Optimizing Forex Trading Profits

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OPTIMIZING FOREX TRADING PROFITS


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DISCLAIMER

RISK DISCLOSURE

The information contained in this eBook is provided for information purposesonly. The information is not intended to be and does not constitute financialadvice, is general in nature and is not specific to you. Before using theinformation contained in this eBook to make an investment decision, youshould seek the advice of a qualified and registered securities professionaland undertake your own due diligence. None of the information contained inthis eBook is intended as investment advice, as an offer or solicitation of anoffer to buy or sell or as a recommendation, endorsement or sponsorship ofany security. Orbex is not responsible for any investment decision made byyou. You are responsible for your own investment research and investmentdecisions.

There is a substantial amount of risk in trading currencies and CFDs and thepossibility exists that you can lose all, most or a portion of yourcapital. Orbex does not, cannot and will not assess or guarantee thesuitability or profitability of any particular investment or the potential valueof any investment or informational source.The securities mentioned in this eBook may not be suitable for allinvestors. The information provided by Orbex, including but notlimited to its opinion and analysis, is based on financial models believed tobe reliable but it is not guaranteed, represented orwarranted to be accurate or complete.Your use of any information from this eBook or Orbex site is at your own riskand without recourse against Orbex, its owners, directors, officers,employees or content providers.



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INTRODUCTION

Trading in the forex market can be extremely lucrative for those with theproper tools and the knowledge and discipline to use them. These toolsgenerally give the trader clear signals for entering and exiting themarket with a profit. The key to successful trading is in keeping thatprofit.Optimizing profits in forex trading can be dependent on the tradersparticular trading style. For example, a day trader could optimize theirprofits by simply holding the winning trade for a slightly longer periodduring that days trading session. A swing trader might use a trailingstop loss order on a successful trading position, to ensure their profitdoes not turn into a loss.While trading style may have a bearing on how a trader might maximizetheir profits, some methods for enhancing profits are not specific to atraders style, but can instead be applied to all trading styles to somedegree. These techniques have to do with risk management and followup strategies, which not only enhance a traders profit but also decreaserisk significantly.



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RISK MANAGEMENTS ROLE INMAXIMIZING PROFITS

Basically, the main focus of a forex trader once they have a profitableposition is to manage risk. The first risk is that of losing the profitalready made by holding the position too long and thereby incurringadditional risk. Risk management generally represents a keycomponent in most successful traders trading plans and is one of themost important elements to optimizing forex trading profits.

Unfortunately, most novice and many experienced traders do not giverisk management the respect it deserves. A good risk managementcomponent to a trading plan can make the difference betweenexperiencing a casual minor loss and blowing out your trading account.

The risk management part of a trading plan can be as important to thetrader and should be as strictly adhered to as the selection ofentry and exit points for initiating and liquidating positions.

Risk management rules ideally are clearly defined in the plan, and thetrader should be fully aware of what they stand to lose, as well ashaving some concrete idea about when to get out on every position.

In order to preserve capital and to trade profitably, a traders riskmanagement rules ideally become second nature. To optimize profits,profitable trades must first be made. Risk management tools whichcan be used to directly optimize profits are discussed in the following

sections.



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POSITION SIZING

Regardless of the forex trading strategy to be implemented, positionsizing is a good place to begin for maximizing forex profits. The generallyaccepted rule of thumb is for a trader not to expose more than one tothree percent of the account on any given trade.

The small percentage of the account risked on each trade is in the eventthe trader incurs a string of losing trades. With a low percentage risk pertrade, a string of losers would typically not blow out the account.

While some traders use a percentage of the amount in the tradingaccount for each trade, others prefer to build their accounts using a setdollar amount of risk per trade. Instead of one percent of the account,they will use a flat $100 per trade to build their account to the levelspecified in their trading plan.

One way to maximize profits with position sizing is to use a range of oneto three percent of risk to be assumed on each trade. For a position thathas a higher perceived probability of being profitable, the trader canmake a higher percentage trade.

For example, if a special opportunity presented itself in the market thatthe trader had discovered through their forex analysis, they would thenmake a three percent trade sized trade on that currency pair. Tradeswhich are perceived as likely to make a smaller profit would be

established at the one or two percent level.



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Before a corporate treasury manager can begin to hedge their companysforeign exchange risks, they first need to know how to recognize themand determine what amounts they exist in.

Although customized corporate forex risk management systems may

exist, a simple and widely available tool that can be used to beginassessing and computing your companys currency risk immediately is aspreadsheet program like Microsoft Excel .

The first step would be to make a column for each currency containing allof the long or short exposures to that currency you are currently aware ofalong, with what date they are associated with, if known, and a briefdescription.

The next step would involve seeing if any exposures might offset eachother so that you can hedge them internally.

Next, those exposures that have no offset and are known, as opposed tocontingent, can be hedged with forex forward contracts or with zero costcurrency option combinations that allow you to express a market view onthat currency versus your domestic currency.

Contingent forex exposures can usually best be hedged with purchasedcurrency options, especially if the amount to be hedged is significantly inquestion or if the exposure may not materialize at all.

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To be able to effectively maximize profits in forex trading, developing aconsistently profitable trading system and the discipline to adhere toits rules is the first step for a trader that wants to be a success.

To develop a trading system that is profitable, a good amount ofresearch and testing is needed, along with the proper tradingpsychology on the part of the trader once live trading has beeninitiated.

Before engaging in forex trading in a live forex account, the best wayfor a trader to start is by applying their trading strategy in real marketconditions in a forex demo account. Demo forex trading accounts areoffered by virtually every major online forex broker and they also oftensupport the Metatrader 4 trading platform or provide one of their own.

The Metatrader 4 trading platform comes with a complete technicalanalysis package and software for traders to customize their owntrading program. The best way to learn is by practicing, so trading in aforex demo account allows the trader to see weaknesses in theirtrading plan which can be changed before trading in a live account.

In addition, by trading in the demo account, the trader can have afirsthand experience into how well they deal with the emotions thatcome along with losses and profits and how well they can managetheir account, all without incurring any personal financial risk. Traderswithout a proper trading plan are generally prone to panic andconfusion when the market takes unexpected swings.

Even with a trading plan, a trader can have emotional reactions whichcould and generally do adversely affect their trading. This is thereason for taking a sufficiently long period of time to familiarizeoneself with the market and how one deals with gains and losses toensure that consistent profits can be made once trading in a liveaccount begins.

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MAXIMIZING PROFITS AND TRADERPSYCHOLOGY



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When it comes to optimizing trading profits, the traders psychology isof utmost importance. Avoiding getting too greedy, keeping a coolhead in the face of adverse market moves, and knowing whether topull the trigger on trades are essential elements to profitable forex

trading.

Once the trader feels confident with their trading plan in a demoaccount, and has taken the time to know that they can be comfortabledespite adverse market conditions, the trader could open a microaccount, which is a forex account that allows trading in micro units of0.01 and up. A micro account can usually be opened for a nominalamount of money and gives a trader the added dimension of having astake in their trading albeit a small one.

The fact that the trader adheres to a specific trading plan andimplements sound money management principles does wonders for atraders overall longevity in the forex market and can assist greatly inoptimizing their forex trading profits. This in itself is an indication thatthe trader has the right psychological profile to become consistentlyprofitable.

Despite the fact that only thirty percent of retail online forex tradesturn out to be profitable, retail online forex trading has becomeincreasingly popular. Realistically, however, becoming a forex traderthat can show consistent profitability can generally take anywherefrom six months to five years of hands on market experience, so doexpect to spend some time getting there.

MAXIMIZING PROFITS AND TRADERPSYCHOLOGY



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The forex market has been known for its volatility for a long time.Banks and other financial institutions generally hedge many of theirpositions in the open market, either through forwards, futures oroptions.

When trading currencies, profits should be taken often and as soon asany sign of resistance to the immediate trend which led to the profitcan be noted. The reason for this is that a profit in a forex trade canturn into a loss at the drop of a dime, or more accurately after anygiven economic release in the underlying currencys country. It is wiseto remember that no one ever went broke by taking a profit.

Therefore, unless the trader is in a position for the long term and hasconsiderably deep pockets, profits in forex trading are better taken

sooner than perhaps not at all. Even under these conditions if thetrader has a stop loss order in at a worse rate than their entry level,that order could be hit and the trend could resume immediatelyafterwards.Basically, forex trading involves dealing with a volatility factor thatcould take a trader out even if they are correct in their market forecast.For this reason, many forex traders stick to day trading or swing

trading, with banks, financial institutions, fund managers and largecorporations with deeper pockets making most of the longer termtrades, which are often hedged.

To maximize forex trading profits, the key is to have consistent profitsfirst. This entails the development of a successful trading plan with arisk management component that has been tested in a forex demoaccount. Once these two elements are completed, the trader must besufficiently disciplined to adhere to their trading plan and implementrisk management successfully. After all of these conditions are met,then maximizing profits can become a priority and trailing stops canhelp considerably at that stage.

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VOLATILITY AND ITS EFFECT ONTRADING PROFITS



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A FOREX MARKET OVERVIEW

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Optimizing Forex Trading Profits

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