The main rules in Forex trading is “keep your losses small”. With small losses, you can outlast those times the market moves against you, and be well positioned for when the trend turns around. The proven method to keeping your losses small is to set your Stop loss before you even open a Forex trading position. The maximum Stop loss is the greatest amount of capital that you are comfortable losing on any one trade.
With your maximum loss set as a small percentage of your Forex trading float, a string of losses won’t stop you from trading. 95% of Forex traders out there are lose their money because they haven’t applied good money management rules to their Forex trading system, you will be far down the road to success with this money management rule.
What happens if you don’t set a stop loss? Let’s look at an example. If I had a Forex trading float of $1.000, and I began trading with $100 a trade, it would be reasonable to experience three losses in a row. This would reduce my Forex trading capital to $700. What do you think those 95% of traders say at this time? They would reason, “Well, I’ve already had three losses in a row. So I’m really due for a win now.” and that’s totaly wrong!
Their reason for failure was because they risked too much and didn’t apply good money management. Remember, the goal here is to keep our losses as small as possible while also making sure that we open a large enough position to capitalize on profits.With your money management rules in place, in your Forex trading system, you will always be able to do this.
Tuesday, January 27, 2009
AVOID TRADING FOREX DURING HOLIDAY
Holiday trading is useless. It can be difficult to pull yourself away from the excitement on the market and take a break from the action. Banks are usually closed on holidays and professional traders and big institution are on vacation. Because of this, two way trading is very limited. That means that prices can move very easily in one direction if any surprise large orders come in.
The unexpected behavior is usually the exception rather than the rule. Most of the time, there is very little action in the forex market on holidays. For daytrading purposes, technical analysis usually fails. The market is usually so slow that even if you can make money, it will probably be so little that it isn’t worth it.
The market also have less Liquidity that sometimes a surprising event will happen and because the markets are not liquid, they will move very quickly and sharply. These moves can take place in a blink and if you are trading, the market can make a move against you before you even have a chance to act.
Rest of all that you shouldn’t be trading on holidays because you have to rest sometime. It’s better to take time off and spend it with your family. That time does not come around often and it’s better to take that time off while you can. The forex trading markets are busy most of the time. Holidays are a perfect time to rest, reflect, and recharge. Merry chrtistmas-Happy new year and Happy holiday there.
The unexpected behavior is usually the exception rather than the rule. Most of the time, there is very little action in the forex market on holidays. For daytrading purposes, technical analysis usually fails. The market is usually so slow that even if you can make money, it will probably be so little that it isn’t worth it.
The market also have less Liquidity that sometimes a surprising event will happen and because the markets are not liquid, they will move very quickly and sharply. These moves can take place in a blink and if you are trading, the market can make a move against you before you even have a chance to act.
Rest of all that you shouldn’t be trading on holidays because you have to rest sometime. It’s better to take time off and spend it with your family. That time does not come around often and it’s better to take that time off while you can. The forex trading markets are busy most of the time. Holidays are a perfect time to rest, reflect, and recharge. Merry chrtistmas-Happy new year and Happy holiday there.
STAYING NEUTRAL AND DON'T FIGHT THE MARKET
Holiday trading is useless. It can be difficult to pull yourself away from the excitement on the market and take a break from the action. Banks are usually closed on holidays and professional traders and big institution are on vacation. Because of this, two way trading is very limited. That means that prices can move very easily in one direction if any surprise large orders come in.
The unexpected behavior is usually the exception rather than the rule. Most of the time, there is very little action in the forex market on holidays. For daytrading purposes, technical analysis usually fails. The market is usually so slow that even if you can make money, it will probably be so little that it isn’t worth it.
The market also have less Liquidity that sometimes a surprising event will happen and because the markets are not liquid, they will move very quickly and sharply. These moves can take place in a blink and if you are trading, the market can make a move against you before you even have a chance to act.
Rest of all that you shouldn’t be trading on holidays because you have to rest sometime. It’s better to take time off and spend it with your family. That time does not come around often and it’s better to take that time off while you can. The forex trading markets are busy most of the time. Holidays are a perfect time to rest, reflect, and recharge. Merry chrtistmas-Happy new year and Happy holiday there.
The unexpected behavior is usually the exception rather than the rule. Most of the time, there is very little action in the forex market on holidays. For daytrading purposes, technical analysis usually fails. The market is usually so slow that even if you can make money, it will probably be so little that it isn’t worth it.
The market also have less Liquidity that sometimes a surprising event will happen and because the markets are not liquid, they will move very quickly and sharply. These moves can take place in a blink and if you are trading, the market can make a move against you before you even have a chance to act.
Rest of all that you shouldn’t be trading on holidays because you have to rest sometime. It’s better to take time off and spend it with your family. That time does not come around often and it’s better to take that time off while you can. The forex trading markets are busy most of the time. Holidays are a perfect time to rest, reflect, and recharge. Merry chrtistmas-Happy new year and Happy holiday there.
THE ESSENTIAL REAL TIME OF FOREX CHARTING
Forex trader must have an understanding of technical analysis and in particular an ability to keep track of currency pairs by learning the skill of reading live or real time forex charts.If you can mastering chart pattern recognition for forex you will be well on your way to trading with confidence. Line charts are basic to read and give a broad overview of price movements which often allows you to clearly define patterns in price movements. By contrast, bar charts are not quite as easy to read but do provide far more information.
Online forex charting conveys information about currency prices at specific time intervals ranging from as little as one minute up to several years and prices can be plotted either as simple line charts or as bar or candlestick charts showing price variations at specific time intervals. Invented by the Japanese to analyze rice contracts, candlestick charts are similar to bar charts but are far easier to read as they are color-coded. For example, green candlesticks are used to show rising prices while red candlesticks show falling prices.
Opening and closing prices are shown on each bar so that you can see at a glance whether the price has risen or fallen and just what the variation in price has been. In simple terms the length of each bar on a bar chart indicates the price spread for a given period and the longer the bar the larger the variation between high and low prices.
Candlestick charts is that the candlestick shapes when viewed in relation to one another form patterns many of which have been given names and once you learn to recognize these patterns it is an easy matter to identify trends in the market. A real time forex chart can give you a great deal of information about a particular currency pair trend, strength, volatility and cycle indicators all of which are used to predict the market.
Online forex charting conveys information about currency prices at specific time intervals ranging from as little as one minute up to several years and prices can be plotted either as simple line charts or as bar or candlestick charts showing price variations at specific time intervals. Invented by the Japanese to analyze rice contracts, candlestick charts are similar to bar charts but are far easier to read as they are color-coded. For example, green candlesticks are used to show rising prices while red candlesticks show falling prices.
Opening and closing prices are shown on each bar so that you can see at a glance whether the price has risen or fallen and just what the variation in price has been. In simple terms the length of each bar on a bar chart indicates the price spread for a given period and the longer the bar the larger the variation between high and low prices.
Candlestick charts is that the candlestick shapes when viewed in relation to one another form patterns many of which have been given names and once you learn to recognize these patterns it is an easy matter to identify trends in the market. A real time forex chart can give you a great deal of information about a particular currency pair trend, strength, volatility and cycle indicators all of which are used to predict the market.
TRADING USING MULTIPLE TIME FRAME ANALYSIS
Forex trader must have an understanding of technical analysis and in particular an ability to keep track of currency pairs by learning the skill of reading live or real time forex charts.If you can mastering chart pattern recognition for forex you will be well on your way to trading with confidence. Line charts are basic to read and give a broad overview of price movements which often allows you to clearly define patterns in price movements. By contrast, bar charts are not quite as easy to read but do provide far more information.
Online forex charting conveys information about currency prices at specific time intervals ranging from as little as one minute up to several years and prices can be plotted either as simple line charts or as bar or candlestick charts showing price variations at specific time intervals. Invented by the Japanese to analyze rice contracts, candlestick charts are similar to bar charts but are far easier to read as they are color-coded. For example, green candlesticks are used to show rising prices while red candlesticks show falling prices.
Opening and closing prices are shown on each bar so that you can see at a glance whether the price has risen or fallen and just what the variation in price has been. In simple terms the length of each bar on a bar chart indicates the price spread for a given period and the longer the bar the larger the variation between high and low prices.
Candlestick charts is that the candlestick shapes when viewed in relation to one another form patterns many of which have been given names and once you learn to recognize these patterns it is an easy matter to identify trends in the market. A real time forex chart can give you a great deal of information about a particular currency pair trend, strength, volatility and cycle indicators all of which are used to predict the market.
Online forex charting conveys information about currency prices at specific time intervals ranging from as little as one minute up to several years and prices can be plotted either as simple line charts or as bar or candlestick charts showing price variations at specific time intervals. Invented by the Japanese to analyze rice contracts, candlestick charts are similar to bar charts but are far easier to read as they are color-coded. For example, green candlesticks are used to show rising prices while red candlesticks show falling prices.
Opening and closing prices are shown on each bar so that you can see at a glance whether the price has risen or fallen and just what the variation in price has been. In simple terms the length of each bar on a bar chart indicates the price spread for a given period and the longer the bar the larger the variation between high and low prices.
Candlestick charts is that the candlestick shapes when viewed in relation to one another form patterns many of which have been given names and once you learn to recognize these patterns it is an easy matter to identify trends in the market. A real time forex chart can give you a great deal of information about a particular currency pair trend, strength, volatility and cycle indicators all of which are used to predict the market.
HOW TO BECOME A FULL TIME TRADER
The fact is that you only need to master one trading setup to be a consistently profitable trader. The best setup to begin with is the one that you see and understand easiest. If you are forcing yourself to learn a setup because you believe another person is successful using it you may be taking the longer route to profitability.
We are all different, our brains and personalities will gravitate to different setups. This is also true of exit techniques. Most traders I hear from lengthen their road to profitability by trying to apply too many concepts before owning the first one. They have studied a myriad of techniques but have yet to master any. This allows them to talk about trading but unable to consistently trade profitably.
The first decision to make is, do you desire to be a counter trend trader? or a with the trend trader? Eventually, you can be both. At the beginning, or a new beginning perhaps, you will do best choosing to master a setup and follow the trend. If you have been at this game for awhile and are not yet consistently profitable you know what I am saying is correct.
Create your trading techniques and setups with the intent that it will aid you. Forget about combination of various styles and setups. PICK ONE, MASTER IT, BE CONSISTENTLY and BE PROFITABLE and do this exercise on it and backtest it before you deciding to jump into real account.
We are all different, our brains and personalities will gravitate to different setups. This is also true of exit techniques. Most traders I hear from lengthen their road to profitability by trying to apply too many concepts before owning the first one. They have studied a myriad of techniques but have yet to master any. This allows them to talk about trading but unable to consistently trade profitably.
The first decision to make is, do you desire to be a counter trend trader? or a with the trend trader? Eventually, you can be both. At the beginning, or a new beginning perhaps, you will do best choosing to master a setup and follow the trend. If you have been at this game for awhile and are not yet consistently profitable you know what I am saying is correct.
Create your trading techniques and setups with the intent that it will aid you. Forget about combination of various styles and setups. PICK ONE, MASTER IT, BE CONSISTENTLY and BE PROFITABLE and do this exercise on it and backtest it before you deciding to jump into real account.
10 GOLDEN TRADING RULES FOR SUCCESS IN FUTURES & FOREX TRADING
It is a well known fact that 90 percent of investors lose money in futures and forex trading, 5-7 percent break even and only 3-5 percent make money. Given the high casualty rate, it is all the more important for investors to approach futures and forex trading in the correct manner. Below are some of the rules that traders should consider following if he is to make money consistently in the futures and forex market:
RULE 1 : USE MONEY THAT YOU CAN AFFORD TO LOSE
Trade only with "extra" money, i.e, money that is not earmarked to pay bank loans, car installments, housing loans, telephone and electricity bills, etc. One of the major reasons for investing only with extra funds is that your trading judgment will remain objective.
RULE 2 : DON’T OVERTRADE
Inexperienced traders can easily become overconfident after a number of winning trades. This can lead to overtrading – which is dangerous. One can be right 7 times out of 10 but the three times that you are wrong can wipe you out if you had overgeared yourself because of overconfidence. Success comes from prudence in money management. Never overtrade.
RULE 3 : CUT YOUR LOSSES SHORT, LET YOUR PROFITS RUN
Learn to be very impatient with losing positions. Learn to resist the temptation of taking your profits too early. Success comes from holding on to profitable positions and riding with the trend for maximum gains while keeping losses small by getting out quickly when you are wrong. One way to protect you from suffering catastrophic losses is to place stop loss orders for every trade entered.
RULE 4 : IF YOU GET INTO A LOSING STREAK, TAKE A BREATHER
When things don’t work out right, when your best forecasts fail you – get away from the market and take a trading break. A period away from the market can be refreshing and will recharge you.
RULE 5 : BUILD A PYRAMID WHEN ADDING TO A PROFITABLE TRADE
As the market moves up and you are long much earlier, you must learn not to double up your positions. Instead, reduce your positions each time you add to a position. If at first you had 10 contracts, the second should not be more than 5-6 contracts and the third should be 50% of your second (i.e. 3 contracts). An upside down pyramid will be top heavy and could wipe out all your hard-earned profits should the market reverse.
RULE 6 : NEVER ADD TO A LOSING POSITION
Adding to a losing position by averaging is very dangerous. Remember you are investing with "margin" and did not pick up scrips. The contract is not yours; you merely paid a percentage of the total value. Averaging a losing position is equivalent to not admitting your mistakes, that you were wrong in the first place. Successful traders cut their losses short.
RULE 7 : DON’T RISK YOUR ENTIRE CAPITAL ON ONE TRADE
Divide your trading capital into 10 equal parts and never lose more than 10 percent on one trade. If you lost the first trade, you still have nine more opportunities to be right. Putting all your capital on one trade is suicidal.
RULE 8 : NEVER MEET MARGIN CALLS
When you are wrong about the market, get out. Once you start procrastinating, very often prices will go against your position, further triggering a margin call from your broker. A margin call simply means that you are wrong in the market and your position should be closed out. Margin calls are made because people do not want to admit being wrong and take a loss; they hope the market will eventually go in their direction. To avoid this mistake, you should never meet margin calls. Just cut your losses and "get the hell out".
RULE 9 : REMOVE PROFITS FROM YOUR ACCOUNT
Probably no more than 1% of traders have a rule to take profits out of their trading account. The few wise investors I know have bought a house, a car or simply put part of their winnings into a fixed deposit account, otherwise the chances are high that they may lose them all back.
RULE 10 : HAVE A GAME PLAN
Lack of a game plan is not knowing what to do when you are wrong – and not knowing what to do even when you are right.
Here are a few guidelines:
1. Know when and at what price you are going to enter the market.
2. Know how much money you are going to risk on each and every trade.
3. Know when and at what price you are going to get out when you are wrong.
4. Know when and at what price you are going to take your profits if you are right.
5. Know how much money you are going to make if you are right.
6. Have a safety stop in case the market does the unexpected.
7. Have an approximate idea of when the market should meet your objectives or when it should begin to make a move; and if it has not done so, get out.
SUMMARY:
You will note that none out of the ten rules of trading mentioned above are on money management. Only Rule 10 describes the importance of having a trading system to determine "when to enter and exit". This just goes to show that good money management is the key to your success in making money in the stocks, futures and currency markets. A good trading system comes second. Nick Leeson, the rogue trader for Barings in Singapore, got into trouble because he did not respect some of the 10 golden trading rules.
RULE 1 : USE MONEY THAT YOU CAN AFFORD TO LOSE
Trade only with "extra" money, i.e, money that is not earmarked to pay bank loans, car installments, housing loans, telephone and electricity bills, etc. One of the major reasons for investing only with extra funds is that your trading judgment will remain objective.
RULE 2 : DON’T OVERTRADE
Inexperienced traders can easily become overconfident after a number of winning trades. This can lead to overtrading – which is dangerous. One can be right 7 times out of 10 but the three times that you are wrong can wipe you out if you had overgeared yourself because of overconfidence. Success comes from prudence in money management. Never overtrade.
RULE 3 : CUT YOUR LOSSES SHORT, LET YOUR PROFITS RUN
Learn to be very impatient with losing positions. Learn to resist the temptation of taking your profits too early. Success comes from holding on to profitable positions and riding with the trend for maximum gains while keeping losses small by getting out quickly when you are wrong. One way to protect you from suffering catastrophic losses is to place stop loss orders for every trade entered.
RULE 4 : IF YOU GET INTO A LOSING STREAK, TAKE A BREATHER
When things don’t work out right, when your best forecasts fail you – get away from the market and take a trading break. A period away from the market can be refreshing and will recharge you.
RULE 5 : BUILD A PYRAMID WHEN ADDING TO A PROFITABLE TRADE
As the market moves up and you are long much earlier, you must learn not to double up your positions. Instead, reduce your positions each time you add to a position. If at first you had 10 contracts, the second should not be more than 5-6 contracts and the third should be 50% of your second (i.e. 3 contracts). An upside down pyramid will be top heavy and could wipe out all your hard-earned profits should the market reverse.
RULE 6 : NEVER ADD TO A LOSING POSITION
Adding to a losing position by averaging is very dangerous. Remember you are investing with "margin" and did not pick up scrips. The contract is not yours; you merely paid a percentage of the total value. Averaging a losing position is equivalent to not admitting your mistakes, that you were wrong in the first place. Successful traders cut their losses short.
RULE 7 : DON’T RISK YOUR ENTIRE CAPITAL ON ONE TRADE
Divide your trading capital into 10 equal parts and never lose more than 10 percent on one trade. If you lost the first trade, you still have nine more opportunities to be right. Putting all your capital on one trade is suicidal.
RULE 8 : NEVER MEET MARGIN CALLS
When you are wrong about the market, get out. Once you start procrastinating, very often prices will go against your position, further triggering a margin call from your broker. A margin call simply means that you are wrong in the market and your position should be closed out. Margin calls are made because people do not want to admit being wrong and take a loss; they hope the market will eventually go in their direction. To avoid this mistake, you should never meet margin calls. Just cut your losses and "get the hell out".
RULE 9 : REMOVE PROFITS FROM YOUR ACCOUNT
Probably no more than 1% of traders have a rule to take profits out of their trading account. The few wise investors I know have bought a house, a car or simply put part of their winnings into a fixed deposit account, otherwise the chances are high that they may lose them all back.
RULE 10 : HAVE A GAME PLAN
Lack of a game plan is not knowing what to do when you are wrong – and not knowing what to do even when you are right.
Here are a few guidelines:
1. Know when and at what price you are going to enter the market.
2. Know how much money you are going to risk on each and every trade.
3. Know when and at what price you are going to get out when you are wrong.
4. Know when and at what price you are going to take your profits if you are right.
5. Know how much money you are going to make if you are right.
6. Have a safety stop in case the market does the unexpected.
7. Have an approximate idea of when the market should meet your objectives or when it should begin to make a move; and if it has not done so, get out.
SUMMARY:
You will note that none out of the ten rules of trading mentioned above are on money management. Only Rule 10 describes the importance of having a trading system to determine "when to enter and exit". This just goes to show that good money management is the key to your success in making money in the stocks, futures and currency markets. A good trading system comes second. Nick Leeson, the rogue trader for Barings in Singapore, got into trouble because he did not respect some of the 10 golden trading rules.
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