Many traders think that accepting losses is hard but it's not nearly as hard as accepting big profits. When you are engaged in forex money management your profits need to exceed your losses so you need to maximize them- so why do most traders have a problem surly we all want big gains? We do but:
Most traders have a psychological problem in running profits.
The typical forex trader gets a profit and feels pleased. The bigger it gets though, the more tempted he is to take it. Swings in price go back against his position and eats his open equity and this causes emotional problems.
The bigger the profit becomes the more tempted the trader is to take it. The trader ends up snatching the profit early, as open equity swings cause him to panic and he banks it and then what happens?
The trade continues the way he thought and goes on to pile up $10, 20 30,000 or more and he's not in.
Its hard holding a profit in a long term trend and taking short term swings against you, by sometimes thousands a day - but if you want to catch and hold the long term trends that's what you have to do.
It requires total understanding of your trading system and confidence in it - and this is why most traders can't do it they are emotional "shoot from the hip" traders or following a guru.
A good forex trading system will normally win 30 - 50% of the time (forget the traders who claim 90% their lying) so your losers will be normally more or the at the same level as your profits. So you need to have a profit 3 - 5 times bigger than your loss to make good profits on your overall trading account.
Most traders simply don't have the patience and discipline to follow long term trends but you must to win. However, look at the major forex trends and you will see they last for months or years and can make you rich - IF you can lock into and hold them.
Many forex traders simply can't cope with trend following so they try day trading and vendors present it as way to scalp small profits and build them over time - good story, doesn't work. Day trading is a loser's game as all short term volatility is random.
If you find long term trend following to stressful, try forex swing trading as profits and loses come quickly and you don't need to endure the open equity dips you do in trend following.
If you're a novice cut your teeth on swing trading and build up your confidence and discipline to try long term trend following - if you can catch these trends, accept open equity dips and keep your eyes on the end prize, you could make huge profits.
Trend following is hard but very lucrative - if you have the mindset you can turn these trends into huge profits and understand forex money management is not just about taking losses its also about accepting big profits to.
Tuesday, September 30, 2008
Forex Trading Education, Currency Trading, Forex Trading, Forex Advice, Forex Money Management
Forex money management is simply seen as a way of restricting loses but its lot more than placing a stop, if you follow the tips in this article, you could increase your gains dramatically...
The aim of forex traders is to take risks at the right time and get the odds on their side and then get as much as the trend as they can - sure you knew that already!
However most traders think high odds trades come around all the time - they don't.
The really great trends maybe come around a few times a month no more but how many traders try forex scalping and day trading? Lots. How many lose? All of them.
The first real rule is to get the odds on your side as much as possible and that means
Cutting your trading down - most traders simply trade too much.
Keep in mind though you don't get paid for how often you trade you only get paid for being right with your trading signal and that's it.
Once you cut you're trading down, you can concentrate on hitting the opportunities you are going to trade harder.
A huge mistake is to diversify why?
It simply dilutes gains. Most traders, also have small accounts and if they take the common wisdom of risking 2%, they have to have their stop so close, their guaranteed to get stopped out.
They have a small loss - but on the other hand, they have no chance of winning.
Sure it's the majority view to risk 2% - but the majority doesn't win!
Risk 10 - 20% and you will stay in the trade and get some meaningful profits.
Next the most common error of all of novice forex traders is to trail their stop to close and get bumped out the trade, by normal market volatility.
If you don't know what standard deviation of price is, make it part of your essential forex education!
Knowing how to trail a stop, outside of normal volatility is the key to huge gains.
If you trade don't trail too quickly and if your long term forex trend following, keep your stop well back.
A good way to do this is to use key trend line support, around the 40 day Moving Average.
Sure you give a bit back at the end of the trend but you don't know when the trend was going to end anyway so don't try and predict - you can't
If you look at a forex chart, the big trends last for weeks, months or years and there worth a lot of dollars in the pocket.
If you trade forex you need to take risk pure and simple. You are not trading in a manner but take calculated risks when the odds are on your side.
If you want to make 10 - 20% you can do it with less risk elsewhere.
If you want 50 - 100% you need to take risks, it's as simple as that.
Most traders try to restrict risk so much they create it. Sure they keep their losses small but they have a lot of them and never make any decent gains.
So in forex money management terms, you need to take risks at the right time hit the high odds trades with your forex trading strategy and milk them for all there worth.
The aim of forex traders is to take risks at the right time and get the odds on their side and then get as much as the trend as they can - sure you knew that already!
However most traders think high odds trades come around all the time - they don't.
The really great trends maybe come around a few times a month no more but how many traders try forex scalping and day trading? Lots. How many lose? All of them.
The first real rule is to get the odds on your side as much as possible and that means
Cutting your trading down - most traders simply trade too much.
Keep in mind though you don't get paid for how often you trade you only get paid for being right with your trading signal and that's it.
Once you cut you're trading down, you can concentrate on hitting the opportunities you are going to trade harder.
A huge mistake is to diversify why?
It simply dilutes gains. Most traders, also have small accounts and if they take the common wisdom of risking 2%, they have to have their stop so close, their guaranteed to get stopped out.
They have a small loss - but on the other hand, they have no chance of winning.
Sure it's the majority view to risk 2% - but the majority doesn't win!
Risk 10 - 20% and you will stay in the trade and get some meaningful profits.
Next the most common error of all of novice forex traders is to trail their stop to close and get bumped out the trade, by normal market volatility.
If you don't know what standard deviation of price is, make it part of your essential forex education!
Knowing how to trail a stop, outside of normal volatility is the key to huge gains.
If you trade don't trail too quickly and if your long term forex trend following, keep your stop well back.
A good way to do this is to use key trend line support, around the 40 day Moving Average.
Sure you give a bit back at the end of the trend but you don't know when the trend was going to end anyway so don't try and predict - you can't
If you look at a forex chart, the big trends last for weeks, months or years and there worth a lot of dollars in the pocket.
If you trade forex you need to take risk pure and simple. You are not trading in a manner but take calculated risks when the odds are on your side.
If you want to make 10 - 20% you can do it with less risk elsewhere.
If you want 50 - 100% you need to take risks, it's as simple as that.
Most traders try to restrict risk so much they create it. Sure they keep their losses small but they have a lot of them and never make any decent gains.
So in forex money management terms, you need to take risks at the right time hit the high odds trades with your forex trading strategy and milk them for all there worth.
Forex Money Management - Building a Platform for Huge Gains
If you want to win at forex trading, you need to like the good football teams - play strong defence first. If you do, the offence will take care of itself and you could soon be making some huge gains and protecting what you have at all times.
Many traders do forex money management as an after thought and think it takes care of itself - but with the leverage available, this is a sure fire way to wipe out your equity.
Forex money management is all about taking calculated risk at the right time and as the old gambling saying goes:
"To win you need to bet but you can't bet if you're not at the table"
As soon as you open a forex trading position, you are at risk.
How you manage this risk, will determine how successful you are and how much money you make.
Here are some tips on money management which will help you maximize gains and limit risk.
1. Trade only when the odds are in your favour
Many traders think the more they trade, the more they will make - but this is simply not true. High odds set ups don't come everyday and you shouldn't ever force the market to try and give you profits.
2. Remember the 80 - 20 Rule!
This applies in many areas of life and simply says 80% of your gains, come from 20% of your efforts. Look at your trading in this way and you will often see, you are trading for marginal profits.
Adjust your forex trading strategy to trade less and make more.
3. Placing Stops
These should be placed as soon as you enter a position.
Never run a mental stop chances are if you miss it - you will wait to see the market it turn around as most times it won't; leaving you with a big hole in your account.
Always place your stops behind support and resistance and not in "no mans land"- have the view if I get taken out so to will a lot of others.
Now lets look at the real problem most forex trader's face - trailing stops.
Most traders try so hard to restrict risk they actually create it, by moving their stop to quickly and getting caught by volatility. They get stopped out with a marginal profit, then see the trade go back in the direction they thought piling up big gains and there not in!
Forex trading is risky - don't let anyone tell you otherwise.
You need to risk money to make it, this isn't being rash this is just a fact of life.
Volatility is the enemy and to execute your trading signals for maximum profit, you need to take it into account.
If you want to learn currency trading the correct way, understand the concept of standard deviation of price.
Don't know what it is?
Then make it an essential part of your forex education!
When trailing stops always leave the market room to breathe.
For example, if you are following a big forex trend, you can leave your stop behind a key moving average (the 40 day is good) and while you will miss the last bit of profit, that's ok - if you got just 50% of every major trend, you would be very rich.
We quoted an old gambling saying earlier that applies to forex trading and here is another.
" There's a time to hold them, a time to fold them and time to get out of town fast"
Many traders do forex money management as an after thought and think it takes care of itself - but with the leverage available, this is a sure fire way to wipe out your equity.
Forex money management is all about taking calculated risk at the right time and as the old gambling saying goes:
"To win you need to bet but you can't bet if you're not at the table"
As soon as you open a forex trading position, you are at risk.
How you manage this risk, will determine how successful you are and how much money you make.
Here are some tips on money management which will help you maximize gains and limit risk.
1. Trade only when the odds are in your favour
Many traders think the more they trade, the more they will make - but this is simply not true. High odds set ups don't come everyday and you shouldn't ever force the market to try and give you profits.
2. Remember the 80 - 20 Rule!
This applies in many areas of life and simply says 80% of your gains, come from 20% of your efforts. Look at your trading in this way and you will often see, you are trading for marginal profits.
Adjust your forex trading strategy to trade less and make more.
3. Placing Stops
These should be placed as soon as you enter a position.
Never run a mental stop chances are if you miss it - you will wait to see the market it turn around as most times it won't; leaving you with a big hole in your account.
Always place your stops behind support and resistance and not in "no mans land"- have the view if I get taken out so to will a lot of others.
Now lets look at the real problem most forex trader's face - trailing stops.
Most traders try so hard to restrict risk they actually create it, by moving their stop to quickly and getting caught by volatility. They get stopped out with a marginal profit, then see the trade go back in the direction they thought piling up big gains and there not in!
Forex trading is risky - don't let anyone tell you otherwise.
You need to risk money to make it, this isn't being rash this is just a fact of life.
Volatility is the enemy and to execute your trading signals for maximum profit, you need to take it into account.
If you want to learn currency trading the correct way, understand the concept of standard deviation of price.
Don't know what it is?
Then make it an essential part of your forex education!
When trailing stops always leave the market room to breathe.
For example, if you are following a big forex trend, you can leave your stop behind a key moving average (the 40 day is good) and while you will miss the last bit of profit, that's ok - if you got just 50% of every major trend, you would be very rich.
We quoted an old gambling saying earlier that applies to forex trading and here is another.
" There's a time to hold them, a time to fold them and time to get out of town fast"
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