7 Amazing Tips To Cut Losses

I've got some bad news for you and some good news. The bad news is, losses in Forex trading are unavoidable. Even the smartest, most experienced traders in the world have losses. That's because volatility in the markets makes it next to impossible to predict with 100% accuracy. But there's also some good news - you can cut losses in Forex trading.

It's true that you can't totally eliminate losses, but you can minimize them. You can take intelligent measures to protect yourself. Then, as soon as a loss strikes, you can shift away and avoid the full impact. And that's what we'll talk about here - how to cut losses in Forex trading and minimize their impact when they do occur so that they never get a chance to bleed you dry.

Here are 7 sensible things you can do to cut your losses in Forex trading before they happen.

Tip 1. Lose Your Fear of Experiencing Losses

Losses are simply part of the ups and downs of any market, and it's important to accept this idea so that you can begin to factor it into your planning and your trading strategy. Reckless Forex traders who deny this reality tend to have more losses than profits

Tip 2. Never Hang on to a Losing Position

As soon as it's clear you're in a losing position, get out and move on. Never let your failing trades die a slow death, and never try to bring them back to life with "just a little more money." Kill 'em off quick. Then treat each one as a learning experience by reviewing what went wrong and decide how to avoid a repeat.

Tip 3. Have Your Broker Close Losing Positions

Issue standard instructions to your broker that all losing positions must be closed. There is never a good reason to let losses waste perfectly good money. A reliable broker will make the margin calls necessary to stop your losses, thus protecting your account from being drained.

What is a margin call?

When you open a trading position, you can designate part of your deposit as a collateral deposit your margin which will be set aside to be protected. On a $3,000 account, for example, your margin might be set at $750. You will use the $2,250 to trade, and if your losses ever reach that level, the broker will close your position, thus protecting you from losing the remaining balance. This prevents your account from going into negative figures, which you would be required to repay.

Tip 4. Caution Is Just Good Sense

Especially when you're just beginning, trade only with the market trends. Newbie traders don't yet have the experience or the judgment to predict how prices will move. Even veteran traders experience more losses when trying to predict trends. Try to find the wave of an upward trend and ride it when it's already underway, then exit trading when it begins to turn negative. That may sound boring, but it's much, much safer.

Tip 5. Loyalty Is a Bad Thing in Forex Trading

When it comes to trades, a loser is a loser is a loser. Loyalty to a particular trade, or falling in love with it, is very unwise. No trade you ever make will be loyal to you, and it's important to understand this at the gut level. Forex trading is a volatile and fickle environment, with positions shifting constantly. What brings you success one day might drop you cold the next. In fact, it has been said that Forex trading is the world's worst place for emotions because they cloud your judgment. It's simple, dump the failures and ride your successes - and only your successes.

Tip 6. This Is Not the Place to Get Rich Quick

Ignore stories of overnight millionaires. They're usually apocryphal. Success in Forex trading requires you to minimize any loss that occurs and to behave as you would with any business. Plan on being in business long term, and discard stories of making it big overnight (somebody's usually trying to sell you something when you hear one of those stories). Jumping into Forex trading like a gung-ho warrior is setting yourself up to lose big and fast. The real, consistent winners are the ones who use common sense, patience and a businesslike attitude.

Tip 7. You're the Only One Responsible

If you try to rely on advice from strangers (and possible sharks), it's not their responsibility when you lose. It's yours, and yours alone. Invest the time necessary to learn what's needed to keep your losses in Forex trading as small as possible. Use every trade, whether loss or gain, to increase your knowledge.

This also means, of course, that it's your responsibility - and only yours - both when things go wrong and when they go right. Since you're going to end up with both the blame and the credit for results, it's a good idea to work toward more good trades, more profits and more security. Once you accept all responsibility, you're no longer a victim. When the market doesn't go your way, you never need to look for somebody to blame. You simply dust yourself off, learn something from the situation, make adjustments, and go try it again.

There is no profit in dwelling on your losses, but there is a great deal of profit in learning from them. Losses happen and that's that. But you can cut losses in Forex trading. Learn what you can from them, understand what happened, then move on. Remember, the more quickly you move on, the more quickly you'll have a chance to recover those losses and move firmly into profit.

Become Guru Of Online Forex

Here you'll learn what's the best way to learn foreign exchange and start applying this set of valuable knowledge yourself. It is also crucial to notice that only use the money that you can afford to lose to get involved in trading.

Let's state a fact first - 95% of traders lose money at trading and that sure is a giant major percentage, so what skills do you need to get into the top 5 % who win. When do you ever see an audited track record of real money gains presented by a currency exchange robot vendor? The answer is : you don't.

All you get are simulations going backwards, knowing the closing costs and that is's so easym a kid could do it but you can not buy groceries with unrealized profits. You do get some sellers, who say there figures are real but you don't know until you to see an audit. If you could become rich and make a regular income without effort, 95% of traders would not lose money, hence, my recommendation is avoid all of these systems.

Most software is inexpensive because they don't make cash but are fx trading courses any better? With the best forex courses, you get what you want to win and that is proved strategies you can learn and sure, you have to work but for the amount of work you have to do, the rewards can be life changing.

You'll often get daily school rooms, which show you the technique in action so you can see how worthwhile it is and trade it in real time to increase your confidence up. All of the best courses come with a hundred percent money back guarantees so you can see if you can win with no risk. It's correct that any one can find out how to trade forex as it is a selected learned talent [*COMMA] so if you've got a need to succeed and a fervour to learn, there's zip to stop you enjoying currency trading success.

Source: forexarticlescollection.com

Forex Signals an Options

Aside from signals, you can aid an extra equally helpful instrument in forex trading. Options can mean a world of difference as used wisely.

What is an option? In effect, an option is an agreement or contract so as to gives power to trade currency at a pre-determined exact price. It is called such since this power is optional- the holder of the contract is not forced to use it.

In the forex market, there exist two kinds of options:

1. Call Options Call options gives the power to buy currency at a given price. It increases in significance when the underlying stock goes up. In a nutshell, what you need to do is to purchase call options on a stock when you predict its value is about to go up.

2. Set Options Set options, on the other hand, is the power to sell the currency to someone else at a pre-determined price. You buy Set options if in your prediction, the stock of that currency is almost to go down.

Here is the point: you buy or sell the stock to turn into a profit by buying the options and then selling them in turn those options to someone else for a profit.

By the outcome of the contract, the price of those options will be what is indicated in that contract. Other than that, anytime the value of that option is the value in the current market, where the holder has deemed that he would be making a profit. He has foreseen that his call options would move up and/or his put options will move down.

It could seem complicated at first, but it will all make sense once you get the principle. Remember that call options move up and put options move down.

Currently add the theory of leveraging to the perception of options and the possibilities of profit would be staggering. Leveraging is the opportunity to borrow your broker's assets to trade for currency. So in effect, if you can buy put options at the right time, and sell them at the exact time, your profits would greater.

Companies furthermore use options to decrease the risk in forex trades. Think of it, you can buy without being bound by the rules of the current fluctuation in the market. It just adds a new dimension to forex trading. Whether the underlying stock moves up or down, there is possibility for profit. Add to that the power of leveraging, and then we can make added profit. This only works if we can accurately call the activities of the currency stocks in mind.

And this is simply the tip of the iceberg. The thought gets more complicated as we figure the intrinsic standards of the stocks and how companies aid options to shield themselves from risks. However, the basic principle remains the same: by trading options instead of stock, superior returns are achievable. On the other side, leveraging can also put you in a big hazard.

This is why you have to have a sound forex trading strategy first, and you are sure enough to call the movement of the stock values. When you are ready, then the possibilities of enormous profits will all open for you. Learn more about options and the flow of forex trading; they will be your prime weapons to attain market triumph.

Source: forexarticlescollection.com

Successful Forex Rading System

Forex trading system is the subsystem of the forex trading plan which governs when and at which price you open and close your trades. A trading system works on the signals given by technical analysis and/or fundamental analysis. The signals are taken to see if the trader should buy or sell a specific currency pair or must close the open position(s). Any currency trading system prevents information overload by filtering out the universe of technical and/or fundamental signals in such a way that only the most reliable (successful in the past) signals or signal combinations are acted upon.

There are two kinds of trading systems - the discretionary and the mechanical. Discretionary trading systems expect the trader to use his or her own judgement to ascertain the importance of each of the technical or fundamental signals (whose number is potentially infinite) that he or she gets. Mechanical trading systems operate on a fixed number of technical or fundamental signals without the participation of the trader. Discretionary trading systems require the perpetual application of creativity (flexibility of approach) from the trader in the understanding of the changing market conditions. Mechanical trading systems require the creativity from the trader only in the forex system development phase.

Discretionary forex trading systems are best employed by professional forex traders with a lot of experience (internalized practical market knowledge) against which they can determine the validity of any signal that they receive. These traders usually remember a large number of various signal patterns from the past (just like the master chessmen) that they can compare to the current market conditions, to make their analysis more objective. In essence, they use themselves (i.e. their brain) as their trading system - often very successfully - because human mind has the best pattern recognition power on the planet.

Starting currency traders are advised to begin by following professionally created mechanical forex trading systems. Most of these systems are sold-out in the form of the forex signals that are usually developed by experienced traders who have found a way to systemize their knowledge of the markets into a working strategy. At the same time, the beginning traders can work on building their own knowledge base of the forex market through the quality forex books, educational courses, bank reports and newswires on this subject -so that they can too, with time, create mechanical trading systems from their own insights and intuitions (using the forex charting packages which allow to do this).

Beginning without a proven mechanical forex trading system (that has positive mathematical expectation) drastically dilutes the chances of maintaining the capital. This is because any intuition or a hunch that the traders experience as a result of some newly gained knowledge of the forex market is likely to be overridden by one of the two emotional derivatives of their life-long programming towards the money - the greed and the fear. In other words, without exact adherence to an existing mechanical trading system the beginning trader will eventually succumb to his or her emotions. As a matter of fact, the only way the traders can acquire discipline in the early phases of their trading careers is by tight following the signals generated by a proven mechanical forex trading system.

Note: Neural Network Packages (e.g. NeuroShell) emulate the process of human learning and can be used to accumualte the knowledge of the past technical and/or fundamental signal patterns (just like the mind of professional forex traders does) for the purpose of the future currency price forecasting.

Quote: "A mechanical approach to the markets can be successful and this is backed up by the fact that approximately 80% of the $30 billion in the managed futures industry is traded by exact systematic methods", from the "The Ultimate Trading Guide" by John R. Hill, George Pruitt, and Lundy Hill.
2.2. Components of a Forex Trading System.

A regular forex trading system consists of two subsystems - the entry system and the exit system. These systems can operate on a different or the same set of inputs. The inputs can be technical or fundamental signals.A system consists of a number of rules which interpret the signals that it receives. The entry system evaluates the signals to determine if and at which level the positions should be opened. The exit system evaluates the signals to determine if and at which level the open positions should be closed.

The propose of an entry system is to find market points which allow to open positions with high potential reward and low potential risk (high reward-to-risk ratio). The risk is defined as the pip distance from the entry price to the next support or resistance level lying opposite to the entry direction (above entry for sell and below entry for buy). The reward is defined as the pip distance from the entry price to the next support or resistance level lying in the direction of the entry (above entry for buy and below entry for sell). It is generally advised that the traders accept only the trades with the reward-to-risk ratio of over 2 (e.g. risk=60 pips, reward=130 pips). All the same, depending on the accuracy of a trading system (i.e. the percentage of the winning trades of all the past trades) this requirement might be shifted to a lower or a higher value without sacrificing the profitability of the system. This is because the true measure of the long term profitability of a forex trading system is neither the average per-trade reward-to-risk ratio nor the accuracy of the system but the combination of these two measures which is calculated as the mathematical expectation of a trading system. In the absence of the accuracy measure of a trading system (as is the case with some discretionary trading systems) - the trader ought strive to find entries with the greatest possible reward-to-risk ratio.

Note: Elliott wave analysis allows to find entries with extremely high reward-to-risk ratios (e.g. just check some of reports on MTPredictor's site). It is worth noting that MTPredictor automatically calculates the reward-to-risk ratios and helps to find optimum entry points based on these ratios. Some Elliot wave software developers (e.g. Advanced Get) also supply their subscribers with detailed Elliott wave trading plans.

The aim of an exit system is to protect the capital base and the unrealized profits. The capital base is shielded by ensuring that the trades are exited with a fixed loss when the reasons for holding them are no longer valid. This is done by triggering a stop-loss order on your forex brokerage account when the price crosses the level which defined your risk at the entry. If you are a discretionary trader, forcing yourself to place the slop-loss on each trade and to stick to it no matter what will make you very selective about your entries - which ought increase your profitability. The unrealized profits are protected either by a take-profit order which is triggered on your brokerage account when the price reaches the level which defined your profit at the entry or with the help of the trailing stop-loss which gradually locks in more profits as the price moves in your favour. In fact, the trailing stop-loss exit can be more suitable than the fixed take-profit exit if you wish to profit from the extending "character" of some impulse waves. In such a event the trailing stop-loss can be placed just a few pips opposite to the trendline which defines impulse wave. There is one more type of exit which can be used to protect the trader from missing trading opportunities - the time exit. A time exit is triggered if a trade hasn't reached either its stop-loss or take-profit level in the specified period of time. Exiting such trades reduces the chances that the capital will be tied up when better opportunities appear on the other currency pairs.

Note: Most forex newswires (e.g. Marketnews) are a great source of real-time information on the location of the major support and resistance levels and clusters of large orders that are watched by professional forex traders and which can be used to manually update the position of your trailing stop-loss.
2.3. Development of a Currency Trading System.

Making a mechanical forex trading system involves a number of steps: 1) Selecting the inputs for the trading system - technical analysis or fundamental analysis tools which will generate the signals for the system; 2) Developing the rule-set which will operate on these signals; 3) Optimizing the parameters of the analysis tools used to produce the signals; 4) Backtesting and forwardtesting the system over historical price data. Each of these steps is covered in more detail below:
2.3.1. Selecting the Inputs for the Trading System

It is important to base your selection of inputs to the system on a sensible premise about the way the currency markets operate. As an example, you can use 200-day moving average to determine if the market is in a long-term up or down trend because a large proportion of professional forex traders use this technical tool to measure market trendiness. It is also better to combine technical analysis tools of different type and scale because this increases the chances of finding high-probability entry points (those that are likely to be followed by sharp currency price moves in your favour), which should, in turn, contribute to the overall system accuracy.

If you use technical tools only on the higher time-frame charts like the daily or the weekly charts this will increase the duration of the trades and the time periods out of the market - because the signals will take longer to form. Either of these outcomes can have detrimental impact on the trader and investor morale during the inevitable losing streaks as is shown by our forex trading simulator (Please note: The size of this page is 0,6 Mbs and it requires that you have Flash installed and Javascript enabled in your browser). which can last longer than they are naturally prepared to wait. This makes it important to focus on lower time-frame charts (e.g. hourly charts) for signal generation which will lead to shorter trade durations and, consequently, to quicker recoveries from the drawdowns. Shorter trade durations can also help to the trader to defeat the temptation to overtrade because he or she can expect to see the next entry signal in the next couple of days - not in the next couple of weeks.

Quote: "Your freedom to choose your time-frame is too valuable to lose. Investors and margined speculators, on the other hand, can choose their own time-frames. This is one of their positional advantages, to use a favourite notion of Larry Hite* , one of the founders of Mint Investment Corp* - one of the largest of the futures fund operators. Investors and speculators can choose. Obviously it makes sense to choose time frames which match any natural rhythms that can be discerned in the currency markets." John Percival in his book "The Way of the Dollar".

Note: If you are using the Elliott Wave analysis your average holding period will depend on the degree of the impulse or corrective waves that you are trading.

Choosing which fundamental factors are best for your forex trading system (e.g. as inputs to your neural network) can be very hard because the effect of various economic indicators on the currency prices changes with time. In other words, the strength of correlation between the price of a currency pair and the fundamental factors relevant to it is not fixed (even with interest rate differentials). In contrast, the relationship between the price patterns (especially the classical price patterns) and trader psychology (the driving force behind most important price moves) remains fairly stable over the years. This is the reason why the forex traders are encouraged to dedicate most of their efforts to building trading systems around the technical analysis.

Another all-important question is the time horizon of the prediction that the trader is trying to make with his system. Better not to try to forecast currency prices too far into the future. This is because the number and the complexity of interaction of various technical and fundamental factors rises geometrically with each trading day. It is, therefore, best to "leave" this task to high-end investment banks and houses which alone have the capacity to perform the necessary calculations inherent in longer-term currency course forecasting. It is more practical for the typical currency trader to concentrate on capturing the so-called "knee-jerk" market reactions driven by crowd emotionalism through the analysis of the current technical or fundamental conditions.

Quote: "Rule 5: Be prepared for anything don't try to predict what will happen or when. Investing is a skill, not a science. The Zen swordsman dicsniplines body and mind to counter any blow spontaneously; he does not anticipate the moves of an opponent, for that impedes his ability to react. Likewise, professional investors know they cannot control the real estate or stock market, let alone the global economy. Instead, they train themselves to be financially intelligent, to think confidently and creatively when opportunities or problems arise." one of the The Seven Rules of Investing given in Robert Kiyosaki's book "You Can Choose to Be Rich".

You should also try not to include too many indicators (over 12) in your forex trading system. This is because probability that the system will perform like it did in the past diminishes as you add more indicators to your system. As a rule, the larger the number of indicators in your system the longer the period of historical currency price data you need to backtest the system on.

Note: There is no necessity to learn all the available indicators and technical analysis methods before you can start creating your own robust trading systems. It is usually enough to master just a few "basic" technical indicators and formations to start combining them to identify high probability entry and exit points. The fundamental and technical reports issues by the investment banks are one of the best sources of information on which technical and/or fundamental signals are watched by the professional trading community that you can include in your forex trading system. In the long run it is best to stick to a sound forex trading strategy, that has high probability of being profitable in the long-run, than to dissipate your capital among a variety of "promising" methods.
2.3.2. Developing the Rule-Set which will Operate on the Signals

You can create these rules based on your observation of how the prices move in relation to various technical and fundamental indicators. For example, you might notice that currency prices tend to resume trending behaviour after they correct toward and touch 200-day moving average. You can use this observance to formulate a rule which will enter the markets when the prices bounce off from the 200-day moving average. You could also notice that the prices tend to stop trending when they touch the outer daily Bollinger bands. You can use this information to create a rule which will exit the trades once the prices penetrate the outer daily Bollinger Band. Because making rule-sets for mechanical trading systems forces you to quantify your insights about the market this practice aids to clarify them.

The rule-set of a forex trading system is in essence the clarified version of the weighing algorithms that you naturally create in your mind as you learn the technical and fundamental analysis and observe the price action. I say "weighing" because most of the technical rules are transcribed in your mind as fuzzy patterns (e.g. "The longer the shadows of a doji the more likely the reversal" or "The steeper the trendline - the more bullish or bearish the market sentiment."). When you make the trading system, you transfer your knowledge to the computer in the form that can be understood by it. Admittedly, the quality of the computerized model very often will fall short of the actual mental model that you keep in your head. Nevertheless, the real advantage of the "mechanicizing" your market knowledge is the power to objectively determine the validity of your trading ideas by the process of the backtesting. It should be noted that the closest the computers approach to simulating the complexity of human comprehension of the market patterns is in the neural network packages.

Neural network packages can be especially effective if you wish to model your way of weighing the strength of support or resistance levels. For example, if you believe that fibonacci retracements are more reliable entry points if they are confirmed by reversal candlestick patterns and/or RSI divergence you can "ask" a neural network to search for past occurrences of this pattern combination and determine the actual numeric weight that should be placed on each of these technical signals for the entry or exit to occur. This process is very advantageous because it allows the computer to extend your natural pattern recognition ability by perfecting (or objectifying) the weights associated with each technical input/signal. This way you can objectively measure the strength or the beauty of the technical setups that you encounter in your trading (e.g. the resultant model might require the position to be opened if the total sum of signal weighs is bigger than 0,5 where a reversal candlestick signal is "worth" 0,15, fibonacci retracement is "worth" 0,3 and the RSI divergence is "worth" 0,45). In essence, your forex trading system is the description of how beautiful your trading setups should be, where "beauty" is defined as the convergence of confirming signals from different type and/or scale technical analysis tools. Advanced users of the neural networks can go even further by tying the position size (within the maximum percentage value set by their money management system) to the strength or the beauty of the technical setup. If done decently this practice will allow them to make the most of the best trading opportunities while simultaneously reducing the exposure on the less promising setups.

Meta4: An fascinating parallel to weighing the signals in order to determine if the position should be taken or not is the way people fall in love. Each individual carries a certain number of unconscious or semi-conscious qualifiers that "describe" in more or less fuzzy terms the appearance, the character, the temperament of their likely mate. When you meet the person who posses enough of these traits (i.e. above some "threshold" or unconscious minimum) the cascade of the confirming signals sets your mind off into the love state. A similar process occurs in the mind of discretionary trader when the market action through all of its technical and/or fundamental signals (i.e. "when all the pieces fit") activates the hunch or intuition response from him or her. If you compare the brain of a discretionary trader to a neural network the hunch finds its direct expression in the output neuron. The similarity between the process of falling in love and experiencing a hunch is probably behind such market advices as "do not marry your trades" or "do not fall in love with your trades". To stretch the similarity further we can compare a stop-loss order to the practice employed by some of the married couples called the "boundary". The boundary is the some form of behaviour unacceptable to the other spouse which if violated will lead to the end of relationship. Yet another analogue is between adding to a losing position and trying to win a favour of an unloving partner - the more you invest the harder it is to let go and the more likely you are to end up destroyed financially (emotionally in the relationships). As a final comparison the neural networks allow to model the connections among the ideas in the human mind in a similar way that a website through all its external and internal links permits to express the specific mental idea-network of its creator.

Quote: "I use all forms of technical analysis, but interpret them through gut feel. I do not believe in mathematical systems that always approach markets in the same way. Using myself as the "system," I constantly change the input to achieve the same output—profit!", Mark Weinstein in Jack D. Schwager's book "Market Wizards".

Note: It should be marked that the effectiveness of your model will always be only as good as the inputs that you give or "feed" to it (as someone said - "Garbage in, garbage out"). This is because computers merely extend your pattern recognition ability and cannot be relied upon to think up a winning system on their own - if this was false, the markets would have been cornered long ago by the guy with the most powerful computer.
2.3.3. Optimizing the Parameters of the Analysis Tools used to Produce the Signals

Some forex charting packages (e.g. TradeStation) permit to optimize the parameters of the technical indicators that you use in your forex trading system. Optimization allows to find parameter values of your indicators that result in the biggest profit (most frequently used measure of system performance in optimization) from the trading system over the past data. An good example of the optimization is looking for the best time-period parameters for a two-moving-averages crossover system. Commonly the periods of two moving averages are stepped from 1 to 50 in steps of 1 and the trading results for each of around 250 moving average combinations are recorded and then sorted to find the most profitable combination. Such process of going though all possible parameter combinations is called brute force optimization. As the number of indicators used in your system increases arithmetically the number of potential parameter combinations increases geometrically. The total number of parameter combinations is, therefore, said to be subject to combinatorial explosion. For example, to optimize a system with 5 indicators each of which has 50 different parameter values you would have to cycle through 312 500 000 (50^5) possible parameter combinations. The only way you can expect to quickly solve such huge optimization problems in your lifetime is through the use of generic optimizers (e.g. OptEvolve for the TradeStation or NeuroShell Trader Professional).

Optimization of the time-period parameter of the cycle-based indicators like Stochastics permits to automatically adapt them to the cycles present in the market instead of using the default time-period values - which is the method originally used by the developer of Stochastics.

As a final note, try not to over optimize your indicators because majority of the professional forex traders use default indicator settings. You are looking for trading setups where the smart money will be acting (as opposed to the general investor public) so it doesn't make much practical sense to use indicator settings that hardly any professional forex trader is aware of.

2.3.4. Backtesting and Forwardtesting the System over Historical Price Data.

Backtesting allows to see how your system would have performed if it was run during some period in the past. You optimize indicator parameters using the price data in the backtesting period. It is crucial that the time period that you backtest your system on is representative of the currency pair that you wish to trade - it should include all types of market conditions (trending, rangebound) and it should be as recent as possible. Once you are comfortable with the performance of your system you forward test it - you run it on the out-of-sample price data (the price data that would be immediate future to the backtesting period). This way you can see if the system is able to perform likewise to the way it did during the backtesting. The closer the system's performance during the forward testing is to its performance during the backtesting the more robust the system and the more assured you can be that it will continue to trade in a similar manner during the real-time trading. You could also wish to trade your system on a forex demo account for some time before beginning to trade it with the real money.

Backtesting aids the trader or investor to determine if they are prepared psychologically for the live trading of a forex trading system. By examiningthe past performance of a system they can decide if the size of the drawdown, the number of the consecutive losses and the average duration of the trades are acceptable for them. For the complete list of the performance measures that you could wish to review before starting to trade with professionally-created mechanical trading systems please visit the forex signals page. In contrast to the mechanical trading systems the discretionary trading systems cannot be backtested because the discretionary traders cannot guarantee that they will react to a similar set of signals in the future in the same manner that they did in the past.
2.4. Implementation of a Forex Trading System.

There are two ways you can implement a forex trading system - either manually or automatically. Discretionary trading systems can only be followed by the manual placing of the trades. Mechanical trading systems are better followed though the use of automation.

If you are following a discretionary trading system you will be generally screening the currency markets for the signals that you have outlined in your checklist. The checklist is the description of the technical or fundamental trading signals that your trading system's rule-set operates on. The checklist could also contain the guidelines on how often you should check your forex charts/forex newswires for the signals (using the economic news calendar provided by the forex newswires as your fundamental signal timing tool); in contrast, the mechanical forex trading systems will be going through their own checklists with every second, 24 hours a day - which no human being can possibly do. Having a elaborate checklist will help you to be more disciplined in the application of your system. It is better to write your checklist in the form of the questionnaire. You can automate your search for some technical signals with the help of those forex charting packages which allow you to set up the sound or email/SMS alerts to notify you whenever the technical signal of your interest is generated (e.g. in Intellicharts). The forex bank reports and the forex newswires frequently issue mini reports of technical conditions on the market which most often are merely the "filled-in" versions of the same checklist.

Manual implementation of the mechanical signals is NOT recommended. Since the signals are generated by the computer you will always feel compelled to double-check them against you own experience - since no computer can model your thinking with 100% accuracy. This can lead to the delays and/or missing of some of the signals which can potentially undermine the system profitability, that rests on the principle of taking each signal exactly at the time it is generated. A lot is being said about the widespread lack of the discipline in taking the signals of the mechanical forex trading systems. This trouble can be easily overcome though the use of a reliable signal automation service. You solve all emotional troubles associated with the manual trading of the signals by simply automating this process. Elimination of the emotions from the trading through the use of the automated mechanical forex trading systems should explain their popularity amidst the multi-billion dollar hedge fund industry.

An crucial aspect of mechanical system trading is the monitoring of its real-time performance. The concealed market dynamics (a particular way of reacting to technical or fundamental signals that an important grouping of forex market participants shares - or, systematic mass investor impulsiveness) that your system has captured during the back-testing may be switching or might already have changed at the time you start to trade your system with the real money. The single way you can say that the market dynamics that you are focusing on have changed or not is to compare the real-time and the past system perofrmance. If the system continues to perform like it did on the backtesting then you can conclude that the market dynamics it targets have not yet changed. If you notice important deviations in such system performance measures like the maximum peak-to-valley drawdown, the average duration of trades, the average value of the profits/losses, the maximum number of consecutive winners/losses, it can signal that an important shift in market dynamics is taking place (e.g. a group of investment banks have modified their trading models). The fastest way to update your system to the changes in market dynamics is available for the neural network packages - which allow to retrain your model over the most recent price history. Retraining a neural network involves readjusting its matrix of weighs which allows it to stay attuned to the current market conditions. If mechanical trading systems suffer form the paradigm shifts on the market - the same can be said of the human mind (discretionary trading systmes) which tends to be very inflexible once a partciluar way of doing things (i.e. trading style) is ingrained in it.
2.5. Mastering System Trading.

To master system trading you ought have the patience to wait calmly for the entry or the exit signal from your own forex trading system and act only on them - irregardless of the technical or fundamental conditions that you see in-between these signals. It is no wonder why the best traders prefer to compare themselves to skilful predators when they describe their trading style:

Quote: "Top traders love the hunting metaphor to describe what they do. One of them, for example, claims he is like a cheetah. The cheetah can outrun any animal, but it still stalks its prey. It won't attack until it is right on top of its prey. In addition, the cheetah usually waits for a weak or lame animal to get close. Another top trader told me that he trades like a lion. He watches the herd for weeks until something other than his presence causes the herd to panic. When the herd panics, he then chases a weak or lame animal that appears most confused. The difference between an average hunter and a really skilled animal like the swift cheetah or the cunning lion is that the skilled hunter waits until the odds are overwhelmingly in his favor", from "The Ten Tasks of Top Trading" by Van K. Tharp.

Quote: "Much of the time, even professionals don't have a clear picture of what is going on, but they have learned to have the patience to wait for select, specific setups. You must learn to trade on only the most recognizable and reliable patterns." from the "Street Smarts: High Probability Short-Term Trading Strategies".

The most important rule of systematic trading is to take each and every trading signal that your system generates. Only by taking all the signals at the time they are generated can you count on replicating the past performance of your system. If you have the slightest suspicion that you will not be able to take all the signals - either due to the timing of the signals or your busy schedule - you should arrange for the signals to be automatically traded.

At the end of the day, a forex trading system just like the money management system serves to protect yourself from your own destructive tendencies which very often mask themselves as the "well-meaning" hunches and gut responses. This doesn't mean that you shouldn't trust your instincts - only that you should base your trades on them only if you can eliminate emotions from your decisions. This is because a trading system is a method to profit from other traders' emotional instability, therefore, if you do not control your own emotions you will not be able to profit from any system. Removing the emotions from your manual trading can take years (!!!)- so it can be more practical and profitable to simply autotrade your system.

Even if you start your currency trading career by following a professionally created forex trading system you will receive full satisfaction from the trading - in terms of profit and self-actualization - only if you make and trade a successful system of your own. One of the best books which can help you to start this fascinating journey is "Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis" by Richard L. Weissman.

Quote: " In the meantime, it cannot be emphasized enough that, at the very least, genuine success in trading markets involves the adoption of a trading system. Without the discipline of such a system, the very best efforts are likely to be doomed to failure." Tony Plummer in his book "Forecasting Financial Markets: The Psychology of Successful Investing".

There are no certainties in the forex trading, since the future will never be exactly the same as the past. There are only probabilities, which you can systematically put in your favour with the help of a established forex trading system.

15 Major Day Trading Hints

The reports of the society making immeasurable gains in stocks markets have been delivered in newspapers around the world.So the first timer investors have been attracted to the stock market. Day trading is one of the organizations gaining in demand with investors. But this day trading has full of risks. However you can make immeasurable gains in day trading,you are also expected to expend huge money.On the other hand, if you want to do day trading the following tips and guidelines are here to make you succeed:

Who is day trader?

A person who actively associate within stock market and buys and sells frequently in a day to make quick income is called a day trader.


What are the following tips to succeed in day trading? Here are the 15 list of tips to guide you to succeed:


1. Study the fundamentals of the system like the functioning of the market, schedule to buy and sell, which way the stocks will be operate, and the long and short calls.You consider also learn to take care of the profits while cutting down the losses.

2. In view of excel in day trading is a time consuming process, apply the trading platform available on the trading websites before you actually start.

3. Avoid the thought of making losses let you to scare. Use strategies like stop orders to reduce your losses.

4. Do not worry, If you suffer some loss, as it is a portion of the process.

5. Stop trading, once you have earned your expected profit. Do not hunger after more money and throw away your profit.

6. Assuming that the market does not meet your expectations on each and every particular day, do not trade.

7. During the time that your experience in day trading increases, you gain the ability to foreknow the direction in which the stock price moves. But avoid to go for the lowermost or the topmost stocks.

8. If you find it crucial to decide in which way the market is going, do not trade but just paused and wait.

9. Keep up a record of the results of the day trading. It give permission you to learn the things which are effective, as well as ineffective.

10. Acquire some information about buying and selling tactics of successful day traders. These traders commonly sell when there is good news and buy when there is bad news.

11. Being aloof and professional is the main characteristics of being trader and don't be emotional.

12. Have confidence on your instincts as rely upon excessively on the analysis means skipping some good trading chances.

13. Be trained and use most important strategies to trade.

14. Concentrate and/or focus yourself only on a selected stocks. Sharpen your attention on various stocks will make it difficult for you to track the movement of each stock.

15. Educate yourself in a new trading strategies daily and use them to your benefit.

How to develop a profitable forex trading stratey

Before you plunge into one of the most liquid, unpredictable and profitable markets in the world, there are some things that you should know about before putting your money in the hands of a forex broker. When money is involved, there are a lot of things you should consider, and these are the key to developing the best Forex strategy, for you to start making a profit. For instance, there is a great deal of money management that must be put in place before you run off with a lot of hope in your pocket. Hope is not going to pay the bills. Your money is and you need to know when and how much of your money you are going to use.

Always set yourself some realistic targets and limits to ensure that you do not spend too much money. Also, do not fall prey to the gambling endemic that is afflicting many Forex traders - this means they simply cannot stop trading no matter how much they loose and they often make irrational decisions in order to 'win' back the money that they have lost. Set yourself some parameters and stick to them, you will regret the fact that you account has run dry and you start to owe the brokerage a sum of money. Also, always have some risk capital on hand so that when things do go wrong, you will be able to bail yourself out. The total sum of your investment and risk capital should be an amount that you are able to afford.

Nobody should go into trading with their life savings in tow. The capital you put into the commodities market should be capital you can spend and if you do lose, will not have an adverse affect on your life style. That said, Forex trading is all about watching market patterns and market psychology. Unlike normal and traditional commodities trading, many people would say that the Forex market falls into a pattern when it comes to either a crisis or an upheaval within currencies. Issues like inflation, political violence and economic decisions can adversely affect the performance of the currency pair you have chosen. But there is always a pattern and this pattern is the structure of many trading strategies of experienced investors. For example, you must learn that there are many 'safe' currencies in the market that investors flock to when there is wind of a calamity in global economies. This is just one aspect.

Market psychology is ruled by major decisions my collective moves in the market. Because of the fact that huge multicontinental banks are the biggest driving forces within the FX market, they have pre planned moves when situations come up. Your job as an investor is to read the signs and react accordingly. The good thing about Forex is that is a very liquid market, so you can pull out any time you want - or on the flip side can invest in a click of a mouse. With these in mind when investing, you will have the key to developing the best Forex trading strategy.

Knowing the Ins and Outs of Chandelier Exit

Have you ever heard of a stop placement strategy that trails stop based on previous 'high' points? It is called Chandelier exit as it hangs down from the high point or the ceiling of our trade, just as a chandelier hangs from a room ceiling. The distance, which is usually calculated from the high point to the trailing stop; could also be calculated in dollars or in contract based points. However, the value of this trailing stop moves upward very promptly as higher highs is reached.

The Chandelier Exit, which has a trailing stop from either the highest high of the trade or the highest close of the trade, is best measured in units of Average True Range (ATR). One of the many factors leading to use ATR for measuring the distance from the high to our stop is that, it is pertinent across markets and is adaptive to changes in unpredictability.

The essence of this calculative measure is that, even on expansion and contraction of trading ranges, our stop will automatically adjust and move to the apt level, thereby, constantly staying in tune with changing market conditions. Chandelier Exit is one of the most tried exit methodology used across a varied portfolio of futures markets to generate profitable test results.

It is imperative that the changes in unpredictability can curtail or stretch the distance to the actual stop, since the highs used to hang the Chandelier move only upward. However, in order to witness less fluctuation in the stop distance, you can use a longer moving average to calculate Average True Range. In other ways, shorter moving average is required, in case you want the stop placement to be more adaptive to fluctuating market conditions.

When short averages for the ATR is used; brief periods of small ranges can bring the stops too close, abnormally resulting in premature exit. To avoid this, you can have a short and highly adaptive ATR while calculating a short average and a longer average and using the average that produces the widest stop.

Although Chandelier Exit differs from Channel Exit (which trails a stop based on previous 'low' points), the combination of both, where the trade is initialized by the trailing Channel Exit and then adding the Chandelier Exit, after the price has moved away from the entrance point, will help in making the open trade lucrative. Here the Channel Exit is fastened at a low point and does not move up as new profits are accomplished. At the same time, it is necessary to have the Chandelier Exit at the right position so that the exits are never too far away from the high point of the trade.

The fundamentals behind combining the exit techniques, Channel and Chandelier exit is that, while Channel Exit as a suitable stop that very steadily rises at the commencement of the trade, switching over to Chandelier Exit is necessary to ensure better exit that protects more of our profit. This feature makes Chandelier Exit one of the most sought after rational exits from the profitable trades.

Courtesy: Forexarticlecollections.com

Is it Wise to Invest in Penny Stock?

Everyone today is searching for ways to make fast money. With our declining economy, worthless retirements, rampant foreclosures and high unemployment Americans are trying alternate methods for investments.
Many are wanting to invest in penny stock, since they really don't have a lot to invest in to begin with.

So, what are penny stocks? They're common stocks which cost less than five dollars a share.

Today, it's impossible to actually purchase stocks for just a penny but five dollars is a great deal. Keep in mind though, that when you buy a penny stock they're usually from new untested companies that are searching for ways to raise their capital.

First, it's extremely important before you invest in penny stock to find out all there is about that particular stock.

It's true, you can earn money fast but then again, many people have lost money really fast. Keep charts and graphs on how the stock has been behaving for the past 6 months so you can try and predict how it will behave in the future.

You should have a broker that is very familiar with these stocks and will give you the honest truth about them, but if you want to do it on your own, be sure to sign up to a repeatable online trading company.

Be a member and pay the monthly fee and you will have access to a lot of tools that will help you in your quest for good stocks to invest in.

Penny stocks aren't in the stock exchange, they are dealt over the counter, so if you choose to get a broker, they won't be working on a commission for the transactions.

Be sure that you are very knowledgeable with the many different companies which offer penny stocks.

You'll want to invest with companies that are well run and offer a good product. Be sure the company really does have a good chance to succeed.

Don't ever have any more than ten percent of your portfolio tied up in penny stocks.

Remember that seventy percent of all investors really do lose their money with penny stocks. So, just use caution and common sense when you invest in penny stock.

How To Start Investing-Anywhere

When you're first getting into investing there are literally tens of thousand of investments to choose from. You can invest in stocks, bonds, mutual funds or some other type of investment.

For the newbie investor just knowing the name of the investment or company you're putting your money in is just the beginning. There are often a lot of minor but important details that you must learn about before you decide to invest. If you had the time and know how you could analyze financial statments, speak with company employees and the company suppliers and so on and so forth. However not many of us have the time necessary to put towards being a full time investor.

Just because you may not have the time to be a full time investor shouldn't scare you away from investing. You can still find quality companies to invest in and it doesn't have to take a lot of your time. The first thing you need to do is get quality information and then you can make purchases of quality investments, you can then leave the management of your investments to individuals who are qualified to manage them.

Having someone else manage your investments will allow you to do the things your good at and leave you with more free time to do the things you like to do. One of the most important parts of investing is knowing what you can do for yourself and knowing what you should hire an expert to do. For example, if you're considering investing in stock in the overseas market then it might make more sense to invest in a mutual fund. Overseas markets can be trickier to navigate than domestic markets, especially for a beginner, so a mutual fund manager would likely be the best place to turn. This would be easier than putting all of your time, energy and money into trying to pick foreign stocks on your own.

The best way to build your wealth would be to invest in businesses which make you an owner, be it a partial owner or a full owner. These types are investments are not always for the faint of heart due to the up and down nature these sorts of investments can have. Investments where you would become at least a part owner include stocks, some form of a small business or real estate vehicles.

For instance, many of the world's wealthiest people gained their fortunes by becoming an owner of a sucessful company, be it one they've built themselves or a company that someone else has already built and maintained sucess with. Take for instance someone like Warren Buffett owner of Berkshire Hathaway. Warren Buffett has become one of the richest men in the world by buying successful companies and keeping them under the management of Berkshire Hathaway for the long term. If you had invested just 10,000 dollars in Warren Buffet's company when he was first starting out you'd be a millionaire many times over by now.

Owning your own business is a great way to increase your wealth, along with business ownership many other wealth magnates have increased their money through the investing in real estate and the stock market. Investing the way other big players invest is a smart move as long as you understand the risk involved. If you have an understanding already about how to invest then you should be taking the necessary steps to invest wisely and diversify your portfolio.

If you have longterm financial goals, like retiring at an early age then your investment portforlio needs to grow quickly. Things like putting all of your money in the bank would likely not help you achieve your long term goals as the interest which banks pay would likely not outweigh the effects of inflation on your money.

Investing is not for everyone and may not even be necessary for some individuals. If you are the type that doesn't mind working your whole life and are happy maintaining the standard of life you're currently living then perhaps you need not jump into the investment game. You could also look for safer investments such as government backed bonds or money market funds.

In the end if you would like to start investing then you should go to your local Barnes and Noble store and pick up some sort of beginner's guide to investing. You'll be happy you did.

Courtesy: ForexArticlesCollections.com

Blue chip stocks - not a poker game

Investing in conservative blue chip stocks may not have the allure of a hot high-tech investment, but it can be highly rewarding nonetheless, as good quality stocks have outperformed other investment classes over the long term.

Historically, investing in stocks has generated a return, over time, of between 11 and 15 percent annually depending how aggressive you are. Stocks outperform other investments since they incur more risk. Stock investors are at the bottom of the corporate "food chain." First, companies have to pay their employees and suppliers. Then they pay their bondholders. After this come the preferred shareholders. Companies have an obligation to pay all these stakeholders first, and if there is money leftover it is paid to the stockholders through dividends or retained earnings. Sometimes there is a lot of money left over for stockholders, and in other cases there isn't. Thus, investing in stocks is risky because investors never know exactly what they are going to receive for their investment.

What are the attractions of blue chip stocks?

1. Great long-term rates of return.
2. Unlike mutual funds, another relatively safe, long term investment category, there are no ongoing fees.
3. You become a owner of a company.

So much for the benefits - what about the risks?

1. Some investors can't tolerate both the risk associated with investing in the stock market and the risk associated with investing in one company. Not all blue chips are created equal.
2. If you don't have the time and skill to identify a good quality company at a fair price don't invest directly. Rather, you should consider a good mutual fund.

Selecting a blue chip company is only part of the battle - determining the appropriate price is the other. Theoretically, the value of a stock is the present value of all future cash flows discounted at the appropriate discount rate. However, like most theoretical answers, this doesn't fully explain reality. In reality supply and demand for a stock sets the stock's daily price, and demand for a stock will increase or decrease depending of the outlook for a company. Thus, stock prices are driven by investor expectations for a company, the more favorable the expectations the better the stock price. In short, the stock market is a voting machine and much of the time it is voting based on investors' fear or greed, not on their rational assessments of value. Stock prices can swing widely in the short-term but they eventually converge to their intrinsic value over the long-term.

Investors should look at good companies with great expectations that are not yet imbedded in the price of a stock.

courtesy : forexarticlecollections.com

Forex Money Management by FX Master

Money management is a critical point that shows difference between winners and losers. It was proved that if 100 traders start trading using a system with 60% winning odds, only 5 traders will be in profit at the end of the year. In spite of the 60% winning odds 95% of traders will lose because of their poor money management. Money management is the most significant part of any trading system. Most of traders don't understand how important it is.

It's important to understand the concept of money management and understand the difference between it and trading decisions. Money management represents the amount of money you are going to put on one trade and the risk your going to accept for this trade.

There are different money management strategies. They all aim at preserving your balance from high risk exposure.

First of all, you should understand the following term Core equity
Core equity = Starting balance - Amount in open positions.

If you have a balance of 10,000$ and you enter a trade with 1,000$ then your core equity is 9,000$. If you enter another 1,000$ trade,your core equity will be 8,000$

It's important to understand what's meant by core equity since your money management will depend on this equity.

We will explain here one model of money management that has proved high anual return and limited risk. The standard account that we will be discussing is 100,000$ account with 20:1 leverage . Anyway,you can adapt this strategy to fit smaller or bigger trading accounts.

Money management strategy

Your risk per a trade should never exceed 3% per trade. It's better to adjust your risk to 1% or 2%
We prefer a risk of 1% but if you are confident in your trading system then you can lever your risk up to 3%

1% risk of a 100,000$ account = 1,000$

You should adjust your stop loss so that you never lose more than 1,000$ per a single trade.

If you are a short term trader and you place your stop loss 50 pips below/above your entry point .
50 pips = 1,000$
1 pips = 20$

The size of your trade should be adjusted so that you risk 20$/pip. With 20:1 leverage,your trade size will be 200,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 10,000$ = 10% of your balance.

If you are a long term trader and you place your stop loss 200 pips below/above your entry point.
200 pips = 1,000$
1 pip = 5$

The size of your trade should be adjusted so that you risk 5$/pip. With 20:1 leverage, your trade size will be 50,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 2,500$ = 2.5% of your balance.

This's just an example. Your trading balance and leverage provided by your broker may differ from this formula. The most important is to stick to the 1% risk rule. Never risk too much in one trade. It's a fatal mistake when a trader lose 2 or 3 trades in a row, then he will be confident that his next trade will be winning and he may add more money to this trade. This's how you can blow up your account in a short time! A disciplined trader should never let his emotions and greed control his decisions.

Diversification

Trading one currnecy pair will generate few entry signals. It would be better to diversify your trades between several currencies. If you have 100,000$ balance and you have open position with 10,000$ then your core equity is 90,000$. If you want to enter a second position then you should calculate 1% risk of your core equity not of your starting balance!. Itmeans that the second trade risk should never be more than 900$. If you want to enter a 3rd position and your core equity is 80,000$ then the risk per 3rd trade should not exceed 800$

It's important that you diversify your prders between currencies that have low correlation.

For example, If you have long EUR/USD then you shouldn't long GBP/USD since they have high correlation. If you have long EUR/USD and GBP/USD positions and risking 3% per trade then your risk is 6% since the trades will tend to end in same direction.

If you want to trade both EUR/USD and GBP/USD and your standard position size from your money management is 10,000$ (1% risk rule) then you can trade 5,000$ EUR/USD and 5,000$ GBP/USD. In this way,you will be risking 0.5% on each position.

The Martingale and anti-martingale strategy

It's very important to understand these 2 strategies.

-Martingale rule = increasing your risk when losing !

This's a startegy adopted by gamblers which claims that you should increase the size of you trades when losing. It's applied in gambling in the following way Bet 10$,if you lose bet 20$,if you lose bet 40$,if you lose bet 80$,if you lose bet 160$..etc

This strategy assumes that after 4 or 5 losing trades,your chance to win is bigger so you should add more money to recover your loss! The truth is that the odds are same in spite of your previous loss! If you have 5 losses in a row ,still your odds for 6th bet 50:50! The same fatal mistake can be made by some novice traders. For example,if a trader started with a abalance of 10,000$ and after 4 losing trades (each is 1,000$) his balance is 6000$. The trader will think that he has higher chances of winning the 5th trade then he will increase ths size of his position 4 times to recover his loss. If he lose,his balance will be 2,000$!! He will never recover from 2,000$ to his startiing balance 10,000$. A disciplined trader should never use such gambling method unless he wants to lose his money in a short time.

-Anti-martingale rule = increase your risk when winning& decrease your risk when losing

It means that the trader should adjust the size of his positions according to his new gains or losses.
Example: Trader A starts with a balance of 10,000$. His standard trade size is 1,000$
After 6 months,his balance is 15,000$. He should adjust his trade size to 1,500$

Trader B starts with 10,000$.His standard trade size is 1,000$
After 6 months his balance is 8,000$. He should adjust his trade size to 800$

High return strategy

This strategy is for traders looking for higher return and still preserving their starting balance.

According to your money management rules,you should be risking 1% of you balance. If you start with 10,000$ and your trade size is 1,000$ (Risk 1%) After 1 year,your balance is 15,000$. Now you have your initial balance + 5,000$ profit. You can increase your potential profit by risking more from this profit while restricting your initial balance risk to 1%. For example,you can calcualte your trade in the following pattern:

1% risk 10,000$ (initial balance)+ 5% of 5,000$ (profit)

In this way,you will have more potential for higher returns and on the same time you are still risking 1% of your initial deposit.

Stock Market Money Management Skills

Let's start by saying: You can't be afraid to take a loss. The investors that are the most successful in the stock market are the people who are willing to lose money.

Having a strategy and/or a specific philosophy is an excellent starting point to investing but it won't mean a thing if you can't manage your money. As I have said a million times: without cash, you can't invest.

Most investors spend far too much time trying to figure out the exact pivot point or perfect entry strategy and too little time on money management. The most important aspect to investing is cutting your losses, 90% of the battle is won by protecting your capital, regardless of the strategy.

Most successful money managers only make money 50-55% of time. This means that successful individual investors are going to be wrong about half the time. Since this is the case, you better be ready to accept your losses and cut them while they are small. By cutting losses quickly and allowing your winners to ride the up-trend, you will consistently finish the year with black ink.

Here are some methods that can help you with money management:

Set a predetermined stop loss (you must know where to cut the loss before it happens ¡°this will help control emotions when the time comes)." A 7-10% stop loss insurance policy is best. Tighten the stop loss range in down markets and loosen the range in strong bull markets.

Establish smaller positions if your account has had a recent losing streak (the losses may be telling you important information such as a critical turning point, it may be time to sell and get out).

If you think you are wrong or if the market is moving against you, cut your position in half ¡°this is the best insurance policy on Wall Street."

If you cut your position in half two times, you will be left with only 25% of the original position ¡°the remaining stock is no longer a big deal as your risk is very low."

If you sell out of a trade prematurely based on a minor correction, you can always reestablish the position again.

Initial position sizing plays a big part in money management ¡°don't take on too big of a position relative to your portfolio size. Novice investors should never use their entire account on one trade no matter how small the account

Know when you would like to get out of a position after a considerable profit has been made. Signs of topping could be a climax run, a spinning top or higher highs on lower volume.

Finally, cut any trade that doesn't act the way you originally analyzed it to act.

With these guidelines, you will be well on your way to solid money management skills that will help you profit in Wall Street year in and year out. Always remember, you are going to take-on losing trades at least half of the time. This is a tough concept to accept for most novice investors but it a fact. If you don't cut losses, you won't be investing for very long as you will run out of cash and the desire to continue to invest.

Source: www.forexarticlescollection.com

Money Management Principles

Trade With Sufficient Captial

One of the worst blunders that forex traders can make is attempting to trade without sufficient capital.

The trader with limited capital not only will be a worried trader, always looking to minimize losses beyond the point of realistic trading, but he will also frequently be taken out of the trading game before he can realize any sense of success trading the method(s) or patterns.

Exercise Discipline

Discipline is probably one of the most overused words in forex trading education. However, despite the clich¨¦, discipline continues to be the most important behaviour one can master to become a profitable trader. Discipline is the ability to plan your work and work your plan.

It¡¯s the ability to give your trade the time to develop without hastily taking yourself out of the market simply because you are uncomfortable with risk. Discipline is also the ability to continue to trade the methods and patterns even after you¡¯ve suffered losses. Do your best to cultivate the degree of discipline required to be a world-class trader.

Employ Risk-to-Reward Ratios

The following shows you possible risk-to reward ratios, and the win ratios required to break even in a trading system.

Risk-to-Reward Ratio (in pips)and Win Ratio Required to Break Even(%)

40/20 (2 to 1) = 67%, 40/40 (1 to1) = 50%, 40/60 (1 to 1.5) = 40%,
40/80 (1 to 2) = 33.5%,
60/20 (3 to 1) = 75%,
60/60 (1 to 1) = 50%,
60 /90 (1 to 1.5) = 40%,
60/120 (1 to 2) = 33.5%

Important Note

Never risk more pips on a trade then you plan to make. It doesn¡¯t make sense to risk 100 pips in order to make only 10. Why? See below example.

Profit taking level (pips): 10
Stop used or pips at risk: 100

You win 10 times which makes 100 winning pips. You ONLY lose once and have to give back all profits!!!

This type of trading makes no sense and you will lose on the long term guaranteed!

Source: www.forexarticlecollection.com

Forex - Foreign Exchange

Currency Markets

Foreign exchange transactions that are settled immediately are said to occur in the spot market, while transactions to be settled at a future date occur in either the forward or the futures market.

These markets are summarized below:

1. Spot Market:

This is the market for currencies for immediate delivery. The price of foreign exchange in the spot market is referred to as the spot exchange rate or simply the spot rate.

The spot FX market is unique to any other market in the world, as trading is available 24 hours a day.

Somewhere around the world, a financial center is open for business, where banks and other institutions exchange currencies, every hour of the day and night with generally only minor gaps on the weekend.

Essentially foreign exchange markets follow the sun around the world, giving traders the flexibility of determining their very own trading time.

2. Forward Market:

This market is for the exchange of foreign currencies at a future date. A forward contract usually represents a contract between a large money center bank and a well-known (to the bank) customer having a well-defined need to hedge exposure to fluctuations in exchange rates.

Although forward contracts usually call for the exchange to occur in either 30, 90 or 180 days, the contract can be customized to call for the exchange of any desired quantity of currency at any future date acceptable to both parties to the contract.

The price of foreign currency for future delivery is typically referred to as a forward exchange rate or simply a forward rate.

3. Futures Market:

Although the futures market trading is similar to forward market trading in that all transactions are to be settled at a future date, futures markets are actual physical locations where anonymous participants trade standard quantities of foreign currency (e.g., 200,000 EURO per contract) for delivery at standard future dates (e.g., March, June, September, and December).

Up until recently, only banks, hedge funds, and other large institutions have had access to currency trading in the spot market.

With an approximate volume of $2 trillion traded on a daily basis internationally, the individual trader looks for an opportunity to take advantage of the most liquid market in the world.

Day-traders are no longer confined to trading stocks and commodities, and now have the ability to trade all of the major currencies, including US Dollar, Yen, Euro, British Pound, Australian and Canadian Dollars, Swiss Frank and etc, 24 hours a day.

There is considerable exposure to risk in any Forex (FX) transaction.

Before deciding to participate in FX trading, you should carefully consider your objectives, level of experience and risk appetite ...

But most importantly, don't invest money you can't afford to lose!

Source: http://www.greekshares.com