RULE NO. 5: Leverage 100:1
‘Leverage’: As I mentioned earlier Forex trading is often attractive to investors because Forex trading offers such high leverage. However, with increased buying power comes increased risk. The risk becomes higher as your leverage increases. This system is designed for a leverage of 100:1. Where your leverage is higher, you can balance it by reducing the number of your open trades or adjusting your stop loss to reduce your maximum exposure to the market to disaster level of 10%. Remember, you are not here to gamble your hard-earned money away but to grow your wealth over time. The table below provides the effect of the system on leverages of 100-500
Account Size $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Open Trades Loss in pips 1 2 3 4 5 Account Balance
1OO:1 200 $20.00 $40.00 $60.00 $80.00 $100.00 $900.00
2OO:1 200 $40.00 $80.00 $120.00 $160.00 $200.00 $800.00
3OO:1 200 $60.00 $120.00 $240.00 $240.00 $300.00 $700.00
4OO:I 200 $80.00 $160.00 $240.00 $320.00 $400.00 $600.00
50O:1 200 $100.00 $200.00 $300.00 $400.00 $500.00 $500.00
If you follow all my postings right from the introduction to the ground rules, you will never fall as a trader. What you need to avoid are those items which constitute the graveyard of most trader.
Now that we have dealt with the ground rules, in my future postings we shall discuss the practical aspects of the trading system which covers the followings:
a) When to trade.
b) What to trade.
c) How to trade.
d) How to be a mechanical trader
e) How to remove stress and worries from your trade
f) How to trade and enjoy your life at the same time.
g) How not to be a slave to the trading platform
h) How to come out successful 99% of the time.
i) How to ensure positive returns months after months.
Tuesday, December 29, 2009
RULE NO. 4: Five (5) maximum open trades at any point in time
‘Stop Loss’: With five maximum open trades at any point in time and your stop loss set at 200 pips, where the almost impossible happens and the market run against your five stop losses got hit, you maximum loss will only be 1000. For illustrative purpose, let us look at effect of 1000 pips loss on our hypothetical 3 traders on the table below. It is obvious that Trade1 can will never survive such a loss even with one open trade, while Trade2 can will not survive where he has up to 3 trades open, but Trader3 loss is only a mere $100 or 20% of his accounts.
You may want to ask if it is possible for market to move at such a rate. It is quite possible. GBPJPY recent fall 152.69 to 139.47 i.e. a fall of over 1,200 pips within a week, the last leg of the fall 400 pips occurred within 4 hours. Also EURUSD fail from its height of 1.5171 to 1.4191 i.e. a fall of over 1000 pips.
The Holy Grail Trader will survive any loss and have the fund to ride the market back on its way up or down and into profitability. How many traders can survive a loss of 1000 pips?
‘Stop Loss’: With five maximum open trades at any point in time and your stop loss set at 200 pips, where the almost impossible happens and the market run against your five stop losses got hit, you maximum loss will only be 1000. For illustrative purpose, let us look at effect of 1000 pips loss on our hypothetical 3 traders on the table below. It is obvious that Trade1 can will never survive such a loss even with one open trade, while Trade2 can will not survive where he has up to 3 trades open, but Trader3 loss is only a mere $100 or 20% of his accounts.
You may want to ask if it is possible for market to move at such a rate. It is quite possible. GBPJPY recent fall 152.69 to 139.47 i.e. a fall of over 1,200 pips within a week, the last leg of the fall 400 pips occurred within 4 hours. Also EURUSD fail from its height of 1.5171 to 1.4191 i.e. a fall of over 1000 pips.
The Holy Grail Trader will survive any loss and have the fund to ride the market back on its way up or down and into profitability. How many traders can survive a loss of 1000 pips?
RULE NO. 3: Set you stop loss at 200 pips or no stop loss at all (manually close your trade if your stop loss is approaching 200 pips
‘Stop Loss’: Every new trader is told to use Stop Loss (SL) and Take Profit to manage his risk and increase profitability. The typical advise is ratio of 2:1 (TP 20:SL10; TP40:SL20; TP80;SL 40; etc). Since forex trading starts the position of a loss (i.e. traders’ spreads), the spreads range from 3-9 or even more, most traders setting their stop loss at 10, 20 or even 30 get hit easily. The rules works together, once there is a clear trend, you use the recommended lot size for your account size, Rule No. 3 pips is to insulate your trade against any unusual, unexpected, temporary development. I can assure you that your stop loss will get hit less than 10 out of a 200 trades.
For illustrative purpose, let us look at the chart below using the same example of our hypothetical 3 traders, where they bought at Buy1, Buy2 or Buy3. With their 20-30 SL they got stopped out of the trade, while Trader3 SL was still intact and thus able to ride out the trade to profit.
‘Stop Loss’: Every new trader is told to use Stop Loss (SL) and Take Profit to manage his risk and increase profitability. The typical advise is ratio of 2:1 (TP 20:SL10; TP40:SL20; TP80;SL 40; etc). Since forex trading starts the position of a loss (i.e. traders’ spreads), the spreads range from 3-9 or even more, most traders setting their stop loss at 10, 20 or even 30 get hit easily. The rules works together, once there is a clear trend, you use the recommended lot size for your account size, Rule No. 3 pips is to insulate your trade against any unusual, unexpected, temporary development. I can assure you that your stop loss will get hit less than 10 out of a 200 trades.
For illustrative purpose, let us look at the chart below using the same example of our hypothetical 3 traders, where they bought at Buy1, Buy2 or Buy3. With their 20-30 SL they got stopped out of the trade, while Trader3 SL was still intact and thus able to ride out the trade to profit.
RULE NO. 3: Set you stop loss at 200 pips or no stop loss at all (manually close your trade if your stop loss is approaching 200 pips
‘Stop Loss’: Every new trader is told to use Stop Loss (SL) and Take Profit to manage his risk and increase profitability. The typical advise is ratio of 2:1 (TP 20:SL10; TP40:SL20; TP80;SL 40; etc). Since forex trading starts the position of a loss (i.e. traders’ spreads), the spreads range from 3-9 or even more, most traders setting their stop loss at 10, 20 or even 30 get hit easily. The rules works together, once there is a clear trend, you use the recommended lot size for your account size, Rule No. 3 pips is to insulate your trade against any unusual, unexpected, temporary development. I can assure you that your stop loss will get hit less than 10 out of a 200 trades.
For illustrative purpose, let us look at the chart below using the same example of our hypothetical 3 traders, where they bought at Buy1, Buy2 or Buy3. With their 20-30 SL they got stopped out of the trade, while Trader3 SL was still intact and thus able to ride out the trade to profit.
‘Stop Loss’: Every new trader is told to use Stop Loss (SL) and Take Profit to manage his risk and increase profitability. The typical advise is ratio of 2:1 (TP 20:SL10; TP40:SL20; TP80;SL 40; etc). Since forex trading starts the position of a loss (i.e. traders’ spreads), the spreads range from 3-9 or even more, most traders setting their stop loss at 10, 20 or even 30 get hit easily. The rules works together, once there is a clear trend, you use the recommended lot size for your account size, Rule No. 3 pips is to insulate your trade against any unusual, unexpected, temporary development. I can assure you that your stop loss will get hit less than 10 out of a 200 trades.
For illustrative purpose, let us look at the chart below using the same example of our hypothetical 3 traders, where they bought at Buy1, Buy2 or Buy3. With their 20-30 SL they got stopped out of the trade, while Trader3 SL was still intact and thus able to ride out the trade to profit.
Monday, December 28, 2009
RULE NO. 2: Trade only 0.01% of your account at any point in time (e.g. 0.01 lots for $1,000 account, 0.02 lots on $2,000 etc)
‘Lot size’ is another is another determinant of whether you will be a successful trader or not. Forex trading is often attractive to investors because Forex trading offers such high leverage. Without high leverage most retail investors would not be able to afford trading in the Forex market. However, with increased buying power comes increased risk. A quick market move can then result in substantial losses. Rule No. 2 allows managing your risk effectively and reducing it almost to an insignificant level. In forex you start you trading from the position of a loss (i.e. traders’ spreads) and there is no guaranty that you will turn your loss into gain.
Now, let us look at the effect of unpredictable market movements on 3 traders. Trader1 (experienced, knowledgeable but a high risk Trader), Trader 2 (experienced, knowledgeable but conservative trader), Trader 3 (Experience, inexperience but understands market trend). Multiply the situation below by 2, 3, or even 10 and you will realize by the time Trader1 and Trader2 are blown out of the market, Trader3 (you can call him the Immortal Trader or Holy Grail Trade) is just scratching the surface of his account.
‘Lot size’ is another is another determinant of whether you will be a successful trader or not. Forex trading is often attractive to investors because Forex trading offers such high leverage. Without high leverage most retail investors would not be able to afford trading in the Forex market. However, with increased buying power comes increased risk. A quick market move can then result in substantial losses. Rule No. 2 allows managing your risk effectively and reducing it almost to an insignificant level. In forex you start you trading from the position of a loss (i.e. traders’ spreads) and there is no guaranty that you will turn your loss into gain.
Now, let us look at the effect of unpredictable market movements on 3 traders. Trader1 (experienced, knowledgeable but a high risk Trader), Trader 2 (experienced, knowledgeable but conservative trader), Trader 3 (Experience, inexperience but understands market trend). Multiply the situation below by 2, 3, or even 10 and you will realize by the time Trader1 and Trader2 are blown out of the market, Trader3 (you can call him the Immortal Trader or Holy Grail Trade) is just scratching the surface of his account.
As promised in the last post, I will explain the five ground rules for this trading system beginning with Rule No. 1.
RULE NO. 1: Confirm the overall trend of the market before you place a trade (1H or 4H Candles)
‘Trend’ is the most critical factor that can make or mar your life as a trader. What drives the market is the herd mentality, momentum or the fact that majority of the traders are going in one direction. The question is how far will they go before the momentum changes? To be successful you must learn to follow the general direction and make sure you disembark before a change of direction. To clearly understand the direction of the market, H1, H4 and daily charts are your guides. To illustrate this statement look at the EURUSD H1, H4 charts below. You can clear see direction of market from the charts. The simple message is if the trend is up go long of buy and if the trend is down, go short or sell. Forget about the indicators on the charts for now, they are not of any great importance for this trading system. I inserted them in my early days in forex trading, but rarely use them now as the direction of the market is obvious enough to the eye without any aid. They could however serve as a guide or confirmation of the trend.
Attached Thumbnails
RULE NO. 1: Confirm the overall trend of the market before you place a trade (1H or 4H Candles)
‘Trend’ is the most critical factor that can make or mar your life as a trader. What drives the market is the herd mentality, momentum or the fact that majority of the traders are going in one direction. The question is how far will they go before the momentum changes? To be successful you must learn to follow the general direction and make sure you disembark before a change of direction. To clearly understand the direction of the market, H1, H4 and daily charts are your guides. To illustrate this statement look at the EURUSD H1, H4 charts below. You can clear see direction of market from the charts. The simple message is if the trend is up go long of buy and if the trend is down, go short or sell. Forget about the indicators on the charts for now, they are not of any great importance for this trading system. I inserted them in my early days in forex trading, but rarely use them now as the direction of the market is obvious enough to the eye without any aid. They could however serve as a guide or confirmation of the trend.
Attached Thumbnails
I will now discuss the ground rule for this perfect trading system
1) Confirm the overall trend of the market before you place a trade (1H or 4H Candles)
2) Trade only 0.01% of your account at any point in time (e.g. 0.01 lots for $1,000 account, 0.02 lots on $2,000 etc)
3) Set you stop loss at 200 pips or no stop loss at all (manually close your trade if your stop loss is approaching 200 pips
4) Max open trades - 5 at any point in time
5) Leverage 100:1
I will explain the ground rules in my next posting.
1) Confirm the overall trend of the market before you place a trade (1H or 4H Candles)
2) Trade only 0.01% of your account at any point in time (e.g. 0.01 lots for $1,000 account, 0.02 lots on $2,000 etc)
3) Set you stop loss at 200 pips or no stop loss at all (manually close your trade if your stop loss is approaching 200 pips
4) Max open trades - 5 at any point in time
5) Leverage 100:1
I will explain the ground rules in my next posting.
Friday, December 18, 2009
HOW TO BECOME A SUCCESSFUL TRADER
Having discussed why most traders failed, I will now discuss how you can avoid being part of the infamous 95% failed traders. statistics of
From personal experience and studying the experience of others, I have come to realize that what is required to be successful traders are quite simple rules captured in the statement “Acquire as much knowledge as you can about forex trading, have a detailed plan in place on how to achieve your desired objective and imbibe the self-discipline to abide by your strategy. I will now attempt to address the pre-requisite for successful trading:
1) Acquire adequate knowledge about the forex market: It is essential to acquire enough knowledge on how the forex market operates. You should have understanding of the basic components of the market such as:
a. What is forex?
b. The global nature of forex market
c. The role of the brokers in having access to the market
d. Forex Market Hours and their impact on your trading
e. "Bid" vs. "Ask"
f. Things that influences Price
g. Profit Potential in Both Rising and Falling Markets
h. Currency pairs – the majors and the minors
i. The impact of margin on your trading in terms of profit and losses
j. Contract size and margin call
k. Percentage in Points (Pips)
l. Fundamental and Technical analysis
m. Demo trading
2) Do not see forex trading as an avenue to get-rich quickly: Forex trading is not a get rich scheme. You should aim at realistic returns on your investments, and you will increase your returns over time as you acquire knowledge, experience and expertise.
3) Adequate capitalisation: Forex is a business and should be treated as such. To have a chance of survival you need a minimum of $1,000 and your target should be to increase it over time to between $10,000 - $20,000 before you can begin to expect appreciable returns on your investment
4) Trading Strategy and Plan: You should have a trading plan/strategy in place to guide your trading. Put differently, plan your trade to the last detail before you enter any trade. Such plan should include, entry point, expected profit and exit point and retreat strategy (stop loss) if things go against you. Stick to this plan because it is your only chance of survival in this high risk endeavour.
5) No trade is compulsory Do not enter a trade simply because you want to trade or the opportunity is too tempting to loose. No trade opportunity is compulsory as there are many more trade opportunities by the corner.
6) Be very sure of the direction of the market before you enter a trade: Never trade in anticipation of the direction of the market. Let the market shows you its direction and follow the trend. Trading against the trend should be avoided at all cost because it has led to the downfall of many. For example in case of moving averages, look for sharp angles and an obvious degree of separation between the two lines to determine upward and downward trend. Once this separation is obvious and a few candles have opened higher than the previous (lower than the previous in the case of a downwards trend) the market has shown its true colors. A candle is not a candle until it is fully formed. You need two or three candles to confirm the direction of the market.
7) Your main objective should be fund preservation: Your first priority should be fund preservation. You are not in trading to throw away your hard-earned money foolishly. It is better not to make any profit in your account in a whole month than lose all trying to chase unrealizable profit. The key to preserving your fund is money management. Do not expose more that 1% of your account per each trade and your total exposure at any point time should not be more than 10% of your account. In case of major disaster, you will still have between 99% and 90% of your capital to fall back on.
8) Set realistic target of profit for yourself and take whatever the market gives you: Set realistic target of profit for yourself and stop trading if you achieve your target. If you are able to achieve a return of between 2-5% on a monthly basis, you would have outperformed most blue chips investment outfits in the world. As a new trader, fund preservation should be your number first priority and profit distance second. Once you acquire experience, making profit will come naturally.
9) Cut your losses and live to fight another day: Trading without stop losses is a perfect recipe for disaster. Set your stop loss target before your enter any trade. This will put in control of your loss. Allowing the market to control your loss is a sure way to quick annihilation, because the market could be ruthless.
10) Trade higher time frames: As a new trader, avoid short time frames and only trade higher time frames to guarantee your success. Trade only 1 hour, 4 hour and daily time frames only as a beginner, anything lower would end up in disappointment and heartache.
11) Be a mechanical trader As a new trader, you are psychologically equipped to handle live trading on your. Make your trading as mechanical as possible. What this means is that you do your analysis, know the direct of the market, set up your trade with stop loss, take profit target ensuring this are within your money management zone and leave the market to do the rest. Leave the trade, close your laptop or computer if you can and go out and do other things. Check back later and if your analysis is right, your profit will be waiting in your account. Where you are wrong your loss will be very insignificant. ‘Baby-sitting’ your trade will definitely shorten your life-span. Live trading is high pressure game and is not meant for the inexperience and faint-hearted.
12) The first 3-6 months is crucial to your trading life: The first three to six months is crucial to your trading. If you are able to make profit consistently no matter how small over the first 3-6 months of your trading life, you will be on auto-pilot if you stick to the same strategy, improve on its flaw and maintain the same discipline.
I believe we have enough discuss enough theory for now. Beginning from my next post, we shall begin to discuss practical trading that will guarantee you success.
From personal experience and studying the experience of others, I have come to realize that what is required to be successful traders are quite simple rules captured in the statement “Acquire as much knowledge as you can about forex trading, have a detailed plan in place on how to achieve your desired objective and imbibe the self-discipline to abide by your strategy. I will now attempt to address the pre-requisite for successful trading:
1) Acquire adequate knowledge about the forex market: It is essential to acquire enough knowledge on how the forex market operates. You should have understanding of the basic components of the market such as:
a. What is forex?
b. The global nature of forex market
c. The role of the brokers in having access to the market
d. Forex Market Hours and their impact on your trading
e. "Bid" vs. "Ask"
f. Things that influences Price
g. Profit Potential in Both Rising and Falling Markets
h. Currency pairs – the majors and the minors
i. The impact of margin on your trading in terms of profit and losses
j. Contract size and margin call
k. Percentage in Points (Pips)
l. Fundamental and Technical analysis
m. Demo trading
2) Do not see forex trading as an avenue to get-rich quickly: Forex trading is not a get rich scheme. You should aim at realistic returns on your investments, and you will increase your returns over time as you acquire knowledge, experience and expertise.
3) Adequate capitalisation: Forex is a business and should be treated as such. To have a chance of survival you need a minimum of $1,000 and your target should be to increase it over time to between $10,000 - $20,000 before you can begin to expect appreciable returns on your investment
4) Trading Strategy and Plan: You should have a trading plan/strategy in place to guide your trading. Put differently, plan your trade to the last detail before you enter any trade. Such plan should include, entry point, expected profit and exit point and retreat strategy (stop loss) if things go against you. Stick to this plan because it is your only chance of survival in this high risk endeavour.
5) No trade is compulsory Do not enter a trade simply because you want to trade or the opportunity is too tempting to loose. No trade opportunity is compulsory as there are many more trade opportunities by the corner.
6) Be very sure of the direction of the market before you enter a trade: Never trade in anticipation of the direction of the market. Let the market shows you its direction and follow the trend. Trading against the trend should be avoided at all cost because it has led to the downfall of many. For example in case of moving averages, look for sharp angles and an obvious degree of separation between the two lines to determine upward and downward trend. Once this separation is obvious and a few candles have opened higher than the previous (lower than the previous in the case of a downwards trend) the market has shown its true colors. A candle is not a candle until it is fully formed. You need two or three candles to confirm the direction of the market.
7) Your main objective should be fund preservation: Your first priority should be fund preservation. You are not in trading to throw away your hard-earned money foolishly. It is better not to make any profit in your account in a whole month than lose all trying to chase unrealizable profit. The key to preserving your fund is money management. Do not expose more that 1% of your account per each trade and your total exposure at any point time should not be more than 10% of your account. In case of major disaster, you will still have between 99% and 90% of your capital to fall back on.
8) Set realistic target of profit for yourself and take whatever the market gives you: Set realistic target of profit for yourself and stop trading if you achieve your target. If you are able to achieve a return of between 2-5% on a monthly basis, you would have outperformed most blue chips investment outfits in the world. As a new trader, fund preservation should be your number first priority and profit distance second. Once you acquire experience, making profit will come naturally.
9) Cut your losses and live to fight another day: Trading without stop losses is a perfect recipe for disaster. Set your stop loss target before your enter any trade. This will put in control of your loss. Allowing the market to control your loss is a sure way to quick annihilation, because the market could be ruthless.
10) Trade higher time frames: As a new trader, avoid short time frames and only trade higher time frames to guarantee your success. Trade only 1 hour, 4 hour and daily time frames only as a beginner, anything lower would end up in disappointment and heartache.
11) Be a mechanical trader As a new trader, you are psychologically equipped to handle live trading on your. Make your trading as mechanical as possible. What this means is that you do your analysis, know the direct of the market, set up your trade with stop loss, take profit target ensuring this are within your money management zone and leave the market to do the rest. Leave the trade, close your laptop or computer if you can and go out and do other things. Check back later and if your analysis is right, your profit will be waiting in your account. Where you are wrong your loss will be very insignificant. ‘Baby-sitting’ your trade will definitely shorten your life-span. Live trading is high pressure game and is not meant for the inexperience and faint-hearted.
12) The first 3-6 months is crucial to your trading life: The first three to six months is crucial to your trading. If you are able to make profit consistently no matter how small over the first 3-6 months of your trading life, you will be on auto-pilot if you stick to the same strategy, improve on its flaw and maintain the same discipline.
I believe we have enough discuss enough theory for now. Beginning from my next post, we shall begin to discuss practical trading that will guarantee you success.
WHY MOST TRADERS ARE NOT SUCCESSFUL
In my last posting, I promised to provide answers to some questions. To do this, I will first make an attempt to provide an insight into the reasons why most traders, failed with live accounts. These reasons are:
a) Lack of knowledge or understanding of the forex market: Majority of new traders jumped into forex trading without adequate knowledge of how the market works. And it well-known fact that people perish for lack of knowledge. Such traders jumped into forex trading without being equipped with adequate knowledge on how the market works and ended up being swallowed within an instant. If you don’t have enough knowledge on how the market work, never open a live account or only open micro accounts with less that 1o% of the amount you wish to trade with.
b) Most new traders think forex market in an avenue to get-rich quickly:Most new traders including this author are attracted to forex because of the misinformation that forex trading is an avenue to make quick money and the ultimate solutions to your financial worries. In fact, I was actually attracted to forex by the information that I can make between 10-30% of my account within 24 hours. How wrong I was! I started trading with the mindset to double my accounts every month. To achieve my target, I overtraded by opening many positions at the same time and whenever the market is in my favour, the reward is usually mind boggling. However, whenever the market turn against me, the consequence are usually disastrous. Most times, after increasing my account by 60% over two weeks or three weeks period, I often ended up blowing such accounts within two to three hours when the tide turned against me. The lesson is you should aim at realistic returns on your investments and increase your returns over time as you acquire knowledge, experience and expertise.
c) Under-capitalisation: Most new traders started trader with gross under-capitalisation and ended up being annihilated within seconds. Most people starting with ridiculous low amount of between $100-$500 and expect to turn it into millions within months. How ridiculous! In a market where $1.5 trillion dollars are traded on a daily basis, majority of the traders are small flies capable of being crushed in milliseconds. Forex is business and should be treated as such. My advice is if you don’t have enough capital to start trading, don’t ever dream of opening a live account. The fact that you don’t have capital should not discourage you. For a start you can build your trading capital over time while acquiring skills through demo trading. If you have less than $1,000, don’t ever dream of trading live.
d) Lack of trading plan: Most new traders enter trade without adequate trading plan or no plan at all. Such trading is akin to crossing a twenty-lane highway with your eyes close. For such a pedestrian, death is a sure certainty. Plan your trade to the last detail before your entry. Your plan should include, entry point, expected profit and exit point and retreat strategy (stop loss) if things go against you. Stick to this plan because it is your only chance of survival in this high risk endeavour.
e) It is not compulsory that you must enter any trade:Most new traders never want to miss any opportunity. No trade opportunity is compulsory as there are many more trade opportunities by the corner.
f) Be very sure of the direction of the market before you enter a trade: Most inexperienced traders believe that they can predict or anticipate the direction of the market end enter a trade with such erroneous belief. This is usually not the case. Most of them are often fooled by what sideways movements. For moving averages, look for sharp angles and an obvious degree of separation between the two lines to determine upward and downward trend. Once this separation is obvious and a few candles have opened higher than the previous (lower than the previous in the case of a downwards trend) the market has shown its true colors. At this point, you should be looking to pull the trigger.
g) Profit should never be your main motive principle: Most new and inexperienced traders go into trading thinking that they could begin to make profit instantly. The fact of the matter is that most businesses do not begin to make profit until their fifth anniversary. Furthermore, most financial investments would be rated 1st class if they are able to return between 10-20% annually. In spite of these obvious facts, most traders think they can achieve a return of between 30-100% on a monthly basis. In other to achieve their unrealistic target they gamble away money and ended up being losers. The forex graveyard is full of greedy traders. Please don’t be part of the casuality. Your profit target should be realistic. If you are able to achieve a return of between 2-5% on a monthly basis, you would have outperformed most blue chips investment outfits in the world. As a new trader, fund preservation should be your number first priority and profit distance second. Once you acquire experience, making profit will come naturally.
h) Cut your losses and live to fight another day: Most new traders hate losing money by closing loosing trades. They often leave such with the expectation that the market will turn around in their favour. The resultant effect is that 40 pips ended ground to 100, 200, 200 and perhaps 1000 pips. The main message is cut your losses and live to fight another day!
i) Psychological deficiencies: Majority of new traders are psychologically deficient to handle trading live trading. Their trading is guided by inadequate knowledge, greed, desires to get rich quickly amongst others which are perfect recipes for disaster. As a new trader, make your trading as mechanical as possible because you definitely lack the psychological control to handle live trading. Live trading is high pressure game and is not meant for the inexperience and faint-hearted.
In my next post I will address how to be a successful trade. Happy reading!
a) Lack of knowledge or understanding of the forex market: Majority of new traders jumped into forex trading without adequate knowledge of how the market works. And it well-known fact that people perish for lack of knowledge. Such traders jumped into forex trading without being equipped with adequate knowledge on how the market works and ended up being swallowed within an instant. If you don’t have enough knowledge on how the market work, never open a live account or only open micro accounts with less that 1o% of the amount you wish to trade with.
b) Most new traders think forex market in an avenue to get-rich quickly:Most new traders including this author are attracted to forex because of the misinformation that forex trading is an avenue to make quick money and the ultimate solutions to your financial worries. In fact, I was actually attracted to forex by the information that I can make between 10-30% of my account within 24 hours. How wrong I was! I started trading with the mindset to double my accounts every month. To achieve my target, I overtraded by opening many positions at the same time and whenever the market is in my favour, the reward is usually mind boggling. However, whenever the market turn against me, the consequence are usually disastrous. Most times, after increasing my account by 60% over two weeks or three weeks period, I often ended up blowing such accounts within two to three hours when the tide turned against me. The lesson is you should aim at realistic returns on your investments and increase your returns over time as you acquire knowledge, experience and expertise.
c) Under-capitalisation: Most new traders started trader with gross under-capitalisation and ended up being annihilated within seconds. Most people starting with ridiculous low amount of between $100-$500 and expect to turn it into millions within months. How ridiculous! In a market where $1.5 trillion dollars are traded on a daily basis, majority of the traders are small flies capable of being crushed in milliseconds. Forex is business and should be treated as such. My advice is if you don’t have enough capital to start trading, don’t ever dream of opening a live account. The fact that you don’t have capital should not discourage you. For a start you can build your trading capital over time while acquiring skills through demo trading. If you have less than $1,000, don’t ever dream of trading live.
d) Lack of trading plan: Most new traders enter trade without adequate trading plan or no plan at all. Such trading is akin to crossing a twenty-lane highway with your eyes close. For such a pedestrian, death is a sure certainty. Plan your trade to the last detail before your entry. Your plan should include, entry point, expected profit and exit point and retreat strategy (stop loss) if things go against you. Stick to this plan because it is your only chance of survival in this high risk endeavour.
e) It is not compulsory that you must enter any trade:Most new traders never want to miss any opportunity. No trade opportunity is compulsory as there are many more trade opportunities by the corner.
f) Be very sure of the direction of the market before you enter a trade: Most inexperienced traders believe that they can predict or anticipate the direction of the market end enter a trade with such erroneous belief. This is usually not the case. Most of them are often fooled by what sideways movements. For moving averages, look for sharp angles and an obvious degree of separation between the two lines to determine upward and downward trend. Once this separation is obvious and a few candles have opened higher than the previous (lower than the previous in the case of a downwards trend) the market has shown its true colors. At this point, you should be looking to pull the trigger.
g) Profit should never be your main motive principle: Most new and inexperienced traders go into trading thinking that they could begin to make profit instantly. The fact of the matter is that most businesses do not begin to make profit until their fifth anniversary. Furthermore, most financial investments would be rated 1st class if they are able to return between 10-20% annually. In spite of these obvious facts, most traders think they can achieve a return of between 30-100% on a monthly basis. In other to achieve their unrealistic target they gamble away money and ended up being losers. The forex graveyard is full of greedy traders. Please don’t be part of the casuality. Your profit target should be realistic. If you are able to achieve a return of between 2-5% on a monthly basis, you would have outperformed most blue chips investment outfits in the world. As a new trader, fund preservation should be your number first priority and profit distance second. Once you acquire experience, making profit will come naturally.
h) Cut your losses and live to fight another day: Most new traders hate losing money by closing loosing trades. They often leave such with the expectation that the market will turn around in their favour. The resultant effect is that 40 pips ended ground to 100, 200, 200 and perhaps 1000 pips. The main message is cut your losses and live to fight another day!
i) Psychological deficiencies: Majority of new traders are psychologically deficient to handle trading live trading. Their trading is guided by inadequate knowledge, greed, desires to get rich quickly amongst others which are perfect recipes for disaster. As a new trader, make your trading as mechanical as possible because you definitely lack the psychological control to handle live trading. Live trading is high pressure game and is not meant for the inexperience and faint-hearted.
In my next post I will address how to be a successful trade. Happy reading!
FOREX TRADING 101
FOREX TRADING 101
INTRODUCTION
Trading internet foreign exchange (forex) is a very high risk business. It is important to have a sound Knowledge of the operation of the forex market and the risks involved to be successful. Forex market could be likened to a mighty ocean and retail traders are small fish swimming with sharks. It is very easy for such traders to be devoured within an instant resulting in financial ruins. Most traders often fall into this dangerous trap. The fact of the matter is that the odds are simply against the retail traders. The question at this point is how do you survive in very dangerous environment that has ruined the life of many? The statement that 95% of forex traders will end up being as failure is well-known to all forex traders. What are the things that a forex trader need to do to avoid being part of the statistics of failed trader and be counted among the 5% elites of successful traders?
WHY MOST NEW TRADERS FAILED
I considered it necessary to address why most traders failed because majority of them come to the market with the mindset that forex trading is the easiest way of making money. Having studied forex critically for the past six months by learning from leading forex websites, books, experienced traders in various forums, attending seminars and trading over 10 systems both in demo and life accounts, I have come to realize that what is required to be successful traders are quite simple rules. In the process, I have blown over five accounts both life and demo. I even reached a point where I was making constant profits on my demo accounts, but ended up still blowing my live accounts. Why am I a successful with demo accounts and end up failing with life accounts?
I will make efforts to provide answers to some of these questions in my next post.
INTRODUCTION
Trading internet foreign exchange (forex) is a very high risk business. It is important to have a sound Knowledge of the operation of the forex market and the risks involved to be successful. Forex market could be likened to a mighty ocean and retail traders are small fish swimming with sharks. It is very easy for such traders to be devoured within an instant resulting in financial ruins. Most traders often fall into this dangerous trap. The fact of the matter is that the odds are simply against the retail traders. The question at this point is how do you survive in very dangerous environment that has ruined the life of many? The statement that 95% of forex traders will end up being as failure is well-known to all forex traders. What are the things that a forex trader need to do to avoid being part of the statistics of failed trader and be counted among the 5% elites of successful traders?
WHY MOST NEW TRADERS FAILED
I considered it necessary to address why most traders failed because majority of them come to the market with the mindset that forex trading is the easiest way of making money. Having studied forex critically for the past six months by learning from leading forex websites, books, experienced traders in various forums, attending seminars and trading over 10 systems both in demo and life accounts, I have come to realize that what is required to be successful traders are quite simple rules. In the process, I have blown over five accounts both life and demo. I even reached a point where I was making constant profits on my demo accounts, but ended up still blowing my live accounts. Why am I a successful with demo accounts and end up failing with life accounts?
I will make efforts to provide answers to some of these questions in my next post.
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