Forex Trading Lab

When real money is on the line, new Forex traders find it very hard to manage the trader properly.  Before the trade, they follow the trading system rules for entry and are calm and rational. But after the trade is placed, and real money is at risk, they let emotion take over.  As a result, they often exit trades at times not based on the system, but out of emotions like fear and greed.

Imagine getting into a trade and going into profit.  You are not at your take profit level, but you don’t want to lose the money you already see, so you exit the trade early. Or, let’s say the opposite happens and the trade goes against you so you exit the trade early before the stop is hit.  A lot of times price continues to your original price target or turn around and goes profitable meaning you lost money in each case by exiting prematurely. Regardless of the outcome, you did not follow the rules of your trading system, which is a sure way to turn a proven system into a loser.  Here are 3 things you can do to keep emotion from taking over and abandoning your trade plan by exiting the trade early.

In the first scenario, the Forex trading system you are using sets a stop loss and has one take profit level.  So, you place the trade and set the stop loss and profit target in your trading station.  The best thing to do now is accept the risk you have in the trade and let the trade play out one way or the other.  Walk away from the computer if you must.  At this point, observing the chart is valueless and will only lead to a roller-coaster ride of emotions.  At this point you should either walk away or go to other charts looking for other setups until the trade either hits your stop loss, or hits your price target.

In the second scenario, you use a system where you place the initial stop loss, but the target is open and only triggered by a signal in the opposite direction. In this case, you need to watch the charts to see when to exit, so you can’t just walk away from the computer. In this case, I would click on the Terminal Window so it goes away and you can’t see the pips or money in the trade.  This way you can make decisions based on just what you see on the chart, without having your profits tempt you to exit early.

In the third scenario, you are using a Forex trading system where you place the initial stop, but you have multiple price targets and plan to move your stop to break even once the first price target is hit.  There is a lot of management for this type of trade.  Using a Trade Management EA to move the stop and take partial profits at predetermined levels not only makes managing the trade easier, but keeps emotions out.  At this point, just let the Trade Management EA take care of the trade management and walk away from the chart.

To get more tips and tricks for profitable Forex trading, sign up for Forex Insider Pips for free.  And if you don’t have a Trade Management EA, I’ll give you mine so you can start managing your trades on autopilot.  I’m sure you’ll see, eliminating the premature exits of trades can keep you on your trade plan and make you a more profitable trader.