So you’ve improved from being a breakeven trader and find that you’re one of the elite few who can call themselves consistently profitable. Congratulations! Now, you want to take your trading to the next level. You just can’t seem to improve on your profitability because there are factors that affect your profits in forex trading. You’re making money but you know you can do better.
Below, we’ve outlined the factors that can help improve your profits while trading Forex.
1. Proper position sizing
Position sizing is a key element of risk management that can spell the difference between catching a big fish and snagging a small fry. It goes beyond knowing how much you stand to lose – you also have to know when to trade big and when to minimize your risk exposure.
When the market is trading in your direction and you are dealing with a high probability setup with large potential rewards, it may be a good idea to increase your risk. In Blackjack, it’s like betting big when the cards are stacked in your favor.
On the other hand, if you feel like there’s a lot of uncertainty involved (as in the case with news trades) and the potential return on risk isn’t top-notch, it may be best to reduce your risk and go with a smaller position. That way, you can deal with any outcomes of the market volatility and still come out with profits.
Simply put… THE BIGGER YOUR POSITION SIZES RELATIVE TO YOUR EQUITY, THE HIGHER THE RISK.
Do everything possible to preserve your capital.
2. Ability to adapt to the market environment
To maximize the moves in the markets, you have to be flexible and know how to adjust to changing market conditions.
You can’t expect to catch a big swing move when volatility is low and the market is trading within a tight range. It doesn’t work that way.
You have to be reasonable with your expectations and always plan your trades with the market environment in mind. Do not trade against the trend and expect to catch a big move. You could end up been burned.
Remember, YOU must adapt to the market and not the other way around.
3. Remove Fear
Sure, going long only after a pair has already risen and shorting only when it has already fallen may help you avoid fakeouts and help you catch strong moves. But it has its drawbacks, too.
For one, you won’t get the best price. You could miss out on pips that could tip the reward-to-risk ratio more heavily in your favor. Secondly, you usually end up entering at levels that make you vulnerable to pullbacks.
Don’t get me wrong. I am a firm believer that the trend is your friend. But you should be aware that your fear of pulling the trigger may keep you from entering at optimal levels.
Fear can lead you to jump in at inopportune times — when the market has already moved so much. This, my friends, is what we call “chasing the market.”
Always try to be on the lookout for these things. Just because your account is in the green doesn’t mean you should stop working to be better. That is the beauty of forex trading – there’s ALWAYS room for improvement.
Hopefully, by becoming more aware of your position sizing, the capacity to adapt to market environments, and removing fear, you can maximize your trading preparations and your potential profits!
To start trading and making great profits from the Forex market, you have to follow 3 simple steps:
- Open a live account with Instaforex Nigeria.
- Deposit Funds Into your account with as little as $10.
- Download our Metatrader 4 and start trading.
Disclaimer: All investments and trading in the stock market involve risk and is a personal decision. This article “Factors That Affect Profits In Forex Trading” is not a trading advice or instruction from Instaforex Nigeria but meant to create awareness about Forex trading.