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FX MONEY MANAGEMENT


winners. And when a trade starts moving against retail FX traders oſten panic, they freeze, they stop thinking. Tey abandon their plan. Te obvious question is, “what happened to your plan?”. Well, as the former heavyweight boxing champion of


the world


Mike Tyson once said, “everyone has a plan until you get punched in the mouth.” For


the average


retail FX trader, a losing trade is like getting punched in the mouth by Mike Tyson.


As a result, these traders


abandon


their own risk management plan and refuse to exit a trade at the predetermined level. Tey can’t think clearly and don’t want to admit defeat. And so they hold the position – long aſter it is already past their original stop out level, long aſter the reason they got into the trade is no longer valid,


long aſter they’ve lost


more money on one trade than they ever intended. And now they are stuck.


Hoping Is Not A Trading Strategy


It’s at this point that traders stop being traders and become hopers. Tey are no longer trading. Tey are hoping that


32 FX TRADER MAGAZINE October - December 2018


the market moves back in their favor. Tey hope to get back to break-even. Tey ignore the mounting swap fees. Tey stop looking at other charts, at other trading opportunities and become fixated and married to this one loser


more traders who hold their losses for no reason other than they don’t want to close the trade and realize the loss.


The problem for most retail traders is that they don’t or can’t exit a trade once they’ve put it on


of a position that, like an old carton of milk, has expired and should have been thrown out days before.


How do I know this? As an introducing broker, I am aware of the trading activities and, more importantly, the risk management decisions made by our clients. We work with clients who are very successful FX traders who have a repeatable and scalable plan that they execute over and over again, taking losses when trades don’t pan out and taking winners when they do. But, like the rest of the industry, we also work with many


I can’t begin to tell you how many conversations I’ve had with clients who have told me they used the 5 minute chart to enter a trade when a certain technical p h en o m en a occurs, but will hold it for months hoping it comes back to break-even. Be realistic – do you really think a 5 minute indicator is still a valid predictor of future market movement three


later? Te answer is


no.


months Traders


need to resume using common sense and what I


call the thesis approach to trading. Tis basically means that you have a thesis for a particular trade – a belief the market will behave in a predictable fashion as a result of some occurrence. However, if and when that thesis is proven invalid – i.e. the market doesn’t behave as you expected – get out of the trade, reevaluate your thesis to make sure it is still sound and look for another opportunity. By way of analogy, if I have a thesis that a car driven into a lake will float, I am going to know pretty quickly if I am right or I am wrong. As soon as that car takes on water and slips beneath the surface, my thesis is


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