Profit and loss ratio when trading forex.

One of the basic rules of forex trading is calculating your desired profit and maximum acceptable loss in advance.

Beginner traders often neglect this issue, resulting in either under-profits or excessive losses, both of which have an equally negative impact on the financial outcome of trading.

To improve trading efficiency, it's necessary to focus on both increasing profits and minimizing losses. Some beginners aren't even aware of how closely these two concepts are intertwined in forex trading.

Typically, the situation develops according to several scenarios:

1. The first, "Deplorable," is when the lack of a clear maximum loss limit almost always leads to a wiped-out deposit. A trader, having opened a trade in the wrong direction, hopes that the counter-movement is merely a correction that will soon end. Meanwhile, the deposit simply melts away before their eyes until the trade is closed by a stop-out .

You should always know how much you can afford to lose on a single trade, whether it's a percentage or a specific number of pips; the main thing is to always follow the established rule. This is a purely psychological factor that causes the largest losses.

2. The second, "Invisible," is when, every time you open a new trade, you should clearly know how much you can earn—and that means you can, not just how much you want to earn. Because, firstly, overexertion is punished by a trend reversal and losses, while indecision is punished by a loss of profit.

It might seem like there's nothing wrong with closing a trade a little early and earning only 20 pips instead of 50, but still leaving with a profit. However, given that all Forex trading consists of losing and winning trades, there's no guarantee that this approach won't result in a negative outcome.

Potential profit is calculated based on volatility and its historical price movement.

Price corrections typically hinder maximum profits, and fear of a trend reversal forces existing positions to be closed immediately. In this case, constant market analysis can be a remedy, even with an existing trade open, and the best signal to close it is a signal to open a position in the opposite direction. Capital management in Forex has always been the key to successful trading, so it is one of the most important aspects of trading.