Understanding the saying “Cut Your Losses Short and Let Your Profits Run.”
Some say that this statement must be a reference for traders to be successful when trading forex. Then what is exactly the purpose of this statement?
Generally, this statement wants to show that trading is a business. To be able to run this business, you must know how to achieve profits. According to Option Alpha, the trader who can treat it like a business is much less likely to force trades out of boredom or because he/she feels an internal pressure to be productive. Thus, you can feel satisfied with the process you get these benefits.
Cut Your Losses Short
When “emotional” factors participate in your trading activities, limiting losses can be the most difficult thing to do. It might happen because you are too ambitious to get a profit immediately. Limiting losses is foremost risk management in trading. Simple execution is determining stop loss.
Some successful traders claim that the concept of limiting losses must be applied firmly in trading activities. This must be done at the beginning when you have determined the position entry. Not only acting when the amount of loss is too large and erode your capital or capital.
Let Your Profits Run
Usually, novice traders tend to close positions too quickly when they get profit. Though you can maximize your profits if you are sure to enter the market in the right position. This principle was born referring to the purpose of forex trading itself, which is to realize profit opportunities. Thus, let the profit come to you with a note that you can take a good position from a good analysis as well.
In practice, this principle is suitable for those of you who choose a swing trading strategy because of the tendency to hold positions for more than 24 hours. Thus, you are more confident in the position entry and not closing that position too quickly when you profit. Besides, you also need to arrange risk management with a risk-reward ratio.
The risk-reward ratio is the ratio between the amount of loss that you are prepared to bear with the amount of profit that you expect. Risk is applied with stop loss, while the reward is applied with taking a profit. It would be ideal if you set a bigger take profit than stop loss.
In conclusion, this statement should be a motivation for you to trade because no one wants to lose. Good luck, traders.
Writer: Fenda Agustina
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