There are two primary methods to profiting by trading in the Forex markets
(or any other market for that matter). Method one is when the target profits
are equal to the target loss (P=L). Method two is when the target profits are
greater than the target loss (P>L). There is actually a third, but this is insane
to do; target profits are less than the target loss (P<L). Some traders prefer
one of these approaches over the other but either is good. It is best to use both
approaches for various trading styles.
The “Forex Roulette” method in this eBook is an example of “P=L” (there are
other technique variations that I teach here & in my other eBooks that are also
“P=L”). The trick to having trades with equal profit targets and loss targets is
to have more than 50% of your trade picks be correct. The challenge is of
course to be skillful at your technical analysis to improve your percentage of
wins.
The second method of trading is to let your profits run and far exceed your
potential losses (P>L). With this approach you can be wrong (yes WRONG)
most of the time and still be profitable! For example, if you were to have
trades that are three times more profitable than your set losses you could be
wrong 70% and still be profitable! (i.e. losses = 100 units, profits = 300
units … 7 losses x 100 = 700 units, 3 wins x 300 = 900 units, net 200 profit).
Usually trades that follow the “P=L” model employ a fixed target limit,
whereas usually trades that follow the “P>L” model achieve that result by
using a trailing stop letting the profits run their course.
Some traders use a clever combination of both of these approaches to gain the
benefits of each method. A simple way to do this is to set up two trades (each
trade is for half of your permitted trade amount based on equity management
principles. Both trades together equal your full risk permitted). Each of the
two trades represent half of your whole trade (obviously each using half of the
amount of lots you could allocate to the whole trade). Half of your trade them
is set to have a fixed limit equal to your stop. The other half of your trade is
set without a limit (but of course you have a stop!) and you simply employ a
trailing stop to see how far you can let your profits run.
For each trading technique presented in this eBook (and my other ones) it
should be obvious which of the above two methods is implied to be
used. Though I usually don’t specify, for most trading techniques you could
adapt the combination of using both “P=L” & “P>L” and this should work
advantageously for you for most styles of trading.
One more “method” exists, but this one is insanely stupid. Though it is crazy
to implement it is unfortunately used by many newbie traders when they begin
trading. The cliché rule of thumb for traders is to “cut your losses short and
let your profits run”, however many people new to trading often do the
opposite of taking their profits quickly, but letting their losses run far longer
than they should. There are many reasons why they do this (mostly
psychological), which I won’t elaborate upon here, but it is a sure sign of an
amateur trader not properly educated. This method of having target profits be
less than target losses (P<L) is a surefire way to loose money fast and to have
your career as a trader be ended very quickly. Bottom line is to always set
your stops at appropriate levels and to only engage into trades that are
expected to yield a profit that is equal to or greater than your potential loss.
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