Rob Booker mentioned in his book The Currency Trader's Handbook, that he aimed to achieve a 10 pip profits every day. He never try to make a ton of money on each trade, and never will he let himself lose a lot of money in any single trade. He talked about defensive fx trading. A method that made him very successful today.
Defensive FX Trading includes using break even stop after a predetermined take profit level is achieved. The action of shifted initial stop loss to entry price is called break even stop. This means which ever the direction the market decides to move, the risk after implementing a break even stop is zero loss.
While using a break even stop, a forex trader can also execute partial close when the first take profit level is achieved. This means that he can close 50% of his contract and can extract a small profit out of the market.
The advantage of using partial close together with break even stop is that you will extract a profit regardless of where the market will be headed for. It is a way to minimise risk and grab a small profit while at the same time allowing the trader to participate in longer term market actions.
Rob Booker's Forex Defensive Trading Plan
It is a powerful plan where a trader can turn from $10,000 into $130,000 in one year (trading 17 days a month) earning 10 pips a day. A trader will no longer need to be greedy because he need not require to capture 100 pip market movements. Advanced traders are conservative with their trading capital because they know that the market can take BIG swings against them when they're waiting for 100+ pips.
Out of 10 trades, would you accept 5 break even trades, 2 losers of 20 pips, and 2 winners of 50 each? I would. That's trading defensively, and it's what made him a successful forex trader.
For example, I find a great opportunity to go for 10 pips trade. I entered a market order, to buy the EUR/USD at 1.2900 and set a stop at 1.2880 (20 pips). I am now long the EUR/USD at 1.2900 which means i make money money when EUR/USD go up. When the market price reaches 1.2910, I made a 10 pips profit. I can either exit the trade with my profit, or stay in the trade longer.
Here is how I stay in the trade:
First, stop loss will be moved to the entry price. This step is called break even stop. If my initial stop was 20 pips (or, on this trade, at 1.2880), then I move my stop to 1.2900. That means that if the price falls back to 1.2900 my trade automatically closes and I have lost nothing. I have gained nothing. I have traded defensively.
But if the trade goes to 1.2920, and 1.2930, and beyond, I am prepared to get more money. I can lose nothing - I am in a 100% risk free trade. Now I can let my profit run and I don't have to worry about where the market will be headed for.
Defensive trading is about how a forex trader manages a trade. Most professional traders will use one or a combination of partial close, break even stop and trailing stops to manage and exit trades.
This is a strategy where risk can be reduced to minimal but with profits potential maintained. It allows the common saying 'higher profits with higher risk' does not applies anymore if you employ break even stops and trailing stops.
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