The Stages of Forex Trading
No matter what kind of trend following forex trading system you use, you always have to keep in mind which stage you are currently dealing with during your forex trading. There are 3 stages of a forex trade that every forex strategy must deal with. And all these stages possess clear objectives.
Stage 1: Your money still at risk
This is the stage where you still have some risk involved in the trade. This is the first stage of any trade. The objective at this stage is to eliminate your risk in the actual trade as soon as possible, but let the trade go. Until you have your own money risked in the trade, meaning that you can lose your initial risk partially or fully, you are at this stage. Your chosen forex trading system should have a description of how to eliminate risk from trading. This should be a part of position management.
Stage 2: Zero risk, locking small profit
As soon as you eliminate the risk from the trade you enter stage 2. Here, the objective should be to follow the trend in a way that you lock some profits on the way, but you are not being aggressive. At this point you still need to be willing to let go of 50-70% of your profit, just to make sure you can get all the benefits this trend has to offer. At this stage, you have nothing to lose because your risk is already eliminated from the trade, but you need to let your profits run, in order to make the way for bigger gains.
Stage 3: Locking big profits
You enter this stage of the trade when you are in big profit. This, of course, is relative but usually, the 2-5 times of your initial risk in profit can already be called as big profit, depending on the characteristics of the forex trading strategy you use. From this point onward you need to focus on maximizing your profit and that is to lock as much profit as you can from the actual trade. You can do this by setting a profit taking level before you actually jump into the actual trade and use a limit order. Some of the other possibilities are that you can start looking for exit signals or you can even change your time scale and follow the trade using a smaller time period. The main thing is to make sure that your forex trading system has a well-described procedure that you can easily follow as your forex trade progresses along these stages.
The stages of forex trading described here are subjective but good position management cannot neglect how the trade is progressing. If it does so forex trading success will become difficult to achieve. Check out our free forex reversal system for examples.