Money Management

You Can Choose Two Paths…On your Own Or A Short Cut!!

Forex Trading Course: A Must for Forex Beginners

In the world’s largest financial market where exchanges reach up to trillions of dollars each day, many people would really want to participate in this market. Aside from being the largest financial market in the world, Forex is also the most liquid market in the world where trades are done 24 hours a day.

A lot of traders have become very rich trading in the Forex market. And, many people who trade in the Forex market everyday have found a great way to replace their day jobs. Some even became millionaires almost overnight by just trading in this financial market.

Trading in the Forex market can be very attractive. However, you should also know that there have been people who suffered extreme financial losses in the Forex market. It is true that the Forex market offers a very good money-making opportunity to a lot of people, but it also has its risks.

It is a fact that people who didn’t have the right knowledge and skills trading in the Forex market suffered huge financial losses and some even went into debt. So, before you enter the Forex market, it is essential that you should have the necessary knowledge and skills as a Forex trader in order to minimize the risk of losing money and maximize the potential of making money.

Many people who were successful in the Forex market have went through a Forex trading course to get the knowledge and skills needed to successfully trade in this very liquid and very large financial market.

In a Forex trading course, you will learn about when it is the right time to buy or sell, chart the movements, spot market trends and also know how to use the different trading platforms available in the Forex market.

You will also be familiarized with the terminologies used in the Forex market. Even the basic knowledge about trading in the Forex market can be a great help with your money-making venture in the worldís largest market.

There are different Forex trading courses available, all you need to do is choose one that suits your needs as a trader. There are crash courses where all the basic things about Forex will be taught to you in a short period of time, full time online courses, where you will learn all about Forex through the internet and there are also full time real life classroom courses where you can learn the ropes about Forex in a real classroom with a live professor.

You can also become an apprentice. However, in order to learn a lot about Forex as an apprentice, you need to make sure that you have a seasoned Forex trader who can share a lot of things to you about the Forex market.

Here are some of the basic things you should look for in a Forex trading course in order for you to get the sufficient knowledge about Forex trading:

ï Margins
ï Leveraging
ï Types of orders
ï Major currencies

A good Forex trading course will also explain a lot about the fundamental and technical analysis of charts. As a trader, knowing how to analyze a chart is an essential skill that you should have. So, when you are looking for a Forex trading course, you should look for a course that offers fundamental and technical analysis instruction.

Stress plays a vital part in Forex traders. Knowing how to deal with stress is also a skill that you should develop. A good Forex trading course should teach you how to deal with stress and trade effectively and efficiently.

As much as possible, you should look for a Forex trading course that offer actual trading systems where students can trade real money on the Forex market or at least trade on dummy accounts in a simulated Forex market. This hands-on experience will greatly benefit you. Besides, the best way to learn about anything is by actually experiencing it. Live trading and simulations should be offered in a Forex trading course.

So, if you plan on getting involved in the Forex market, consider finding all these things in a Forex trading course. Developing the right knowledge and skills in trading in the world’s largest and most liquid market in the world will definitely help you make it to the top and achieve your dreams as a Forex trader.

Contact Me With Any Questions strignanoforex@gmail.com

Money Management Scenario: Size Does Matter Regardless Of What You Think!

Many traders have come to realize that Market analysis is the easy part. It is maximizing your profits, and minimizing your losses that’s the tough part. In this article I will go over how you have to critique your trading system in order to do those two highly important tasks.

When I first entered the Forex Trading arena,one of my first lessons(after I executed my first speculative a trade in the year 1985) was in the form of a question my Treasurer asked me. “Tom where is your take profit?” I actually had no real answer, since I was long the USD against the German Deutsche Mark(the good old days) anything higher would have been good for me. I flippantly answered 60 points higher. He then said “Great. What s your Stop Loss?” Another blank on my part, and he knew I did’nt have the answers I was a green trader. He then said to me “You Need to know these things before you pull the Trigger on a trade, you have to keep your gun powder dry. I would suggest you calculate your stop very quickly and give it to the Deutsche Mark trader (Jim)” he then left and I said “Jim I stop loss at 80 points less my position.” Jim laughed and said “How can you risk 80 pips to gain 60? Don’t tell Aldo that’s your stop he will eat you for lunch.” I wish to add something on a personal note about Aldo Pizzoferrato my mentor. He is one of the toughest son of a guns that I know. He taught me that trading is the most competitive field you can enter, it demands excellence always. No matter how you look at it;The emotional ups and downs need to be kept in check, or you will not survive. He always kept the pressure on all of us to become better, I did not appreciate it then, but I do now. Well, over time I learned good risk to reward ratios. However it was not until I built my trading systems that I came up with a more precise way to manage risk vs. reward.

When I was promoted to Chief Forex trader in 1990, I was handed over large amount of responsibility. One of the main tasks was to make on average $15,000 per day in speculation. The Treasurer required all traders to make money without using the banks customer orders(the easy profits.) I went from having to make $5,000 per day to 3 times the amount. It was this responsibility that forced me to look at my trading techniques. I realized very quickly that I needed to learn some other techniques to achieve my goals,and turned to more profitable traders in the market to learn from. I needed a formula to maximize my returns. A colleague of mine introduced me to a trader who was a system builder for Drexel Lambert.(Old Mike Milken and Dennis Levine etc. Junk Bond guys. This was the year the firm crashed due to the junk bond activities) It is what I learned from this system trader that I will share with you. Not my system Per Se,but how to analysize what you are doing to determine how much you should be trading for optimal risk reward.

I know that all of us always want to be trading larger when we are winning, and we never want to lose. However trading without losses is like breathing in and not breathing out. This method that I am going to go over will help figure out Optimal F. However I will not use Ralph Vince s Optimal F formula, because the formula is primarily used for securities. I use the Kelly Criterion. Which is K% = W – [(1 - W) / R].

The first step is to analysize your winning probability, in order to do this you must trade the same way all the time. If you have not, you must go back and test your trading strategies; Entering with the same amount, adding to your trades with a predetermined size and price percentages. In other words no optimization. Once you have everything set you can then calculate your W(winning probability)

Now, go back and look over your last 60-100 trades. To Calculate “W”, the winning probability. divide the number of trades that returned a positive amount by your total number of trades (positive and negative). This number is stronger as it gets closer to one. Any number above 0.48 is good above 0.53 is really good.

Now you have to calculate your win loss ratio which is R. Do this by dividing the average gain of the positive trades by the average loss of the negative trades. You should have a number greater than 1 if your average gains are greater than your average losses. Which is what we all need, right? A result less than one is manageable as long as the number of losing trades remains small. You will now have a percentage.

The percentage that the equation produces represents the size(based on the Stop Loss calculation) of the positions you should be taking against your base equity. For example, if the Kelly percentage is 0.03, then you should take a 3% position(meaning 3 % of your equity for a Stop loss.) your technical analysis will tell you how many points you need against your position adjust your size accordingly. This system, in essence, lets you know how much you should have on in any one give trade. If you take on multiple positions you will have to trade the percentage against your reduced base equity. Because size does matter.

The Kelly Criterion still requires good common sense, even if you have a high percentage you should not trade above 5% of your equity.

Article Source: http://EzineArticles.com/1932675

How To Strengthen Your Trading Mindset

To be able to succeed at trading, you must be fully aware of how to strengthen your trading mindset.

Trying your luck at trading is as good as trying your luck at a card game table in a casino, you take a gamble byt placing your bet on what you consider your aces, try to establish a fallback position by managing your risks and how to play with your cards to make the most out of every possible gambling situation you are in, whether you win or lose.

Here are some common tips on how to strengthen your trading mindset.

Always take full responsibility for your trading decisions.

As a rule of thumb, most investors simply follow the crowd, but successful traders make up their own minds.

Although you should always be open to good advice from other experts, but the final and ultimate decision rests upon you and not with anybody else.

You can always try to focus on the opportunity to learn since thereís plenty of it, but donít let it cloud your perspective or determine the choices you make.

Avoid the pitfalls of over-trading.

There are basically two types of over-trading – trading too often and trading too many shares.

If you are trading too often, remind yourself that thereís really no good reason to trade constantly, since extreme over-trading creates stress, produces high commissions but sometimes often leads to losses.

This is so because market forces do not last forever and time has shown various examples of the law of gravity in the trading market- that whatever comes up must go down.

Instead of grabbing every stock that comes along, make sure each trade setup meets the criteria of your trading plan, donít be too over cocky or too selfish.

To prevent trading too many shares, use a risk calculator to determine the appropriate position size before you click the enter button. It relieves stress to know that the amount at risk for each position you hold is safely proportioned to the size of your entire account, this is asset management at work.

Always go easy on yourself.

Thereís a tendency for traders who take responsibilty for their actions to be tough on themselves.

After all, this gives credence to the saying that ëdo not cry over spilled milk.í

This could be a good opportunity for some positive self-criticism, but donít slam yourself too hard or too often, since even the best traders make mistakes.

When you do, learn from them quickly and then let it go.

Avoid yelling at yourself, as self inflicted psychological damage is tough to overcome, so itís best to avoid it entirely.

Always think like a winner.

Thinking like a winner turns you into a winner, since the sum of your thoughts has an interesting way of showing up in your life.

Thoughts are like muscles, the ones you use the most will grow to become the strongest. Work on the thoughts you want to develop and focus on them regularly, since it has the tendency to become action, action become habits, and habits determine results.

Always think of success and you are much more to be on your way to success.

Lastly, take every effort to relax.

Even though trading is serious business, the best traders know how to laugh – especially at themselves.

Having fun and enjoying at what you do is a very good motivator to give you focus on making money and earning it on trading.

So know how to strengthen your trading mindset and be on your way to success.

Stops Part III Finale!

Outcomes are asymmetric. Even though there is a higher probability that the market will go up, the expectation is negative because if the market goes down, the magnitude will be greater. Using horse racing as an analogy, a horse with a high likelihood of winning can be a good or a bad bet — the difference being the odds. In other words, a 10-1 shot may be a better bet.

This exposition hints at one of the most important principles in successful trading — planning your exit before you enter a trade. Knowing beforehand if the risk outweighs the reward is key to determining positive expectancy and stacking the odds in your favor. However, finding where to place technical stops —as opposed to money management stops — is a balancing act. You should place technical stops closer to the market than a money management stop (your maximum allowable risk), as this establishes two layers of protection. Also try to avoid placing these stops at obvious levels to reduce the risk of getting hit and experiencing slippage.

For example, it is common to hear advice on placing stops below the latest low when long, or above the latest high when short. Because this method is so frequently used, these support-resistance levels become congestion areas that often result in false breakouts. Not surprisingly, pros “gun” for such levels trying to trigger stops with false breakouts. Then after these stops are “cleaned out,” the market has a tendency to reverse, but not always — all it takes is a real breakout to wipe out an undisciplined trader without stops.

You may want to place technical stops a bit closer with the understanding that losses may be more frequent, yet at the same time smaller. Or you could place your stop farther away from the most obvious chart areas in order to reduce the chance of getting hit. The key is to try and not place stops at levels that are obvious, and instead place technical stops where the market is not expected to go.

Aside from determining technical stops based on chart patterns, another common strategy is adjusting your stop based on market action. The term “trailing stop” refers to an exit level that adjusts upward when the price of a futures contract makes a new high if long; or adjusts downward when the price makes a new low if short. Should the futures price trigger the trailing stop, this is taken as a signal to close out the position. This method is used by many traders to “keep” profits as they accrue.

Order placement

Astute traders are knowledgeable about the psychological pitfalls that influence decision-making and behavioral biases. Traders should learn to think and act like casinos, not gamblers, with respect to statistical probabilities and positive/negative expectancies. As the saying goes, “plan your trade and trade your plan” and do not get emotional about cutting losses — it is just the cost of doing business as a trader.

Key to successful stop placement is calculating a tolerable risk level per trade and implementing a position-sizing strategy that optimizes portfolio growth. As “Measuring risk/reward” (below) shows, this calculation is an interdependent process in which account size, contract multiple/granularity, money management, position sizing, trade frequency and market volatility all play a role in normalizing allowable risk per trade.

As to the placement of technical stops, there are probably as many methods for determining when/where to exit trades as there are systems for entering trades. Professionals invest much of their time and energy planning exits. What is important is that you do not place your technical stop outside your money management stop. If your system logic does this, it is a sign to rethink the entry.

Last to consider are the type of instructions provided to your broker. Stops become market orders once your designated price is touched and only should be used when your priority is certainty of execution rather than price. Alternatively, you can use stop limit orders that limit the amount of allowable slippage, but can leave you exposed. Many traders use a mental stop, entering the market on a limit once their level is reached to avoid the potential cascading effect of stops. While avoiding slippage is key, a trader should account for a certain amount of slippage on stops.

Where To Place Stops Part 1

When it comes to placing and executing stops, there are various factors to consider including psychological aspects, statistical probabilities, money management, market volatility and order placement. Experienced traders study all of these areas and use that knowledge to form an approach that integrates these domains into an actionable structured discipline. This is what separates skilled from unskilled traders.

Psychological aspects

The human mind is susceptible to perceptual distortion, inaccurate judgment and illogical interpretation. Such mental trickery impacts decision-making, and colloquialisms like “markets can remain irrational longer than you can remain solvent” are intended to address these concerns. Ironically, such “rules of thumb” are exactly the kind of readily accessible and loosely applicable problem solving strategies, known as heuristics, that lead to the issue of cognitive bias in the first place.

The phenomenon of human behavior to make judgment calls not identical to the rules of formal logic or statistical probabilities likely evolved as an adaptation for making decisions under uncertainty. In many circumstances, heuristics can enable a faster thought process as well as lead to effective actions in a given context. On the other hand, cognitive bias reflects the inability to reason properly in comparison to a set of independently verifiable facts. How a situation is framed is key to influencing our choices.

Let’s suppose you were given a choice between an 80% opportunity of winning $50,000 and a 20% risk of not winning anything, vs. a 100% assurance of receiving $35,000. Which option would you choose? Alternatively, given the choice between an 80% risk of losing $50,000 and a 20% opportunity of not losing anything, vs. a 100% assurance of losing $35,000, which option would you choose now?

In an experiment by Kahneman and Tversky (1979) who introduced the notion of cognitive bias, 80% of the participants chose $35,000 in the first scenario, even though the riskier choice had a higher expected value ($50,000 x 0.8 = $40,000); and 92% of the participants in the second scenario chose to gamble on a 20% opportunity of not losing anything. This framing occurs because people’s fear of loss induces them to take greater risks in a losing situation (e.g., holding onto losses), whereas in a winning situation people have a tendency to become risk averse and prematurely take profits (i.e., not let profits run).

Statistical probabilities

This leads directly into a discussion on money management techniques evolved from betting systems. Most gambling, such as a coin toss, is based on pure random outcomes — if you toss a coin 10 times and each time it comes up heads, the odds that it will come up heads again on the eleventh try are still 50/50. Mathematical systems designed around trade sizing are an attempt to best utilize a limited bankroll to exploit favorable situations.

One example is the Martingale strategy where a trader doubles his/her trade after a loss. The strategy derives from the idea that by always doubling your trade after a loss, you eventually would win enough to cover all past losses plus one unit. In real life, however, minimum and maximum lot sizes imposed by either a casino or futures broker effectively place a stop on the simple mathematical system of doubling up.What should be apparent then is that such systems increase a player’s bankroll volatility, thereby increasing the risk of ruin. Not surprisingly, there are numerous variations on modified doubling-up systems, or strategies that act in reverse and increase trade sizes after a win. The D’Alembert strategy is one such system whereby a trader increases his next trade by one unit upon winning, and reduces his next trade size by one unit after a loss. In the final analysis, however, it is impossible to convert a game with negative expectations (less then 50/50 chance) into positive expectations (greater than 50/50 chance) through an optimized betting system alone.

Something To Ponder!

The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear… 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.”

— Edwin Lefèvre (1923)

VN:F [1.9.6_1107]

please wait...

Rating: 10.0/10 (1 vote cast)

VN:F [1.9.6_1107]

Rating: +1 (from 1 vote)