On the concept of better understanding the Foreign Exchange market, it is very important to be able to define how a winning trade could be best accomplished in a volatile market. The market conditions and trends are set by the continued outlook of major participants and traders that are backed up by the economic fundamentals and sometimes by the forces present in the market place. The persistent bias and market opinions surrounding this market and the trend direction are also determined by them. Consider that there are contrary opinions always present in the trading place; that is why prices fluctuates in wider ranges as it changes from each trading sessions between Asia, Europe and the US market. Making most traders setup different trading plans more suitable for the market and based on their level of skills.

The questions is, how does an investor / trader know when an FX trade position can be approach in a more rational way. Where the probability of winning is greater as against the possibility of loosing in the market. The answer could only be a logical method to measure and define the profit potential and objective of a position, versus the probable loss that the position will sustain while being in the market. A full profit potential can not be maximize if the position will be settled by the limit orders placed that will be triggered easily due to the wide trading range within the same period of time. This can occur within a few minutes or a few hours upon entry and an increase on volatility would make rapid market swings. On the other hand, traders who uses the swing trade strategy for short term market exposure will be more than satisfied with the profit objective of 10 - 50 pips and anything above. That is; if and when the prices goes in their favor right away. Remember, that upon entry if the profit objective is between 10-50 pips and the stop-loss is also within the same parameters, it is a 50-50 chance basis. The probability of gains should not equal to, but greater than the risk involved. A lot of traders and investors would agree to this principle.

However, the average trading range of any major currency pair nowadays can easily be within a 100 pips / points, up and down from any market opening price levels. Considering the spread between the bid / ask and the commission on the trade if any, will be a consideration before a trade can reach its break-even point. It is best to know the Opening price levels, the highs and lows and comparing the current price levels before entry. By doing so, a pre-determined tolerance price levels can be calculated in dollar amount and can be converted into the number of pips that an investor would be willing to tolerate and whenever the prices goes the opposite direction. When that happens, the extra leverage an account has can be use to its capacity to create a hedging strategy to level off the playing field and absorb most of the negative effects of the market prices. It is a way of placing a cushion on the existing position until such time that the contrary position can build up some equity on top of the principal. And on a subsequent date it would be able to pay off for the losses incurred in the trades and not from the principal balance of the investment. By that time the previous position will have a greater chance of riding the full potential of what the market has to offer with an additional back up from the gains on the hedge strategy. Too good to be true! It is in the attitude of accepting market conditions and implementing a plan of action by having a secondary market accessible to the trader and investor. Here is a good and simple example that anyone may also consider.

To make any trade well worth the risk and the capital exposure; determine that the profit objective should always be at least three times (3x) as much as against a probable loss of one (1) . Meaning, if one is willing to loose USD1,000 in a single trade, then the objective there is to gain at least USD3,000. Fair enough! Some may say that its an ideal scenario, but it is the only logical and best way to approach this market. Being able to spot potential market opportunities is also considered to be an art, that can only be derived from extensive research and market due diligence.

Percentage trading as everyone maybe aware of is best utilize. Rather than going by so many number of trades on a day to day basis because it will outweigh better on the bottom-line returns in the long run. Besides the more trades made in the market, the chances of loosing is greater than the winning trades. The law of probability in committing the same mistake twice may apply in this case. For it is not on the quantity of trades made, but the quality of developing a well timed trade plan and properly executed will be the best way to go. It is time to turn the table around the house, so to speak.