We live in busy, unstable times. Everyday, we are burdened by a "to-do list" which never seems to get any shorter. In our lust for wealth, nothing sounds better than simply installing a forex robot, flipping a switch, and making money on auto-pilot.
The burning question is: Do they work?
While this is not an easy question to answer because every program is different, there are several principles which apply to all Forex robots.
1) They require significant human maintenance.
They are virtually never as simple as the advertisements make them out to be. They are not perfect, either. They often require substantial human intervention to prevent trading disasters. In essence, you have to babysit them. A robot cannot "think" - it just does what it has been programmed to do. And if there has been an error in one of the variables, the computer will not recognize it. It will simply continue chugging along, making errors repeatedly until either your account is exhausted or you fix the program manually. The only way to become aware of an internal error is to check and monitor the program often.
2) They will not make you rich overnight.
Despite what clever advertisers want you to believe, these programs will not make you rich overnight. You cannot start an account with $200 and retire next month. It simply does not work that way.
Can you transform $200 into a significant amount of money? Sure. You just need several years and a whole helluva lot of luck and persistence.
3) They are not 100% infallible.
No system, program, or trading strategy works 100% of the time. If it did, you could bet the maximum number of lots each time and amass a fortune without any risk. Sounds great, but it's impossible. It is not possible to win all of your trades manually or with the most sophisticated forex robot. No mathematical formula, hedging strategy, or moving average system can win all the time.
Why? Because the market is not 100% predictable. It's constantly in flux and adapting. This is NOT a static market. It experiences great volatility at times for a multitude of reasons. Furthermore, a Robot can only do what you tell it to do. It cannot incorporate any kind of fundamental analysis into it's trading plan. If a natural disaster occurs in a major country, Forex will definitely be affected. However, your robot will continue trading, entirely oblivious to news events.
Sure, a natural disaster would be splattered all across the news and you would no doubt turn off your forex robot and stay out of the markets. What happens if you can't make it to your computer until several hours from now? You are now at the mercy of your robot.
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The bottom-line is that Forex is best traded manually. Work hard on developing a system of your own rather than being a slave to robot concocted by individuals only interested in padding their own wallets.
THINK about this...
Imagine you educate yourself in computer programming, mathematics, and business. You want to build your own Forex robot based on cutting edge mathematical principles. You tinker on your computer for weeks and even months, but nothing seems to work. You simply cannot formulate a winning program.
Then, you have a breakthrough as you are drifting off to sleep one night. Excited, you rush to the computer to implement your new theory. You fire up the robot with the new changes. It initiates a trade, which it later wins. Great, but not enough to fully test your program.
Satisfied for now, you let your computer run overnight. You check it the next morning. It won 4 trades total now, banking you a decent amount of money. Fabulous, but you are still hesistant. You want to be sure about this robot, so you continue letting the robot run for the next few weeks.
The results are in - your robot won ALL its trades! You continue letting the robot run, and it continues to make you money over the next few months.
STOP!!!
At what point would it ever creep into your mind that you should SELL such a beautiful system to the general public????
Does that make any sense whatsoever? OF COURSE NOT!
You would guard this program with your life! You would never reveal it to anyone that you had such a program! It would be your secret wealth builder.
Indulge me a bit longer...
Imagine one day you wake up to find that your robot started losing. First a few trades, then the majority of your trades.
You could spend a gargantuan amount of time and resources in an effort to tweak the program to get it "back on track".
Or, you could do what the vast majority of programmers do...SELL IT!
You've basically got a useless piece of junk which is hogging CPU space. However, in the past, this robot did work. This is your new "pitch" page. I mean, you've got "hard, fast proof" that your robot has worked. It made you a boatload of money!
*NOTE* You will *forget* to mention the most recent trades, which were all failures. Oops.
Your web-page will be very slick! It will state that you cannot guarantee future results, but that this is what happened in the past.
It is irrelevant if you are only showing them part of the story. You show them only the winning trades.
Are you lying? Not blatantly, because those things really did happen.
Are you being deceitful? Yes, because you are omitting (conveniently) the negative truths.
Welcome to the world of marketing!
People who sell you these systems are not doing you any favors. They are simply selling you junk most of the time.
Take home message?
Learn to trade manually for now!
It's not rocket science - you just have to be consistent and have a bit of common sense.
Saturday, August 29, 2009
Friday, August 21, 2009
Special Moving Averages + The Daily Charts
Moving averages are the most popular indicator used in technical analysis. Moving averages give the trader instant information on trends, whether they be long-term or short-term.
There are many different ways to use moving averages. The most popular is to apply two moving averages to a currency chart, one high and one low, and trade when the two intersect and cross each other in opposite directions.
When two moving averages cross, it indicates that price has been moving and is forming a new trend. Jumping on the trend bandwagon early and riding out max profits is the goal.
Generally, the difference between the two moving averages signifies how drastic the price movement is. If you have a Simple Moving Average (SMA) of 5 and 100, then any cross between those two will be one heck of a price movement compared to SMA's of 5 and 20.
There is a double-edged sword involved with moving averages which requires great precision to avoid.
On the one hand, if you pick really high moving averages, then it will indicate bigger price movement, but at the expense of very late detection. By the time you enter the trade, you will have missed most of the movement. You'll be catching the tail end, which will lead to little or no profit.
On the other hand, if you pick really small moving averages, then any cross between them is prone to lots of "fake-outs". The cross simply is not very significant. No trend could even be forming. They will cross often without signifying a good trade to enter.
So what type of moving averages should you use?
Start in the middle and experiment. The time frame definitely makes a difference here. Daily charts can benefit from smaller moving averages and still pick up lots of pips, while the 5 minute chart can get away with larger moving averages.
This is counter-intuitive, but if you think about it you'll understand why it is true.
The Daily Chart all ready shows big movement because each individual candle represents a day. Opposite with the smaller time frames, where each candle represents 5 minutes.
Thus, just catching a tiny trend on the daily chart can lead to big pips and vice versa for the smaller time frames.
So how do we put this to work and start to profit from it immediately?
There are an infinite number of moving average systems out there. There are no magical numbers, but experimentation can grant you some pretty darn dependable ones.
Here is one of my favorites:
EMA (Exponential Moving Averages)
5 EMA - apply to CLOSE --> Shift -1
8 EMA - apply to OPEN --> Shift 0
*TIP* This works on a lot of different time frames, but it works best on larger time frames. I prefer the DAILY CHART. One trade taken with this baby on the DAILY CHART can give you 1400 pips in one month. Master the trailing stop and you can set it and forget it! How would you like to spend 10 minutes placing the trade, come back a month later, and find you made anywhere from $140 - $14,000 (depending on lot size -- .01 - 1)?!
That's all for now!
To your success!
There are many different ways to use moving averages. The most popular is to apply two moving averages to a currency chart, one high and one low, and trade when the two intersect and cross each other in opposite directions.
When two moving averages cross, it indicates that price has been moving and is forming a new trend. Jumping on the trend bandwagon early and riding out max profits is the goal.
Generally, the difference between the two moving averages signifies how drastic the price movement is. If you have a Simple Moving Average (SMA) of 5 and 100, then any cross between those two will be one heck of a price movement compared to SMA's of 5 and 20.
There is a double-edged sword involved with moving averages which requires great precision to avoid.
On the one hand, if you pick really high moving averages, then it will indicate bigger price movement, but at the expense of very late detection. By the time you enter the trade, you will have missed most of the movement. You'll be catching the tail end, which will lead to little or no profit.
On the other hand, if you pick really small moving averages, then any cross between them is prone to lots of "fake-outs". The cross simply is not very significant. No trend could even be forming. They will cross often without signifying a good trade to enter.
So what type of moving averages should you use?
Start in the middle and experiment. The time frame definitely makes a difference here. Daily charts can benefit from smaller moving averages and still pick up lots of pips, while the 5 minute chart can get away with larger moving averages.
This is counter-intuitive, but if you think about it you'll understand why it is true.
The Daily Chart all ready shows big movement because each individual candle represents a day. Opposite with the smaller time frames, where each candle represents 5 minutes.
Thus, just catching a tiny trend on the daily chart can lead to big pips and vice versa for the smaller time frames.
So how do we put this to work and start to profit from it immediately?
There are an infinite number of moving average systems out there. There are no magical numbers, but experimentation can grant you some pretty darn dependable ones.
Here is one of my favorites:
EMA (Exponential Moving Averages)
5 EMA - apply to CLOSE --> Shift -1
8 EMA - apply to OPEN --> Shift 0
*TIP* This works on a lot of different time frames, but it works best on larger time frames. I prefer the DAILY CHART. One trade taken with this baby on the DAILY CHART can give you 1400 pips in one month. Master the trailing stop and you can set it and forget it! How would you like to spend 10 minutes placing the trade, come back a month later, and find you made anywhere from $140 - $14,000 (depending on lot size -- .01 - 1)?!
That's all for now!
To your success!
Mastering the Psychology of Trading Forex
Forex trading is the ultimate test of nerves.
Whenever you hit that final button to either BUY or SELL a currency pair, the game is on!
Your money is constantly bouncing up and down and you have to helplessly watch. If you made a bad decision, it's worse than any form of torture as you watch your money fly out of the window. Make a good trade and it's the thrill of a lifetime as your profit soars higher and higher!
Trading Forex is like taking a ride on the tallest, steepest, fastest roller coaster out there. Except it is not a machine built from steel, nuts and bolts. Instead it is composed of your bank account!
Trading Forex is a mental battle which requires endurance. Having a good strategy is not enough!
You need to prepare for this type of psychological game.
Experience usually is the best teacher and a sure-fire way to master anything in life.
Not so in this case. At least not by much. You learn to ride out the highs and lows a bit, but it never really gets any easier losing money.
The one big tip I can give you all will train you to be a zen master at trading!
First, make sure you are doing the following things all ready:
1. Investing with money you CAN afford to lose.
Losing this money should not determine your financial future. Obviously, I'm not saying that you plan on losing this money. Just make sure that if you lose your Forex investment that you will still be able to pay all your bills and survive just fine!
2. Trade with an appropriate lot size.
Smaller is better in most cases. Trading with a big lot size is inappropriate for smaller accounts. The goal is not to get rich overnight, but to build wealth slowly and consistently. Using a smaller lot size dwarfs your losses. They suddenly are not that dramatic. Naturally, they are still not fun, but you should not be losing sleep over Forex losses!
3. Remember the 2-4% Rule!
Only risk 2-4% of your account on a single trade. One loss is suddenly not that devastating. In fact, you could lose dozens of times consecutively and still not blow your account. This gives you lots of rebound chances to come back and win in the end!
4. Use a Trailing Stop To Lock in Profits Quickly.
This technique can turn a slightly positive trade into a winning trade - no matter what happens in the next 5 minutes, 2 hours, or 4 days!
Basically, a trailing stop protects your profits once your trade is in the black!
How does it do that?
Simple. Let's say you enter a trade and it is currently +10 pips. You have a goal of +25 pips total. But you do not have time to sit around and watch the trade forever. You want to lock in profit now and leave your computer alone for awhile.
First, you re-adjust your stop-loss so that it is +2 pips. That way, if the trade reverses on you, you will gain +2 pips NO MATTER WHAT! Now you have a winning trade - no matter what you'll get 2 pips.
Granted, 2 pips is nothing spectacular. But it is a great sense of freedom knowing that you will not lose this trade no matter what happens.
Now, you set a trailing stop for 6 pips. This automatically re-adjusts your stop-loss every +6 pips. This means that if the currency moves up another 6 pips (leaving you +16), that your S/L will be adjusted to +8 pips (It was at +2, now we add 6 = +8). If it goes up another 6 pips, so does your S/L. And so on, until you reach +25 OR the price reverses and triggers a lower S/L.
Either way, you will make between +2 --- +25 pips. Great peace of mind here and simple to set up.
*TIP* A great method to really let profits run wild is to set a moderate Trailing Stop without setting any kind of Take Profit Level. This means that as long as the price keeps going in your favor, the Trailing Stop will automatically re-adjust your S/L so that you will constantly be in profit. A Take-Profit sometimes ends the trade prematurely, meaning that had it not been there the Trailing Stop could have kept following the price tightly for an additional 5 - 40 pips!
These tips will take a lot of the angst and frustration out of trading. You should always be practising these things, regardless. They are simply good pieces of advice!
If you still find you are having trouble coping with losses, try the following techniques:
1. Visualization and Reinforcement
Every time you close a negative trade out, do not think of it as losing. Just think of it as a temporary setback. You will now win the next 3 trades. Try to use it as motivation.
Use visualization -- imagine that you did not close the trade and it ended up blowing up your account. You can even write something down and read it to yourself as a sort of "losing trade mantra":
"This is only a temporary setback. I now have extra motivation and confidence to win the next 3 trades. I will focus all my energy on recouping my losses as fast as possible, but I will not trade based on emotion. Losing trades happen, but they do not define me as a trader. If I had not stopped the trade, it would have eventually blown my account up. This is what separates the winners and losers in Forex. I have the courage to admit my mistake and move on to profitable trades. I will analyze why I lost this trade and learn from it. I did not lose, I simply found something that does not work."
This will reinforce your beliefs and make you a much stronger trader in the long-run. Just repeat that phrase (or something similar) each time a trade does not go your way. Say it with emotion. Really mean it. Believe in it. Just do it.
I once heard an amazing quote dealing with the topic of mastering the psychology of Forex. This is a paraphrase, but you'll get the idea. This is what I'll leave you with. Please think about it and let it sink in fully and completely. It will make you a winner. I promise.
"From a psychological and emotional standpoint, you should feel no differently when closing a trade for a loss or for a win. This is the definition of mastering Forex psychology."
Whenever you hit that final button to either BUY or SELL a currency pair, the game is on!
Your money is constantly bouncing up and down and you have to helplessly watch. If you made a bad decision, it's worse than any form of torture as you watch your money fly out of the window. Make a good trade and it's the thrill of a lifetime as your profit soars higher and higher!
Trading Forex is like taking a ride on the tallest, steepest, fastest roller coaster out there. Except it is not a machine built from steel, nuts and bolts. Instead it is composed of your bank account!
Trading Forex is a mental battle which requires endurance. Having a good strategy is not enough!
You need to prepare for this type of psychological game.
Experience usually is the best teacher and a sure-fire way to master anything in life.
Not so in this case. At least not by much. You learn to ride out the highs and lows a bit, but it never really gets any easier losing money.
The one big tip I can give you all will train you to be a zen master at trading!
First, make sure you are doing the following things all ready:
1. Investing with money you CAN afford to lose.
Losing this money should not determine your financial future. Obviously, I'm not saying that you plan on losing this money. Just make sure that if you lose your Forex investment that you will still be able to pay all your bills and survive just fine!
2. Trade with an appropriate lot size.
Smaller is better in most cases. Trading with a big lot size is inappropriate for smaller accounts. The goal is not to get rich overnight, but to build wealth slowly and consistently. Using a smaller lot size dwarfs your losses. They suddenly are not that dramatic. Naturally, they are still not fun, but you should not be losing sleep over Forex losses!
3. Remember the 2-4% Rule!
Only risk 2-4% of your account on a single trade. One loss is suddenly not that devastating. In fact, you could lose dozens of times consecutively and still not blow your account. This gives you lots of rebound chances to come back and win in the end!
4. Use a Trailing Stop To Lock in Profits Quickly.
This technique can turn a slightly positive trade into a winning trade - no matter what happens in the next 5 minutes, 2 hours, or 4 days!
Basically, a trailing stop protects your profits once your trade is in the black!
How does it do that?
Simple. Let's say you enter a trade and it is currently +10 pips. You have a goal of +25 pips total. But you do not have time to sit around and watch the trade forever. You want to lock in profit now and leave your computer alone for awhile.
First, you re-adjust your stop-loss so that it is +2 pips. That way, if the trade reverses on you, you will gain +2 pips NO MATTER WHAT! Now you have a winning trade - no matter what you'll get 2 pips.
Granted, 2 pips is nothing spectacular. But it is a great sense of freedom knowing that you will not lose this trade no matter what happens.
Now, you set a trailing stop for 6 pips. This automatically re-adjusts your stop-loss every +6 pips. This means that if the currency moves up another 6 pips (leaving you +16), that your S/L will be adjusted to +8 pips (It was at +2, now we add 6 = +8). If it goes up another 6 pips, so does your S/L. And so on, until you reach +25 OR the price reverses and triggers a lower S/L.
Either way, you will make between +2 --- +25 pips. Great peace of mind here and simple to set up.
*TIP* A great method to really let profits run wild is to set a moderate Trailing Stop without setting any kind of Take Profit Level. This means that as long as the price keeps going in your favor, the Trailing Stop will automatically re-adjust your S/L so that you will constantly be in profit. A Take-Profit sometimes ends the trade prematurely, meaning that had it not been there the Trailing Stop could have kept following the price tightly for an additional 5 - 40 pips!
These tips will take a lot of the angst and frustration out of trading. You should always be practising these things, regardless. They are simply good pieces of advice!
If you still find you are having trouble coping with losses, try the following techniques:
1. Visualization and Reinforcement
Every time you close a negative trade out, do not think of it as losing. Just think of it as a temporary setback. You will now win the next 3 trades. Try to use it as motivation.
Use visualization -- imagine that you did not close the trade and it ended up blowing up your account. You can even write something down and read it to yourself as a sort of "losing trade mantra":
"This is only a temporary setback. I now have extra motivation and confidence to win the next 3 trades. I will focus all my energy on recouping my losses as fast as possible, but I will not trade based on emotion. Losing trades happen, but they do not define me as a trader. If I had not stopped the trade, it would have eventually blown my account up. This is what separates the winners and losers in Forex. I have the courage to admit my mistake and move on to profitable trades. I will analyze why I lost this trade and learn from it. I did not lose, I simply found something that does not work."
This will reinforce your beliefs and make you a much stronger trader in the long-run. Just repeat that phrase (or something similar) each time a trade does not go your way. Say it with emotion. Really mean it. Believe in it. Just do it.
I once heard an amazing quote dealing with the topic of mastering the psychology of Forex. This is a paraphrase, but you'll get the idea. This is what I'll leave you with. Please think about it and let it sink in fully and completely. It will make you a winner. I promise.
"From a psychological and emotional standpoint, you should feel no differently when closing a trade for a loss or for a win. This is the definition of mastering Forex psychology."
Thursday, August 20, 2009
Why You Should ALWAYS Trade With A Stop-Loss!
Some people are skeptical about using a Stop-Loss. After all, what goes up must come down, right? Can't I just leave a losing trade alone and eventually it will bounce back?
This type of logic is very common in all sorts of markets. It seems plausible but it's ultimately flawed and it's a poor idea to trade without a Stop-Loss.
It's true that using a Stop-Loss is admitting defeat. You throw in the towel. Call it quits. Basically, you are making a conscious, manual decision to take a loss.
Why on Earth would anyone do that?
There are several good reasons!
First off, let's look at the popular belief, "If I let my trade go long enough, it will eventually bounce back into profit".
This is a very common belief. So common, in fact, that they have given it a name.
It is called, "The Gambler's Fallacy".
Gambler's use this type of logic all the time! Walk up to any roulette table in a casino. You are bound to here a variation of the following:
"It's hit all around my number! I've lost X amount of times in a row! It's due to hit. At this point, it's gotta hit soon!"
The problem is that IT DOES NOT HAVE TO DO ANYTHING! The roulette wheel has no memory. It is purely a game of chance.
If the number 36 hits 10 times in a row, what are the chances that the next number will be 36?
The same. Generally 1/37 or 1/38 (depending on if it's a single zero game (European Style) or a double zero game (American Style)).
Past events do not influence future ones in games of chance.
The odds never change - period.
But isn't Forex a bit different because Forex is not a game of chance?!
Yes and No.
Forex is technically NOT a game of chance. Forex is influenced by specific factors, such as world news events and the economy.
However, the real price mover is other investing individuals. Their confidence levels determine their course of action. The ratio of the buyers to the sellers is really what moves the markets up or down.
The problem is that it is impossible to predict with 100% accuracy how people will react to certain news events or to a specific economy. Different interpretations will always ensue over the same exact stories and events.
Why?
Because all people are not hard-wired the same way. Some see the glass as half-full and others see it as half-empty. Essentially, it's the ratio of optimists to pessimists that concerns us.
The problem is that you cannot predict how people will react. You can make predictions but you will not always be 100% correct. Furthermore, it's impossible to even know how many people or which people are currently playing in Forex.
Forex is not a game of pure chance because ever-changing factors influence it continuously. You have a much better chance being well-prepared in Forex than you'd ever get in a casino (because skill does not exist on slot machines or roulette wheels).
The problem is that we can never know WHEN or HOW MUCH a currency price will "turn around". Sure, everything seems "destined" to turn around eventually. In a way, it's true. But it could be next month, next year, or not at all. There are not guarantees in Forex.
Thus, if you have a losing trade, you should simply cut it off at your pre-determined point. Letting it run is simply gambling with your money. It might stay in the negative for days, weeks, or months.
Worst case scenario is that it never turns around in time, and you blow your account with ONE poor trade. Ouch.
Not-so-worse scenario is that the trade lingers for weeks or months in the negative. It never goes positive, but it also doesn't blow your account. This is actually not good at all. You are paralyzed during this entire time period. You can't open another trade because you will reduce your margin considerably and probably cause the trade to be closed out. Not being able to trade means you cannot place any winning trades! This means you are losing money without even knowing it as you watch all the profitable trades pass you by!
Second-best scenario is that you set up an appropriate stop-loss (say 2% of your account) and the negative trade triggers it. Your trade is closed out, and you've lost only 2% of your account. You are free to start trading again the next day, and you go on to win several trades in a row. Not only do you recoup your losses, but you actually come out ahead! You are now free to trade more and make even more profit.
Best-case scenario is that the trade magically turns around and banks you some profit. You lose nothing and come out ahead. This happens occasionally, but it's much more risky and rare. The price might turn around just after your account has all ready been blown up (bummer!). Or it might do it immediately. It's impossible to say. I can certainly tell you with 100% confidence that trading without a stop-loss and praying for a negative trade to turn around is not ideal and is about as close to gambling with your money as you can get. Avoid it. Just take the small loss and move on!
Hopefully this clears up the stop-loss confusion. Do NOT fall for the Gambler's Fallacy!
Remember to always trade with a S/L!
This type of logic is very common in all sorts of markets. It seems plausible but it's ultimately flawed and it's a poor idea to trade without a Stop-Loss.
It's true that using a Stop-Loss is admitting defeat. You throw in the towel. Call it quits. Basically, you are making a conscious, manual decision to take a loss.
Why on Earth would anyone do that?
There are several good reasons!
First off, let's look at the popular belief, "If I let my trade go long enough, it will eventually bounce back into profit".
This is a very common belief. So common, in fact, that they have given it a name.
It is called, "The Gambler's Fallacy".
Gambler's use this type of logic all the time! Walk up to any roulette table in a casino. You are bound to here a variation of the following:
"It's hit all around my number! I've lost X amount of times in a row! It's due to hit. At this point, it's gotta hit soon!"
The problem is that IT DOES NOT HAVE TO DO ANYTHING! The roulette wheel has no memory. It is purely a game of chance.
If the number 36 hits 10 times in a row, what are the chances that the next number will be 36?
The same. Generally 1/37 or 1/38 (depending on if it's a single zero game (European Style) or a double zero game (American Style)).
Past events do not influence future ones in games of chance.
The odds never change - period.
But isn't Forex a bit different because Forex is not a game of chance?!
Yes and No.
Forex is technically NOT a game of chance. Forex is influenced by specific factors, such as world news events and the economy.
However, the real price mover is other investing individuals. Their confidence levels determine their course of action. The ratio of the buyers to the sellers is really what moves the markets up or down.
The problem is that it is impossible to predict with 100% accuracy how people will react to certain news events or to a specific economy. Different interpretations will always ensue over the same exact stories and events.
Why?
Because all people are not hard-wired the same way. Some see the glass as half-full and others see it as half-empty. Essentially, it's the ratio of optimists to pessimists that concerns us.
The problem is that you cannot predict how people will react. You can make predictions but you will not always be 100% correct. Furthermore, it's impossible to even know how many people or which people are currently playing in Forex.
Forex is not a game of pure chance because ever-changing factors influence it continuously. You have a much better chance being well-prepared in Forex than you'd ever get in a casino (because skill does not exist on slot machines or roulette wheels).
The problem is that we can never know WHEN or HOW MUCH a currency price will "turn around". Sure, everything seems "destined" to turn around eventually. In a way, it's true. But it could be next month, next year, or not at all. There are not guarantees in Forex.
Thus, if you have a losing trade, you should simply cut it off at your pre-determined point. Letting it run is simply gambling with your money. It might stay in the negative for days, weeks, or months.
Worst case scenario is that it never turns around in time, and you blow your account with ONE poor trade. Ouch.
Not-so-worse scenario is that the trade lingers for weeks or months in the negative. It never goes positive, but it also doesn't blow your account. This is actually not good at all. You are paralyzed during this entire time period. You can't open another trade because you will reduce your margin considerably and probably cause the trade to be closed out. Not being able to trade means you cannot place any winning trades! This means you are losing money without even knowing it as you watch all the profitable trades pass you by!
Second-best scenario is that you set up an appropriate stop-loss (say 2% of your account) and the negative trade triggers it. Your trade is closed out, and you've lost only 2% of your account. You are free to start trading again the next day, and you go on to win several trades in a row. Not only do you recoup your losses, but you actually come out ahead! You are now free to trade more and make even more profit.
Best-case scenario is that the trade magically turns around and banks you some profit. You lose nothing and come out ahead. This happens occasionally, but it's much more risky and rare. The price might turn around just after your account has all ready been blown up (bummer!). Or it might do it immediately. It's impossible to say. I can certainly tell you with 100% confidence that trading without a stop-loss and praying for a negative trade to turn around is not ideal and is about as close to gambling with your money as you can get. Avoid it. Just take the small loss and move on!
Hopefully this clears up the stop-loss confusion. Do NOT fall for the Gambler's Fallacy!
Remember to always trade with a S/L!
Curtailing Risk - Optimum Stop-Loss Levels
Greetings,
One of the best tips I can give anyone regarding Forex is to always protect their capital. You want to cut your losses short, and let your profitable trades run as long as possible.
The easiest way to do this is to always use an appropriate stop-loss.
A stop-loss determines at what price you will automatically exit the trade.
For example, if you want to only risk $5 on a certain trade, then you would set a stop-loss of 50 pips lower than the order price (trading .01 lots).
Of course, an appropriate stop-loss depends on what type of trade you are entering.
Scalping should always entail a very tight stop-loss, while swing trading enjoys a stop-loss with much more breathing room.
On average:
Scalping Stop-Loss: 8 - 15 pips.
Swing Trade Stop-Loss: 15 - 100+ pips.
These are just rough estimations!! There are no set rules - this is just to give you a reference!!
Lot Size and account size play a big part in this equation. A higher lot size means higher risk for profit/loss, so adjust your stop-loss accordingly.
Account size is also an important factor. A higher account has more leeway before triggering the dreaded "margin call". A margin call in Forex simply means that the trade has turned so far against you that your account is on the verge of depletion. Thus, the trade is automatically closed, starting with the most negative trade first!
It should be quickly noted that it's impossible to have a negative account balance in Forex. They always stop the trades before it reaches that point. If you deposit $100 into your account, you are only risking that $100.
The most talked about rule in Forex is the infamous "2% Rule".
It is widely believed and touted as an iron-clad rule that one should NEVER risk more than 2% of their account balance on ONE trade.
The rule is also extended to say that one should NEVER risk more than 6% of their account PER MONTH.
$100 account:
2% Daily Loss Acceptable = $2 Per Day -- Set your Stop-Loss for a 20 Pip Loss (.o1 Lots).
If you lose once, you are done for the day.
6% Monthly Loss Acceptable = $6 Per Month -- 3 Losing Trades @ 2% Loss.
The reasoning behind this is to stretch your account out so that you avoid blowing it up within your first day or week or month of trading.
Under this kind of system, you can trade for months on end, even if all you ever do is lose.
This concerns solely account longevity. In my opinion, these are good guidelines but I think it depends once again on the trading style. I defintely think you should place very specific account loss percentages for the day and month, but they do not have to rigorously follow these numbers.
If you are a bit of a daredevil, you could have a 4-8% Daily Loss quota with a 10-15% Monthly Loss quota. Understand that this has consequences, but it does grant you a bit more freedom to take more trades. It stinks to lose one trade and then have to avoid trading the rest of the day, even though you really want to take a trade later on (for whatever reason).
I would say good levels are 2-4% Daily and 6-10% Monthly.
Hope this was informative!
One of the best tips I can give anyone regarding Forex is to always protect their capital. You want to cut your losses short, and let your profitable trades run as long as possible.
The easiest way to do this is to always use an appropriate stop-loss.
A stop-loss determines at what price you will automatically exit the trade.
For example, if you want to only risk $5 on a certain trade, then you would set a stop-loss of 50 pips lower than the order price (trading .01 lots).
Of course, an appropriate stop-loss depends on what type of trade you are entering.
Scalping should always entail a very tight stop-loss, while swing trading enjoys a stop-loss with much more breathing room.
On average:
Scalping Stop-Loss: 8 - 15 pips.
Swing Trade Stop-Loss: 15 - 100+ pips.
These are just rough estimations!! There are no set rules - this is just to give you a reference!!
Lot Size and account size play a big part in this equation. A higher lot size means higher risk for profit/loss, so adjust your stop-loss accordingly.
Account size is also an important factor. A higher account has more leeway before triggering the dreaded "margin call". A margin call in Forex simply means that the trade has turned so far against you that your account is on the verge of depletion. Thus, the trade is automatically closed, starting with the most negative trade first!
It should be quickly noted that it's impossible to have a negative account balance in Forex. They always stop the trades before it reaches that point. If you deposit $100 into your account, you are only risking that $100.
The most talked about rule in Forex is the infamous "2% Rule".
It is widely believed and touted as an iron-clad rule that one should NEVER risk more than 2% of their account balance on ONE trade.
The rule is also extended to say that one should NEVER risk more than 6% of their account PER MONTH.
$100 account:
2% Daily Loss Acceptable = $2 Per Day -- Set your Stop-Loss for a 20 Pip Loss (.o1 Lots).
If you lose once, you are done for the day.
6% Monthly Loss Acceptable = $6 Per Month -- 3 Losing Trades @ 2% Loss.
The reasoning behind this is to stretch your account out so that you avoid blowing it up within your first day or week or month of trading.
Under this kind of system, you can trade for months on end, even if all you ever do is lose.
This concerns solely account longevity. In my opinion, these are good guidelines but I think it depends once again on the trading style. I defintely think you should place very specific account loss percentages for the day and month, but they do not have to rigorously follow these numbers.
If you are a bit of a daredevil, you could have a 4-8% Daily Loss quota with a 10-15% Monthly Loss quota. Understand that this has consequences, but it does grant you a bit more freedom to take more trades. It stinks to lose one trade and then have to avoid trading the rest of the day, even though you really want to take a trade later on (for whatever reason).
I would say good levels are 2-4% Daily and 6-10% Monthly.
Hope this was informative!
What Is Your Trading Style?
In Forex, you will find many different trading styles.
Some people prefer to "always be in the market". They are initiating trades constantly. They place an order, only to close it out minutes later. This is known as "Scalping". They hope to make a big profit by winning lots of little trades throughout the day. They focus on consistently gaining small profits with a large volume of trades.
Others take the exact opposite approach. They are more like the quiet hunter, who sits far off in the distance. They wait for exactly the right moment before they squeeze the trigger. They have a lot of criteria which must be met before they can enter the trade. When everything lines into place, they place a single trade. Then it becomes a waiting game. They might let their trade run for days. These trades are generally highly profitable. The goal is to "catch the train" early by studying the large trend patterns. These types of traders don't place many trades per month, but the trades they do place earn them a lot of pips. This type of trading is called, "Swing Trading".
Of course, you have individuals exactly in-between these two extremes. Then you have traders who do a little bit of everything, depending on the way the markets are moving. They might scalp one currency pair while letting other trades ride for days. There are an infinite number of possibilities.
So what type of trader best describes you?
Do you like the thrill of constantly trading in the market, or would you rather place a select few trades which are based on large movements in the market?
An important thing to consider is maintenance. Scalping requires much more physical presence and maintenance than swing trading. Swing trading also tends to be lower risk. But there are never any guarantees in the market of Forex!
I used to be all about scalping when I first started trading, but now I lean more towards swing trading simply because of convenience. I must admit though - scalping is an incredible rush. There is nothing like making a few hundred dollars in a matter of minutes! Swing trading grants the trader a bit more freedom. It is much more of a "set it and forget it" type style.
If you are just starting out in Forex, demo trade using both types of styles. Experiment and see what yields the best results.
Some people prefer to "always be in the market". They are initiating trades constantly. They place an order, only to close it out minutes later. This is known as "Scalping". They hope to make a big profit by winning lots of little trades throughout the day. They focus on consistently gaining small profits with a large volume of trades.
Others take the exact opposite approach. They are more like the quiet hunter, who sits far off in the distance. They wait for exactly the right moment before they squeeze the trigger. They have a lot of criteria which must be met before they can enter the trade. When everything lines into place, they place a single trade. Then it becomes a waiting game. They might let their trade run for days. These trades are generally highly profitable. The goal is to "catch the train" early by studying the large trend patterns. These types of traders don't place many trades per month, but the trades they do place earn them a lot of pips. This type of trading is called, "Swing Trading".
Of course, you have individuals exactly in-between these two extremes. Then you have traders who do a little bit of everything, depending on the way the markets are moving. They might scalp one currency pair while letting other trades ride for days. There are an infinite number of possibilities.
So what type of trader best describes you?
Do you like the thrill of constantly trading in the market, or would you rather place a select few trades which are based on large movements in the market?
An important thing to consider is maintenance. Scalping requires much more physical presence and maintenance than swing trading. Swing trading also tends to be lower risk. But there are never any guarantees in the market of Forex!
I used to be all about scalping when I first started trading, but now I lean more towards swing trading simply because of convenience. I must admit though - scalping is an incredible rush. There is nothing like making a few hundred dollars in a matter of minutes! Swing trading grants the trader a bit more freedom. It is much more of a "set it and forget it" type style.
If you are just starting out in Forex, demo trade using both types of styles. Experiment and see what yields the best results.
The Beauty and Tragedy of Demo Accounts
Hello everyone,
Today I'll be discussing how you can jump right into Forex without any risk.
You do this by signing up for a free demo account. There are many different brokers out there that you can choose from. One thing to look for is the MT4 platform.
MT4 platform is extremely easy to use. Some use this platform, while others have their own software (which is never quite as good).
Alpari US uses MT4 platform. Alpari is a very well-known trading company. I recommend them. You can install the MT4 from here:
----------------------------
www.alpari-us.com/
---------------------------------
Today I'll be discussing how you can jump right into Forex without any risk.
You do this by signing up for a free demo account. There are many different brokers out there that you can choose from. One thing to look for is the MT4 platform.
MT4 platform is extremely easy to use. Some use this platform, while others have their own software (which is never quite as good).
Alpari US uses MT4 platform. Alpari is a very well-known trading company. I recommend them. You can install the MT4 from here:
----------------------------
www.alpari-us.com/
---------------------------------
Fire up MT4.
File>Open An Account
Fill in all your personal information. You can select any dollar amount you want to for the demo account. Please be realistic. There will be no benefit from this demo account if you give yourself a billion dollars and just start gambling with it for fun.
I prefer selecting amounts from $100-$500, because I know that is a typical place when you are starting out.
Now that you have a demo account, let me explain your goals:
The goal of a demo account is to test strategies. These can be strategies you concocted or strategies from forums, friends, etc.
There is no risk involved since it is play money. If you blow up the account, simply open another one.
Demo accounts allow you to become familiar with how trading works. You can experiment with indicators and invent your own systems, then test them out for free.
It really does not get any better than this.
If you are trying to learn with a demo account, then make it as accurate as possible. Develop a system and STICK WITH IT, no matter what. Pretend that your account is real.
When you are testing a strategy, give it ample time to either pass or fail. Don't simply execute a trade or two and say the system does not work. Let it play out over time.
If your account blows up, then try to analyze what exactly went wrong.
Tweak it, and then try again.
You should take this seriously - especially if you plan on trading Forex with real money someday.
Forums are an excellent place to find strategies. Search for a place called, "Forex Factory".
While demo accounts offer a free test drive in Forex, they are not the same as trading live.
Trading live is a psychological battle that will test your nerves unlike anything you've ever done before. You'll be glued to your monitor, either watching with joy or watching with agony as your money bounces up and down.
Not everybody can handle this much pressure. Everybody can mess around with a demo account, but trading live is just not the same. Thus, keep in mind that demo accounts are great for strategy testing alone. They will not prepare you for the battle of nerves you will face with live trading!
Have fun with your demo account!
File>Open An Account
Fill in all your personal information. You can select any dollar amount you want to for the demo account. Please be realistic. There will be no benefit from this demo account if you give yourself a billion dollars and just start gambling with it for fun.
I prefer selecting amounts from $100-$500, because I know that is a typical place when you are starting out.
Now that you have a demo account, let me explain your goals:
The goal of a demo account is to test strategies. These can be strategies you concocted or strategies from forums, friends, etc.
There is no risk involved since it is play money. If you blow up the account, simply open another one.
Demo accounts allow you to become familiar with how trading works. You can experiment with indicators and invent your own systems, then test them out for free.
It really does not get any better than this.
If you are trying to learn with a demo account, then make it as accurate as possible. Develop a system and STICK WITH IT, no matter what. Pretend that your account is real.
When you are testing a strategy, give it ample time to either pass or fail. Don't simply execute a trade or two and say the system does not work. Let it play out over time.
If your account blows up, then try to analyze what exactly went wrong.
Tweak it, and then try again.
You should take this seriously - especially if you plan on trading Forex with real money someday.
Forums are an excellent place to find strategies. Search for a place called, "Forex Factory".
While demo accounts offer a free test drive in Forex, they are not the same as trading live.
Trading live is a psychological battle that will test your nerves unlike anything you've ever done before. You'll be glued to your monitor, either watching with joy or watching with agony as your money bounces up and down.
Not everybody can handle this much pressure. Everybody can mess around with a demo account, but trading live is just not the same. Thus, keep in mind that demo accounts are great for strategy testing alone. They will not prepare you for the battle of nerves you will face with live trading!
Have fun with your demo account!
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