Methods of risk management.

Trading on Forex the investor has opportunities to multiply his money, but he also risks losing future profit and, moreover, invested capital. Deviation from expected profit average is what determines the investor's risk on the financial market.

    This deviation can bring both high profits and big losses.

    Financial risk management does not automatically imply successful trading, but influences it to a great extent. Every currency transaction is subjected to risks, therefore, it is possible to reduce potential losses by applying general methods of risk management:

1. Using stop-orders;
2. Partial investment (investing some part of the money);
3. Trend-oriented trade;
4. Managing emotions.

    Risk management methods are applied after positions are opened. The main risk management method is making orders reducing losses. Stop-loss is a point when the trader leaves the market in order to avoid an unfavourable situation. When opening a position it's better to use stop-loss to insure against extra losses.

    There are several types of stop-signals:

• Initial stop. It determines the percentage of the amount of the deposit that the trader is prepared to lose. With a price moving against position and reaching a level of the position settled by trader, the position is closed with losses.
• Trailing stop. With a price moving together with the position, the stop-signal is used right after it in a proportion determined by the trader. In the case of changing of this tendency the price reaches this signal and the trader leaves the market, but maybe even with some profit (depending on the time this change of price started).
• Withdrawal profit. The position is closed after pay-profit is received.
• Timed stop. If the market can not provide the expected percentage of profit within a certain period of time, the position is closed.

Methods of money management.

Working in Forex traders should be able to distribute capital correctly, calculate the amount of money involved in a deal to get sufficient profit; and in case of losses not to lose all deposited money.

    For these purposes special methods of money management exist:

• Absence of money management. Many traders who open a position don't count money used in operations, don't calculate approximate profit and possible losses. This is one of the tactics. But if the capital is not large it will disappear after several deals.
• Multilateral contracts. Opening several positions of different instruments on Forex, such as EURUSD and EURGBP in the case of prices moving in the right direction, the trader can get good profits from these contracts. Both profit and loss in such deals can be significant.
• Fixed sum of money. Depending on the amount of money in his account the trader decides how much he can put at risk when opening one or another position. The trader doesn't exceed the limit he has fixed himself.
• Fixed percentage of capital. This method is similar to the previous one with the only difference being that the trader sets the percentage of the capital and not the amount of the capital itself.
• Coordination of profits and losses. It is necessary to keep statistics of all operations (number of losses, wins and their connection). This connection shows that losses and wins take turns or several losses are followed by several successful operations. It makes sense to increase the volume of the position after a number of losses hoping for winning and, on the contrary, decrease after a positive period expecting losses again.
• Intersection of the curved moving capital average. The principle is based on the well-known method of moving average as a signal for entering the market or leaving it. Moving averages (long one and short one) are used for estimating the results of arranged deals. If the short curved is above the long one it's a signal for opening positions to gain profit; and if it's below it then better times are still to come.

Having chosen one or another method of money management for trading, you will be able to use your money rationally, and it will bring profit. Methods of money management are applied before opening of positions.

Money and Risk Management.

Theoretical knowledge and experience are needed in order to earn money on any financial market. This work experience includes:

• Fundamental analysis
• Technical analysis
• Money and risk management

    Fundamental analysis allows to determine the dependence of exchange rates of different currencies on the economic situation of countries; explains the purposes and instruments of central bank's financial policy; and reveals the proportion of different financial markets, reasons for their development and stagnation. Fundamental analysis is used for middle and long-term prognosis; it evaluates the perspectives of a market situation. It is built on fundamental mutually intertwined economic factors. The biggest difficulty lies in the fact that changes in one of those factors can influence all the rest, the number of which varies from 20 to 50 depending on the country. That's why fundamental analysis is not used by everyone. Only 10-20 % of traders apply it in their practice.

    Technical analysis includes examination of price diagrams, price history, and the number of changes in quotation within a certain period of time. It's very convenient to use because data on prices is available online. Technical analysis mainly gives information about market activity and only conditionally about market volume considering only short periods of time called time-frames.

    Money and risk management is the third and also very important aspect of the trading system. Financial operations on Forex are very risky, and often the higher the supposed profit the higher the risk. Following all rules of money and risk management helps reduce losses and increase profits.

    Money and risk management appeared in 18th century, when it was applied in gambling to raise the chances for winning. Mature players followed their own strategies, incurred losses to enjoy profits later. Working on financial markets is similar to gambling because both profits and losses are not predictable. That's why principles of money and risk managements started to be used in the financial sphere.

    It often happens that beginner traders do not take aspects of money and risk management seriously; but this mistake can lead to failure even with a good trade strategy. Not just sums of earned money are important in trading; amounts of losses during work add to success as well. That's why it's recommended to calculate the portion of risk-subjected capital for successful trading.

Support & Resistance.

                     Support and resistance are the foundation of all chart formations. 

Identification of key support and resistance levels is an essential ingredient to successful and profitable trading.

Think of currency prices as the result of a head-to-head battle between a bull (the buyer) and a bear (the seller).

The bulls push prices higher and the bears push prices lower.

The direction prices actually move reveals who is winning the battle. Support is commonly defined as "a price level or area at which the demand for currency traders will likely overwhelm the existing supply and halt the current decline."

Resistance is defined as "a price level or area at which currency traders will likely overwhelm the existing demand and halt the current advance."

  Trading Strategy on tests of Resistance
One of the most-common and best-known trading strategies is this: "Buy at the support level and sell at the resistance level."

As you can see from the chart below, the ability to identify a level of support can also coincide with a good buying opportunity Other Indicators In technical analysis; many indicators have been developed for to identify barriers to future price action.

These indicators seem complicated at first and it often takes practice and experience to use them effectively.

Regardless of an indicator's complexity, however, the interpretation of the identified barrier should be consistent to those achieved through simpler methods.

Top 10 Mistakes Traders Make.

	Top 10 Mistakes Traders Make
	Achieving success in futures trading requires avoiding numerous pitfalls as much, or more, than it does seeking out and executing winning trades. In fact, most professional traders will tell you that it's not any specific trading methodologies that make traders successful, but instead it's the overall rules to which those traders strictly adhere that keep them "in the game" long enough to achieve success. * The following are 10 of the most prevalent mistakes that traders make in futures trading. They are listed in no particular order of importance: Failure to have a trading plan in place before a trade is executed. A trader with no specific plan of action in place upon entry into a futures trade does not know, among other things, when or where he or she will exit the trade, or about how much money may be made or lost. Traders with no pre-determined trading plan are flying by the seat of their pants, and that's usually a recipe for a "crash and burn." Inadequate trading assets or improper money management. It does not take a fortune to trade futures markets with success. Traders with less than $5,000 in their trading accounts can and do trade futures successfully. And, traders with $50,000 or more in their trading accounts can and do lose it all in a heartbeat. Part of trading successfully boils down to proper money management, and not gunning for those highly risky "home-run" type trades that involve too much trading capital at one time. Expectations that is too high, too soon. Beginning futures traders that expect to quit their "day job" and make good living trading futures in their first few years of trading are usually disappointed. You don't become a successful doctor or lawyer or business owner in the first couple of years of the practice. It takes hard work and perseverance to achieve success in any field of endeavor--and trading futures is no different. Futures trading are not the easy, "get-rich-quick" scheme that a few unsavory characters make it out to be. Failure to use protective stops. Using protective buy stops or sell stops upon entering a trade provide a trader with a good idea of about how much money he or she is risking on that particular trade, should it turn out to be a loser. Protective stops are a good money-management tool, but are not perfect. There are no perfect money-management tools in futures trading. Lack of "patience" and "discipline." While these two virtues are over-worked and very often mentioned when determining what unsuccessful trader's lack, not many will argue with their merits. Indeed. Don't trade just for the sake of trading or just because you haven't traded for a while. Let those very good trading "set-ups" come to you, and then act upon them in a prudent way. The market will do what the market wants to do--and nobody can force the market's hand. Trading against the trend--or trying to pick tops and bottoms in markets. It's human nature to want to buy low and sell high (or sell high and buy low for short-side traders). Unfortunately, that's not at all a proven mean of making profits in futures trading. Top pickers and bottom-pickers usually are trading against the trend, which is a major mistake. Letting losing positions ride too long. Most successful traders will not sit on a losing position very long at all. They'll set a tight protective stop, and if it's hit they'll take their losses (usually minimal) and then move on to the next potential trading set up. Traders, who sit on a losing trade, "hoping" that the market will soon turn around in their favor, are usually doomed. "Over-trading." Trading too many markets at one time is a mistake--especially if you are racking up losses. If trading losses are piling up, it's time to cut back on trading, even though there is the temptation to make more trades to recover the recently lost trading assets. It takes keen focus and concentration to be a successful futures trader. Having "too many irons in the fire" at one time is a mistake. Failure to accept complete responsibility for your own actions. When you have a losing trade or are in a losing streak, don't blame your broker or someone else. You are the one who is responsible for your own success or failure in trading. You make the trading decisions. If you feel you are not in firm control of your own trading, then why do you feel that way? You should make immediate changes that put you in firm control of your own trading destiny. Not getting a bigger-picture perspective on a market. One can look at a daily bar chart and get a shorter-term perspective on a market trend. But a look at the longer-term weekly or monthly chart for that same market can reveal a completely different perspective. It is prudent to examine longer-term charts, for that bigger-picture perspective, when contemplating a trade.