There are a number of points that you have to look at when you try and protect your profits. This is very important as you cannot imagine a worse scenario than watching your position up 50 points only to watch it slide further and further down to where you have placed your stop-loss. If you have not found yourself in this position yet, count yourself lucky. Many forex Australia traders experience this on a daily basis, and you should implement suitable money and risk management techniques to avoid this problem.
The Capital That You Have for Forex Australia Trading
The forex Australia market are fast-paced and this means that gains can turn into losses in minutes. This makes it crucial that you manage your capital properly. You must protect your profits even if it means you will not be banking what you were expecting. To some traders, 10 pips may seem like small change, but when you are doing 10 trades at 10 pips per trade, you are looking at a decent profit level. If you are an experienced trader, you may think this is penny-pinching, but for newcomers, this all adds up eventually and the point of trading is to show a profit.
You need to protect your funds and think of it as you against the market. The market is out to rob you of your hard-earned funds and therefore you should implement solid money and risk management methods to protect your money from the market.
There are two common methods that cause traders to turn potential winners into losers. The first is when you trail your stop and the second which is derived of the first problem, is to increase the number of lots you trade.
The Use of the Trailing Stop
Trailing your stops needs concentration and work, but it is possibly one of the most efficient methods of locking in profits. The key is to set a near-term target. An example is if your near-term target is set at 15 pips, then you should move your stop to a breakeven point as soon as you reach that 15 pip profit. If the trade moves below and eliminates your stop, you will still not lose any money, so that is fine. If it starts to move up, you should raise your breakeven stop up by 5 pip increments and you can slowly cash in your profits. Play it like you would a game of cards – every $100 you take into profit, you move $25 of it to a ‘do not use’ pile.
The Lots You Are Looking At
The second way of locking in your profits is when you trade more than one lot. When you trade more than one lot, you can set different profit targets. The first could be set at a conservative level, say around 15 or 20 pips, quite close to your price of entry. The second could be set a lot further away and with this one you are looking to make a much higher reward to risk ratio. Once you have reached your first target, you should move that stop to breakeven.
You should not only target 15 pips. The amount of profit you retain and the stop trail you use is dependent upon your personal trading style and the timeframe you use.