Regardless of experience, every trader needs a plan. Key aspects that help make trading safer are a necessary strategic minimum to obtain a sustainable profit and avoid unforeseen losses.
Why can traders fail?
Let's examine the main reasons why traders lose money:
Trading is a complex process. Trading strategies require discipline and accuracy. Even though some traders have the best intentions, they might forget to act systematically.
Traders can be reckless. They may forego market analysis and avoid using Stop Loss orders and risk management rules. All of this leads to mistakes and bad trades.
Below you'll find recommendations to follow. These tips represent the best practices for trading.
What do traders need to know to protect their orders?
- Not to open an order with a large volume
If you're unsure about the market movement, focus on a maximum of one to two orders during a session. Tracking and finding opportunities is more manageable with just a few orders.
Note that some factors, like slippage (the difference between the expected price of an order and the price at which the order is executed), cannot be understood and taken into account until trading begins. Thus, starting small, you can evaluate your trading plan to comply with executing precise order entries — without the risk of losing more funds than you expect.
- Enable the Ask line
Please note that you can see only the Bid price on the charts by default.
Why enable the Ask line?
The Ask is the price traders are willing to sell orders. It refers to the lowest price you can accept for a position.
Here you can find the instructions on enabling the Ask price on the chart.
- Use Stop Loss and Take Profit
To reduce the risk of losing funds, you can use Stop Loss orders. They protect you from losing more funds than you can afford to.
A Take Profit works similarly — it automatically closes an order once a price target is reached to lock in profits. Thus, Take Profit allows you to maximize profit by exiting a trade as soon as the market is at a favorable price.
- Use reasonable leverage
Less leverage applied to each order affords more breathing room by setting a wider but reasonable stop and avoiding a higher loss of funds. A highly leveraged order can quickly deplete your trading account if it goes against you, as you will rack up greater losses due to the bigger lot sizes.
In this article you can find information on how risk and leverage are connected.
- Be aware of strong news
The market can change its direction anytime based on news or even rumors. It's crucial to stay up-to-date. Every trader should follow the information the whole time they trade.
Suppose you realize that the released news will affect your positions directly, but you're unsure which direction they will go. In that case, you should provide maximum protection for your open orders (set Stop Loss, Take Profit, and in extreme cases, close the orders before the start of the expected news).
- Do not trade during hours with low liquidity
You need to be noted that low liquidity trading instruments tend to have wider bid-ask spreads, greater volatility and, as a result, higher risk for traders. Thus, trading during an illiquid period is fraught with significant losses of funds.
- Examine numerous indicators
It's better to make your buy/sell decision based only on several technical indicators.
Indicators and other instruments of technical analysis should confirm each other. Combine two or three indicators of different types. Your trading strategy may also rely on candlestick and chart patterns and the usage of Fibonacci instruments. In this case, the system will give you signals with a high probability of success. If you use such a strategy together with Stop Losses and a correct risk/reward ratio, you'll be able to avoid losses in trading.
- Control your emotions (and don't forget about the tips above)
The most successful trading comes with confidence and calmness. Your fear of losing or your desire to make money on a trading instrument that is unstable during strong news can work against you. Make sure you control your emotions and use the tools, such as Stop Loss and Take Profit orders to make objective trading decisions.