Stop - Stop - Stop - Stop - Stop - Stop - Stop - Stop - Get the Picture?

I’m trying to make a point here. Always stop and review your trade plan before making any trade and I always say that, before making any trade you need 4 things determined.

• Your entry point
• Your planed exit in profit
• Your planed exit in loss and
• Your money management

The rules or guidelines of your trading system are actually less critical then the 4 things mentioned above. Your money management should be based on one simple rule. No one trade, if a loss, should ever exceed more than 5% of your account value. Truth is most traders, keep this number even lower.

So it doesn’t matter what your total stop loss is in pips. It could be 15, 50 or 500. Every trade style and type requires a different size stop. The key is to know when to cut your losses and move to the next trade.

When you learn to draw lines where you are willing to be wrong… You will then be RIGHT about managing your account correctly.

Comments

[Lizzie-M]

Hi Pierre,

I really enjoy your Blog and always look forward to your posts. This one in particular struck a chord with me.

Just over a year ago a colleague of mine introduced me to trading Forex via a system for trading the news! They staight away jumped right into the deep end,got lucky and made a quick packet then (as you'd guessed) lost it all and more just as quickly.

I'm conservative and inquisitive by nature, so stood back and have spent these last 12 months and a bit learning as much as I can about the Forex market and trading it.

I'm now ready to dip my toe in the water, but not without the Trading Plan I've developed that states all my rules for my chosen trading method, the questions I must ask myself in order to plan the trade in advance. It's all contained in a simple Excell spreadsheet, so it's easy to read it, complete it (all my entries, exits, stops,risk to reward, profit potential,etc. etc. are automatically calculated as I complete my plan) and most importantly, stick to it.

Demo trades are going well. I plan the trades and trade the plan. If a trade doesn't go quickly into profit I get out, I'm building up my levels of prifit taking gradually. It can be just as scary staying in a winning trade as a losing trade - small winners build my confidence, the bigger ones will come with experience and time I'm sure.

Best regards.
Lizzie

[Pierre Charlebois]

Hi Lizzie

Thanks for your comments. I always appreciate hearing from folks; what it is they take away from my postings.

I congratulate you on your method and discipline. This will serve you well as you move forward in your trading. Consistency is everything in my view. I believe you are learning to get rich quick; slowly!

Thanks Lizzie, you've provided fodder for my next post.

Cheers and congratulations.

Pierre