Share:

Best Educational Content

Two weeks ago we looked at the varying aspects of how to handle risk like a professional in our Forex trading. This week I would like to continue the theme of risk management further by looking into some of the less talked about aspects of controlling our risk in market speculation. Of course, maintaining a consistent reward to risk ration of at least 3:1 provides us with a solid foundation to work from, but there are other factors which must be taken into account when looking for low risk, high probability trading as well.

Rule number one in any kind of trading should ensure that your risk per trade is always less than your targeted reward. However, where many struggling traders falter is in actually finding these ideal setups. This is often due to the fact that many simply don’t know what they are looking for in an ideal trading opportunity. Even if you do know what an ideal setup looks like, you still need to be disciplined enough to actually wait for the opportunity to present itself and that requires patience. Here at Online Trading Academy, we teach our students to effectively utilize our rules-based core strategy, allowing them to think and trade with the mindset of a bank or major institution by understanding what a true picture of supply or demand looks like on a price chart.

When the concept of supply and demand is fully implemented, then it is down to the trader to follow the rules and allow the market to do its thing. However, finding and trading your levels is just one part of it. As I stated at the start of this article, risk management must always come first, above all else that must be taken into account before placing you trade:

Duration

Duration of your trades means how long you are in a position. Now don’t get me wrong, I would never suggest closing a trade early because I don’t like the way it is going or because I got nervous that I would not hit my profit target. However, there are certain times when it does not make sense to hold a position longer than a specified period. Take Sunday Gaps for example. In the shot below, we can see a decent buy at demand on the EURUSD:

Forex

The level matches our requirements for buying the pair and, so, we could take the trade with a stop loss order just below the zone around 1.1100 to protect us if the trade fails to work. I would always leave my trade alone from this point to either hit target or stop out. However, there is one exception to the rule of “set it and forget it” and that applies when we are going into the weekend. If the trade has not hit target or stop loss by the time the end of trading week comes around on a Friday, I will close my trade out at whatever price it is. The reason is simple; I don’t want to get caught on the wrong side of a Gap when the market re-opens on the coming Sunday. This could happen after all:

Forex

On the Sunday open, the EURUSD gapped down lower, opening around 150 lower than where it closed on the Friday. If I had left this trade open over the weekend with my original stop loss order around 1.1100, I would have actually taken a loss on the open. I would not have been filled at 1.1100 however. I would have actually been filled at 1.1000, enduring more than 100 pips of extra unplanned loss on the trade!

While gaps create great opportunity for trade profits, they can also create huge opportunities for trading losses as well. Our task as traders is to be fully aware of all potential outcomes when we are exposed to the market and, while duration of our FX trades is rarely something that we have to worry about, this does not mean that we simply ignore it either. Even the very best levels of Supply and Demand need to have the weekend gaps factored in to be safe and make sure that if our stop loss orders are hit, they are hit at the price we originally intend for them. In two weeks, join me for the third and final piece of this article where we will explore trading frequency and screening.

Learn to Trade Now

Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer. Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Editors’ Picks

EUR/USD clings to daily gains above 1.0650

EUR/USD clings to daily gains above 1.0650

EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.

EUR/USD News

GBP/USD recovers toward 1.2450 after UK Retail Sales data

GBP/USD recovers toward 1.2450 after UK Retail Sales data

GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.

GBP/USD News

USD/JPY goes on a roller-coaster ride prompted by geopolitical risk

USD/JPY goes on a roller-coaster ride prompted by geopolitical risk

USD/JPY whipsaws lower and then higher on alternating risk-on risk-off caused by Middle East tensions. Governor Ueda talks about defending the Yen from further weakness and currency-induced imported inflation. USD/JPY price chart shows bearish Hanging Man forming, boding ill for future price action. 

USD/JPY News

Editors’ Picks

EUR/USD clings to daily gains above 1.0650

EUR/USD clings to daily gains above 1.0650

EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.

EUR/USD News

GBP/USD recovers toward 1.2450 after UK Retail Sales data

GBP/USD recovers toward 1.2450 after UK Retail Sales data

GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.

GBP/USD News

Gold holds steady at around $2,380 following earlier spike

Gold holds steady at around $2,380 following earlier spike

Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.

Gold News

Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium

Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in

Bitcoin price shows no signs of directional bias while it holds above  $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research. 

Read more

Week ahead – US GDP and BoJ decision on top of next week’s agenda

Week ahead – US GDP and BoJ decision on top of next week’s agenda

US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.

Read more

RECOMMENDED LESSONS

7 Ways to Avoid Forex Scams

The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?

What Are the 10 Fatal Mistakes Traders Make

Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.

Strategy

Money Management

Psychology