Monday, 3 May 2010
THE BEST WAY TO CASH FX BENEFITS
Forex or FX is the largest currency trading market with trillions of Dollars being traded every day. What makes Forex different and unique from the other trading markets is the fact that it is a whole new future of the traditional trading system, powered by Internet. Forex may not be easy but is definitely the most beneficial trading market, and with a good course and some guidance in Forex trading, you can enjoy every trading benefit of this extensive money market.
Following are some of the benefits of Forex and Forex trading:
- Forex is operated by an electronic medium Internet, thus can be accessed anywhere and at anytime
- Forex deals with both major and minor currencies
- Forex offers various trading options like day trading and long time trading
- Forex also provides risk management keys like ‘Stop Loss’
- Forex offers you leverage to manage your trading investments
- Forex ‘brokers’ help you manage your trading
- Forex has a large sum of money being traded every second
With so many benefits, Forex is one of the profitable yet definitely not one of the easiest markets to deal in. Good training in Forex trading helps novice traders in learning the ‘strategy making’ while handling sudden ups and downs in the currency rates, as any move without a back up plan can radically effect your investment and cause you an unpredictable loss.
A good trading course in Forex can teach you all the right moves you need to make to ensure that your trading deals pay you well and more. While trading one currency with another there are various factors that should be taken into consideration and a good Forex trading course teaches you to how to trade without committing blunders, predicting future movements and foreseeing exit points when you should stop trading.
Although in Forex you have experienced brokers to rely on, but even managing a broker well and aptly assessing his need in every step of your trading takes a lot of good guidance and knowledge. With the right Forex trading course, you can not just become an expert in Forex trading but can also find new ways to get a fair deal for your investments.
The 24/7 accessibility to this money market helps you trade more, and hence earn good by performing simple buying and selling. To make you are strongly based in the Forex market, all you need is some good guidance and knowledge of the latest trading tactics as well as awareness about the past and future trading trends, and that is exactly where the Forex Trading course comes in handy.
Following are some of the benefits of Forex and Forex trading:
- Forex is operated by an electronic medium Internet, thus can be accessed anywhere and at anytime
- Forex deals with both major and minor currencies
- Forex offers various trading options like day trading and long time trading
- Forex also provides risk management keys like ‘Stop Loss’
- Forex offers you leverage to manage your trading investments
- Forex ‘brokers’ help you manage your trading
- Forex has a large sum of money being traded every second
With so many benefits, Forex is one of the profitable yet definitely not one of the easiest markets to deal in. Good training in Forex trading helps novice traders in learning the ‘strategy making’ while handling sudden ups and downs in the currency rates, as any move without a back up plan can radically effect your investment and cause you an unpredictable loss.
A good trading course in Forex can teach you all the right moves you need to make to ensure that your trading deals pay you well and more. While trading one currency with another there are various factors that should be taken into consideration and a good Forex trading course teaches you to how to trade without committing blunders, predicting future movements and foreseeing exit points when you should stop trading.
Although in Forex you have experienced brokers to rely on, but even managing a broker well and aptly assessing his need in every step of your trading takes a lot of good guidance and knowledge. With the right Forex trading course, you can not just become an expert in Forex trading but can also find new ways to get a fair deal for your investments.
The 24/7 accessibility to this money market helps you trade more, and hence earn good by performing simple buying and selling. To make you are strongly based in the Forex market, all you need is some good guidance and knowledge of the latest trading tactics as well as awareness about the past and future trading trends, and that is exactly where the Forex Trading course comes in handy.
STOP LOSS
In this article we will discuss the various ways to implement a stop loss order. Every trader who has had dealings in any of the financial markets is familiar with placing and executing a stop loss order, but many are mistaken that a stop loss order is always numerical. On the contrary, there are many traders (even professional hedge fund managers) who use what is colloquially termed a “mental stop” which stop is a stop loss point determined by factors other than the price, such as events, volatility, volume, option positioning, or any other comparable data. Such a stop is no less valid than a numerical one, and certainly no less effective, but one does need a lot more discipline to execute it successfully.
The great advantage of a non-numerical stop-loss order is its partial immunity to price swings. If the trader has confidence in his analysis, and is satisfied that standing firm in the face of market volatility is sensible and acceptable given the major dynamics and currents in the market, maintaining positions with non-numerical stop loss orders can be advisable and lucrative. In order to manage the inevitable large swings in account value, professional managers will implement hedging strategies in addition to money management methods, to control and minimize the volatility of the portfolio. Thus, even if the mental stop triggers a large drawndown in our position, we can minimize the effect on the portfolio through diversifying and distributing the risk among various currency pairs.
Let us examine the various ways of implementing a stop-loss order now.
Equity Stop
An equity stop is one where the position will be closed in case the total equity in an account falls below a certain value. A stop loss at 2 percent of total equity is generally regarded as a conservative strategy, while the maximum is 5 percent for most money management methods. Thus, to give an example, a 1000 USD account would have the stop loss for an open position at the point where to the total equity would fall below 980 USD.
Both the disadvantage, and the advantage of the equity stop is its inflexibility. The equity stop provides a very solid criterion for deciding on the success or failure of a single trade, as there’s no way of being mistaken about an account in the red. On the other hand, the same inflexibility may prevent the trade from functioning as expected. The markets are volatile, and a trade that has a perfectly valid cause behind it may yet be invalidated by the random fluctuations that are not predictable.
Another important problem with the equity stop is its inability to prevent a string of losses. For instance, when the trader closes a position at a two percent loss, there’s nothing that will prevent him from opening another position in the same direction (buy or sell) a short while later, if the causes that justified the first trade are still in place. For instance, if the trader enters a sell order when the RSI is above 80, and consequently the stop loss is triggered, and the position closed, there’s little that will prevent the same events from being repeated if the price action repeats the same movements. In order to avoid this pitfall, the trader can tie the stop loss point to a non-price factor, and the rest of this article discusses such scenarios.
Chart Stop
In a chart stop, the trader will place the stop loss order not at a price point, but at a chart point which may be static or dynamic. For instance, a stop loss order may be placed at a fibonacci level, which would be a static value. On the other hand, the trader may use an API (an automated trading system), or mentally prepare himself to close the position if a technical event, such as a crossover, a breakout, or divergence occurs, which would constitute a dynamic stop-loss point. In all these cases, technical analysis generates the triggers and determines the price where the position must be closed.
The chart stop is more flexible and reliable than a direct equity stop, because it adjusts to price action and volatility, and is therefore somewhat independent of the random movements of the price. The problem with the chart stop is twofold. First, the technical indicator used to generate the signals may fail to capture the change of the market trend, resulting in large losses. The other, and obvious problem is related to the indirect character of the stop-loss mechanism. Because the order is independent of the price, it may not be able to cut losses as effectively as a direct equity stop, and larger than expected losses may materialize as a result.
Volatility Stop
A volatility stop depends on volatility indicators, such as the VIX for determining the exit point for the trade. As such, market panics and shocks will cause the order to be executed, but mere price fluctuations in the currency market which lack their counterpart in other asset classes will be ignored for the most part. The trader who utilizes a volatility stop expresses the opinion that unless a major, unexpected shock hits the market, his position should be held regardless of the behavior of the markets. This is a more risky strategy than the equity stop, but can be profitable and valid depending on market conditions and the economic environment. In general, it is doubtful that a volatility stop can be very useful in a very nervous and volatile market. But it could be very helpful in maintaining a long-term position where risk perception is low.
The volatility stop is sensitive to prices, but only in an indirect manner, and its nature is similar to the chart stop. It is useful for eliminating very short term distortions from our analysis, and allows us greater resilience in the face of noise in the data.
Volatility may fail to react to market swings. Sometimes a large fall in the market has no equivalent rise in the various volatility gauges. Similarly, volatility can at times rise without any obvious corresponding price action. Consequently, a volatility stop (and similar stops based on non-price data) can be triggered even before a trade is in the red. All these must be kept in mind if the trader decides to use this type of stop order.
Volume Stop
When the trader expects an ongoing trend to be reversed or invalidated subsequent to a change in volume, a volume stop maybe appropriate. While volume statistics are not available for the forex market, positioning as depicted by the COT report can be used for establishing this type of stop. For utilizing the order, the trader determines a percentage value on futures positioning above or below which the position must be liquidated, depending on market conditions and the nature of the order. In the same context, other types of data can also be used to generate a stop loss trigger point. A particular put/call ratio, or option risk reversal value may all be chosen to provide the equivalent of a volume stop in the stock market.
In example, let’s consider a trader who opens a short position in a carry trader pair, confirming his trade by developments in the stock market. His expectation is that the recent rise in the stock market indexes (and the corresponding rise in the carry pairs) occurred on low volume, and will soon be reversed in the absence of new money flows. Consequently, he places his stop-loss at a volume level which, if reached in a rising market, will invalidate the starting premise, and cause the position to be liquidated. When this occurs, and volume rises above the preconceived level, the trader will close his short position in the carry trade pair.
Margin Stop
The margin stop is not really a stop loss order, but the absence of it. In this case the trader will let his account absorb the unrealized losses until a margin call is triggered, and a large part of the account is gone. The margin stop is a sign of indiscipline and lack of insight, because a diligent trader will always predetermine the conditions that will lead to the closing and liquidation of a position. Since not even the brightest analyst is capable of predicting the future with any certainty, lack of a stop loss order is an indefensible practice.
Notwithstanding the previous, the margin stop is a popular choice among many traders who are unable to remain calm in the face of the great emotional pressures of trading. It is only viable under really low leverage such as 2:1, and even then a margin stop would not be the best choice. At much higher leverage, the margin stop is completely indefensible, and should be avoided altogether
Event Stop
Fundamental analysts do make use of technical tools, if only for determining the trigger points for a trade. Take profit, and stop loss orders are used by almost every trader in the world, and its is unthinkable that a serious analyst will not have a condition, at least in mind, for closing an open position, however convinced he may be of its ultimate validity.
But fundamental analysts are not limited to technical tools and the price action for determining when to exit a trade. The event stop that we would like to discuss here is a tool that the trader can use to determine a trade’s exit point.
When using the event stop, the trader will ignore the price action for the most part (and will use low leverage), and will only close a position in the red when the scenario he had pictured in his mind becomes contradicted by events. For instance, a trader is anticipating that Bank A will be nationalized by the authorities of Nation X, and he expects that this will lead to X’s currency depreciating against its counterparts. In consequence, he shorts it. He will refuse to close the position until authorities confirm and clarify, in a solid and unmistakable fashion, that they will refuse to nationalize Bank A. In the meantime, he will be willing to put up with all the rumors, extreme swings, and short term fluctuations in the market without worrying about the unrealized profit or loss in his account.
As we mentioned at the beginning, the event stop is for those traders who know what they do, and who possess the track record, the intellectual background, and the confidence to use it. But do not take our word in order to evaluate your own skills; you should know yourself better than anybody else, and if you believe that you understand the economic dynamics of the era, and can defend your claim in your trading activities, you will be perfectly capable of using the event stop.
Conclusion
The best choice for the beginner is the equity stop. During the learning process, the trader can concentrate on bettering his understanding of the markets without worrying about excessive losses. Once the trader gains a good understanding of market dynamics, and is able to form and implement his trading plans, the equity stop will quickly lose its attractiveness.
The best method for using the non-price stop orders is combining them with a wide equity stop which will serve as a final safety precaution in case the price action becomes too dangerous. For instance, a trader can long the EUR/JPY pair and hold it indefinitely until the VIX registers a value above 35, where a v9olatility stop would be placed. At the same time he will protect himself from extreme, and unexpected swings by placing an equity stop at 5-7 percent of total equity. Thus, unless a very large price swing completely overruns the main criterion for the stop loss order, and triggers the equity stop, the trade would be maintained indefinitely.
Needless to say, every trader will have his own choices on stop loss orders. And we would like to conclude this section by noting that the key to a successful stop-loss order is a disciplined risk management strategy, and everything else is just detail.
The great advantage of a non-numerical stop-loss order is its partial immunity to price swings. If the trader has confidence in his analysis, and is satisfied that standing firm in the face of market volatility is sensible and acceptable given the major dynamics and currents in the market, maintaining positions with non-numerical stop loss orders can be advisable and lucrative. In order to manage the inevitable large swings in account value, professional managers will implement hedging strategies in addition to money management methods, to control and minimize the volatility of the portfolio. Thus, even if the mental stop triggers a large drawndown in our position, we can minimize the effect on the portfolio through diversifying and distributing the risk among various currency pairs.
Let us examine the various ways of implementing a stop-loss order now.
Equity Stop
An equity stop is one where the position will be closed in case the total equity in an account falls below a certain value. A stop loss at 2 percent of total equity is generally regarded as a conservative strategy, while the maximum is 5 percent for most money management methods. Thus, to give an example, a 1000 USD account would have the stop loss for an open position at the point where to the total equity would fall below 980 USD.
Both the disadvantage, and the advantage of the equity stop is its inflexibility. The equity stop provides a very solid criterion for deciding on the success or failure of a single trade, as there’s no way of being mistaken about an account in the red. On the other hand, the same inflexibility may prevent the trade from functioning as expected. The markets are volatile, and a trade that has a perfectly valid cause behind it may yet be invalidated by the random fluctuations that are not predictable.
Another important problem with the equity stop is its inability to prevent a string of losses. For instance, when the trader closes a position at a two percent loss, there’s nothing that will prevent him from opening another position in the same direction (buy or sell) a short while later, if the causes that justified the first trade are still in place. For instance, if the trader enters a sell order when the RSI is above 80, and consequently the stop loss is triggered, and the position closed, there’s little that will prevent the same events from being repeated if the price action repeats the same movements. In order to avoid this pitfall, the trader can tie the stop loss point to a non-price factor, and the rest of this article discusses such scenarios.
Chart Stop
In a chart stop, the trader will place the stop loss order not at a price point, but at a chart point which may be static or dynamic. For instance, a stop loss order may be placed at a fibonacci level, which would be a static value. On the other hand, the trader may use an API (an automated trading system), or mentally prepare himself to close the position if a technical event, such as a crossover, a breakout, or divergence occurs, which would constitute a dynamic stop-loss point. In all these cases, technical analysis generates the triggers and determines the price where the position must be closed.
The chart stop is more flexible and reliable than a direct equity stop, because it adjusts to price action and volatility, and is therefore somewhat independent of the random movements of the price. The problem with the chart stop is twofold. First, the technical indicator used to generate the signals may fail to capture the change of the market trend, resulting in large losses. The other, and obvious problem is related to the indirect character of the stop-loss mechanism. Because the order is independent of the price, it may not be able to cut losses as effectively as a direct equity stop, and larger than expected losses may materialize as a result.
Volatility Stop
A volatility stop depends on volatility indicators, such as the VIX for determining the exit point for the trade. As such, market panics and shocks will cause the order to be executed, but mere price fluctuations in the currency market which lack their counterpart in other asset classes will be ignored for the most part. The trader who utilizes a volatility stop expresses the opinion that unless a major, unexpected shock hits the market, his position should be held regardless of the behavior of the markets. This is a more risky strategy than the equity stop, but can be profitable and valid depending on market conditions and the economic environment. In general, it is doubtful that a volatility stop can be very useful in a very nervous and volatile market. But it could be very helpful in maintaining a long-term position where risk perception is low.
The volatility stop is sensitive to prices, but only in an indirect manner, and its nature is similar to the chart stop. It is useful for eliminating very short term distortions from our analysis, and allows us greater resilience in the face of noise in the data.
Volatility may fail to react to market swings. Sometimes a large fall in the market has no equivalent rise in the various volatility gauges. Similarly, volatility can at times rise without any obvious corresponding price action. Consequently, a volatility stop (and similar stops based on non-price data) can be triggered even before a trade is in the red. All these must be kept in mind if the trader decides to use this type of stop order.
Volume Stop
When the trader expects an ongoing trend to be reversed or invalidated subsequent to a change in volume, a volume stop maybe appropriate. While volume statistics are not available for the forex market, positioning as depicted by the COT report can be used for establishing this type of stop. For utilizing the order, the trader determines a percentage value on futures positioning above or below which the position must be liquidated, depending on market conditions and the nature of the order. In the same context, other types of data can also be used to generate a stop loss trigger point. A particular put/call ratio, or option risk reversal value may all be chosen to provide the equivalent of a volume stop in the stock market.
In example, let’s consider a trader who opens a short position in a carry trader pair, confirming his trade by developments in the stock market. His expectation is that the recent rise in the stock market indexes (and the corresponding rise in the carry pairs) occurred on low volume, and will soon be reversed in the absence of new money flows. Consequently, he places his stop-loss at a volume level which, if reached in a rising market, will invalidate the starting premise, and cause the position to be liquidated. When this occurs, and volume rises above the preconceived level, the trader will close his short position in the carry trade pair.
Margin Stop
The margin stop is not really a stop loss order, but the absence of it. In this case the trader will let his account absorb the unrealized losses until a margin call is triggered, and a large part of the account is gone. The margin stop is a sign of indiscipline and lack of insight, because a diligent trader will always predetermine the conditions that will lead to the closing and liquidation of a position. Since not even the brightest analyst is capable of predicting the future with any certainty, lack of a stop loss order is an indefensible practice.
Notwithstanding the previous, the margin stop is a popular choice among many traders who are unable to remain calm in the face of the great emotional pressures of trading. It is only viable under really low leverage such as 2:1, and even then a margin stop would not be the best choice. At much higher leverage, the margin stop is completely indefensible, and should be avoided altogether
Event Stop
Fundamental analysts do make use of technical tools, if only for determining the trigger points for a trade. Take profit, and stop loss orders are used by almost every trader in the world, and its is unthinkable that a serious analyst will not have a condition, at least in mind, for closing an open position, however convinced he may be of its ultimate validity.
But fundamental analysts are not limited to technical tools and the price action for determining when to exit a trade. The event stop that we would like to discuss here is a tool that the trader can use to determine a trade’s exit point.
When using the event stop, the trader will ignore the price action for the most part (and will use low leverage), and will only close a position in the red when the scenario he had pictured in his mind becomes contradicted by events. For instance, a trader is anticipating that Bank A will be nationalized by the authorities of Nation X, and he expects that this will lead to X’s currency depreciating against its counterparts. In consequence, he shorts it. He will refuse to close the position until authorities confirm and clarify, in a solid and unmistakable fashion, that they will refuse to nationalize Bank A. In the meantime, he will be willing to put up with all the rumors, extreme swings, and short term fluctuations in the market without worrying about the unrealized profit or loss in his account.
As we mentioned at the beginning, the event stop is for those traders who know what they do, and who possess the track record, the intellectual background, and the confidence to use it. But do not take our word in order to evaluate your own skills; you should know yourself better than anybody else, and if you believe that you understand the economic dynamics of the era, and can defend your claim in your trading activities, you will be perfectly capable of using the event stop.
Conclusion
The best choice for the beginner is the equity stop. During the learning process, the trader can concentrate on bettering his understanding of the markets without worrying about excessive losses. Once the trader gains a good understanding of market dynamics, and is able to form and implement his trading plans, the equity stop will quickly lose its attractiveness.
The best method for using the non-price stop orders is combining them with a wide equity stop which will serve as a final safety precaution in case the price action becomes too dangerous. For instance, a trader can long the EUR/JPY pair and hold it indefinitely until the VIX registers a value above 35, where a v9olatility stop would be placed. At the same time he will protect himself from extreme, and unexpected swings by placing an equity stop at 5-7 percent of total equity. Thus, unless a very large price swing completely overruns the main criterion for the stop loss order, and triggers the equity stop, the trade would be maintained indefinitely.
Needless to say, every trader will have his own choices on stop loss orders. And we would like to conclude this section by noting that the key to a successful stop-loss order is a disciplined risk management strategy, and everything else is just detail.
BUILDING A PROFITABLE TRADING ACCOUNT
Have you ever stopped to think why the trading techniques that work for the world’s best trading gurus aren’t working for you? Why can they achieve substantial gains while you’re left in the dust?
What do they know that you don’t?
In reality, they know a lot of things that you probably don’t. Let me let you in on a little secret—you don’t need to know everything they know. There is one characteristic that every highly successful trader in the world has, and if you learn to master this one detail and integrate it into your trading, it will be enough to create more profitable trades than 1,000 hours of looking and studying charts.
Are you ready for this? If you have failed to create a high-profit trading account until this point, I can all but guarantee that your trading is failing in one crucial area – you are not following a trading system you have learned, and trust. A good trading system would show you why you should be trading in the direction of the trend on the 4-hour chart, or that perhaps you are trading in time frames that are too small (1-5 min).
Trading with the trend puts the odds in your favor and makes it easier to read and follow your indicators and your entry and exit signals. If you fail to follow the trend you will never have a consistently high profitable trading account. You will waste hundreds of hours looking at charts and wonder why you never reach the profit levels you dream of.
Disagree? Consider these simple examples:
Example 1 – Johnny makes 50 trades on the one and five minute charts and never looks at the direction of the trend. He is trying to trade the news, listen to other traders, guess which way the market will move, and by how much. He lets a little move in the opposite direction grow into a big loss because he does not know which way the market is moving and does not set a stop loss because he thinks that it will come back. He closes a profitable trade when he has a little profit because he is not giving the market enough room to breath, and does not know which way the trend is going. He is hoping for the homerun, but he will never hit a homerun if he is always bunting (trading in the 1 and 5 minute time frames). He will have 25 wins and 25 losses and wonders why his account stays the same or dips a little.
Example 2 – Jane makes 20 trades on the thirty minute, one hour, and four hour charts only taking trades in the direction of the trend. She does not let the news and other traders influence her trading. If the market moves against her she has her stop loss places and knows how much she will lose on each trade. If she gets taken out at a loss it is always a small loss. She always lets the market breath and move freely without closing a profitable trade because of a little fluctuation in the market. She is not looking for a homerun. She is just looking for the market to tell her when it is time to close her trades. Jane is happy to take what the market is willing to give her at that time. She does hit a homerun now and then with little effort and emotion. Of the 20 trades, she will have 15-18 of them be successful, causing her account to grow steadily.
Why You Can Do Even Better Than Jane
The example of Jane assumes that she never increases the number of lots she trades or adds on to a winning trade as her account grows. If she is trading with 1% of her account at the beginning of a trade and then adds on to the trade as it goes in her direction, when she gets add on signals then she will multiply 3 – 5 times the profit on her account on a good trade.
Even if Johnny works twice as hard and places twice as many trades, he won’t be able to catch up. Jane will soon be getting more profits and compounding the growth each day. Why won’t Johnny be able to keep up or even catch up? Because Jane has been compounding her profits by trading with the trend and adding on to her profitable trades. When she loses, it is small; when she wins, it is big because she has been working the trade. Can Johnny realistically trade enough to keep up with Jane?
In order for you to become a consistently profitable trader you will need to trade with the trend, trade with the trend, trade with the trend.
5 Suggestions You Must Follow To Become a Profitable Trader
1. Trade in the direction of the trend
I had heard “trade in the direction of the trend” or “The trend is your friend” for years but didn’t quite get it. Then I read an article a few years ago, and it changed the way I look at charts and the market. In the article it stated that you should always trade in the direction of the trend of the four-hour chart. That seemed so long to wait for a trade. I was trying to make trades on the 1, 5, and sometimes 15-minute charts. Then I realized that I could still trade on the smaller time frames but only make trades in the direction of the four-hour chart. When I did this even if the trade went against me it seemed to always come back in my favor. This way I stopped hoping it would come back in my favor because I knew the odds were in my favor that it would come back for me.
I have also traded the 4-hour time frame successfully. This way I do not have to be in front of the computer as much and I have been making more money with less work. Try doing this on a demo account and see how it works for you.
2. Start small with each trade
When you place that first trade on a trend it can be scary. At this point in the trend you are not sure if this is a real trend or just a channel or retracement. Enter the market small, risking just a few lots until the trend confirms itself. Then you can add on to maximize the profitability of the trend.
Add to each trade when it starts to trend. We like to start out small with one lot when the trend is in question then add more lots as the trend proves itself. The add on positions are less risky than the first positions in a trend. The more the trend proves itself, the less risky it becomes. There are several add on signals in most trends, so why not add on multiple lots when the trade is headed in a direction, and then close all the positions when the trend comes to an end or when you have good exit signals? This way you can increase your profits on a trade by 3 to 5 times that of scaling out. Of the entry methods we have discussed you have two choices: start big and scale out or start small and add on.
I have heard many people say when you make a trade, you should scale out of the trade closing a portion of the trade as the trade starts to get more profitable. They usually start out with several lots. I thought this was strange to close a profitable trade when the trend was just starting to move. Also why put on several lots and expose yourself to more risk when you are not sure if this is a trend or not? I have come to the conclusion that the people who suggest a larger first position with scaling out of the trade is because they do not have any better exit signals than to just take a little profit as the trade progresses.
If you do not have a trading system that gives you exact exit signals and good add on signals then you could become a better trader if you found a system that would help you with this.
3. Trade with a stop loss
Trading with a stop loss is one of the most important parts of the trade. It falls under the category of money management. This is more important than the entry and exit points of a trade. The first loss is always the smallest and that is usually at the stop loss.
When you trade with stop losses, you have a much greater chance of being in the trading game longer than if you do not trade with a stop. On a trade system advertisement the instructor was saying he puts on his stop loss and his target take profit and goes and does something. He said he would have a profit or a loss. Most of the time he had a profit because he gave the market room to breathe. If he was stopped out, then the market usually was making a turn and changed direction. So he was stopped out at the smallest loss. Then, he would look to get back in the market the way the market wanted to go.
Successful traders have all lost money from time to time. They know this is part of the game. You just need to learn to manage the wins and losses.
4. Trust your indicators
One of the first things you should do as a trader is to become good at using some indicators of your choice, and then trust them. Your indicators will serve you well.
No indicator or even a set of indicators will be right all the time. But you need to trust them and use your stops for the complete trading program.
Most indicators have certain signals that are always right. If this is true, then why not wait for the ideal signals to present themselves and have more successful trades? You will make more money waiting for the signals to come to you rather than chasing trades and jumping in at every anticipated or hoped for signal. There will be a signal and a trigger entry point. Most mistakes are made when the trade is entered on the signal and not on the trigger entry point. DO NOT anticipate an entry signal; wait for it to come to you. The market will tell you when it is going to give you some money, usually through your indicators.
5. Follow your rules
Every trading strategy has some trading rules to follow. Every game has a set of instructions to follow to be able to win.
This is one time GUYS, that you should study the instructions and trading rules before you start to trade. There are a couple of reasons for this. One: you will not develop bad habits you have to break. Two: you will develop the habit of studying the markets, which is what you will have to do the rest of your trading career.
By learning the rules and following them you will then be able to develop a good trading plan. The trading plan is usually your way of trading the market, the way you will enter, exit, study and read the market. It will tell you the time you will trade and how much of your account you will trade. It will also show you how much of a draw down you will take and how you are going to handle your emotions.
The market does not care if you win or lose your money. The market does not have emotions. But the market will tell you what it is going to do if you will follow the rules of your trading system. Trading the Forex market is not a race with yourself or anyone else; it is an individual effort to develop your skills to be able to trade well.
LEARN THE RULES, TRADE THE MARKET, AND BE PROFITABLE.
My Overall Thoughts on Building a Highly-Profitable Trading Account
I think that quite a few of us want to be profitable traders without taking the time to become a good trader. The secret is learning and practicing a good trading strategy, being determined to follow the rules, and stick with it until you succeed.
If you trade with the trend and follow your trading strategy rules, profits are inevitable. Ask yourself if you’re willing to study and learn one strategy well rather than run with every new thing that comes along. If you’re not willing to take the time to study, practice, and follow the rules of a system, it will be really hard to become a profitable trader. If you are, you will have a very profitable account someday. That’s when you’ll know that you have made your dream come true
What do they know that you don’t?
In reality, they know a lot of things that you probably don’t. Let me let you in on a little secret—you don’t need to know everything they know. There is one characteristic that every highly successful trader in the world has, and if you learn to master this one detail and integrate it into your trading, it will be enough to create more profitable trades than 1,000 hours of looking and studying charts.
Are you ready for this? If you have failed to create a high-profit trading account until this point, I can all but guarantee that your trading is failing in one crucial area – you are not following a trading system you have learned, and trust. A good trading system would show you why you should be trading in the direction of the trend on the 4-hour chart, or that perhaps you are trading in time frames that are too small (1-5 min).
Trading with the trend puts the odds in your favor and makes it easier to read and follow your indicators and your entry and exit signals. If you fail to follow the trend you will never have a consistently high profitable trading account. You will waste hundreds of hours looking at charts and wonder why you never reach the profit levels you dream of.
Disagree? Consider these simple examples:
Example 1 – Johnny makes 50 trades on the one and five minute charts and never looks at the direction of the trend. He is trying to trade the news, listen to other traders, guess which way the market will move, and by how much. He lets a little move in the opposite direction grow into a big loss because he does not know which way the market is moving and does not set a stop loss because he thinks that it will come back. He closes a profitable trade when he has a little profit because he is not giving the market enough room to breath, and does not know which way the trend is going. He is hoping for the homerun, but he will never hit a homerun if he is always bunting (trading in the 1 and 5 minute time frames). He will have 25 wins and 25 losses and wonders why his account stays the same or dips a little.
Example 2 – Jane makes 20 trades on the thirty minute, one hour, and four hour charts only taking trades in the direction of the trend. She does not let the news and other traders influence her trading. If the market moves against her she has her stop loss places and knows how much she will lose on each trade. If she gets taken out at a loss it is always a small loss. She always lets the market breath and move freely without closing a profitable trade because of a little fluctuation in the market. She is not looking for a homerun. She is just looking for the market to tell her when it is time to close her trades. Jane is happy to take what the market is willing to give her at that time. She does hit a homerun now and then with little effort and emotion. Of the 20 trades, she will have 15-18 of them be successful, causing her account to grow steadily.
Why You Can Do Even Better Than Jane
The example of Jane assumes that she never increases the number of lots she trades or adds on to a winning trade as her account grows. If she is trading with 1% of her account at the beginning of a trade and then adds on to the trade as it goes in her direction, when she gets add on signals then she will multiply 3 – 5 times the profit on her account on a good trade.
Even if Johnny works twice as hard and places twice as many trades, he won’t be able to catch up. Jane will soon be getting more profits and compounding the growth each day. Why won’t Johnny be able to keep up or even catch up? Because Jane has been compounding her profits by trading with the trend and adding on to her profitable trades. When she loses, it is small; when she wins, it is big because she has been working the trade. Can Johnny realistically trade enough to keep up with Jane?
In order for you to become a consistently profitable trader you will need to trade with the trend, trade with the trend, trade with the trend.
5 Suggestions You Must Follow To Become a Profitable Trader
1. Trade in the direction of the trend
I had heard “trade in the direction of the trend” or “The trend is your friend” for years but didn’t quite get it. Then I read an article a few years ago, and it changed the way I look at charts and the market. In the article it stated that you should always trade in the direction of the trend of the four-hour chart. That seemed so long to wait for a trade. I was trying to make trades on the 1, 5, and sometimes 15-minute charts. Then I realized that I could still trade on the smaller time frames but only make trades in the direction of the four-hour chart. When I did this even if the trade went against me it seemed to always come back in my favor. This way I stopped hoping it would come back in my favor because I knew the odds were in my favor that it would come back for me.
I have also traded the 4-hour time frame successfully. This way I do not have to be in front of the computer as much and I have been making more money with less work. Try doing this on a demo account and see how it works for you.
2. Start small with each trade
When you place that first trade on a trend it can be scary. At this point in the trend you are not sure if this is a real trend or just a channel or retracement. Enter the market small, risking just a few lots until the trend confirms itself. Then you can add on to maximize the profitability of the trend.
Add to each trade when it starts to trend. We like to start out small with one lot when the trend is in question then add more lots as the trend proves itself. The add on positions are less risky than the first positions in a trend. The more the trend proves itself, the less risky it becomes. There are several add on signals in most trends, so why not add on multiple lots when the trade is headed in a direction, and then close all the positions when the trend comes to an end or when you have good exit signals? This way you can increase your profits on a trade by 3 to 5 times that of scaling out. Of the entry methods we have discussed you have two choices: start big and scale out or start small and add on.
I have heard many people say when you make a trade, you should scale out of the trade closing a portion of the trade as the trade starts to get more profitable. They usually start out with several lots. I thought this was strange to close a profitable trade when the trend was just starting to move. Also why put on several lots and expose yourself to more risk when you are not sure if this is a trend or not? I have come to the conclusion that the people who suggest a larger first position with scaling out of the trade is because they do not have any better exit signals than to just take a little profit as the trade progresses.
If you do not have a trading system that gives you exact exit signals and good add on signals then you could become a better trader if you found a system that would help you with this.
3. Trade with a stop loss
Trading with a stop loss is one of the most important parts of the trade. It falls under the category of money management. This is more important than the entry and exit points of a trade. The first loss is always the smallest and that is usually at the stop loss.
When you trade with stop losses, you have a much greater chance of being in the trading game longer than if you do not trade with a stop. On a trade system advertisement the instructor was saying he puts on his stop loss and his target take profit and goes and does something. He said he would have a profit or a loss. Most of the time he had a profit because he gave the market room to breathe. If he was stopped out, then the market usually was making a turn and changed direction. So he was stopped out at the smallest loss. Then, he would look to get back in the market the way the market wanted to go.
Successful traders have all lost money from time to time. They know this is part of the game. You just need to learn to manage the wins and losses.
4. Trust your indicators
One of the first things you should do as a trader is to become good at using some indicators of your choice, and then trust them. Your indicators will serve you well.
No indicator or even a set of indicators will be right all the time. But you need to trust them and use your stops for the complete trading program.
Most indicators have certain signals that are always right. If this is true, then why not wait for the ideal signals to present themselves and have more successful trades? You will make more money waiting for the signals to come to you rather than chasing trades and jumping in at every anticipated or hoped for signal. There will be a signal and a trigger entry point. Most mistakes are made when the trade is entered on the signal and not on the trigger entry point. DO NOT anticipate an entry signal; wait for it to come to you. The market will tell you when it is going to give you some money, usually through your indicators.
5. Follow your rules
Every trading strategy has some trading rules to follow. Every game has a set of instructions to follow to be able to win.
This is one time GUYS, that you should study the instructions and trading rules before you start to trade. There are a couple of reasons for this. One: you will not develop bad habits you have to break. Two: you will develop the habit of studying the markets, which is what you will have to do the rest of your trading career.
By learning the rules and following them you will then be able to develop a good trading plan. The trading plan is usually your way of trading the market, the way you will enter, exit, study and read the market. It will tell you the time you will trade and how much of your account you will trade. It will also show you how much of a draw down you will take and how you are going to handle your emotions.
The market does not care if you win or lose your money. The market does not have emotions. But the market will tell you what it is going to do if you will follow the rules of your trading system. Trading the Forex market is not a race with yourself or anyone else; it is an individual effort to develop your skills to be able to trade well.
LEARN THE RULES, TRADE THE MARKET, AND BE PROFITABLE.
My Overall Thoughts on Building a Highly-Profitable Trading Account
I think that quite a few of us want to be profitable traders without taking the time to become a good trader. The secret is learning and practicing a good trading strategy, being determined to follow the rules, and stick with it until you succeed.
If you trade with the trend and follow your trading strategy rules, profits are inevitable. Ask yourself if you’re willing to study and learn one strategy well rather than run with every new thing that comes along. If you’re not willing to take the time to study, practice, and follow the rules of a system, it will be really hard to become a profitable trader. If you are, you will have a very profitable account someday. That’s when you’ll know that you have made your dream come true
6 THINGS MUST NOT BE USED IN TRADING
There are certain things that must be kept out of your trading, such as emotion, revenge, anger, your pocketbook, and fear. Every trader should follow a set of rules or guidelines in order to be a successful trader. When you trade without rules, you are essentially trading blindfolded.
Emotion: Wanting the market to go a certain way.
Revenge: Some people think they will get even with the market if they stay in or keep on putting on losing trades one after (cost averaging). The market doesn’t care about what you want. It will show you what it is going to give so learn to only want what the market is willing to give at any given time.
Anger: People will get angry with themselves and do foolish things to try and make up for a mistake.
Pocket book: When you are getting out of the market because you can not afford to let the market move a little. You were over trading your account or did not have enough money to trade to start with. A new trader with an under funded account has a greater chance of failure because he does not have enough room to let the market move and a little loss takes a big part of his trading account. This increases his emotions and compounds the trade.
Greed: When a trade has ended expecting it to give you more. Then it turns and you lose all you just made.
Fear: Many times people have fear because they are trading with money they can not afford to lose.
The Rules: A pre-defined trading plan. How many lots, how many pips, when to trade, when to get in, how long to stay in, practicing good money management, etc. It also means keeping a journal of your trades to learn from the positive and the negative trades and make sure your rules are working. Be sure you know what your trading platform can show you and how to use it’s features to your benefit.
Emotion: Wanting the market to go a certain way.
Revenge: Some people think they will get even with the market if they stay in or keep on putting on losing trades one after (cost averaging). The market doesn’t care about what you want. It will show you what it is going to give so learn to only want what the market is willing to give at any given time.
Anger: People will get angry with themselves and do foolish things to try and make up for a mistake.
Pocket book: When you are getting out of the market because you can not afford to let the market move a little. You were over trading your account or did not have enough money to trade to start with. A new trader with an under funded account has a greater chance of failure because he does not have enough room to let the market move and a little loss takes a big part of his trading account. This increases his emotions and compounds the trade.
Greed: When a trade has ended expecting it to give you more. Then it turns and you lose all you just made.
Fear: Many times people have fear because they are trading with money they can not afford to lose.
The Rules: A pre-defined trading plan. How many lots, how many pips, when to trade, when to get in, how long to stay in, practicing good money management, etc. It also means keeping a journal of your trades to learn from the positive and the negative trades and make sure your rules are working. Be sure you know what your trading platform can show you and how to use it’s features to your benefit.
FOREX INVESTING
There are different types of investing: long, midterm, and short term investing. These trading styles can also be referred to as position trading for long term investing, swing trading for midterm investing, and day trading for short term investing.
Investing in forex is probably not the best investment for the inexperienced trader. If you go for long term trading then you need to know how to pick long term trends. If you are wrong then you will lose a great deal of your investment account. The same logic goes for midterm investing. This is one reason investing in the forex market should be done by experienced traders. But a trader can get the experience by trading a demo account, offered by most brokers for free.
We feel that the forex market is a great tool for short term investing; this is where you are in the market for a few hours up to a few days. There are traders that do very well staying in a trade for long periods of time from months to years. But the long term traders are usually experienced and seasoned traders. No Matter what the trading style the investment needs to be watched and monitored.
There are different types of ways to do forex investing. You can trade by making all of your own trading decisions. You can trade as a group, sometimes called user groups; many times the group does not trade together but they help each other to learn how to trade. You can join a club and make your investing decision together but place the trades on your own. Trading groups and clubs can be fun ways to trade in the beginning when you are trying to learn to trade. Trading can be a lonely venture and this way you have a support system to help you understand the market and learn to deal with your emotions of fear and greed.
The forex market is not for the hobby investor. You need to be serious about trading or the market will take your money quickly. You will need a trading plan and have the discipline to keep records of your trades. The successful traders will have a set of trading rules they have made up when they are not trading to be used when they are trading.
Those who get into a trade and then try and decide what to do with the trade usually lose. If a person puts in enough time and energy with the proper support system and training or coaching program they can learn forex investing. Discipline and money management are the keys.
Investing in forex is probably not the best investment for the inexperienced trader. If you go for long term trading then you need to know how to pick long term trends. If you are wrong then you will lose a great deal of your investment account. The same logic goes for midterm investing. This is one reason investing in the forex market should be done by experienced traders. But a trader can get the experience by trading a demo account, offered by most brokers for free.
We feel that the forex market is a great tool for short term investing; this is where you are in the market for a few hours up to a few days. There are traders that do very well staying in a trade for long periods of time from months to years. But the long term traders are usually experienced and seasoned traders. No Matter what the trading style the investment needs to be watched and monitored.
There are different types of ways to do forex investing. You can trade by making all of your own trading decisions. You can trade as a group, sometimes called user groups; many times the group does not trade together but they help each other to learn how to trade. You can join a club and make your investing decision together but place the trades on your own. Trading groups and clubs can be fun ways to trade in the beginning when you are trying to learn to trade. Trading can be a lonely venture and this way you have a support system to help you understand the market and learn to deal with your emotions of fear and greed.
The forex market is not for the hobby investor. You need to be serious about trading or the market will take your money quickly. You will need a trading plan and have the discipline to keep records of your trades. The successful traders will have a set of trading rules they have made up when they are not trading to be used when they are trading.
Those who get into a trade and then try and decide what to do with the trade usually lose. If a person puts in enough time and energy with the proper support system and training or coaching program they can learn forex investing. Discipline and money management are the keys.
FOREX PIPS
Do you remember the first time someone said anything about pips? If you were like me you said what are pips? They might have said it is a unit of measure for when the currency goes up or down. Or you might have heard it is the same as a point in the stock market. Well the official terminology for a forex pip is Price Interest Point.
Each currency pair has its own dollar value depending whether it is the base currency pair or the cross currency pair. The price can range between 50 cents up to about $2.00 at times depending on the currency you are talking about. The prices will change as the value of the price of the currencies in the pair go up and down.
If you want to make more profit per pip moved you just need to add the number of lots you trade. Example: If the value of a pip is $1.00 and you trade one lot the value of the trade goes up and down by $1.00 for every pip moved. If you trade with 3 lots the value you receive or lose from each pip of movement is $3.00.
We feel that going for pips in the beginning is more important than dollars. From the above example you can see that if you get enough pips then it is easy to get more money by just adding to the number of lots you trade with. By thinking in pips rather than money, the emotions a trader feels when trading real money is dampened.
Forex Pip Calculator
Many brokers have what they call pip calculators. When you go to their site you can plug in the numbers and currency pair you are working with and get the dollar value of each pip. You will notice that the pairs that end in the same cross currency pair will have the same pip value. When you place a trade whether it is a buy or a sell you will see that the trade is at a loss as soon as you place it. This is called the spread. The spread can range between 2 and 12 pips depending on the currency and the brokerage you are using.
Hope this helps you keep your pips and lots straight.
Each currency pair has its own dollar value depending whether it is the base currency pair or the cross currency pair. The price can range between 50 cents up to about $2.00 at times depending on the currency you are talking about. The prices will change as the value of the price of the currencies in the pair go up and down.
If you want to make more profit per pip moved you just need to add the number of lots you trade. Example: If the value of a pip is $1.00 and you trade one lot the value of the trade goes up and down by $1.00 for every pip moved. If you trade with 3 lots the value you receive or lose from each pip of movement is $3.00.
We feel that going for pips in the beginning is more important than dollars. From the above example you can see that if you get enough pips then it is easy to get more money by just adding to the number of lots you trade with. By thinking in pips rather than money, the emotions a trader feels when trading real money is dampened.
Forex Pip Calculator
Many brokers have what they call pip calculators. When you go to their site you can plug in the numbers and currency pair you are working with and get the dollar value of each pip. You will notice that the pairs that end in the same cross currency pair will have the same pip value. When you place a trade whether it is a buy or a sell you will see that the trade is at a loss as soon as you place it. This is called the spread. The spread can range between 2 and 12 pips depending on the currency and the brokerage you are using.
Hope this helps you keep your pips and lots straight.
FOREX MADE EASY
Forex made easy is a good catch phrase. If it were easy every one could do it. Another way of saying it would be forex made possible if you get a lot of training and education in the market. With the Forex Made Easy software you get two lines that look like moving averages but you are told that they are not moving averages but some mystical indicator that gives you the crosses and flow of the market. There are also red and green arrows to give you buying and selling strength. When several of the arrows in different time frames all turn the same color this indicates that a trade should be entered.
This all sounds good but it is only one indicator. You need at least two indicators to confirm a move to increase the chances of a high probability trade. It takes some time looking at the charts and arrows to figure out when to attempt a trade.
The two lines seem to be lagging indicators. When looking at these red and green lines they seem to lag when you look at the actual price of the market. The candle sticks and bars have made a move but the lines are just starting to cross when the price comes back against the trade. This gives a breaded pattern which is a poor place to enter a trade. When trying to construct the lines (by using two moving averages) on a candle stick chart you can get a better picture of what the market is actually doing.
When a trader can see the actual price along with the 4X Made Easy lines trading becomes much easier. Then by getting another indicator to confirm the cross and direction of the trade you start to get a better picture of where to place your orders.
Forex Made Easy is a good introduction to the currency market but only a few have ever made any real money using this system only. A complete trading system will have instructions about money management, risk management or how much to trade, when to enter a trade, when to close a trade, how to determine your win loss ratio, how to keep a trade journal, how to deal with trading emotions such as fear and greed. There is more to trading than just having one indicator with some arrows that change colors to make a successful trader.
To really become a successful trader you need to be taught by someone that has been down the road a few times and understands all that a trader is going through. It is not just about some indicators and excitement about some big event or news announcement. Trading is about the trend, the momentum of the market, and knowing how the market works. You need to know your trading style and what works best for you. You need to learn who you are and how to find your strengths and weakness and then tap into your strengths to compensate for your weaknesses.
If you take the time to learn and practice trading and you have the desire to be successful in the foreign currency market–you can do it. But it really is not easy BUT it is fun and worth the journey.
This all sounds good but it is only one indicator. You need at least two indicators to confirm a move to increase the chances of a high probability trade. It takes some time looking at the charts and arrows to figure out when to attempt a trade.
The two lines seem to be lagging indicators. When looking at these red and green lines they seem to lag when you look at the actual price of the market. The candle sticks and bars have made a move but the lines are just starting to cross when the price comes back against the trade. This gives a breaded pattern which is a poor place to enter a trade. When trying to construct the lines (by using two moving averages) on a candle stick chart you can get a better picture of what the market is actually doing.
When a trader can see the actual price along with the 4X Made Easy lines trading becomes much easier. Then by getting another indicator to confirm the cross and direction of the trade you start to get a better picture of where to place your orders.
Forex Made Easy is a good introduction to the currency market but only a few have ever made any real money using this system only. A complete trading system will have instructions about money management, risk management or how much to trade, when to enter a trade, when to close a trade, how to determine your win loss ratio, how to keep a trade journal, how to deal with trading emotions such as fear and greed. There is more to trading than just having one indicator with some arrows that change colors to make a successful trader.
To really become a successful trader you need to be taught by someone that has been down the road a few times and understands all that a trader is going through. It is not just about some indicators and excitement about some big event or news announcement. Trading is about the trend, the momentum of the market, and knowing how the market works. You need to know your trading style and what works best for you. You need to learn who you are and how to find your strengths and weakness and then tap into your strengths to compensate for your weaknesses.
If you take the time to learn and practice trading and you have the desire to be successful in the foreign currency market–you can do it. But it really is not easy BUT it is fun and worth the journey.
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