How to Manage Your Forex Trades Like a Pro from freeamfva's blog

How to Manage Your Forex Trades Like a Pro

It is important to distinguish the four main phases of a Forex trade – this way, you can test your skills on each phase and understand what needs more work and what does not. The 4 phases are:To get more news about Forex Article, you can visit wikifx.com official website.
　　Trade identification: your setup conditions.
　　Trade execution: your entry trigger.
　　Trade management: what you do when your trade is “live”. Having a plan that considers the various scenarios that can materialise once your trade is live is essential to maintain a sense of control over your trading. It also allows you to respond to the various curve balls the market will throw at you. I will cover several plan components within the remainder of this article. At a very basic level, Forex trade management must give you the answers to the following questions:
　　1. What do I do if the trade reaches my profit objective quickly？
　　2. What do I do in case of reversal right after entry？
　　3. What do I do in case of an intra-trade drawdown？
　　4. What do I do in case the trade moves steadily in my favour (but without reaching the target) and then reverses？
　　5. What do I do if the market posts a reversal pattern？
　　Trade Exit: the decision to completely close the trade and wait for the next opportunity.
Why is Forex Trade Management Important？
　　Trade Management is essential to your survival as a trader. To explain why, consider the most important equation you will ever see in your trading career:
　　Expectancy = Average Win * Win% - Average Loss * Loss%
　　Average Win and Average Loss are calculated in “R-terms”, meaning units of return by risk. For example, if your stop loss is 50 pips from your entry, and you exit with 50 pips of profit, you made a profit of 1R (50 pips of profit / 50 pips of risk).
　　To understand what the “R” of a trade is, simply divide your profit by your risk per trade. Since trading is all about being a good risk manager, and delivering superior risk-adjusted rewards, you should now understand why thinking about trade results in “R-terms” is better than thinking in money terms.
　　Going back to the expectancy equation, reaching the objective of a consistently positive expectancy is challenging, but the formula tells you exactly what you need to do:
　　Keep the Average Win/Average Loss Ratio as high as possible (you are doing well if your average win is at least twice the size as your average loss)
　　Keep the Win Percentage as high as possible (but over time, this will probably average close to 50%, which means that the key to profitability is averaging losses that are much smaller than your average win)
　　Trade management is essential because without having a clear plan, you will be more prone to making hasty, emotional decisions. If you do not average at least 1R on your winning trades, you will probably lose money over time.
　　Another thing to consider is that, by keeping your losses small compared to your wins, you will be in a much more relaxed place because the minimum win rate to ensure you do not lose money will become smaller. Here is the supporting math: