Ratios are very useful in Forex trading. It can help you to perform and handle your trades much better. But it won’t be necessary to use every ratio separately but a combination of it is allowed. You can even play with them just like the indicators you use when trading.
One useful thing that a radio analysis can bring up to the light is the counterintuitive results, or the things that you expect will happen didn’t happen. Due to this reason, going through the control part of your trading is very important. You can also review your performance and see what you have been doing wrong and right.
A Good Strategy Doesn’t Equal To Good Results
Consider this very common scenario in trading: you found a strategy that will bring success in all possible aspects. You tried it out and eventually your account balance is growing positively. You see that the trading strategy is working in combination. However, after some time, you noticed that you are not making the money you projected to have. Your account starts to go low. What happened?
There are a lot of things that can happen in your account. The scenario which was tackled above is an example of a counterintuitive scenario that will most likely happen as you trade. When such things happen, you must use your evaluation ratios to be able to figure out a solution to avoid getting bankrupt.
How did This happen?
There are a couple of things that can happen whilst there are several diagnostic tools that are readily available to you.
The first thing you can do is to check if the persisting problem has to do with the trading frequency and not just because of a fluctuation of the Forex market. To be able to determine the existing problem, you need a record of all the trading frequencies that you encountered. You also need a record of the profits you acquired when trading. Check for instances in which your frequency goes up but the profitability remains low.
During these situations, you may choose to cut back on your trading frequency and the situation goes back to normal. Take a look at your trading mojo and know why the increase in frequency messes up everything.
One good explanation to the above-mentioned scenario is that, when you are trading less often, you are luckily picking the right trades or the ones that will most likely create positive results. But as soon as you increase the number of trades using the same frequency, you are picking trades that are considered riskier. Over time, more of those trades started to work along with you. This is the time when the frequency goes up but the profit remains low.
Identify The Problem
The only solution to this is to apply maths and calculate your profits. If you are one pretentious trader and you merely increase your trades just because of some positive results then you will most likely fail in this field. Before you increase the number of your trades, examine first if your Forex trading strategy will work in the long run. Don’t hurriedly make decisions just because you want to make money now. This will only create a compound problem in the long run.