When trading the forex market or other markets, we are often told of a common money management strategy that requires that the average profit be more than the average loss per trade. It's easy to assume that such common advice must be true. However, if we take a deeper look at the relationship between profit and loss, it is clear that the "old," commonly held ideas may need to be adjusted.
For related reading, see Limiting Losses. At first glance, most people would agree with this recommendation. After all, shouldn't any potential loss be kept as small as possible and any potential profit be as large as possible?
The answer is, not always. In fact, this common piece of advice can be misleading, and can cause harm to your trading account. Your trading performance depends largely on your APPT. Let's say that out of 10 trades you place, you profit on three of them and you realize a loss on seven. That's a losing proposition! Let's say out of the 10 trades you place, you make profit on eight of them, and you realize a loss on two trades. Many Ways of Becoming Profitable When trading the forex market, there is no one-size-fits-all money management or trading approach.
Traditional advice, such as making sure your profit is more than your loss per absolute trade, does not have much substantial value in the real trading world unless you have a high probability of realizing a winning trade. What matters is that your APPT comes up positive and that your overall profits are more than your overall losses.
For more forex money management tips, see Money Management Matters. Dictionary Term Of The Day. Broker Reviews Find the best broker for your trading or investing needs See Reviews. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education.
A celebration of the most influential advisors and their contributions to critical conversations on finance. Become a day trader. This is the formula for average profitability per trade: In this scenario, the APPT is: Here is the APPT: How much a fixed asset is worth at the end of its lease, or at the end of its useful life. If you lease a car for three years, A target hash is a number that a hashed block header must be less than or equal to in order for a new block to be awarded.
Payout ratio is the proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage. The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as No thanks, I prefer not making money. Get Free Newsletters Newsletters.More...