Good Forex traders always know when to cut their losses in the market. Cutting profits early and letting losses run are the big mistakes made by many novice traders.
How to stop your Forex losses?
First of all, it is necessary to detect bad trades.
To reduce Forex losses, traders need to know how to detect a bad trade and be able to exit it without any emotion. A trade that is close to a pivot point is a sign that the trade is not good.
If a candlestick inversion appears, it indicates that the trade may be bad. Even information that gives the price of the currency pair in an opposite position to the one you traded can indicate a bad trade. On the other hand, if the currency you trade with is constantly losing against most other currencies, then it can also be a sign of bad trade.
Then, it is necessary to act on these bad trades
After detecting a bad trade, you must proceed to the step of exiting that trade. Close the trade immediately to reduce your losses. In addition, do not try to recover your losses through other trades you will make in the process since you are likely to make impulsive decisions leading to even more bad trades. You need to assess the extent of your losses, and try to recover them only when the market shows a good opportunity.
You must also design an exit strategy for each bad trade. This could, for example, be to set an exit amount on each transaction. As soon as this amount is reached, you withdraw from the position. Your strategy can also be based on a percentage of your investment capital and thus stop trading if losses reach this level.
Placing a stop loss at crucial points where traders believe the market is changing is also a common exit strategy. In a bullish trend, many traders put their stop loss below the last swing low. In a downward trend, they place their stop loss below the last swing high. Other traders place stop losses when they detect areas of support and resistance for their trade.
A relatively good exit strategy uses 2 RSI periods. When the trade is in a long position and the RSI falls below line 70, it is time to stop trading. For a trade in a short position, the ideal time to exit is when the RSI passes above the 30 line.
Some traders have also developed an exit strategy based on fixed periods. They remain in a trade for a given period only, and exit that trade at the end of the day trading. The time period is also obtained through in-depth analysis of technical analysis tools and forex charts.
Good traders always stick to rules they have set for themselves to leave a trade. It is important that you also respect the rules you have set for yourself when leaving a trade. This way, you will see that your losses will be significantly reduced.
Not sure which Forex platform to use? We invite you to read our test on the Plus500 broker, our top 1 Forex broker.