By Imran Hossain
ডানে বামে না তাকিয়ে চলুন সরাসরি কথায় আসি। ফরেক্স এ আমরা অনেক চেস্টা করি আমাদের প্রফিটকে ধরে রাখতে। কিন্তু বেশির ভাগ সময় প্রফিট থাকে না। আজ আমি যে বিষয় নিয়ে বলবো তা হলো মানি ম্যানেজমেন্ট। আপনি যদি ঠিক মত মানি ম্যানেজমেন্ট করতে পারেন। তাহলে আপনি 10 টা ট্রেড থেকে 5 টা ট্রেডে লস করলেও আপনার প্রফিট থাকবে 25%। চলুন দেখি কি ভাবে।
উদাহরণ হিসেবে ধরি আমাদের ব্যালেন্স 1000.00 ডলার। আমরা প্রতিটি ট্রেড করবো 5% রিস্ক নিয়ে মানে। 50 ডলার প্রতি ট্রেড। অনেকে 2% বা কেউ 3% নিয়ে ট্রেড করে। আপনি আপনার মত করে রিস্ক নিতে পারেন। এখন আমরা ট্রেড করবো স্টপলস এবং টেকপ্রফিট দিয়ে। আমাদের রেশিও হবে 1:2 ।
আমরা যদি এই রেশিও হিসাবে 10 থেকে 5 টা ট্রেড এ লস করি তাহলে আমাদের লস হবে 250 ডলার তাহলে আমাদের ব্যালেন্স হবে 750 ডলার এবং আমরা যদি বাকি 5 টা ট্রেড এ প্রফিট করি তাহলে প্রফিট হবে 500 ডলার। তাহলে আমাদের নতুন ব্যালেন্স হবে 1250 ডলার।
সুতরাং মানি ম্যানেজমেন্ট কে ফরেক্স এ প্রফিটের আসল রহস্য বলতে পারেন।
By Imran Hossain
বাড়িয়ে নিন আপনার ফরেক্স প্রফিট: 100% নিশ্চিত
ফরেক্সে 100% নিশ্চিত বলেতে কিছুই নেই। তার পরও আমি 100% নিশ্চয়তা দিতে পারি। অনেকেই এখন বলবেন এটা কি ভাবে সম্বব। অনেকে আবার বলবেন ধান্দাবাজি করতে আসছে। যাই হোক বেশি কথা না বলে কাজের কথায় আসি।
আমরা অনেকে আমাদের প্রফিস বাড়ানোর জন্য অনেক কিছু করে থাকে। কেউ লেবারেজ বাড়ায় আবার কেউ লট সাইজ বাড়িয়ে দেয়। কিন্তু আমি আজকে এমন একপি পদ্ধতির কথা নিয়ে আলোচান করবো তা হয়তো অনেকে জানেন আবার অনেনে জানেন না। তবে যদি আপনি আপনার স্টাটেজি এর সাথে এই পদ্ধতি ব্যবহার করেন তাহলে আপনার এন্টি পয়েন্ট পেতে সুবিধা হবে। আর সাথে সাথে আপনার প্রফিটও বেড়ে যাবে কয়েকগুন।
এখন কথা হচ্ছে কি ভাবে। আসলে অনেকেই currency correlation -এর কথা সুনছি। এটা কিভাবে কাছে করে। ধরুন আপনি USDJPY -এ বাই দিতে চাইতেছেন, কারন আপনার এনালাইসেস এ কনফার্ম হলেন মার্কেট এখন আপ হবে। আর এখনই এই currency correlation - ব্যবহারের সময়। আপনি একটিু সময় নিয়ে দেখে আসুন http://www.forexticket.com/en/tools/01-01-correlation এখান থেকে। যেমন আপনি বাই দেওয়ার আগে দেখে নিন EURJPY, USDJPY, GBPJPY, CHFJPY, NZDJPY -এই পেয়ার গুলি । দেখবেন কোন 2/1 টিতে আপনার ট্রেডিং পেয়ার(USHJPY) এর বাই সিংনালকে কনফার্ম করেছে। তার মানে আপিন নিশ্চিন্তে বাই দিতে পারেন। এখন আসুন কিভাবে আপনার প্রফিট বাড়াবেন। এটা আরও সহজ। আপনি যখন একাধিন পেয়ারে বাই কনফার্ম হলেন। এখন আপনি এই 6 টি পেয়ারে বই দেয়ে আপনার প্রফিট কে বাড়িয়ে নিতে পারেন। এটা গেল প্রফিট বাড়ানোর প্রথম ধাপ। আরও একটি ভাবে আপনি প্রফিট বাড়াতে পারেন। সেটা হলো বিরতীত currency correlation. যেমন: এই পেয়ার গুলি যেদিকে যাবে তার বিপরীতে যাবে AUDUSD, EURGBP -আপনি এই পেয়ারে সেল দিতে পারেন। আর যদি দেখেন এই পেয়ার গুলির মধ্যে কোন পেয়ারে আপনার কনফার্মেশনের বিপরীত সিংনাল আছে তাহলে ট্রেড এড়িয়ে যান।
আর এ পর্যন্তই অন্য আরেক দিন অন্য বিষয়ে।
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By Imran Hossain
If you were stranded on a desert island and somehow had access to the internet, a computer, and electricity, and you could only have one Forex trading educational article to read, this would be the article you would want to have…
A simple fact of Forex trading is that it is a game of probabilities, those traders who learn to view and think about trade setups in terms of risk to reward, are the ones who usually end up making consistent money in the Forex market. There is something to be said for developing your discretionary trading skills, as having a sharpened sense for spotting well defined trade setups at the right place and time is definitely a necessary ingredient to successful trading. However, it is possible to make consistent money even if your discretionary trade setup identification skills are not fully matured yet. Risk to reward setups are what give all traders an equal chance at making consistent money, a thorough understanding of risk to reward and how to view trade setups in terms of possible risk to possible reward, is the closest thing to the “holy grail” of trading, and is one of the most important pieces of the puzzle to consistently profitable trading, second only to having the proper amount of self-discipline and emotional control.
• Drawing risk / reward levels
The first thing that all traders should do upon spotting a price action setup, or any trade setup, is calculate the risk they will have to take on in order to give the setup a realistic chance at working out. Traders often make one or two mistakes when it comes to determining risk; they either define the reward first, which is a mistake born out of greed, or they put a stop loss on the setup that is much too close to the entry to give the trade a chance at working out.
When learning to think in probabilities and to view the market in terms of risk to reward, it is necessary to calculate the risk on a trade setup first, then you can calculate the reward as a multiple of the amount you have at risk. By concentrating on the risk first, instead of the reward, you are making yourself more aware of the risk involved on each trade setup, instead of becoming fixated on how big of a reward you might make, as many traders do. This will also turn you into a “risk manager”, rather than a “trader”, the best traders in the world know that consistent trading profits come as a result of managing risk effectively, so consider yourself a manager of risk from now on.
The next thing to do after you have identified a high-quality trade setup and marked the risk level on your chart, is to mark the reward levels as multiples of your risk. You want to draw a line at 1 times your risk, 2 times your risk, and 3 times your risk. These are the reward levels you will mainly concern yourself with, should you choose to employ a trailing stop you can use these 1, 2, and 3 times risk levels to begin the trailing process, see the section on “trailing stops” below for more.
Examples of how to draw risk / reward levels:
First, we identify a high-quality price action trading setup, in the chart below we are looking at the 1hr chart of the EURUSD from this week. A quality 1hr pin bar sell signal formed at a confluent intra-day resistance level and in the direction of the bearish momentum on the daily chart.
Next, we mark our risk level for this setup, in this case the risk is the distance from the low to the high of the pin bar, so we place a stop loss at 1.3656, one pip above the high, the entry is a break of the low, so 1.3611 is our entry level, one pip below the low. The total risk distance for this setup is 45 pips, we will figure 1$ per pip for the examples in this article, so our risk is $45, not 45 pips. Since you can trade various numbers of lots per pip, your actual risk is not calculated in pips, but in dollars, many traders make this mistake. Remember; always calculate your risk and reward in dollars, not in pips, only use pips to mark the risk and reward levels on your charts.
Now we can use this measure of 45 pips to mark our 1, 2, and 3 times risk multiples. Since our risk ® is $45, our 1R multiple is $45, or 2R multiple is $90, and our 3R multiple is $135. Since our stop loss distance is 45 pips, we subtract the 1, 2, and 3 multiples of 45 from our entry point of 1.3611; we then get the levels marked on the chart below. This setup obviously worked out quite nicely as all three risk multiples got hit, for a reward of 1 to 3. It is worth noting that trade setups on the smaller time frames are more likely to hit larger risk multiples since your stop loss will usually be tighter than it will be on a higher time frame. The trade is now set up, time to let the market get to work.
In the chart below we are looking the daily Silver market, we can see a quality pin bar fakey combo setup formed with the dominant bullish market momentum. We first marked our risk distance which was 1.13; we then multiply our risk (1.13) by 1, 2 and 3, to get our ® risk multiple levels. We can see them drawn in on the chart below and also that this setup easily brought traders a risk / reward of 1 to 3 before forming another very nice pin bar strategy that sent prices lower. This example also figured 1$ per pip, or per smallest incremental price movement on silver, this results in $113 risked.
• Trailing stops
If you decide that you want to try and let a particular trade setup run, you might want to employ a trailing stop strategy with the aid of risk / reward levels. The best way to do this is to mark your risk and reward levels just as described above, but instead of actually entering an order for your reward levels, you leave the trade open, meaning you don’t have a set exit at your pre-defined reward levels. Instead, once the market moves in your favor, you use your pre-defined reward levels to trail your stop loss to, thus leaving the trade open and giving yourself a shot at greater profits, while still locking in some profit and lessening risk.
A common technique to use when trailing stops to risk / reward levels is to trail the stop up to your entry level when the trade is up 1 times or 2 times your risk. You can also trail your stop 50% closer to your entry once you are up 1 times risk if you want to leave the trade more “breathing” room. Many traders will simply keep their stop 1R multiple away, meaning if you are up 1 to 2, you trail your stop up to lock on 1 times your risk, if the market than moves 1 to 3 you trail your stop up to lock in 2 times your risk. This is a solid trailing technique because you are securing profits while at the same time leaving the trade open for a possibility at it running further in your favor. This technique is best used in strong trends. Many traders make the mistake when trailing stops of not properly locking in profits, there is nothing worse than letting a winning trade come all the way back to your entry point because you didn’t lock in 1 or 2 times your risk.
The daily AUDUSD chart below shows an inside bar setup that occurred back in mid-September of this year when the AUDUSD was in the midst of an uptrend. In this example you could have moved your stop to break-even once you were up $108 or 1 times your risk, once you got up 2 times risk you could have locked in 1 times your risk or $108. It looks like the market hit 0.9600 or 3R and then pulled back into 2R, however it came about 1 pip shy of 3R on its first attempt, so you would not have moved your stop up until it cleared 3R a couple days later. At this point you would have 2R or $216 locked in, at this point you could either let the trade run past 3R or move your stop up to lock in 3R or $324. If you moved up to lock in 3R right away you would have got stopped out at 3R by the pin bar on September 5th, had you not locked in 3R you could have eventually made 4 or 5R.
• How risk / reward can make you a consistently profitable forex trader
Ideally, we want to look for trade setups with a risk / reward of at least 1 to 2, by getting a risk / reward of 1 to 2 on every trade setup, we can lose on well over 50% of our trades and STILL make money. This is why risk / reward is the “holy grail” of trading; if you execute it properly you can make consistent money over a period of time. However, many traders mess it up or limit its power by meddling in their trades once they are live, usually this means they take less than a 1 to 2 profit, and then enter another trade that is lower-probability, and maybe take a loss. Once you start this game of meddling with your trades and interfering with the power of risk reward scenarios, you really put limits on what you can achieve as a forex trader.
To play with the numbers a bit let’s discuss a scenario where you lose on 65% of your trades, but your risk to reward on every trade is 1 to 2. So, out of 100 trades you lose on 65 of them and win on 35 of them, let’s say you risk $100 per trade. This means you lost 65 x $100 = $6500, but since you made 2 times your risk on your winners you made 35 x $200 = $7000. So, after 100 trades you have a profit of $500, this is even after you lost on 65% of your trades! This is an example of the power of risk / reward setups, the trick is that it takes time to play out, most traders do not have the discipline to execute 100 trades flawlessly with a risk / reward of 1 to 2 and suffer through 65 losses and only 35 winners.
--- Nial Fuller
By Imran Hossain
যারা পার্ট 3 মিস করছেন তারা নিচের লিংকে পার্ট-3 পাবেন[/left]
Part 3 – How to Become a Pro Trader: Taking Off the ‘Training Wheels’
In Part 3 of this mini-series we discussed how to “take off the training wheels” of demo-trading and progress on to trading with a real-money account. If you missed Part 3 click here.
Here’s a quick review of the main points we covered last week:
Step 7: How to handle the emotions of trading with real money
Step 8: Successful Forex trading money management
We are going to wrap up this 4-part blog mini-series in today’s lesson by discussing how to “put it all together”. I am going to walk you guys through an example of how a professional trader operates in the market by taking you through a trade step by step. Hopefully, in today’s lesson you will understand how all the steps in this series work together to provide you with an effective trading approach. Now, let’s check out how a pro price action trader would progress through a trade:
Step 9: Finding a price action signal
If you’ve completed all the previous steps in this mini-series, you will be ready to take the next step which is to actually look for a price action signal to trade on your real-money account. This is where your Forex trading plan comes in; it will give you a checklist to guide you through the process of finding a valid price action signal. It is not a concrete rule-set, but rather a guide or an outline that you follow to make sure any potential setup that you find meets certain criteria. Here’s an example:
• What time frame am I looking at? The daily chart time frame is best.
• What market am I trading? Is it a major Forex pair or a more volatile exotic pair?
• What condition is the market in? Trending, consolidating?
• Where are the obvious key support / resistance levels in the market? Have I drawn them in?
• What are the 8 and 21 daily EMAs doing? Where is price in relation to them?
• Is there an obvious price action signal on the chart?
• If there is an obvious signal, does it have confluence?
• What confluence does it have? Trend, static support / resistance, dynamic support / resistance, 50% retrace level? Event area? The more the better…
• Is the signal showing rejection of a key market level?
• Is the signal showing a false-break of a key market level?
These are just some of the things you would want to look for as you analyze the market and try to find a high-probability price action setup; it’s not a ‘complete’ trading plan or checklist. A professional Forex trader will have gone through the process of making sure any potential trade setup meets his or her checklist so many times that it turns into a habit and gets ingrained into their mind. Trading success is all about developing and maintaining the proper trading habits.
Here’s an example chart of the Kiwi/Yen pair, we can see this was a pin bar trading strategy that formed at a key level in the market and with the dominant daily trend. This was a very obvious price action setup that any professional trader trading this market would have caught. Note that it provided a very nice profit as the trend took off after the pin bar broke out to the upside:
Step 10: Calculating the risk to reward ratio of the trade
After a professional Forex trader finds a valid signal to trade, the next thing they will do is concentrate on the risk. That’s right; the RISK is the first thing a pro trader concentrates on…not the reward, like most amateurs.
Depending on the particular setup you are trading and were the nearby key support or resistance levels are, a pro trader will place their stop loss at the most logical place that gives the trade room to breathe. Logical stop placement is a crucial difference between winning and losing Forex traders. Winning traders will take the time to focus on finding the “safest” place to put their stop, while beginners usually place too tight of a stop just because they want to trade a bigger position size…or they place no stop at all, which is just insane.
Professional Forex traders calculate their risk reward ratio in terms of dollars at risk. So, if you have 100 dollars at risk, 1R (1 times risk) for you is $100, 2R is $200, and so on. Most pro traders are not very concerned with percentages or pips, because at the end of the year all that matters is how much money you lost relative to how much money you won. That’s why I measure my risk and reward in dollars, not percentages or pips.
In the chart below, we see the same NZDUSD pin bar trade, but this time we are calculating the potential risk reward on the trade. This trade actually ended up moving about 5R higher, meaning it would have returned 5 times what you risked if you had your stop loss just below the low of the pin and you entered at the high; a very good risk reward ratio indeed.
Step 11: Managing the trade after it’s live
Managing trades after they are live is perhaps the part of trading that gives traders the most trouble. The reason why traders have difficulty managing their trades is primarily because they over-complicate the process. I am a strong believer in “set and forget Forex trading”, and indeed this is a core part of my overall trading philosophy. Meddling in your trades after they are live and second-guessing your trade setups are things amateur traders do. Professional traders only take trades they are 100% OK in risking their hard-earned money on, thus they don’t second-guess themselves usually, and they rarely meddle in their trades. If you have a Forex trading plan and actually follow it, there should be no reason to mess around with your trades a lot after they are live. I personally have found that just letting the market run its course is usually the most lucrative forex trade management technique out there.
In the NZDUSD pin bar trade below, we can see this market easily presented us with more than a 2 times risk reward. I personally almost always take a reward of two times my risk, as more often than not, the market is ready to retrace substantially after pushing in one direction long enough to net me 2 times my risk. However, in strong trending markets like in our example trade below, there is usually a good probability you can get a reward of more than 2 times your risk. Indeed, in the example below this NZDUSD trade provided a 5 times risk reward.
I get a lot of emails about exits and how to manage them. The simple truth is that I almost always set and forget my trades; it’s a rare occasion that I meddle in my trade by closing it out before it hits my stop or by moving my profit target further away. I like to either take the loss or take the profit. Over a longer period of time, this trade management technique will work out in your favor, because you are not acting emotionally. Most traders who meddle in their trades are trying to “control” the market or force their will upon it.
You are far better off just entering your high-probability price action setup and letting the market “do its thing”. You will get better at this and at taking profits from your Forex trades, but it’s not something that will magically happen overnight. It takes a solid understanding of price action and market dynamics as well as putting in the screen time to develop your discretionary price action trading skills. All of this adds up to obtaining a keen “sense” of how to read and trade the raw price action in the market, and this is an art and a skill which will reward you many times over.
Step 12: Controlling yourself after a trade
Finally, we come to the last step of this mini-series on becoming a professional trader, and it is perhaps the most important one:
I know that most of you have had some good trades and made some money in the markets. But, what did you do after your trade? The honest answer to that question is truly what defines a professional trader. Your mindset right after a trade is at its most fragile, because you are likely either feeling a bit euphoric over your winnings or angry and frustrated over your losses. Granted, you should not experience these emotions too intensely if you’ve manage your risk properly, but you will likely still feel them to some degree no matter what, after all, you are risking your hard-earned money.
Whether you win or lose on a trade, you are at the greatest risk to make an emotional trading decision immediately after a trade closes. While there is no miracle-formula for making sure you avoid these emotional trading errors, if you understand and accept the following points you will be far less likely to make them:
• If you have just lost on a trade, remember that jumping in the market again to try and “make back” what you lost is an emotional reason for trading, not a logical one. Do not enter another trade right away unless there is a valid price action trade setup that meets the criteria in your trading plan.
• If you have just won on a trade, remember that you are not some “perfect” trader who can do no wrong in the markets. Beginning traders tend to get over-confident after a winner or a string of winners, this can cause them to veer of course and “run and gun” rather than trading Forex like a sniper.
• Remember, your trading success is not defined by your last trade; rather it is defined by the result of a large series of your trades. To become emotional and react defensively to any one trade is to say that you think your success as a trader hinges on one trade, and it simply does not. You have to learn to take your losses as just a part of doing business in the Forex market.
• In regards to taking losses, it will be a lot easier to swallow the inevitable losses if you are only risking an amount per trade that you are truly OK with losing. When you start trading with money that you need for other life expenses, or risking too much per trade, you put yourself at a very great risk for wanting to enter a “revenge” trade after you lose.
• Perhaps the best way to control yourself after any one trade is to simply take some time away from trading. Rarely are you going to exit a trade and then get another high-probability opportunity immediately after that. It usually pays to separate yourself from your charts for at least 24 hours after you exit a trade, whether it was a winner or loser. This will give your emotions time to die down and cool off before you begin analyzing the charts gain.
Where to go from here…
Now that you’ve finished this mini-series on becoming a professional trader, you should have learned a lot and have a deeper understanding of what pro trading is all about. I am not implying that you will be a professional trader just because you read this blog series. You need to understand that becoming a pro trader is the result of months and likely years of disciplined trading and making small steps toward your ultimate goal of professional Forex trading.
The first thing you should aim to do now is to follow all the insight in this series and aim for making small yet consistent gains each month on your trading account. If you are making money each month while managing your risk effectively on every trade and trading like a sniper…YOU ARE A SUCCESSFUL TRADER. You don’t need to be a professional / full-time trader right out of the gate to be a winner. Rather, this should be a longer-term goal that will sort of just “happen” if you trade consistently and remain disciplined over a long enough period of time.
------------ Nial Fuller
By Imran Hossain
যারা পার্ট 2 মিস করছেন তারা নিচের লিংকে পার্ট-2 পাবেন
class="ipsType_pagetitle"> Part 2 – How to Become a Pro FX Trader: Testing Your Trading Skills
<h2> Taking Off the ‘Training Wheels’</h2>
In this week’s lesson we are going to pick up where we left off last week by getting you mentally prepared to “take off the training wheels” of demo trading. Trading with real money is significantly more intense than demo trading, thus it requires that you are aware of and accept the reality of real-money trading before you take the plunge. Most beginning traders simply dive in to the markets head first, risking their hard-earned money with no real plan in place. Hoping that you will somehow “figure it out” on the fly is not a plan; it’s what gambling traders do. Thinking that you will somehow parlay your trading account money into a small fortune within a short amount of time without any plan or strategy in place puts you on a fast-track to failure as a trader.
The truth is that reaching a point where you can honestly trade for a living without having any other job is a result of not trying to get rich quick, and of accepting the reality of what it takes to become a consistently profitable trader and doing those things consistently.
<h2> Step 7: Making the jump to live trading – Preparing yourself for the emotions</h2>
When you are demo trading the markets you naturally have no emotional problems to battle with, because you have no real money on the line. Thus, many traders do exceptionally well when demo trading only to find that their fake-money success goes out the window when they switch to real-money trading. That’s because there are drastic psychological differences between demo trading and live trading that you need to come to grips with prior to switching to a live account. Here are some points to consider before you begin risking your hard-earned money in the markets:
• How to trade like you did on demo – As I mentioned previously, traders usually do better on demo than they do on live accounts as a result of the fact that there is naturally no emotion in the mix when you aren’t risking real money. While it is certainly easier said than done, what you need to do on your live account is forget about the real money you are risking, here’s how you do this…
• ONLY trade money you are OK with losing – In order to not get emotional while trading with real money you need to never trade with money that you need for anything else in your life, as well as never risk more than you are truly OK with losing. If you can manage to consistently do these two things, you will experience little to no emotion on any one trade. Most traders end up trading with money they really shouldn’t be trading with, or they risk more than they are OK with losing per trade, thus they become emotional.
• Understand you CAN lose on ANY trade – You are much more likely to have a calm and objective trading mindset if you always remember that you can lose on ANY trade you take. Even if you see what you think is a “perfect” price action strategy in a very strong trending market, it can still fail. The truth is that you can never know for sure what is going to happen on any given day in the market, so if you truly accept that and believe it, there is no reason to ever risk more than you are comfortable with losing.
• Don’t get caught-up over-analyzing the markets – If you want to become a professional Forex trader you are going to have to learn how to accurately read and trade off of the daily charts first. Most traders end up taking the opposite approach; they start by trying to trade off of lower time frames like 5 minute or 15 minute charts, and then after they lose enough money they eventually figure out the daily chart is a lot more conducive to trading from a relaxed and objective mindset.
• Not every trading opportunity is created equal – Understand that you shouldn’t stray from your trading edge once you start trading live. You probably traded your edge very consistently on demo, because you didn’t feel any “urge” to make money, try to recapture that same feeling when trading live and forget about the money. Over-trading is a result of feeling “pressure” and greed to trade. The more you feel these emotions the more likely you are to trade when you shouldn’t and thus lose money.
Ultimately, there is a fundamental difference in how amateur traders think vs. how professional traders think. The difference lies mainly in the amateur’s “need” to make money from their trading as well as their inability to trade emotionally undetached from any one trade. Essentially, professional traders do not become emotional from any one trade because they know their success is defined over a large sample of trades, not by one or two. Professional traders also know that the key to keeping the emotional trading demons at bay is to consistently control their risk in the market. Your trading psychology is what dictates how you interact with the market, and this psychology is almost entirely a result of how well you manage your money as you trade.<h2> Step 8: Managing risk effectively – The KEY to successful Forex trading</h2>
As I just mentioned, risk management is the “key” to managing your emotions correctly; and thus it is also the key to becoming a successful trader and eventually a professional trader. If you practice proper risk management on every trade, it will make managing your emotions and maintaining the proper trading psychology a very simple task.
However, most traders do not manage their risk effectively, and as a result they experience huge emotional swings in their trading, as we all as in their equity curves. To avoid the account-destroying emotional trading mistakes that most traders make, there are some specific forex money management guidelines that you can follow:
• Trade with only disposable income – I mentioned this in the previous section, but it’s worth mentioning again because it really is your first line of defense against becoming an emotional trader. If most traders would only take the time to honestly decide how much truly disposable income they have to trade with and ONLY trade with THAT money, there would be a lot more successful traders in the world.
• Understand risk / reward and position sizing – It really is amazing how many traders start risking their hard-earned money in the markets without a thorough understanding of risk reward and position sizing. If you take the time to understand the math behind the power of risk to reward ratios, it will allow you to see that you can actually lose on the majority of your trades and still make money, to learn how this is possible see this article: Case Study – Random Entry & Risk Reward in Forex Trading
Position sizing is equally important, yet many traders seem to have no idea that they can still trade a their ideal risk amount even if they need to place a large stop loss on a trade. I get questions about this everyday; “Nial how can I trade the daily charts with a small account, am I not better off trading the smaller time frames?” The answer is you simply need to reduce your position size down to meet the larger stop requirement of daily chart time frames compared to smaller time frames. There are no advantages to trading 5 minute charts on a small trading account or on any account really.
• Know what your risk-per-trade tolerance is and STICK TO IT – Professional traders know before they enter a trade how much they are going to risk on it and how much they are emotionally OK with risking on it. If you are staying up all night watching your trades, you are risking too much. You should risk an amount that truly allows you to set and forget about each trade you take, because being preoccupied with every trade you take all the time is a sure sign you are risking too much.
• Avoid taking on more risk from adding positions – Some traders like to trade multiple markets at the same time, and they will actually double or triple their normal risk while doing so. This is basically trading account suicide. First off, if you are a shorter-term swing trader like me, you are only in the markets for 1 to 3 days on average, sometimes a bit longer depending on the trade. But, there’s really no reason to be in 5 different trades at the same time unless it’s part of a long-term diversified investment strategy. If you do see a good reason to trade multiple Forex pairs at the same time, make sure you divide up your risk amongst them so that your pre-defined risk tolerance is always maintained.
• Measure risk and reward in dollars, not pips or percentages – If you are still calculating your risk and reward by percentages or pips, you need to stop. Think about it for a minute; if you risk 100 pips on a trade that doesn’t really mean anything because you can trade many different position sizes for that amount of pips. One trader might have $10 at risk on 100 pips and another trader might have $1,000 at risk on 100 pips. Thus, through position sizing, a trader can risk different dollar amounts than another for the same stop distance. So, the point is that you calculate your risk and your reward in terms of “R”, R is the dollar amount you risk per trade. Check out this article later on how to measure your trades in dollars not pips or percentages to learn more.
Finally, as you progress from the early stages of learning your trading strategy, building a trading plan, and demo trading, you will move to the “big leagues” of real money trading. I hope that the points discussed in today’s lesson provided you with some insight to get you ready. In the end, no amount of advice or insight can substitute for real trading experience, but it can help you to accept the realities of trading and let you know what to expect.
we discuss trade management and exit strategies. These are probably the two most difficult aspects of trading, so make sure you tune in next week for some solid training on these two very important aspects of becoming a professional Forex trader. If you want more help with making the transition from demo trading to live trading, check out my members’ trading forum. There you will find a genuine group of price action traders all helping each other and discussing potential setups in real-time market conditions, for more information check out my Price Action Trading Course page here. If you have any questions or feedback you can contact me here.