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A lot has been said about buying low, selling high; don't ride your losses; always take Forex profits; and other unspecific pieces of advice to the novice Forex trader that looks great on a poster board, but does nothing when you're in front of your computer screen.
Everybody has their own style of trading Forex. That's not to say there are no two styles that are alike. It's not even to say that you need to create your style of trading. There is no reason to reinvent the wheel. There are plenty of styles and methods and philosophies to choose from and at least for some, they are successful. But all that is theory.
When you click on the “buy” button or “sell” button, that is when all Forex strategy takes a back seat to practicality. Once you're in the market, you want to know when to get out, or how long to stay in. These are the nuts and bolts of trading Forex. Theories don't increase a person's margin. Buying and selling does.
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Like everything else, there are several tacts available for how long to stay in a trade. When to get in, and when to get out. These really boil down to profit/loss ratios, because if you're willing to ride your losses and you're cutting short your profits, your longevity in the world of Forex is going to be severely limited.
A sensible profit/loss ratio should be adhered to, however the word “sensible” is a rather value-laden term. There are Forex traders who use a 1:3 risk/reward ratio in their trading. This boils down to risking 100 PIPs on the loss side, while riding out a profit for 300 PIPs. To some, this is a nice ratio because the trader is bound to maximize his Forex profit with a relatively limited risk on the loss side. The downside to this Forex strategy is having to ride out that substantial profit margin with the faith that the market will not turn. It's very dependent on a sustained movement on the profit side.
On the other end of the spectrum, many Forex traders use a 4:1 risk/reward ratio. They are willing to risk 400 PIPs for a 100 PIP profit; or any variance of such (risking 100 for a 25 would be the same). This might seem foolish on the surface, but for many it means they can take quick Forex profits while still being able to withstand a temporary setback in the market.
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Most experienced traders agree that particularly for the less experienced trader, the ratio that makes the most sense is a 1:2 risk/reward. That way you don't have to ride out profits, and your losses are relatively painless. The most important factor, as always, is discipline. Stick to your guns and it will work out.
Don't forget your stop-loss orders and raise them (or lower them) accordingly. If your goal is a 100 PIP profit and the market has moved 50 PIPs in your direction, you should move your stop order up (or down) 25 PIPs. Stop-loss orders are as much about protecting profits as they are about cutting losses. Once you're out...you can always get back in.
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