How to Beat Your Forex Broker in It’s own Game
Some say the broker’s deck is stacked against you and this is the reason why many traders lose money. While there are various obstacles inherent to online trading that some say stack the deck, most are beyond a trader’s control. What can be controlled is trader behaviour and this is the way to beat your forex broker.
Traders
Most traders tend to take their profits too soon and let their stops run until
stopped out. This is just human behaviour that is hard to change. No matter
how good one’s risk/reward is when putting on a trade, actual results over
time are likely to fall shy of the goal.
Now, I never begrudge anyone for taking a profit, whether one pip, two pips
or 100 pips. However, you have to understand that when you take your
profit too soon, you are playing into the broker’s hand as it will not give you
any mercy when it gobbles up your stop. The broker is counting on human
behaviour to work in its favour, which means taking profits before your trade
has reached fruition while losing the full value of your stop when the trade
does not work out.
It is just mathematics. If your stop is 50 pips and target is 50 pips per trade
but you rarely wait for it to be reached, then your 1:1 risk/reward ratio will
not be achieved.
As a rule, the more pips you go for the greater the risk that your trade will
not reach its target. There is no worse feeling than to have the right idea,
see the market go your way, not take your profit and then see the market
reverse to run your stop, whether it be the original or trailing one.
How to Beat Your Forex Broker in It’s own Game
Brokers
On the other hand, by intervening to take profits too early when you have
the market on the run, you are playing into the broker’s hand. You are
giving the broker a gift by taking profits too soon while allowing your stop to
run until triggered when wrong.
So, the question is how can you take control?
Once you understand why brokers have an advantage, you are on your
way to beating your broker at its own game. The challenge is to see what
steps you can take to neutralize that advantage.
There is a grey line between deciding when to take profits and when to let
the position run. It all comes down to risk management and analysing your
trading as if it is a business. Bottom line, it is simple math as I explain in
How to Treat Your Trading as a Business.
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