Forex education: ensure your trading earnings in a simple click

Written by: Dime Levov • Friday, August 10, 2012 • 2 min read

• Last updated: Friday, August 10, 2012

What is better, a dollar in your hand, or two in the bush? Forex investors often act as if the second option is more attractive. Let me explain what I mean. Emotional traders are often not satisfied with partial earnings on the market trends they trade. That's ok, but a real trader will learn to be happy with winning just a part of the trend he is trading (a dollar in the hand).

I'm talking about moving your stop loss forward, as the market goes in the same direction as your predictions, as a trailing stop. I have said many times in the past that setting a stop loss is critical for cutting your losses to a minimum, but now I'm talking about a different situation. Say your trade is profitable – you are winning some money here. Moving your stop loss forwards to your positive area will ensure your winnings, even if the market suddenly changes direction and market sentiment goes against you!

Still don’t get it? Let's take the euro-dollar as an example. Say you have just opened a buy position on this pair, with a supporting technical analysis at your back. You start collecting pips, Fibonacci and RSI indicators are positive, and life is great. You even set your stop loss a bit below the support level that you spotted on the 30 min chart.

Now, if you are a really smart trader, with a bit of experience, you will take your Stop loss higher, to a new trailer, above your entry price. Why? Let's say that at this moment you decide to go for a couple of drinks with your fellow traders, celebrating your little win on the euro. While you are out having a blast in the pub, a really negative major release comes from the European Central Bank, showing negative data regarding the European economy which is worse than what was anticipated by investors. A massive downtrend on the euro dollar suddenly appears as traders rush to open short positions. This bearish sentiment takes this pair to a new low, much lower than your original entry price. But lucky you! You set a new positive trailing stop. You can enjoy some profits.

So it’s true you can't buy a drink to all of the people in the pub, but you can certainly pay for your own beer, and still have money left in your pocket:)

So what do you think? Have I convinced anyone? Waiting for your feedback.