Hirose News|October 21, 2013 10:38 AM

Tips for Trading

What is the biggest mistake that FX traders make?

It is a fact that traders on average do generate more winning trades than losing trades.  You would then assume that these traders end up being profitable.  Wrong!  The simple truth is that while they make more successful trades they lose more money on their losing trades.

There is a saying and many traders will know it: Cut your losses and let your profit run.

Stop orders to minimise a loss

Stop Order

If there is one single rule to master this is it.  Human nature dictates that we like to crystalise profits early and hope that losing trades will 'come good'.  To stay in the game it is more important to be profitable than be right every time.  It's difficult to lose a big losing trade so DON'T put yourself in that position.

ALWAYS try to look for a bigger profit than loss.  Sounds simple but many traders get trapped.
This is called your Risk to reward ratio. A 1:2 risk reward ratio means that you are looking to risk $1 to make $2.

Depending on the strategies you use you should look to moderate your ratio.  Generally, for high probability strategies (e.g. range trading) you may use a lower ratio like 1:1.  Where lower probability strategies are used (trending) you may want to use a higher risk reward ratio like 1:2

Happy trading!

The Hirose Team