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Dollar counting is a sin usually committed by fx traders who are not used to win very often, constantly monitoring how much a trade is up and down in profits is a destructive activity that has been robbing currency traders of big profits for years.
This process, commonly referred as dollar counting, not only increases fear, it also promotes moment-to-moment uncertainty and prevents one from focusing on proper trading techniques. Your actions as a forex trader should be dictated by a well-thought out trading plan and not by the minute-to-minute changes in your account.
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Tips on How to Eliminate the Sin of Dollar Counting
1. For each trade taken, establish two potential exit prices, at which you will sell your entire position - The first of these sell points should be placed below the current market price and is better known as the stop loss. The second point should be placed above the current market price and is called a "limit or take profit point". This is where you expect the currency pair to go and serves as your price objective. Example: You buy ten mini lots (worth $1/pip movement) EUR/USD at 1.3000 and after the order is being executed, you immediately establish a stop loss at 1.2950 and a price objective of 1.3100.
2. Sell only if the currency pair you are trading violates the stop loss point or hits your objective (limit or target), whichever event happens first - By adhering to this rule, forex trader place the fate of each trade taken in the hands of their trading strategy, not in the hands of their greed or fear.
To continue with the previous example, you would sell it EUR/USD declined to 1.2950, resulting in a $500 loss. You would also sell if EUR/USD rose to 1.3100, resulting in a $1000 gain.
3. If the urge to exit before either sell point is met become overbearing, satisfy the urge by selling only half and letting the remaining half sit until your strategy says exit - For instance, let say EUR/USD rises to 1.3050, shortly after you buy it.
You now have a paper profit of $500, but your strategy hasn't called for any action yet. You can sell half of your position, locking in a $250 gain, while giving the remaining 5 mini lots a chance to go to the entire distance, if they can reach the target level, you will earn another $500 bringing the total profit to $750.
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