What is Forex Trading? A detailed Guide Part 4 | Trends and long-term trades
Returning to the subject of probabilities:
E(profit) = p(loss) + (1-p)(profit), where "p" is the probability of hitting your SL, is the expected profit of any trade. The higher "p" is, the closer your SL is to your entering point. You can lower p by being the king of entries, but this requires time and devotion, as well as a lot of focus. Just keep in mind that setting stops isn't as simple as it appears when using the 2:1 or other win-to-loss ratios. Even if your holding time is 2 hours, do not go "against" these large players! Because, on average, pricing moves WITH the market in the long run, and those moves have larger amplitude, your "edge" will have an extra edge — the entire market! As long as the trend isn't flattening, don't assume it's going to end, and just go with it when it meets your other requirements.
How long should you leave your position vacant? It could take anywhere from a few minutes to several weeks. Both systems have advantages and disadvantages. The longer you hold an open trade, the more vulnerable you are to "news effects," weekend gaps, and significant price swings. As a result, you'll have to utilize less leverage. Entering a long-term trade can still be "fine-tuned" down to the H1 chart: you evaluate the pair and believe a long-term upswing will begin shortly — a trend you believe will last 500 pips.
The weekly and daily charts, as well as certain FA, are used in this process. Then you sift through the results to discover a decent "entry" for your long-term investment. You figure out that "today" is an excellent starting point for a long. But you don't just enter and leave it there because a faulty entry could result in a 100-pip or more drop before price starts to move in your favor, so you "fine tune" the entry by drilling down to H4 and H1... The closer your entry point, the less "beginning" decline you'll have to deal with.
It's a long story, but if you're holding long-term holdings, you'll often leave when a trendline or moving average is broken. You must also move your stop-loss tactically throughout the trade, but not too near to your stop-loss, in order to stay "in" your position. This might go on for quite some time. A simple trailing stop can also be established. If you entered correctly and expect a profit of 500 pips, for example, you may set a trailing stop of 100 pips after the trade has moved +100 pips in your favor. If you enter and the price swings against you, EXIT, for the time being, wait for a little and try again with a better entry later... Yes, you will pay the spread every time you "attempt," but you will be pleased if the price swings in the opposite direction of your expectations... and you've been proven to be completely incorrect by orders of magnitude! Yes, this also implies that you may exit if the price moves in the direction, you anticipated... You may simply re-enter once the chart clearly "moves" in your way if you hang around and observe the chart... else you'll simply miss the opportunity... WHAT ARE THE RESULTS? There will ALWAYS be a next profitable trade, I PROMISE! Keep this in mind. Make it bold and in red.
Emotional control and a scarcity mindset are problems for people who want to catch every available move. I PROMISE: there will ALWAYS be lots of nice setups in the following days, weeks, and months in forex trading. ALWAYS. Remember that attempting to "catch all the big moves" is the surest way to lose money. In truth, I believe you require a method that will keep you out of the market most of the time! THAT is what will discipline you and give your trading some structure, logic, and order.
When you enter a deal, the odds are stacked against you. Your usual tolerance for a trade is roughly -20 pips, after which the loss is too great and the trade is likely to fail. It starts at -8 pips, then -15, then -28... Your brain and ego are looking for a way out: avoidance and denial begin to creep in... "It will soon turn around"... -33... "I'm confident it'll turn shortly." This is a game of chance... Then it hits you like a ton of bricks, and you don't want to admit you've made a tremendous mistake. You go into denial mode and start hoping and wanting... but you're still separated from reality.
If you're not yet "tight" with your entry strategy but are generally strong at reading the market and predicting "where it's headed," here's a typical approach for a modest retail trader with anywhere from zero to ten thousand dollars in their trading account. As you can see, I'm a big admirer of the "three strikes and you're out" rule... If you fail after three attempts, you either have a severe problem with entering and need to work on your strategy, or you are good with entries but are just mistaken about where price is heading given your chart and open position timeframe. It's critical to cut lost trades quickly and let winnings run and "mature" in order to capture as many pips as feasible. Of course, don't go overboard, because you can end up doing the worst of all: turning winners into losers, which isn't a good idea...
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