, way more often than you think, those good traders are beaten by the market… You would say, how do they make profits then?

“Cut your losses short” – they use this 4 words rule and exit with minimum losses every time they are wrong in a trade. Exiting in time is what makes profits!

Of course, I would not leave you without trading tips today.

How to find out soon whether an open trade is a winner or a loser? If you are right on the position you’ve taken, you will SEE that in the next 15 minutes or within maximum an hour since the trade was open. That’s right, no magic, no special tools, you will simply witness the fact as +N amount of pips in your account balance. But, if you took the wrong side, same situation again - you will see that you are wrong within the same short period of time. So, if you happen to be wrong(!) why wait and hope, when it could be your best and last chance to cut losses short and accept being wrong with minimum punishment?

Enter the market in the right time, or don’t enter at all! But when you take the risk, make sure you exit before it gets expensive for you to exit.

What to do if you are on the winning side? Hold onto your trade and allow it to deliver the highest profits possible. How to achieve that? Forget about finding an easy answer. The time you spend looking for it could be spent to learn tricks and master techniques by yourself. I’m also not going to tell you the solution, I’m sorry no charity here. Yes, I know I’m a tough teacher. The financial world is tough and so are people involved in it… I see someone leaving the class… Good luck, really, I warned you about my lessons, which could be difficult to take psychologically. Everybody else, let’s continue.

So, how to allow your profits run? You should learn about Fibonacci trading, definitely study trend lines and learn about market support/resistance. That’s the core of the big trading, believe me, I’ve named you 3 most important studies.

The simplest form of holding to a position reasonably long without studying much is applying two EMAs on the chart: this could be 21 and 55 EMA, for example. Only the cross of those EMAs would warn a trader about closing a position. But, that’s, my friend, the simplest way, if you study as if your financial success really depends on your knowledge, I’m sure you will find better methods for getting maximum gains.

Questions? Oh, I see one student there… Go ahead. The question is How to find such entries that within the next 15 min to 1 hour max a trader will know if he was right or wrong..?

Good question. That’s what a good system and a well thought out trading approach are all about. If you enter a trade, yet you cannot learn soon what your trade will look like, study more and redefine your entry rules. Fibonacci levels, trend lines and support/resistance trading – these are the key studies to entries with quick answers afterwards.

Another question? Go ahead. What if I’m a scalper?

Good question. If you are a scalper then forget about the rules above. For scalpers the number of wins versus the number of losses matters, because when paying spread and losing, this won’t make scalping in Forex profitable. Scalpers are a special breed of traders capable of winning more times than losing it. The size of the win and the size of the loss vary very little in scalping, usually those are nearly equal.

No more questions? Thank you everybody, turn off the lights please, I prefer darkness.

** Forex Dark Lord **

8 Comments to this post

  1. Hi,
    Very Good!
    Please help me to find a good forex broker.
    “If anybody knows about the England Foreign Exchange EFXCO please let me know.

  2. What you suggest is right “it does not matter how many times you lose… The size of the win and the size of the loss is what matters!”

    In other words you are saying do not look at the frequency of winners, but at the average profit.
    This is certainly true, as you could very well have a negative profit with an high number of winners.

    This approach is in fact the one which obviously maximizes the profit. And that’s (almost) all matters.

    As all good things, what you suggests has also a “dark” side however. And you are Master in that!

    The dark side being the psychology of trading.

    Even if you have a bullet proof profitable strategy, many losses are not always easy to bear and at the same time to firmly believe in the strategy.

    For this reason, a trade-off between an high (positive!) average profit and an high frequency of winners
    is often advisable, instead of average maximization tout court.


  3. Excellent post!

    Win big and lose small!

    I found this quote online:

    “Truly great traders know one of the keys to success is: little loss, little loss, big win, not vice versa.” - Unknown

    A lot of truth in that statement :)

  4. Thanks again for the suggested parameters. Could you expand on why you suggest the 21 and 55 EMA? What is the significance to the timeframe other than the fact that they are 2 Fibonaccis apart (21, 34, 55 for those who aren’t yet familiar with Fibonacci)? I ask as I see the 10 and 20 EMA used as well by many traders.

  5. Im not right at EMA mean… anyone?

  6. EMA - Exponential Moving Average

  7. nice info and lesson man…

  8. What is more accurate, EMAs or SMAs?

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