In today forex faq, we have a question from one of our fellow traders asking me why did the trade end up as a losing trade even when all the forex indicators that he used are pointing to the same direction.
Below is the question
Hi Koon Hwee
I have been trading for sometime and hardly have any success so far.
However I find that I still get losing trades at times even when everything seems so perfect. Can you advice me on this?
First of all, I must say that you are trading with too much indicators and therefore you will find that you can hardly find any trading opportunity in trading.
Secondly, the market is a random market and what we do as a trader is only looking for ways to increase our chance of winning in a trade. No matter how perfect the setup is, there is no way we can make sure that it will turn out to be a winning trade.
If you have been following my blog, you should have read my BTB performance report. In my report, you can see that I also do get losing trades as well. Therefore no matter how professional you are, you will still be getting a few losing trades at times.
That is why I often say that the key to trading forex is not winning percentage, it is the risk reward ratio.
As long as your strategy has a high risk reward ratio, you will still be making money when you have a few losing trades.
Let says that you have a strategy that win 3 out of 10 trades but it has a risk reward of 1:3
Assuming that your stop loss is 25 pips and target profit is 75 pips
Profit = 75 x 3 = 225 pips
Loss = 25 x 7 = 175 pips
In the end, you still make 50 pips profits for the 10 trades with a forex strategy that has only 30% winning percentage.
Lastly, I just want to tell you that some of the losing trades that you encounter even when every indicators are pointing to the same direction is because of the false alarm signal created by some of your indicators.
Therefore you must find a way to identify those false alarm signal so that you can reduce the number of losing trades you have.
Just to let you know what a strategy should have
1) Pre trade setup – This is a setup that will alert you of an incoming trading opportunity. As a trader, we do not stick to our computer all the while as this will be equivalent to using time to exchange for money.
The whole purpose of trading is to allow us to have the freedom to do what we want. Therefore I usually check my chart every hour for 5 to 10 minutes to see if there is any pre trade setup or not.
If there is, I will then wait for the trading opportunity. If there isn’t, then I will come back another hour or so.
2) False Alarm Filter – This is another very important thing that a strategy must have. There are a lot of false alarm provided by our indicator and that is why you have losing trades even when every indicators are showing you the same forex signal.
You must have a way to identify a false alarm signal on your indicator and this will greatly reduce your number of losing trades.
3) Precise Entry and Exit – In trading, we must leave nothing to guessing. We must not guess where to enter a trade or where to exit a trade.
Therefore our stop loss and target profit must be back tested before to give us the max profits. Once you fix your stop loss and target profit, simply stick to it and you will have no problem at all.
The above are 3 very important things that all strategy must have. So when you are formulating your own strategy, you must make sure that they are in your strategy.
Upon constant request from readers of this blog, I have started a Forex Signal Service that will help you to trade your account using 1 out of the 8 strategies in my course.
If you will like me to trade your account for you and help you recoup back your previous losses or help you grow your trading account, you can take a look at my Forex Signal Service below
For those of you who are totally new to forex trading, I will suggest that you read through this blog post that I have written for beginners
If you are interested to learn how I do my forex technical analysis, you can take a look at the post below