Entering the market “by the seat of your pants” is not the best way to trade foreign exchange Sydney pairs. In fact just entering on a currency pair that “looks good” can be dangerous. There is a general consensus that you should calculate the potential profit and loss in any currency position you want to take up. You are supposed to get your heart set on a certain profit and limit the loss you might sustain. It sounds pretty bad when you think about it in these terms. Sure it would be nice if the calculations show $1,000 AUD profit; however, what if the pip movement is only 10 instead of the 100 you calculated on? Getting your hopes up is one thing, but conducting due diligence is another.
Foreign Exchange Sydney: Eyeing Reality
Forex news does a couple of things. It reports past movements for currency pairs, such as telling traders the market moved 100 pips in the AUD/JPY for the day. This movement is past, so it means little to you. The trend might continue with another 100 pip move in the following day, but what if foreign exchange Sydney pairs decided to reverse trend? If you got in hoping for an increase but the trend reversed you would lose money.
While news on the past is not helpful, projections in those same articles for the following trading day might be worthy of notice. Experts love to talk about potential happenings as if they have the ability to predict what will happen in a currency pairing. If you read the move was 100 pips for that day, and the expert believes it will move another 50 pips in the same direction, should you listen?
You could get out your foreign exchange Sydney calculator to see how much 100,000 units of that currency pair would make you on a 50 pip move, which is $500 AUD. You could plan your entire trading scenario around that with a stop loss set at 20 pips trailing behind the current market price and a taking profit order at 50 pips. It is great if the predication comes true, but what if a different scenario occurs?
There was a 30 pip drop on the current price, and your position sold at a 20 pip loss. Later in the day as predicted 50 pips was made on an uptrend, but it was only a 20 gain in reality.
Foreign Exchange Sydney Comfort Zone
Calculating potential profit before you enter into a trade is really not helpful other than to set a taking profit order. It is far better to decide how much money you are willing to risk on a current trade in order to set a trailing stop loss. In this way you have your position protected from loss, but do not get your hopes up that foreign exchange Sydney will make you a millionaire.
To calculate loss potential find the lot size you want to trade and multiply it by the pip movement. In other words 100,000 x .0050 is 500. You would lose $500 AUD on a trade if you put the stop loss at 50 pips from the current price and the market moves against your profit trend.