Sultan of Currencies in the New Market Wizard. He was for eight years Salomon Brothers most successful forex trader.
“Missing an opportunity is as bad as being on the wrong side of a trade. Some people say (after they have the opportunity to realize a profit) ‘I was only playing with the market's money’. That's the most ridiculous thing I ever heard.”
“When you're in a losing streak, your ability to properly assimilate and analyze information starts to become distorted because of the impairment of the confidence factor, which is a by-product of a losing streak. You have to work very hard to restore that confidence, and cutting back trading size helps achieve that goal.”
“I don't have a problem letting my profits run, which many traders do. You have to be able to let your profits run. I don't think you can consistently be a winner trading if you're banking on being right more than 50 percent of the time. You have to figure out how to make money by being right only 20 to 30 percent of the time.”
“Successful traders constantly ask themselves: What am I doing right? What am I doing wrong? How can I do what I am doing better? How can I get more information? Courage is a quality important to excel as a trader. It's not enough to simply have the insight to see something apart from the rest of the crowd, you also need to have the courage to act on it and stay with it.”
“It's very difficult to be different from the rest of the crowd the majority of the time, which by definition is what you're doing if you're a successful trader.”
“So many people want the positive rewards of being a successful trader without being willing to go through the commitment and pain. And there's a lot of pain.”
“Avoid the temptation of wanting to be completely right."
Messages By Trader William Eckhardt
Partner of Richard Dennis, perhaps the best-known futures speculator of our time. Created the famous trading group known as the Turtles. William has averaged over 62 percent return.
“I take the point of view that missing an important trade is a much more serious error than making a bad trade”.
“Buying on retracement is psychologically seductive because you feel you're getting a bargain versus the price you saw a while ago. However, I feel that approach contains more than a drop of poison.”
“You shouldn't plan to risk more than 2 percent on a trade. Although, of course, you could still lose more if the market gaps beyond your intended point of exit.”
“I haven't seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren't. Many outstanding intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important.”
“The answer to the question of whether trading can be taught has to be an unqualified yes. Anyone with average intelligence can learn to trade. This is not rocket science.”
“If you bring normal human habits and tendencies to trading, you'll gravitate toward the majority and inevitably lose.”
”Watch idly while profit-taking opportunities arise, but in adversity run like a jackrabbit.”
“One adage that is completely wrongheaded is that you can't go broke taking profits. That's precisely how many traders do go broke. While amateurs go broke taking large losses, professionals go broke by taking small profits.”
“What feels good is often the wrong thing to do.”
“Human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance.”
“Two of the cardinal sins of trading - giving losses too much rope and taking profits prematurely - are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance.”
“Don't think about what the market's going to do; you have absolutely no control over that. Think about what you're going to do if it gets there.”
“It is a common notion that after you have profits from your original equity, you can start taking even greater risks because now you are playing with ‘their money’. We are sure you have heard this. Once you have profit, you're playing with ‘their money’. It's a comforting thought. It certainly can't be as bad to lose ‘their money’ as ‘yours’? Right? Wrong. Why should it matter whom the money used to belong to? What matters is who it belongs to now and what to do about it. And in this case it all belongs to you."
Messages By Trader Marty Schwartz
Marty has scored enormous percentage gains in every year since he turned full time trader in 1979. He has done so without ever losing more than 3 percent of his equity on a month-end to month-end basis. In the US Investing Championships held by StanfordUniversity Marty’s performance was nothing short of astounding. In nine of the ten four-month championships he entered, he made more money than all the other traders combined. His average return in these nine contests was 210 percent - non annualized! In his single entry in a one-year contest, he scored a 781 percent return. "I turned from a loser to a winner when I was able to separate my ego needs from making money. When I was able to accept being wrong. Before that, admitting I was wrong was more upsetting than losing the money.”
“When I became a winner I went from 'I figured it out, therefore it can't be wrong' to 'I figured it out, but if I'm wrong, I'm getting the hell out, because I want to save my money and go on to the next trade.”
“By living the philosophy that my winners are always in front of me, it is not so painful to take a loss. If I make a mistake, so what! “
“Before taking a position always know the amount you are willing to lose.”
“The most important thing is money management, money management, money management. Anybody who is successful will tell you the same thing.”
“I always take my losses quickly. That is probably the key to my success.”
“The best advice I can give to the ordinary guy trying to become a better trader is Learn to take losses. The most important thing in making money is not letting your losses get out of hand."
Messages By Trader Bruce Kovner
Bruce may well be the world's largest trader in the inter-bank currency and futures markets. In 1987 he scored profits in excess of $300 million for himself and the fortunate investors in his funds. Two thousand dollars invested with Kovner in early 1978 was worth over $1,000,000 ten years later.
“Michael Marcus taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.”
“Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I'm getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis. I never think about other people who may be using the same stop, because the market shouldn't go there if I am right."
Messages By Trader Paul Tudor Jones
Paul has accomplished what many thought impossible: combined five consecutive, triple-digit return years with very low equity retracement. Took a $1.5 million account in 1984 to $330 million account in 1988.
“That cotton trade was almost the deal breaker for me. It was at that point that I said, ‘Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?’"
“I had to learn discipline and money management. I decided that I was going to become very disciplined and businesslike about my trading.”
“I spend my day trying to make myself as happy and relaxed as I can be. If I have positions going against me, I get right out; if they are going for me, I keep them.”
“I am always thinking about losing money as opposed to making money. Don't focus on making money; focus on protecting what you have."
Messages By Trader Van Tharp
Van Tharp was also featured in Jack Schwagers Market Wizards. He wrote what by now is one of the trading classics.
"You do not have a trading system unless you know exactly when you will get out of the market position at the time you enter it.”
“Your worst-case exit, which is designed to preserve your capital, should be determined ahead of time.”
“In addition, you should also have some idea about how you plan to take profits and a strategy for letting your profits run.”
“People avoid looking for good exits because exits do not give them control over the market. However, exits do control something. They control whether you make a profit or a loss, and they control just how big that profit or loss will be. Since they do so much, perhaps they are worthy of a lot more study on the part of most people.”
“There are a lot of problems to solve with exits. If the worst case does not happen (i.e., so you don't get stopped out), then the job of your system is to allow you to make the most profit possible and give the least amount of it back. Only your exits do this!”
“There are many different classifications of exits other than your initial stop loss. These include exits that produce a loss but reduce your initial risk, exits that maximize profits, and exits that keep you from giving back too much money, and psychological exits.”
“In order to maximize your profits (let them run), you must be willing to give some of them back.”
“In fact, the ironic part of system design is if you want to maximize profits, you must be willing to give back a great deal of the profits you have already accumulated.”
“You can't make money if you're not willing to lose. It's like breathing in, but not being willing to breathe out. Various types of exits will help you do this (i.e., breathe fully), including trailing stops and the percent retracement stop.”
“There are four general categories of exits: 1. Exits that make your initial loss smaller; 2. Exits that maximize your profits; 3. Exits that minimize how much profit you give back; and 4. Psychological Exits.”
“Psychological factors always come into play in any sort of trading.”
“When you enter a position it is essential to know the point at which you will get out of the position in order to preserve your capital.”
“If you are risking over 3 percent of your trading capital then you are a 'gunslinger' and had better understand the risk you are taking for the reward you seek.”
“My first advice to anyone is to look to yourself as the source of everything that happens in your life.”
“Make a list of everything that can go wrong and determine how you will respond to that situation. That will be the key to your success - knowing how to respond to the unexpected."
Messages By Trader Tom Baldwin
Left a managerial job at a meatpacking plant with $25,000 in hand and now trades up to $2 billion worth of T-bond futures in a day.
“The best traders have no ego. To be a great trader, you have to have a big enough ego in the sense that you have confidence in yourself. You cannot let ego get in the way of a trade that is a loser; you have to swallow your pride and get out.”
"I turned from a loser to a winner when I was able to separate my ego needs from making money. When I was able to accept being wrong. Before that, admitting I was wrong was more upsetting than losing the money.”
“When I became a winner I went from 'I figured it out, therefore it can't be wrong' to 'I figured it out, but if I'm wrong, I'm getting the hell out, because I want to save my money and go on to the next trade.'”
“By living the philosophy that my winners are always in front of me, it is not so painful to take a loss. If I make a mistake, so what!”
“My attitude is: Never risk your family's security.”
“Whenever you get hit, you are very upset emotionally. Most traders try to make it back immediately; they try to play bigger. Whenever you try to get all your losses back at once, you are most often doomed to fail.”
“After a devastating loss, I always play very small and try to get black ink, black ink. It's not how much money I make, but just getting my rhythm and confidence back.”
“Before taking a position always know the amount you are willing to lose.”
”The most important thing is money management, money management, money management. Anybody who is successful will tell you the same thing.”
“I always take my losses quickly. That is probably the key to my success.”
“The best advice I can give to the ordinary guy trying to become a better trader is Learn to take losses. The most important thing in making money is not letting your losses get out of hand."
Messages By Trader David Ryan
In 1982 he began working for William O'Neil and in 1985 achieved a degree of fame when he won the US Investing Championships. For the three years as a whole his compounded return was a remarkable 1,379 percent.
“The more disciplined you can get, the better you are going to do in the market. The more you listen to tips and rumors, the more money you're likely to lose.”
“My percentage of winners is only about 50/50, because I cut my losers very quickly. The maximum loss I allow is 7 percent, and usually I am out of a losing stock a lot quicker. I make my money on the few stocks a year that double and triple in price. The profits in those trades easily makes up for all the small losers.”
“If you really think the stock is going to make a big move - and that should be the only reason you are buying the stock to begin with - then there is no reason to haggle over an eighth of a point. Just buy the stock. The same thing applies to the downside; if you think the stock is going to drop, just sell it.”
“The single most important advice I can give anybody is: Learn from your mistakes. That is the only way to become a successful trader. “
Messages By Trader William O'Neil
In 1962 he turned an initial $5,000 investment into $200,000, original Market Wizard.
“My philosophy is that all stocks are bad. There are no good stocks unless they go up in price. If they go down instead, you have to cut your losses fast.”
“The secret for winning in the stock market does not include being right all the time. “
Messages By Trader Ed Seykota
Realized an astounding 250,000 % return on his accounts over 16 years. Normalized for withdrawals, the account theoretically was up several million percent.
“I prefer not to dwell on past situations. I tend to cut bad trades as soon as possible, forget them, and then move on to new opportunities.”
“The elements of good trading are: 1. Cutting losses, 2. Cutting losses, and 3. Cutting losses. If you can follow these three rules, you may have a chance. “
“I set protective stops at the same time I enter a trade. I normally move these stops in to lock in a profit as the trend continues.”
“I intend to risk below 5 percent on a trade, allowing for poor executions.”
“The trading rules I live by are: 1. Cut losses. 2. Ride winners. 3. Keep bets small. 4. Follow the rules without question. 5. Know when to break the rules. “
Messages By Trader Gary Bielfeldt
Starting with $1,000 and only able to trade one contract, his success (trading size) became so great that he had grown to the point that government established speculative limits became an impediment to his trading.
“The most important thing is to have a method for staying with your winners and getting rid of your losers.”
“By having thought out your objective and having a strategy for getting out in case the market trend changes, you greatly increase the potential for staying in your winning positions. “
“The traits of a successful trader: The most important is discipline - I am sure everyone says that. Second, you have to have patience; if you have a good trade on, you have to be able to stay with it. Third, you need courage to go into the market, and courage comes from adequate capitalization. Fourth, you must have a willingness to lose; that is also related to adequate capitalization. Fifth, you need a strong desire to win.”
“You have to have the attitude that if a trade losses, you can handle it without any problem and come back to do the next trade. You can't let a losing trade get to you emotionally.”
“If a trade doesn't look right, I get out and take a small loss. “
Messages By Trader Edwin Lefevre
Real name Jesse Livermore. He wrote the all time classic 'How to Trade in Stocks'. One of the old breeds, he became one of the most successful traders of all times.
“It was the same with all. They would not take a small loss at first but had held on, in the hope of a recovery that would ‘let them out even’. And prices had sunk and sunk until the loss was so great that it seemed only proper to hold on, if need be a year, for sooner or later prices must come back. But the break "shook them out," and prices just went so much lower because so many people had to sell, whether they would or not.”
“The spectator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you, you hope that every day will be the last day -- and you lose more than you should had you not listened to hope -- to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little.
And when the market goes your way you become fearful that the next day will take away your profit, and you get out -- to soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.”
“It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting tight! “
Messages By Trader George Soros
On Black Wednesday (September 16, 1992), Soros became immediately famous when he sold short more than $10 billion worth of pounds, profiting from the Bank of England's reluctance to either raise its interest rates to levels comparable to those of other European Exchange Rate Mechanism countries or to float its currency.
Finally, the Bank of England was forced to withdraw the currency out of the European Exchange Rate Mechanism and to devalue the pound sterling, and Soros earned an estimated US$ 1.1 billion in the process. He was dubbed "the man who broke the Bank of England".
"I am no better than the next trader, just quicker at realizing my losses and moving on to the next trade."
Sunday
Can Forex Scams Be Avoided?
What is a Scam: A confidence trick, confidence game, or con for short (also known as a scam) is an attempt to intentionally mislead a person or persons (known as the mark) usually with the goal of financial or other gain. The confidence trickster, con man, scam artist or con artist often works with an accomplice called the shill, who tries to encourage the mark by pretending to believe the trickster.
Whenever there is an opportunity to make large amounts of money, there will be people who are eager to jump right in and start making money. And where there are people who are eager to get rich quick with a minimum of effort on their part, there are fraudsters waiting to take their money. Experienced traders are wise enough to avoid the frauds – it’s the new traders who are most vulnerable to the forex scams that are slipping into the currency exchange market.
The U.S. CFTC (Commodity Futures Trading Commission), which regulates futures and commodities trading, warns new investors to be wary of frauds and scams that promise huge profits from your investments, in and out of the Forex market. The CFTC has issued several Consumer Fraud Alerts in connection with foreign currency trading. They offer the following tips to help you avoid being scammed.
“I made $1900 in one minute!” touts one sidebar ad for a Forex trading company. Ads that promise high returns on small investments with little or no risk to you are tempting bait. The fact is that while there are certainly big profits to be made in forex, there are correspondingly large losses. And most novice traders drop out of active trading by the end of their first year because they can’t afford the risk.
Before you part with a penny, thoroughly check out the company or trader you’re planning to do business with. Check the CFTC’s consumer fraud alert page. Check to see if the company is registered with the CFTC, or is a member of the National Futures Association. Check to see if there’s any disciplinary action against the firm or company. Get even more basic. Get a valid address and telephone number, and verify that it belongs to the company. Check to be sure the person you’re dealing with actually works for the company. Especially if you’re doing business on the Internet, it’s very easy for a scammer to fake credentials.
The Internet has made it incredibly easy for scammers to operate. It only costs $6.95 a month to have a professional looking web site hosted – that’s pennies a day to reach millions of potential marks. Before you part with credit card numbers, bank account transfer permissions or wire transfers, be sure to check out the company with all the authorities listed above.
Legitimate dealers don’t need to contact you with unsolicited email, or pressure you into doing business with them. If someone is pushing you to invest right now, tonight, this moment, it should set off huge warning signals in your head. A real dealer is more concerned with keeping you as a customer for the long haul. He’ll be patient while you check out his credentials and reputation. A phony dealer can’t afford that luxury – he needs to get you on the hook right now, or risk losing his score.
The interbank market is a term for a loose network of currency traders that include banks, financial institutions and large corporations. Fraudulent currency trading firms often tell customers that they’ll trade for them on the interbank market where the prices are better. It should be a warning signal to you to stay away.
While technically not ‘scams’, you should also be wary of paying good money for training courses that promise you systems that are ‘guaranteed’ to earn you high profits. If the course advertises that their system will earn you huge profits with minimal risk, or guarantee you 40% return on your money in six weeks, take the promises with a huge grain of salt. Experienced traders understand that the forex market is a time market – while it’s possible to make large amounts of money in short-term trades, finding those profitable trades is a matter of being in the right place at the right time… which means putting in the time and the effort to be there.
They also understand that they’ll lose more often than they win – the trick is to keep your losses short and your profits long. Any company that guarantees that you’ll make a profit on all or most of your profits is coloring their advertising. Stick with trusted companies whose credentials you can verify and whose background you can check.
Always remember that if it sounds to go to be true....it probably is...
Whenever there is an opportunity to make large amounts of money, there will be people who are eager to jump right in and start making money. And where there are people who are eager to get rich quick with a minimum of effort on their part, there are fraudsters waiting to take their money. Experienced traders are wise enough to avoid the frauds – it’s the new traders who are most vulnerable to the forex scams that are slipping into the currency exchange market.
The U.S. CFTC (Commodity Futures Trading Commission), which regulates futures and commodities trading, warns new investors to be wary of frauds and scams that promise huge profits from your investments, in and out of the Forex market. The CFTC has issued several Consumer Fraud Alerts in connection with foreign currency trading. They offer the following tips to help you avoid being scammed.
“I made $1900 in one minute!” touts one sidebar ad for a Forex trading company. Ads that promise high returns on small investments with little or no risk to you are tempting bait. The fact is that while there are certainly big profits to be made in forex, there are correspondingly large losses. And most novice traders drop out of active trading by the end of their first year because they can’t afford the risk.
Before you part with a penny, thoroughly check out the company or trader you’re planning to do business with. Check the CFTC’s consumer fraud alert page. Check to see if the company is registered with the CFTC, or is a member of the National Futures Association. Check to see if there’s any disciplinary action against the firm or company. Get even more basic. Get a valid address and telephone number, and verify that it belongs to the company. Check to be sure the person you’re dealing with actually works for the company. Especially if you’re doing business on the Internet, it’s very easy for a scammer to fake credentials.
The Internet has made it incredibly easy for scammers to operate. It only costs $6.95 a month to have a professional looking web site hosted – that’s pennies a day to reach millions of potential marks. Before you part with credit card numbers, bank account transfer permissions or wire transfers, be sure to check out the company with all the authorities listed above.
Legitimate dealers don’t need to contact you with unsolicited email, or pressure you into doing business with them. If someone is pushing you to invest right now, tonight, this moment, it should set off huge warning signals in your head. A real dealer is more concerned with keeping you as a customer for the long haul. He’ll be patient while you check out his credentials and reputation. A phony dealer can’t afford that luxury – he needs to get you on the hook right now, or risk losing his score.
The interbank market is a term for a loose network of currency traders that include banks, financial institutions and large corporations. Fraudulent currency trading firms often tell customers that they’ll trade for them on the interbank market where the prices are better. It should be a warning signal to you to stay away.
While technically not ‘scams’, you should also be wary of paying good money for training courses that promise you systems that are ‘guaranteed’ to earn you high profits. If the course advertises that their system will earn you huge profits with minimal risk, or guarantee you 40% return on your money in six weeks, take the promises with a huge grain of salt. Experienced traders understand that the forex market is a time market – while it’s possible to make large amounts of money in short-term trades, finding those profitable trades is a matter of being in the right place at the right time… which means putting in the time and the effort to be there.
They also understand that they’ll lose more often than they win – the trick is to keep your losses short and your profits long. Any company that guarantees that you’ll make a profit on all or most of your profits is coloring their advertising. Stick with trusted companies whose credentials you can verify and whose background you can check.
Always remember that if it sounds to go to be true....it probably is...
Overtrading: A Common Mistake.
Overtrading is one of the biggest causes why traders never make it in the financial markets. With a click of a button, a trader can place a trade anytime he wants. It takes tremendous discipline to hold yourself back from overtrading. There are many reasons why one may choose to overtrade.
1. Traders without a plan
Traders without a plan are my favorite type of traders because they will always lose. Without a plan, how would one know when to take a trade and when not to? Having a trading plan is a necessity. I can not trade if I do not have a plan for the day. I feel lost without one.
2. Revenge trading
Many new traders become tilted after a loss or a string of losses. This causes them to revenge trade just to break even. This often leads to reckless trading forcing a trade when opportunity is low.
3. Chasing the markets
A lot of new traders feel more pain when they have missed a move than an actual loss. This is why new traders love to chase the markets. If price has moved away from your projected entry point, let it go. There are plenty of more opportunities. Chasing is one of the worst habits a trader can have. Not only does it offer you low rewards, it also gives you a horrible entry and alters your stop loss placement. Always think about the risk before the profits.
When you have a plan to follow, it is easy to filter out bad trades from good one. This keeps you discipline and selective in your trades. I personally do not like trading more than 5 roundtrips a day. Patience is a virtue. There are always good high probability trading opportunities everyday. Just sit tight and don't jump the gun.
One way to control a loss is by reducing your size. The problem with gamblers is that they will often double up their stake so they can get even quicker. This usually leads to a greater loss and devastation. Having the strength to grind your way back from a loss is important in trading. Whenever I am having a losing streak, I will trade small and gradually recover. This also gives me the confidence I need after a string of losses.
1. Traders without a plan
Traders without a plan are my favorite type of traders because they will always lose. Without a plan, how would one know when to take a trade and when not to? Having a trading plan is a necessity. I can not trade if I do not have a plan for the day. I feel lost without one.
2. Revenge trading
Many new traders become tilted after a loss or a string of losses. This causes them to revenge trade just to break even. This often leads to reckless trading forcing a trade when opportunity is low.
3. Chasing the markets
A lot of new traders feel more pain when they have missed a move than an actual loss. This is why new traders love to chase the markets. If price has moved away from your projected entry point, let it go. There are plenty of more opportunities. Chasing is one of the worst habits a trader can have. Not only does it offer you low rewards, it also gives you a horrible entry and alters your stop loss placement. Always think about the risk before the profits.
When you have a plan to follow, it is easy to filter out bad trades from good one. This keeps you discipline and selective in your trades. I personally do not like trading more than 5 roundtrips a day. Patience is a virtue. There are always good high probability trading opportunities everyday. Just sit tight and don't jump the gun.
One way to control a loss is by reducing your size. The problem with gamblers is that they will often double up their stake so they can get even quicker. This usually leads to a greater loss and devastation. Having the strength to grind your way back from a loss is important in trading. Whenever I am having a losing streak, I will trade small and gradually recover. This also gives me the confidence I need after a string of losses.
5 Tips To Avoid The Online Currency Trading Trap.
Online currency trading in increasing in popularity and with it comes the good, the bad and the “you know what.” Like any business venture there are people out there waiting to take advantage of you and people who genuinely want to help.
Some people hocking learn to trade packages are internet marketers riding the wave of a hot market in search of profits, while others are season professionals looking to create a win-win scenario for you.
So what do you do?
Here are 5 simple thoughts to keep in mind as your search for your Forex education online:
1. The Forex Education Program Itself
You want to make an assessment of the Forex education program’s approach to learning and ensure it matches your style. Some people can learn by reading a book (very few!), while other require a more structured hand holding approach. Some like a classroom environment, while others want to learn live and online.
Make sure you have access to live instructors, this will be your life-line when things get tough. Bottom line; If it resonates with you, then it most likely will fit and you will learn.
2. Guarantee Needs to be Real
Make sure the Forex education program you consider offers an adequate guarantee. Some programs out there offer only a 2-week trial for big dollar training packages. The refund period should be appropriate for the cost and 30-days at a minimum. The guarantee should provide adequate time to evaluate the product or service and then some.
On the flip side of the coin, if the guarantee is acceptable and you have not acted to properly evaluate the product or service within the time frame you should evaluate your own position to determine if you are ready for the training.
No Forex education product or service will make you money sitting on the self.
3. Coaching Required
We all need a coach. Yes, all the information you need to become a successful trader is online. Great, where do you start and how much money are you willing to lose separating the good information from the bad, let alone implementing this vast resource of information?
Any person who participates in activities that require peak performance in order to achieve success (Forex trading qualifies!) needs a coach. Make sure your Forex education includes programs that have individual or group coaching as part of the package. Nothing will accelerate learning like live interaction and mentorship. Don’t fall for the go it alone approach.
4. Establish Your Goals Prior to Learning
Ensure your personal goals are congruent with your Forex education goals. Be clear on why you want to learn Forex trading and what you want to get out of your training. Clarity will ensure the investment in your Forex education will be profitable.
Trading is all about personal responsibility. There is an old Buddhist saying that when you are ready to lean the teacher will appear. Remember, you are 80% of the success equation.
5. Fast Profits Beware!
If any Forex education product or service promises fast money, don’t think; just run away as fast as possible. Forex trading is a process that has to be learned like any other profession. Profitable Forex education will never focus on the money, the curriculum will be established entirely around learning the Process of Forex Trading.
The only Holy Grail in Forex trading lies in the six inch space between your ears. Learn the process and the money will take care of itself!
When done right, Forex trading should be an almost boring repeatable process. In fact the most valuable investment you will ever make is the one in yourself. Your Forex education will determine whether you eventually achieve your financial goals or not.
Remember, there is no such thing as failure there is only feedback. Keeping these tips in mind when searching for your Forex education product or service will allow you find a partner in your success.
Some people hocking learn to trade packages are internet marketers riding the wave of a hot market in search of profits, while others are season professionals looking to create a win-win scenario for you.
So what do you do?
Here are 5 simple thoughts to keep in mind as your search for your Forex education online:
1. The Forex Education Program Itself
You want to make an assessment of the Forex education program’s approach to learning and ensure it matches your style. Some people can learn by reading a book (very few!), while other require a more structured hand holding approach. Some like a classroom environment, while others want to learn live and online.
Make sure you have access to live instructors, this will be your life-line when things get tough. Bottom line; If it resonates with you, then it most likely will fit and you will learn.
2. Guarantee Needs to be Real
Make sure the Forex education program you consider offers an adequate guarantee. Some programs out there offer only a 2-week trial for big dollar training packages. The refund period should be appropriate for the cost and 30-days at a minimum. The guarantee should provide adequate time to evaluate the product or service and then some.
On the flip side of the coin, if the guarantee is acceptable and you have not acted to properly evaluate the product or service within the time frame you should evaluate your own position to determine if you are ready for the training.
No Forex education product or service will make you money sitting on the self.
3. Coaching Required
We all need a coach. Yes, all the information you need to become a successful trader is online. Great, where do you start and how much money are you willing to lose separating the good information from the bad, let alone implementing this vast resource of information?
Any person who participates in activities that require peak performance in order to achieve success (Forex trading qualifies!) needs a coach. Make sure your Forex education includes programs that have individual or group coaching as part of the package. Nothing will accelerate learning like live interaction and mentorship. Don’t fall for the go it alone approach.
4. Establish Your Goals Prior to Learning
Ensure your personal goals are congruent with your Forex education goals. Be clear on why you want to learn Forex trading and what you want to get out of your training. Clarity will ensure the investment in your Forex education will be profitable.
Trading is all about personal responsibility. There is an old Buddhist saying that when you are ready to lean the teacher will appear. Remember, you are 80% of the success equation.
5. Fast Profits Beware!
If any Forex education product or service promises fast money, don’t think; just run away as fast as possible. Forex trading is a process that has to be learned like any other profession. Profitable Forex education will never focus on the money, the curriculum will be established entirely around learning the Process of Forex Trading.
The only Holy Grail in Forex trading lies in the six inch space between your ears. Learn the process and the money will take care of itself!
When done right, Forex trading should be an almost boring repeatable process. In fact the most valuable investment you will ever make is the one in yourself. Your Forex education will determine whether you eventually achieve your financial goals or not.
Remember, there is no such thing as failure there is only feedback. Keeping these tips in mind when searching for your Forex education product or service will allow you find a partner in your success.
14 Rules of Successful Forex Trading.
Being a successful Forex trader takes more then just having money, time and desire. The more you realize it, the better are your chances of making it big in this wonderful business.
Throughout the years I learned many valuable lessons that today I apply to my Forex trading. Here are some of these lessons. I hope you don’t take them lightly, I guarantee you that these are true gems product of trial and error (something I hope to shorten for you!).
1. Your psychological state of mind is more important than your dollars. Yes, that is correct. For example, entering a trade when you know you should not enter it and ultimately losing money on it will cause you a financial loss which hurts but can be recovered in the next trade or two. However, it will also cause you a psychological loss in the form of future fear and insecurity. This, will take more than one or two trades to recover!
2. This one is simple but you would not believe how many traders do not follow it. In bear markets sell the markets that show most weakness. Don’t try to outsmart the market. If the market is telling you "I am weak" don’t argue and just follow! If the market tells you "I am strong", BUY and continue BUYING!
3. Don't ever try to pick absolute tops and bottoms. I know of traders that have an addiction with this. They always look to pick the absolute bottom or top and ride the market on the reversal. They succeed one or twice but eventually suffer a big hit. If you can't help it and you want to try and look for those huge turning points in the market at least use some sort of confirmation. Don't just guess "this is the top" or "this is the bottom".
4. Trading runs in cycles. There are good day and bad days, there are good weeks and bad weeks, there are good months and bad months. Don’t let a bad day, week, or month put you down. Learn not to measure results in the very short term. Many traders give up after having three or four bad days. Don’t! Know that its part of the business. Hang in there, manage your money well, be persistent and I promise you it will pay off!
5. Remember what type of trader you are and follow the rules of that specific method of trading. For example, if you are a day trader it would be wise to ignore the fundamental picture. It would also be wise to analyze and trade with the appropriate time frames. Also, select a broker that offers tight spreads, provides good order fills and guaranteed stop losses (all important for effective day trading). If you are a swing trader it is important you look at the much bigger picture. Sometimes fundamental market data can come in handy (although I personally prefer to look at the technical picture alone). Learn to be patient, both in terms of your profit target being reached and entering trades (for swing traders it can be weeks with no trade signals).
6. KEEP IT SIMPLE! Don't think that the more indicators and patterns you use the more profitable you will be. My trading strategies are simple BUT original. I learned through time that the true gems in the market originate from simplicity. This is an important concept, don’t dismiss it.
7. Never ever add to a losing position. I think this is one of the biggest "diseases" traders have. A stop loss is like a red light, it's not a suggestion. It tells you to get out of the market not to add more money to the trade. It simply makes me angry to see people adding money to a losing position. It has no justification except one. HOPE! They don’t say "gee, I was wrong and should have exited in my stop loss level", they say "I am correct about the direction of the market, it's just that my stop loss was placed to close to my entry. If I hang in there and add more money the trade will surely go my way and I will not only make for the loss but I will make much more since now I am adding to my position at a much better price!".
8. Be patient with your profit targets. I know it is very tempting to grab the profits in a winning position before the profit objective is reached. There is a fear the market will turn around and the trade will become a loser. Be disciplined. There is a reason your profit objective is where it is. You did your homework before entering the trade and the profit objective you decided on justifies the trade in terms of risk/reward. Frequently take profits before the profit objectives are reached will destroy your whole risk/reward ratio and will finally be the difference between success and failure.
9. 95% of traders are not disciplined and that is why they do not succeed. They always know better than their system, they always know better then what the market is telling them. Be amongst the 5% disciplined traders and I guarantee you will be light years ahead of the crowd.
10. Think, analyze, and create BEFORE the trade. During the trade only follow what you though, analyzed and created before the trade. Before you enter the trade you are cool and balanced, you are thinking logically. During the trade you are under fire since money is involved. You are under pressure. What makes you think that you can make better decisions under intense fire then when you are calm and balanced? You can't. That is why you planned the trade before hand. Follow your plan!
11. Don’t favor sides. Trading is about recognizing long and short opportunities. Many people have the problem of shorting. They have the problem of profiting when the market is going down. They are taught through life that you make money when markets go up. As a currency trader you don't care if the currency market is going up or down, if there is an opportunity to make money you take it, that’s your job.
12. Trade a method that fits your personality. If you are like me and like hearing the cash register ring often then use day trading strategies. If you don’t mind waiting for profits to accumulate over time then consider using swing trading strategies. This is very important. Trade with what best suits your character. Be true with yourself and recognize what are your needs. My need is the gratification that frequent profits provide, no matter how small. It keeps me going.
13. As forex traders we can never know what price is to "low" and what price is to "high". Don’t be afraid to join a trend. I know that psychologically this can be difficult sometimes. You are always afraid that you will be entering the trend at it's end. This rule is important but must not be followed blindly but rather smartly. Suppose you are day trading the EUR/USD. You know that the average daily range of the pair is 90 or 100 pips. If your system is telling you to go long at a point where the market has already moved 80 pips and place a profit objective of 50 pips, would that be a smart move? Obviously not.
14. Know the personality of the currency you are trading. Each currency pair has its own individual "personality". This can be in terms of volatility, spread, average daily range, liquidity, specific patterns etc. Use trading strategies that go hand in hand with the characteristics of the currency pair.
That's it.
Remember, 95% of traders don’t follow these rules. Be amongst the unique that do and use a good trading method/system. Your success will come faster than you think.
I wish you all the best.
Written by Avi Frister - Veteran Forex Trader
5 Tips for Trading During Volatile Markets.
Increased volatility leads many traders to seeing an increase in trading opportunities. The huge market swings trigger thoughts of monumental upside, but also for potential loss especially if traders do not take the necessary precautions. During times of volatility, traders need to adjust their strategy to compensate for erratic market. When trading during these market conditions, traders should follow the rules below.
1. Be More Selective Before Placing Trade
Wanting to take advantage of all the trading opportunities that present themselves in volatile markets, traders are tempted to place an increase number of trades. This temptation should be avoided. It is important to remember that in volatile times, losses are likely to be big. Before placing a trading, assess risk tolerance levels. Determine the level of risk that is acceptable for the trader both psychologically and financially before placing any trades.
2. Use Less Leverage
During high market volatility, losses can be traumatic. With the average trading range increased in volatile times traders should be considering how leverage will affect trades. At a one percent or even a half percent margin, investors should be mindful of how much leverage or even the size position being traded can affect their portfolio. In normal market conditions, placing a 2 lot position is fine when you are looking to make about 50-100 pips. During a more volatile time, when the potential loss is 100-200 pips, it stops being an effective risk to reward ratio. To compensate traders should look to taking on smaller trading positions, in this case only one lot as opposed to the average 2 lot position.
3. Trade with More Discipline
Traders should always follow their predetermined trading strategy regardless of market condition. During volatile markets, this is even more important to use that same level of restraint. Traders must adhere to any set stops, contingency plans or risk management benchmarks without hesitation. This will help to define how much risk is taken should price action be uncontrollable. Without this level of discipline and self control losses can be great.
4. Tighten Stops
Many traders are hesitant to use tighter stops in volatile markets because they see the large swings increasing the likelihood that the position will be taken out. Having tighter stops can also provide great risk managers in times of extreme volatility. For example, on a EURUSD trade, rather than setting an 80 pip stop to protect your position, consider placing a 50-60 pip stop. This will insure the protection of your currency position and if the stop is broken, there is a high likelihood that the trend will continue lower and the stop took you out before you could potentially lose more money.
The width of the stop being set does depend on the currency pair being trading as some pairs have wider ranges. In a Yen cross like the GBPJPY or AUDJPY, traders may be more likely to have wider stops as their average daily range is 50% more than that of the EUR/USD. With that said, stops during volatile market conditions should not as wide as before. Instead of a stop 100 pips below entry, traders may consider a 25 pip reduction and have a 75 pip stop. Below is a chart showing the EURUSD and the GBPJPY on the same very volatile day in the forex market. The EURUSD had an impressive range of nearly 600 pips! The GBPJPY far dominated though with nearly a 2000 pip trading range.
5. Be Prepared
It also helps a trader to know what is causing the current spate of volatility in the markets in order to be prepared for the unexpected. As such, an investor can accommodate their strategy to the market environment and not just the currency pair being traded. The first of these considerations is accounting for emotions in a market: is fear currently driving the market lower? Or is it buyer's mania that is keeping the bullish tone alive? Traders' overreaction and emotion tend to push markets to overextended targets. This fact alone creates volatility through simple supply and demand.
Volatility can also, and more than likely will, be sparked by economic events. In this instance, market participants may interpret fundamental data differently and not as cut and dry as the more novice trader. A perfect example of this is usually monthly manufacturing reports that are released in pretty much all industrial economies. The classic scenario has the market honed in on a particular number for the month. However, traders young and old will sometimes wonder why the market sold off if manufacturing showed positive growth. The answer is simple. The market had a different interpretation and positions were violently reshaped and shifted. These tend to create great opportunities for some and horrible memories for others. Below is an hourly chart of the EUR/USD during ISM Manufacturing for October 1, 2008. Here we can see the huge price gap that occurred due to market volatility as well as the resulting trend.
Panic and erratic momentum can additionally be found in certain market environments. Not to be confused with fear or greed, panic selling and buying can create very choppy and relatively untradeable markets. These conditions will lead some to flip flop their positions while leaving others gaping at the fact that the position was right, only to be stopped out prematurely. These two common examples will create further panic and volatility as traders abandon their own individual strategy for the possibility of instant profits or stoppage revenge. As a result, a vicious cycle of volatility ensues until a definitive market direction can be established.
The simple rules above, and a task of getting to know the current trading environment, can empower every trader through the ranks. Although some relate volatility with difficult and untouchable markets, opportunities continue to remain abound in these less than attractive conditions to those focused and fortunate.
By following these five simple steps, trading in volatile market conditions should be a little simpler. Don't forget to adjust leverage based on volatility, follow your trading plan, tighten your stops and know why you are getting into a trade before you place it.
1. Be More Selective Before Placing Trade
Wanting to take advantage of all the trading opportunities that present themselves in volatile markets, traders are tempted to place an increase number of trades. This temptation should be avoided. It is important to remember that in volatile times, losses are likely to be big. Before placing a trading, assess risk tolerance levels. Determine the level of risk that is acceptable for the trader both psychologically and financially before placing any trades.
2. Use Less Leverage
During high market volatility, losses can be traumatic. With the average trading range increased in volatile times traders should be considering how leverage will affect trades. At a one percent or even a half percent margin, investors should be mindful of how much leverage or even the size position being traded can affect their portfolio. In normal market conditions, placing a 2 lot position is fine when you are looking to make about 50-100 pips. During a more volatile time, when the potential loss is 100-200 pips, it stops being an effective risk to reward ratio. To compensate traders should look to taking on smaller trading positions, in this case only one lot as opposed to the average 2 lot position.
3. Trade with More Discipline
Traders should always follow their predetermined trading strategy regardless of market condition. During volatile markets, this is even more important to use that same level of restraint. Traders must adhere to any set stops, contingency plans or risk management benchmarks without hesitation. This will help to define how much risk is taken should price action be uncontrollable. Without this level of discipline and self control losses can be great.
4. Tighten Stops
Many traders are hesitant to use tighter stops in volatile markets because they see the large swings increasing the likelihood that the position will be taken out. Having tighter stops can also provide great risk managers in times of extreme volatility. For example, on a EURUSD trade, rather than setting an 80 pip stop to protect your position, consider placing a 50-60 pip stop. This will insure the protection of your currency position and if the stop is broken, there is a high likelihood that the trend will continue lower and the stop took you out before you could potentially lose more money.
The width of the stop being set does depend on the currency pair being trading as some pairs have wider ranges. In a Yen cross like the GBPJPY or AUDJPY, traders may be more likely to have wider stops as their average daily range is 50% more than that of the EUR/USD. With that said, stops during volatile market conditions should not as wide as before. Instead of a stop 100 pips below entry, traders may consider a 25 pip reduction and have a 75 pip stop. Below is a chart showing the EURUSD and the GBPJPY on the same very volatile day in the forex market. The EURUSD had an impressive range of nearly 600 pips! The GBPJPY far dominated though with nearly a 2000 pip trading range.
It also helps a trader to know what is causing the current spate of volatility in the markets in order to be prepared for the unexpected. As such, an investor can accommodate their strategy to the market environment and not just the currency pair being traded. The first of these considerations is accounting for emotions in a market: is fear currently driving the market lower? Or is it buyer's mania that is keeping the bullish tone alive? Traders' overreaction and emotion tend to push markets to overextended targets. This fact alone creates volatility through simple supply and demand.
Volatility can also, and more than likely will, be sparked by economic events. In this instance, market participants may interpret fundamental data differently and not as cut and dry as the more novice trader. A perfect example of this is usually monthly manufacturing reports that are released in pretty much all industrial economies. The classic scenario has the market honed in on a particular number for the month. However, traders young and old will sometimes wonder why the market sold off if manufacturing showed positive growth. The answer is simple. The market had a different interpretation and positions were violently reshaped and shifted. These tend to create great opportunities for some and horrible memories for others. Below is an hourly chart of the EUR/USD during ISM Manufacturing for October 1, 2008. Here we can see the huge price gap that occurred due to market volatility as well as the resulting trend.
The simple rules above, and a task of getting to know the current trading environment, can empower every trader through the ranks. Although some relate volatility with difficult and untouchable markets, opportunities continue to remain abound in these less than attractive conditions to those focused and fortunate.
By following these five simple steps, trading in volatile market conditions should be a little simpler. Don't forget to adjust leverage based on volatility, follow your trading plan, tighten your stops and know why you are getting into a trade before you place it.
Saturday
Major Currency Pairs Personalities.
The seven most liquid pairs are traded against the US dollar with the first four pairs being the majors, followed by three commodity pairs. Other currency pairs are better known as the currency crosses, most popular crosses are those that include the euro, they are EUR/JPY, EUR/GBP and EUR/CHF.
The major currency pairs are:
EUR/USD
USD/JPY
USD/CHF
GBP/USD
The commodity currency pairs are:
AUD/USD
NZD/USD
USD/CAD
Major Currency Pairs Personalities
EUR/USD
The most recent Bank for International Settlements (BIS) survey shows that the most traded major currency pair is the EUR/USD with 28% of total daily volume. The EUR/USD is great for new currency traders since it slow movement compared to the other major pairs. The EUR/USD tends to be negatively correlated to the USD/CHF and positively to the GBP/USD. (see weekly charts)
Characteristics
Average broker spread: 2-3 pips
Daily range average : 90-100 pips
Best time to trade: Euro Session (0700 GMT - 1700 GMT)
Some factors affecting the EUR/USD rate:
The major currency pairs are:
EUR/USD
USD/JPY
USD/CHF
GBP/USD
The commodity currency pairs are:
AUD/USD
NZD/USD
USD/CAD
Major Currency Pairs Personalities
EUR/USD
The most recent Bank for International Settlements (BIS) survey shows that the most traded major currency pair is the EUR/USD with 28% of total daily volume. The EUR/USD is great for new currency traders since it slow movement compared to the other major pairs. The EUR/USD tends to be negatively correlated to the USD/CHF and positively to the GBP/USD. (see weekly charts)
Characteristics
Average broker spread: 2-3 pips
Daily range average : 90-100 pips
Best time to trade: Euro Session (0700 GMT - 1700 GMT)
Some factors affecting the EUR/USD rate:
- The interest rate differential between the European Bank(ECB) and the Federal Reserve(FED)
- Dollar strongness drives EUR/USD lower
- FED intervention to weaken the dollar the sends EUR/USD higher
Trading the EUR/USD
Trading Experience: New and Advanced currency traders
Trading Style: Day trading and Swing trading
How to trade?
1) Applying Technical Analysis and/or Analyzing Fundamental News from the Euro and US zone to make EUR/USD trading decisions. Breaking strong psychological levels (1.3000, 1.2000,..) and/or surprising economic news releases can make the EUR/USD move a lot in one direction without much retracements.
2) Since the EUR/USD pair tends to be negatively correlated to the USD/CHF, it is always a good idea to compare both EUR/USD and USD/CHF charts in order to predict future moves, if USD/CHF breaks above an important resistance level and EUR/USD didn't break support level yet, the EUR/USD is very likely to break below support level. This also illustrates how USD/CHF tends to lead the move ahead of EUR/USD.
USD/JPY
The most recent Bank for International Settlements (BIS) survey shows that the USD/JPY with 17% of total daily volume is the second most traded major currency pair.
Characteristics
Average broker spread: 2-4 pips
Daily range average : 80-90 pips
Best time to trade: Asian Session (2400 GMT - 0900 GMT)
Some factors affecting the USD/JPY rate:
- The interest rate differential between the Bank of Japan(BoJ) and the Federal Reserve
- Japanese government intervention to strongen their currency sends USD/JPY lower
Trading the USD/JPY
Trading Experience: New and Advanced currency traders
Trading Style: Day trading and Swing trading
How to trade?
Applying Technical Analysis and/or Analyzing Fundamental News from the Asian zone to make USD/JPY trading decisions. Breakouts are often true and sustained ones.
GBP/USD
The most recent Bank for International Settlements(BIS) survey shows that the GBP/USD with 14% of total daily volume is the third most traded major currency pair. The GBP/USD is one of the most volatile currency pairs generating many false breakouts and wild movements, therefore, it is not recommend to start trading this pair unless you are a very experienced currency trader.
Characteristics
Average broker spread: 4-5 pips
Daily range average : 150-200 pips
Best time to trade: Euro Session (0700 GMT - 1700 GMT)
Some factors affecting the GBP/USD rate:
- The interest rate differential between the Bank of England(BoE) and the Federal Reserve
- High yield and attractive growth in the UK drives GBP/USD higher
Trading the GBP/USD
Trading Experience: Expert currency traders
Trading Style: Day trading and Swing trading
How to trade?
Applying Technical Analysis and/or Analyzing Fundamental News from the UK and US zone to make GBP/USD trading decisions. Watch out for false break outs! Surprising economic news releases can make the GBP/USD move a lot in one direction without much retracements.
USD/CHF
The most recent Bank for International Settlements (BIS) survey shows that the USD/CHF with 4% of total daily volume is the least liquid traded major currency pair. The USD/CHF tends to be negatively correlated to the EUR/USD.
Characteristics
Average broker spread: 4-5 pips
Daily range average : 120-135 pips
Best time to trade: Euro Session (0700 GMT - 1700 GMT)
Factors affecting the USD/CHF rate:
- Global stability and global recovery will send USD/CHF higher
- USD/CHF rallies on geopolitical instability
Trading the USD/CHF
Trading Experience: Moderate and Advanced currency traders
Trading Style: Day trading and Swing trading
How to trade?
1) Applying Technical Analysis Analyzing Fundamental News from the CHF and US zone to make USD/CHF trading decisions.
2) Since the USD/CHF pair tends to be negatively correlated to the EUR/USD, it is always a good idea to compare both EUR/USD and USD/CHF charts in order to predict future moves, if EUR/USD breaks above an important resistance level and USD/CHF didn't break support level yet, the USD/CHF is very likely to break below support level. This also illustrates how EUR/USD tends to lead the move ahead of USD/CHF.
10 Advanced Tips For Trading Success!
Trading the Forex market can be tremendously exciting and rewarding but that doesn't mean that starting out can't be nerve wracking and at times frustrating. That's why eToro offers you these 10 top tips to help you trade:
1. Get Your Feet Wet Gradually. Most new traders start by opening many trades and then find it hard to monitor them all. By focusing on just a very few trades in the beginning you'll give yourself the opportunity to keep track of your trades, and to figure out how to adjust your trading approach according to market movements.
2. Stop Forgetting Your Stop-Loss! The key cause of unsuccessful trading is excessive losses and the single biggest cause of losses is incorrect portfolio management. Remember that a Stop Loss is not there for decoration, it is there to prevent your losses from mounting up. Use it wisely and you will soon see your loss rate reducing!
3. Build A Trading Plan/System. Every trader develops their own individual trading system, depending on the amount of time they dedicate to trading. Traders with more time may adopt a day trading strategy, while others might prefer longer term positions. The important thing is that, whichever trading style you adopt, you stick to your trading plan. Many new traders who experience losses find themselves tempted to switch approaches, however one or two losing trades don’t necessarily mean that your trading system isn’t going to be a profitable one.
4. Don't Cut Your Profits Short. The number one mistake new traders tend to make is closing their winning trades too early. By sticking to your trading plan you can learn to avoid making hasty exits that reduce your potential profits.
5. Don’t turn Profitable trades Into Losing Ones. Once the market is going your way and your positions show a profit, keep a close watch on them. Move your stop loss forward to your entry point to secure your investment. Then keep moving your stop loss forwards in the direction of the trend to secure your profits and prevent your trade from slipping back into a loss.
6. Beware Of “Scaling In”. Scaling in is a strategy where an investor increases his position size when the position is negative, hoping that it will retrace back and close all the positions in profit. Using a Scaling in strategy isn’t necessarily a bad thing but it can quickly wipe out your account if you don’t know how to use the strategy correctly. As such it can be a risky approach for a beginner trader.
7. Plan Ahead. Never enter a trade because the price is suddenly rising or decreasing. Always plan your trades in advance. Know your desired entry point, Take Profit and Stop Loss rates before you trade and wait for the right opportunity to arise.
8. Preserve Your Capital. Profits are there for the making, but the real key to lasting Forex achievement is not just to make profits, but to keep them. Letting profitable trades run, cutting your losses quickly and keeping cool under pressure and in line with your trading plan is you key to profitability not for a single trade but across all the trades you make.
9. Trends Carry Momentum. New Traders are often unaware that as a new trend starts to build its momentum tends to increase. Additional traders will tend to jump on board an emerging trend, strengthening it as it continues to develop. Try to trade with the market’s momentum on your side, as it will often push your trades in the right direction, hitting your profit targets sooner than you might expect.
10. Don't Waste Your Time On A Losing Trade. If you find yourself in a losing position, remember that it is better to save your energy, cut your losses and move on to the next trade. The Forex market is full of profitable opportunities, just waiting to be exploited, so don’t waste your time on an unprofitable trade!
These 10 trading tips can help you achieve positive results in your Forex trading activity.
Successful trading,
1. Get Your Feet Wet Gradually. Most new traders start by opening many trades and then find it hard to monitor them all. By focusing on just a very few trades in the beginning you'll give yourself the opportunity to keep track of your trades, and to figure out how to adjust your trading approach according to market movements.
2. Stop Forgetting Your Stop-Loss! The key cause of unsuccessful trading is excessive losses and the single biggest cause of losses is incorrect portfolio management. Remember that a Stop Loss is not there for decoration, it is there to prevent your losses from mounting up. Use it wisely and you will soon see your loss rate reducing!
3. Build A Trading Plan/System. Every trader develops their own individual trading system, depending on the amount of time they dedicate to trading. Traders with more time may adopt a day trading strategy, while others might prefer longer term positions. The important thing is that, whichever trading style you adopt, you stick to your trading plan. Many new traders who experience losses find themselves tempted to switch approaches, however one or two losing trades don’t necessarily mean that your trading system isn’t going to be a profitable one.
4. Don't Cut Your Profits Short. The number one mistake new traders tend to make is closing their winning trades too early. By sticking to your trading plan you can learn to avoid making hasty exits that reduce your potential profits.
5. Don’t turn Profitable trades Into Losing Ones. Once the market is going your way and your positions show a profit, keep a close watch on them. Move your stop loss forward to your entry point to secure your investment. Then keep moving your stop loss forwards in the direction of the trend to secure your profits and prevent your trade from slipping back into a loss.
6. Beware Of “Scaling In”. Scaling in is a strategy where an investor increases his position size when the position is negative, hoping that it will retrace back and close all the positions in profit. Using a Scaling in strategy isn’t necessarily a bad thing but it can quickly wipe out your account if you don’t know how to use the strategy correctly. As such it can be a risky approach for a beginner trader.
7. Plan Ahead. Never enter a trade because the price is suddenly rising or decreasing. Always plan your trades in advance. Know your desired entry point, Take Profit and Stop Loss rates before you trade and wait for the right opportunity to arise.
8. Preserve Your Capital. Profits are there for the making, but the real key to lasting Forex achievement is not just to make profits, but to keep them. Letting profitable trades run, cutting your losses quickly and keeping cool under pressure and in line with your trading plan is you key to profitability not for a single trade but across all the trades you make.
9. Trends Carry Momentum. New Traders are often unaware that as a new trend starts to build its momentum tends to increase. Additional traders will tend to jump on board an emerging trend, strengthening it as it continues to develop. Try to trade with the market’s momentum on your side, as it will often push your trades in the right direction, hitting your profit targets sooner than you might expect.
10. Don't Waste Your Time On A Losing Trade. If you find yourself in a losing position, remember that it is better to save your energy, cut your losses and move on to the next trade. The Forex market is full of profitable opportunities, just waiting to be exploited, so don’t waste your time on an unprofitable trade!
These 10 trading tips can help you achieve positive results in your Forex trading activity.
Successful trading,
Friday
PSYCHOLOGY OF TRADING.
How to Achieve Success?
“If you have the commitment – you will achieve your goals”
It is an accepted fact that 90% of traders lose money “playing” the markets, because they are just “playing” and NOT Trading.
They tend to focus mostly on the past, and their failures, as a result they have fear within them, resulting into wrong trades.
If you want to succeed in life, remember one thing, just because you failed yesterday does not mean that you will fail today, or that you will fail tomorrow. All that matters is what are you going to do right now! You have to learn to live in the NOW. The past is gone, you cannot change it, but you have the power to change the NOW, which will influence your Tomorrow.
The human brain is the most powerful computer in the world, and when it is challenged it can achieve the absolute incredible. To achieve success, you have to start using your brain and THINK. So what can you do to succeed?
- What is your Goal - The first step of any sound trading plan is to set realistic and attainable goals for yourself. Know exactly what you want, you have to be clear and there shall be no doubt about this. Clarity is the power. In my e-book, I have gone through great length on mental fitness, psychology and trading plan.
- Control your mental focus. If you know what you want than you can focus on it. Whatever we focus on in life we tend to manifest that. Focus on success, and focus on the daily changes that you are bringing to your trading. Focus on those winning trades and see yourself doing this over and over again.
- ACTION – Once you decide what you want, Take massive action in the direction of your goals. Go out and get it. No point having a goal and not doing anything about it.
- Challenge – Demand more from yourself; push yourself to be the best. Push yourself to the next level. Don’t have fear, face the fear, break through the fear and take action. Our brain is capable of doing anything – However, It is not what we can do in life that makes the difference, it is what we will do. Napoleon Hill’s classic best seller “Think and Grow Rich” has sold more than 60 million copies worldwide! Does that mean that 60 million are rich and millionaires? No, only a tiny percentage did follow through, the majority do read and then take no action and go on to read another classic best seller.
- Measure the progress – Is it working or not? Are you getting closer to your goal? Review it all the time. If it is not working, than change it. Keep trying and trying, until you master it. Never Give UP
- Master Success – Find the path to mastery. Life is your game to win. Life should be about growth and your willingness to keep learning and to keep helping others. If we did all the things we are capable of doing, we would literally astonish ourselves. – Success is there waiting for you!
- Motivate yourself. To succeed at anything in life, just FEELING motivated will not DO. That melts on a hot afternoon. You need to be totally motivated – and that lasts a lifetime. There are lot of ways you can find yourself to motivate. For some this could be putting lot of pleasures to the success. Or for some this could be putting lot of pain on your failure. What will it be like if you fail to achieve the success? For some visualising the pain will be unbearable, and the fear of failure will be motivating them.
- Get a Role Model – How can you quicken the above process? The easiest way is to get a Role Model. Find out what a successful person has done to achieve success, and do the same thing! Don’t reinvent the wheel. If you can learn the principles and strategies of successful men and women, you can use their methods to achieve whatever you desire. The American philosopher and writer, Ralph Waldo Emerson wrote, “Our chief want in life is somebody who will make us do what we can.”
- The Mentor Advantage – A good quality mentor can also help to speed the journey to success. That has certainly been the case with me. Whilst I have 0over 20 years experience in trading, but my success grew exponentially when I sought the services of a mentor and I have not looked back since. A mentor can teach you new skills and help you increase self-confidence. For the past 2 years I have also offered trading & psychology mentoring and have seen tremendous success being achieved by the students. There has been instances where students got confidence by moving from trading micro lots to over 10 lots, some have even gone on to become successful money managers.
- Keep a Journal – as I have often said in my training courses you are your biggest mentor, and you have already paid for it. HOW? By way your failures. One of the reasons to write a journal is teach you and learn from it from the past mistakes.
“Dreams are a dime dozen………….. It’s their execution that counts.
Theodore Roosevelt
Are You Willing to Pay the Price?
HA! Made you click!
If you really thought there actually was a way for a lazy forex trader to get rich, SHAME ON YOU!
No such thing exists. The word "lazy" and "trader" is an oxymoron. You have to be willing to pay the price to become a trader.
Which brings us to our next lesson....
So, you’ve gone through the School of Pipsology…five times, learned basic analysis and money management trading plan, right?) Now you can sit back and relax because it’s easy money from here on out, right? techniques, and maybe even opened up a demo account and started trading a plan you’ve created. (You do have a
Wrong!
You’ve just taken the first step.
You’ve only familiarized yourself with the very basic fundamentals of what it takes to become a professional trader. Now it’s time to get on to the real work.
I’m sure you’re now thinking, “There’s more to learn?!”
Well, my friend, the learning never ends.
As with any profession, whether you’re a doctor, lawyer, athlete, assassin, spy, ninja, ultimate fighter, musician or any other occupation that requires a high level of skill, you can never stop learning and practicing. Otherwise, your skills will deteriorate and you’ll slowly forget what you’ve learned.
This lesson will give you a peek into what it takes – education, time, money and psychological stamina – to enter the most financially rewarding career on the planet: a professional trader.
If you really thought there actually was a way for a lazy forex trader to get rich, SHAME ON YOU!
No such thing exists. The word "lazy" and "trader" is an oxymoron. You have to be willing to pay the price to become a trader.
Which brings us to our next lesson....
So, you’ve gone through the School of Pipsology…five times, learned basic analysis and money management trading plan, right?) Now you can sit back and relax because it’s easy money from here on out, right? techniques, and maybe even opened up a demo account and started trading a plan you’ve created. (You do have a
Wrong!
You’ve just taken the first step.
You’ve only familiarized yourself with the very basic fundamentals of what it takes to become a professional trader. Now it’s time to get on to the real work.
I’m sure you’re now thinking, “There’s more to learn?!”
Well, my friend, the learning never ends.
As with any profession, whether you’re a doctor, lawyer, athlete, assassin, spy, ninja, ultimate fighter, musician or any other occupation that requires a high level of skill, you can never stop learning and practicing. Otherwise, your skills will deteriorate and you’ll slowly forget what you’ve learned.
This lesson will give you a peek into what it takes – education, time, money and psychological stamina – to enter the most financially rewarding career on the planet: a professional trader.
Forex Trading Scams.
Don't be a sucker.
One of the first things you must learn about the Forex market is that although it is enjoyable and exciting, there is no magic button that will instantly turn your pennies into millions of dollars. You may have already heard about Forex scams that are filling the marketplace. These companies purposely mislead people into thinking that making money in the Forex is easy and that they have found the “Magic Solution” to raking in booku bucks with a simple click of a button.
Sadly, the number of Forex scams is rising. The Commodities Futures Trading Commission (CFTC) released a report citing that in recent years, they have seen a sharp increase in the rise of Foreign Exchange scams. The CFTC warns consumers to be cautious of sales solicitations in newspapers, radio or television. You’ve probably even seen some of these companies. I hear about them all the time from people whenever I try to explain the Forex. The first thing they say is that they think the Forex is a scam. That makes me so angry! The Forex is a tremendous investment opportunity for people and because of these scammers, they miss out on a good way to make money.
The truth is that no matter how you slice or dice it, education is the only fool proof way to consistently make money in the Foreign Exchange. Even after you finish reading through BabyPips.com, your journey as a FX trader is only the beginning. I have never met a successful Forex trader who stopped learning. There is always something new to learn and you must actively seek out as much information as you can.
Notice that I didn’t say you should put your money into a trading account and start trading.
Keep that money in your account and gradually add to it as you continue to learn. Before you know it, your account size will be bigger than you realized, and to top it off, you’ll have a wealth of Forex education under your “traders” belt.
So remember, Forex scams DO exist. Be wary of them and hold onto your money. The good news is that there ARE legitimate Forex companies out there. Make sure you do thorough research on a company if you are thinking about giving them a shot. Ask other traders on the forums if they've had experiences with them. There is a wealth of information on the Internet so do your homework and you’ll be just fine.
One of the first things you must learn about the Forex market is that although it is enjoyable and exciting, there is no magic button that will instantly turn your pennies into millions of dollars. You may have already heard about Forex scams that are filling the marketplace. These companies purposely mislead people into thinking that making money in the Forex is easy and that they have found the “Magic Solution” to raking in booku bucks with a simple click of a button.
Sadly, the number of Forex scams is rising. The Commodities Futures Trading Commission (CFTC) released a report citing that in recent years, they have seen a sharp increase in the rise of Foreign Exchange scams. The CFTC warns consumers to be cautious of sales solicitations in newspapers, radio or television. You’ve probably even seen some of these companies. I hear about them all the time from people whenever I try to explain the Forex. The first thing they say is that they think the Forex is a scam. That makes me so angry! The Forex is a tremendous investment opportunity for people and because of these scammers, they miss out on a good way to make money.
The truth is that no matter how you slice or dice it, education is the only fool proof way to consistently make money in the Foreign Exchange. Even after you finish reading through BabyPips.com, your journey as a FX trader is only the beginning. I have never met a successful Forex trader who stopped learning. There is always something new to learn and you must actively seek out as much information as you can.
The best investment you can ever make is in yourself.
Don’t spend your money on a company that promises huge returns; even if they show you their track record. It might look pretty and colorful; and I’m sure that the line on the graph that seems to keep going higher and higher makes it look like there is no way you could lose money, but don’t let them fool you. In fact, I could take my broker statement right now, touch it up with Photoshop and voila! – I have now just become the most successful trader on the planet. Pretty impressive huh? I know I’m laying it on pretty thick, but I really want to prevent you from falling into any traps. Instead of giving your hard earned money to someone else, you could put that money aside into a trading account and take the time to educate yourself.Notice that I didn’t say you should put your money into a trading account and start trading.
Keep that money in your account and gradually add to it as you continue to learn. Before you know it, your account size will be bigger than you realized, and to top it off, you’ll have a wealth of Forex education under your “traders” belt.
So remember, Forex scams DO exist. Be wary of them and hold onto your money. The good news is that there ARE legitimate Forex companies out there. Make sure you do thorough research on a company if you are thinking about giving them a shot. Ask other traders on the forums if they've had experiences with them. There is a wealth of information on the Internet so do your homework and you’ll be just fine.
Why Have a Trading Plan?
Uh oh! You’ve learned so much and have come so far in your education, and yet you're still haven't graduated high school. No, you’re not dumb, BUT you didn’t have a trading plan.
Our point is that you can fill your mind with plenty of information, but without a good trading plan and the discipline to stick to it, you will NEVER be profitable.
Think of your trading plan as your map to success. It will be a constant reminder of how you will make money in this market. Of course it’s not required, and if you can make your living by trading without a plan, we will bow down and hail you as the Market Zeus of the Forex.
So you CAN trade without a plan if you want, but before you make that decision, let us give you a few reasons WHY you should have one.
In the same way, you can relate the McDonald’s story to your trading career. Whether it’s by luck or experience, everyone can make money in the forex. However, the difference between a losing trader and a successful trader is the PLAN. If you have a good trading plan and you are disciplined enough to stick to it, you will be successful!
Now you know why you should have a trading plan. Let's find out what makes up a trading plan...
Our point is that you can fill your mind with plenty of information, but without a good trading plan and the discipline to stick to it, you will NEVER be profitable.
Think of your trading plan as your map to success. It will be a constant reminder of how you will make money in this market. Of course it’s not required, and if you can make your living by trading without a plan, we will bow down and hail you as the Market Zeus of the Forex.
So you CAN trade without a plan if you want, but before you make that decision, let us give you a few reasons WHY you should have one.
Why Have a Trading Plan?
Reason 1: It keeps you in the right direction
Consistency is very important to have in your trading routine because it allows you to truly measure how successful you are as a trader. If you have a sound trading system but always break your rules, how can you ever really know how good your system really is? Your trading plan will keep you on target. Read it every day and stick to it.Reason 2: Trading is a business and successful businesses ALWAYS have plans
I have never seen a successful business not start out with a plan. Do you honestly think Walmart was just created on a whim and then magically became successful? Or what about McDonalds? I’m sure almost anyone can make a better hamburger than McDonalds, but the difference between them and the individual is that they have a successful business plan that guides them to success.In the same way, you can relate the McDonald’s story to your trading career. Whether it’s by luck or experience, everyone can make money in the forex. However, the difference between a losing trader and a successful trader is the PLAN. If you have a good trading plan and you are disciplined enough to stick to it, you will be successful!
Now you know why you should have a trading plan. Let's find out what makes up a trading plan...
What Should be in Your Trading Plan?
Trading Plans can be as simple or complex as you want it, but the most important thing is that you actually HAVE a plan and you FOLLOW the plan. With that said, here are some of the essentials that every trading plan should have.
Include all the necessary information about your system such as: time frames you use, criteria for entries and exits, how much you risk during each trade, which currency pair(s) you trade and how many lots you trade.
1. A Trading System
This is the heart of your trading plan. This system should be one that you have thoroughly backtested, and have traded for at least two months on a demo account.Include all the necessary information about your system such as: time frames you use, criteria for entries and exits, how much you risk during each trade, which currency pair(s) you trade and how many lots you trade.
Example: I am an intraday trader and I trade off of the 10 minute charts. I enter when there is a moving average crossover and all my indicators support the direction. I only trade the EUR/USD and I risk no more than 2% of my account on each trade. For now, I trade 5 mini lots and will increase my lot size according to my 2% money management rules.
2. Your trading routine
This is a crucial part of your plan because it will determine three very important things: when you will analyze the market and plan your trades, when you will actually watch the market to take trades, and when you will evaluate your actions during your trading day.3. Your mindset
Ask any trader out there and they will all tell you that one of the hardest things to do when trading is to take out your emotions from it. This section of your trading plan will describe what frame of mind you will be in when you are trading.Example:
- I will see what is on the charts and not what I want to see.
- No matter how biased I am towards a direction, I will make sure to trade only what my eyes see and not what my feelings tell me.
- I will not get “revenge” on the market if I lose on a trade.
- I will not beat myself up if I make a losing trade. Instead I will take it as a learning experience and move on.
4. Your weaknesses
Yes, we all have our weaknesses. We just don’t like talking about them. But ask yourself this, “How will you ever get better, if you don’t admit to what you need to work on?” This section will be an objective way to keep track of things that you need to work on in order to become a better trader.Example:
- I tend to overtrade. Whenever I lose on a position, I get upset and immediately try to get “revenge” on the market.
- I tend to exit early on trades.
- I don’t stick to the rules of my system every time
- I don’t stick to my money management rules every time
5. Your goals
“To make a lot of money” is not a good goal. Sit down and really think about what you want to accomplish as a trader. Do you want to trade for a living? How much return can you realistically expect from trading based on your knowledge and experience? Your goals don’t even have to be about making money. Maybe you would like to be more disciplined or gain more confidence. These goals can be personal. What do YOU want to get out of this? Use these goals as your motivation when times get tough. These goals will be your vision, and you must always keep your eyes on the prize!6. Your trading journal
This will be a valuable tool to helping you become a better trader. Make sure you log all your trades and why you took them. Later down the road you can look back and evaluate your trades and see how you are progressing. I’ve looked back at my trade journal and have seen just how much I’ve grown as a trader. My first entries were very basic and as I’ve progressed, my trades make more sense to me now. I’ve gained a lot of confidence throughout my career and by looking back at my trades, I’ve really been able to evaluate myself and see if I am getting closer to my goals. This tool will help you tremendously in the long run, so take a few minutes each day and log your trades. You’ll be happy you did!Summary of Trading Plans.
Your trading plan will be your trading “bible”.
Read it everyday and stick to it.
You can have all the trading tools in the world, but if you don’t have a plan on how you will use them, you will never be successful.
Remember, you are starting a business, and if you want your business to succeed, you need to have a PLAN!
Read it everyday and stick to it.
You can have all the trading tools in the world, but if you don’t have a plan on how you will use them, you will never be successful.
Remember, you are starting a business, and if you want your business to succeed, you need to have a PLAN!
Thursday
The history of Forex trading.
Initially, the value of goods was expressed in terms of other goods, i.e. an economy based on barter between individual market participants. The obvious limitations of such a system encouraged establishing more generally accepted means of exchange at a fairly early stage in history, to set a common benchmark of value. In different economies, everything from teeth to feathers to pretty stones has served this purpose, but soon metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.
Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies.
Before World War I, most central banks supported their currencies with convertibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessarily a need for full cover in the central reserves of the government.
At times, the ballooning supply of paper money without gold cover led to devastating inflation and resulting political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility.
In the latter stages of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilizing monetary crisis which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent.
The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.
The following decades have seen foreign exchange trading develop into the largest global market by far. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.
But the idea of fixed exchange rates has by no means died. The EEC (European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nevertheless, the quest for currency stability has continued in Europe with the renewed attempt to not only fix currencies but actually replace many of them with the Euro in 2001.
The lack of sustainability in fixed foreign exchange rates gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates, in particular in South America, looking very vulnerable.
But while commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD 3,000 billion is traded every day, far more than the world's stock and bond markets combined.
Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies.
Before World War I, most central banks supported their currencies with convertibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessarily a need for full cover in the central reserves of the government.
At times, the ballooning supply of paper money without gold cover led to devastating inflation and resulting political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility.
In the latter stages of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilizing monetary crisis which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent.
The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.
The following decades have seen foreign exchange trading develop into the largest global market by far. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.
But the idea of fixed exchange rates has by no means died. The EEC (European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nevertheless, the quest for currency stability has continued in Europe with the renewed attempt to not only fix currencies but actually replace many of them with the Euro in 2001.
The lack of sustainability in fixed foreign exchange rates gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates, in particular in South America, looking very vulnerable.
But while commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD 3,000 billion is traded every day, far more than the world's stock and bond markets combined.
Money Management .
This section is one of the most important sections you will ever read about trading.
Why is it important? Well, we are in the business of making money, and in order to make money we have to learn how to manage it. Ironically, this is one of the most overlooked areas in trading. Many traders are just anxious to get right into trading with no regards to their total account size. They simply determine how much they can stomach to lose in a single trade and hit the “trade” button. There’s a term for this type of investing….it’s called GAMBLING!
When you trade without money management rules, you are in fact gambling. You are not looking at the long term return on your investment. Instead you are only looking for that “jackpot”. Money management rules will not only protect us, but they will make us very profitable in the long run. If you don’t believe me, and you think that “gambling” is the way to get rich, then consider this example:
People go to Las Vegas all the time to gamble their money in hopes to win a big jackpot, and in fact, many people do win. So how in the world, are casino’s still making money if many individuals are winning jackpots? The answer is that while even though people win jackpots, in the long run, casino’s are still profitable because they rake in more money from the people that don’t win. That is where the term “the house always wins” comes from.
The truth is that casinos are just very rich statisticians. They know that in the long run, they will be the ones making the money—not the gamblers. Even if Joe Schmoe wins $100,000 jackpot in a slot machine, the casinos know that there will be 100 more gamblers who WON’T win that jackpot and the money will go right back in their pockets.
This is a classic example of how statisticians make money over gamblers. Even though both lose money, the statistician, or casino in this case, knows how to control their losses. Essentially, this is how money management works.If you learn how to control your losses, you will have a chance at being profitable.
You want to be the rich statistician…NOT the gambler because in the long run, you want to “always be the winner.”
So how do you become this rich statistician instead of a loser?
Why is it important? Well, we are in the business of making money, and in order to make money we have to learn how to manage it. Ironically, this is one of the most overlooked areas in trading. Many traders are just anxious to get right into trading with no regards to their total account size. They simply determine how much they can stomach to lose in a single trade and hit the “trade” button. There’s a term for this type of investing….it’s called GAMBLING!
When you trade without money management rules, you are in fact gambling. You are not looking at the long term return on your investment. Instead you are only looking for that “jackpot”. Money management rules will not only protect us, but they will make us very profitable in the long run. If you don’t believe me, and you think that “gambling” is the way to get rich, then consider this example:
People go to Las Vegas all the time to gamble their money in hopes to win a big jackpot, and in fact, many people do win. So how in the world, are casino’s still making money if many individuals are winning jackpots? The answer is that while even though people win jackpots, in the long run, casino’s are still profitable because they rake in more money from the people that don’t win. That is where the term “the house always wins” comes from.
The truth is that casinos are just very rich statisticians. They know that in the long run, they will be the ones making the money—not the gamblers. Even if Joe Schmoe wins $100,000 jackpot in a slot machine, the casinos know that there will be 100 more gamblers who WON’T win that jackpot and the money will go right back in their pockets.
This is a classic example of how statisticians make money over gamblers. Even though both lose money, the statistician, or casino in this case, knows how to control their losses. Essentially, this is how money management works.If you learn how to control your losses, you will have a chance at being profitable.
You want to be the rich statistician…NOT the gambler because in the long run, you want to “always be the winner.”
So how do you become this rich statistician instead of a loser?
Drawdown and Maximum Drawdown?
So we know that money management will make us money in the long run, but now we’d like to show you the other side of things. What would happen if you didn’t use money management rules?
Consider this example:
Let’s say you have a $100,000 and you lose $50,000. What percentage of your account have you lost? The answer is 50%. Simple enough. Now, what percentage of that $50,000 do you have to make in order to get back to your original $100,000? It’s not 50%--you’d have to make back 100% of your $50,000 to get back to your original $100,000. This is called drawdown. For this example, we would’ve had a 50% drawdown.
The point of that little illustration is that it is very easy to lose money and a lot harder to make it back. We know you’re saying to yourself, “I’m not going to lose 50% of my account in one trade.” Well we would certainly hope not!
However, what if you lost 3, 4, or even 10 trades in a row? That couldn’t possibly happen to you, right? (Sarcasm used) You have a trading system that wins 70% of the time, so there is NO way you could lose 10 trades in a row. (Even more sarcasm used)
Well, while you may have a good system, consider this example:
In trading, we are always looking for an edge. That is the whole reason why traders develop systems. A trading system that is 70% profitable sounds like a very good edge to have. But just because your trading system is 70% profitable, does that mean for every 100 trades you make, you will win 7 out of every 10?
The answer is that you don’t. You could lose the first 30 trades in a row and win the remaining 70. That would still give you a 70% profitable system, but you have to ask yourself, “Would you still be in the game if you lost 30 trades in a row?”
This is why money management is so important. No matter what system you use, you will eventually have a losing streak. Even professional poker players who make their living through poker go through horrible losing streaks, and yet they still end up profitable.
The reason is that the good poker players practice money management because they know that they will not win every tournament they play. Instead, they only risk a small percentage of their total bankroll so that they can survive those losing streaks.
This is what you must do as a trader. Only risk a small percentage of your “trading bankroll” so that you can survive your losing streaks. Remember that if you practice strict money management rules, you will become the casino and in the long run, “you will always win.”
Let me illustrate what happens when you use proper money management and when you don't...
Consider this example:
Let’s say you have a $100,000 and you lose $50,000. What percentage of your account have you lost? The answer is 50%. Simple enough. Now, what percentage of that $50,000 do you have to make in order to get back to your original $100,000? It’s not 50%--you’d have to make back 100% of your $50,000 to get back to your original $100,000. This is called drawdown. For this example, we would’ve had a 50% drawdown.
The point of that little illustration is that it is very easy to lose money and a lot harder to make it back. We know you’re saying to yourself, “I’m not going to lose 50% of my account in one trade.” Well we would certainly hope not!
However, what if you lost 3, 4, or even 10 trades in a row? That couldn’t possibly happen to you, right? (Sarcasm used) You have a trading system that wins 70% of the time, so there is NO way you could lose 10 trades in a row. (Even more sarcasm used)
Well, while you may have a good system, consider this example:
In trading, we are always looking for an edge. That is the whole reason why traders develop systems. A trading system that is 70% profitable sounds like a very good edge to have. But just because your trading system is 70% profitable, does that mean for every 100 trades you make, you will win 7 out of every 10?
Losing Streak
Not necessarily! How do you know which 70 out of those 100 trades will be winners?The answer is that you don’t. You could lose the first 30 trades in a row and win the remaining 70. That would still give you a 70% profitable system, but you have to ask yourself, “Would you still be in the game if you lost 30 trades in a row?”
This is why money management is so important. No matter what system you use, you will eventually have a losing streak. Even professional poker players who make their living through poker go through horrible losing streaks, and yet they still end up profitable.
The reason is that the good poker players practice money management because they know that they will not win every tournament they play. Instead, they only risk a small percentage of their total bankroll so that they can survive those losing streaks.
This is what you must do as a trader. Only risk a small percentage of your “trading bankroll” so that you can survive your losing streaks. Remember that if you practice strict money management rules, you will become the casino and in the long run, “you will always win.”
Let me illustrate what happens when you use proper money management and when you don't...
Don't Lose Your Shirt.
Here is a little illustration that will show you the difference between risking a small percentage of your capital compared to risking a higher percentage.
You can see that there is a big difference between risking 2% of your account compared to risking 10% of your account on a single trade. If you happened to go through a losing streak and lost only 19 trades in a row, you would’ve went from starting with $20,000 to having only $3,002 left if you risked 10% on each trade. You would’ve lost over 85% of your account! If you risked only 2% you would’ve still had $13,903 which is only a 30% loss of your total account.
Of course, the last thing we want to do is lose 19 trades in a row, but even if you only lost 5 trades in a row, look at the difference between risking 2% and 10%. If you risked 2% you would still have $18,447. If you risked 10% you would only have $13,122. That’s less than what you would’ve had even if you lost all 19 trades and risked only 2% of your account!
The point of this illustration is that you want to setup your MoneyManagement rules so that when you do have a drawdown period (losing streak) you will still have enough capital to stay in the game. Can you imagine if you lost 85% of your account? You would have to make 566% on what you are left with in order to get back to break even. Trust me, you do NOT want to be in that position. In fact, here is a chart that will illustrate what percentage you would have to make to breakeven if you were to lose a certain percentage of your account.
You can see that the more you lose, the harder it is to make it back to your original account size. This is all the more reason that you should do everything you can to protect your account.
So by now, I hope you have gotten it drilled in your head that you should only risk a small percentage of your account in each trade so that you can survive your losing streaks and also to avoid a large drawdown in your account. Remember, you want to be the casino…NOT the gambler!
Of course, the last thing we want to do is lose 19 trades in a row, but even if you only lost 5 trades in a row, look at the difference between risking 2% and 10%. If you risked 2% you would still have $18,447. If you risked 10% you would only have $13,122. That’s less than what you would’ve had even if you lost all 19 trades and risked only 2% of your account!
The point of this illustration is that you want to setup your MoneyManagement rules so that when you do have a drawdown period (losing streak) you will still have enough capital to stay in the game. Can you imagine if you lost 85% of your account? You would have to make 566% on what you are left with in order to get back to break even. Trust me, you do NOT want to be in that position. In fact, here is a chart that will illustrate what percentage you would have to make to breakeven if you were to lose a certain percentage of your account.
So by now, I hope you have gotten it drilled in your head that you should only risk a small percentage of your account in each trade so that you can survive your losing streaks and also to avoid a large drawdown in your account. Remember, you want to be the casino…NOT the gambler!
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