The Formula For Equity In A Combined Margin Account Is: Discipline in Forex Trading: A Must For Traders

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Discipline in Forex Trading: A Must For Traders

A successful trading experience in the field of forex currency trading is possible not only through his strategies, but also through the discipline he has in executing such strategies. Discipline is one factor why most traders lose. By consistently following the discipline in trading, a trader can reduce the risks associated with trading.

Having a money management plan along with a trading plan can reduce the risks associated with Forex trading. However, implementing the plan can be burdensome and even unpleasant. It can be very difficult for traders to constantly monitor their trading positions while taking only necessary losses.

A new forex trader enters the market hoping that he can make millions to retire early. This trader may consciously or unconsciously imagine this instance where he can grab a really big win in the market with just one trade in one day. But the truth is, while it could happen, there’s really a very small chance that it will. The thought of winning big with one trade is what drives a trader to lose everything.

Risks can be controlled through stop loss. Experts advise not to risk more than 1% of the trader’s equity on a single trade. But that can be very difficult to do, especially if it’s a deal and his hope is that the deal is “big.” Big, which could make him super rich. The discipline is really there to enforce the 1% rule which ultimately protects one’s wealth.

Money management styles depend on the trader’s personality. Some take a lot of small stop losses and hope to profit from a few big winning trades, while some take small profits and place few but big stops, hoping that the small wins will outweigh some big losses. For both styles, the key to trading success is discipline.

A stock stop is the simplest of all the stop losses available to traders. A percentage of the capital is allocated to one transaction. If the preset stop is breached, the trader must stop trading. Conservative traders use 2%, while more aggressive traders use 5%. Prudent money managers go beyond the 5% cap because more than 5% can be disastrous.

A chart stop is more often used by technically oriented traders. Stop losses are preset based on price action on charts or signals from various technical indicators.

A volatility stop is more sophisticated than a chart stop because it uses volatility rather than a price change. A high-volatility environment allows more room for risk, so that intra-market noise does not stop trading, while a low-volatility environment requires compression of the risk parameter. Bollinger bands are used to measure volatility.

The last and most extraordinary of all money management strategies is stop margin, which allows forex brokers to liquidate traders’ positions as soon as they trigger a margin call. Judicious use of this stop loss can be effective in Forex trading.

Discipline plays an important role in all these strategies because without discipline a trader can suffer huge losses in the Forex market.

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