One of the most commonly quoted trading maxims is some variation on the phrase: "cut your losses short but let your profits run." The wisdom of this saying has been impressed on novice traders by those more experienced for more than a hundred years.

When it comes to following this guideline when trading forex, a trader needs to learn to manage their normal human emotions that might interfere with them cutting losses and letting profits run successfully.

Furthermore, only two main situations arise when trading. Either the position you take will ultimately be a winner or a loser. Some helpful suggestions for dealing with each of these situations in the context of the aforementioned advice follow below.

Cut Losses Short on Losing Trades

Successful traders have usually cultivated the reasonable fear of losing additional money when trading. This motivates them to take prompt action to close out losing trades at a small loss, which leaves them free to reconsider their stance on the market.

Such seasoned traders have often learned the hard way that taking small losses right away can be far better than ending up with a much larger loss by waiting to close a losing trade.

Also, depending on how flexible the trader's trading plan and trading mentality is they may even elect to reverse the original position by closing the losing trade and entering into a new trade in the opposite direction to how they had originally positioned themselves.

This degree of mental flexibility can require a substantial degree of cultivation to be useful, but it can really help when trading markets that disagree with your initial assessment of their direction.

Let Profits Run on Winning Trades

Some of the more common trading errors seen with winning trades involve either taking profits too early or letting a winning position turn into a losing one.

The former issue can be addressed by using trailing stops to take you out of profitable positions rather than set take profit orders that might get you out too early.

Furthermore, having a string of winning trades can sometimes boost the confidence level of a novice trader to the point that they start to overtrade.

This common trading error can seriously impact the trader's lifestyle - not to mention their trading account - especially if they get caught up in making unprofitable trades and start chasing the market to make up for their accumulating losses and excessive commissions.

Learn to Maintain Discipline Whether Winning or Losing

Trading in an objective and disciplined way based on a sound trade plan is far likelier to be profitable in the long run than allowing your emotions to rule your trading responses. Nevertheless, doing so takes time and diligence to put in practice, although it will generally be well worth the effort.

Basically, learning to understand, anticipate and manage your emotional reactions as soon as they develop will save you both money and frustration when trading forex.

After all, trading is a business, and to stay in that business for any length of time, you will need to figure out how to make money and be satisfied with the process of doing so.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.