Almost every Forex trader has one common problem. They are loss leaders. Not only do they make money, they almost always win the money that they place in the markets. Of course, their profit potential is much higher than that of a bad trader or a beginner. Let us look at how you can use loss leader psychology to improve your profits.
You start out with a 100 pip initial trade that nets you a modest profit. The profit from this initial trade, however, is only enough to cover your expenses and cover your bankroll. If you were to utilize that same $100k you used to make a half million dollar trades with a half leverage currency pair giving you a one to one margin spread, giving you a trading advantage of a hundred grand, would that 50% profit be better than a bad trader who has a ten dollar leverage spread? Doubtful.
Then, you are able to draw a profit of some five digits after making a successful trade. You now place your money into a second, third or fourth marine trade. The spreads have narrowed and you are now making a loss in these trades. Your new margin calls are not producing the profits that you expected. Your new tactic for success is opening up a mini account with a brokerage firm, thereby allowing you to obtain more flexible trading capital.
If you now begin trading like this with smaller spreads and a smaller account balance, your results will begin to deteriorate. As the margins shrink, your trading position will become smaller. This is due to you need more cash to cover your losses and it also means you are taking on greater risk because the trade will be a roller coaster ride. Trading on margin is very risky. A smart investor holds their funds in an offshore account to reduce this risk.
The next scenario is that you are trading like this for hours on end and are still not making any money. It feels like you are working yourself to death and you begin to wonder if there is anything that can be done to change the outcome. What you discover is there is a way to increase your chances of winning by a significant margin but you must understand how to do it. That is where the concept of stop-loss orders comes in.
Stop-loss orders are the brain of the trading system and will be placed on either the short or long side of the trading position. Your stop-loss order will instruct the software to sell your currency pair if your current position is losing value and buy your other currency pair if your other position is gaining value. In this way, your stop-loss orders will protect your capital, while still allowing you to maximize your profits. The beauty of using Warren Buffet’s trading robot is that this robot has been programmed to follow the laws of supply and demand. If this happens, then you will profit.
Now suppose you decide to put your money into other areas instead of trading the market like you were instructed to. You will have to get used to doing things a little differently in order to be successful. Many traders have been lead to believe that all trading must be exactly like general Mills and Montgomery. That is just not true. There are many ways to get long or short and you need to learn them in order to be successful as a trader.
There is no right choice when it comes to trading. You are going to make mistakes. You will also win. However, the smarter you are about these mistakes, the more money you will make overall. Warren Buffet made his fortune by following his formula, which is to trade with the right choice and to learn how to trade with the right choices.