Items Tagged With money

Thanks to Forex2stay for the following comments.  Visit his blog at http://forex2stay.blogspot.com/

I do think it's possible, but I believe money mangement is the key. This needs to be a marathon not a sprint. One thing I've realized is that you can't use the same lot sizes for all of your trades. For example on one trade you might be risking 30 pips and another 20 pips. So if you trade 4 lots on both of them (standard account) you'd be risking $1,200 on one trade and $800 on the other. That's not good money management and it can get you a person in trouble.Here's what I do.....

When I position trade (4hr and daily charts), I won't trade unless I have a 2:1 risk reward ratio. I figure out the proper stop loss for my trade, based on TA. So for this example say that's 40 pips. I then make sure based on TA that I'm comfortable getting at least 80 - 120 pips profit. Once i'm comfortable I put my information into the following formula.

S=(E*R) / (P-X)

S = Size of Trade
E = Account size (Cash)
R = Maximum Risk percentage per trade
P = entry price on the trade
X = pre-determined stop loss or exit price

So let's put in some numbers.....

My account size $10, 000
Entry price on EUR/USD 1.2600
Currently I'll risk 3% of my account on a trade
My pre-determined SL is 1.2560

So how many shares of EUR can we buy with our money management rules??

S=($10,000 * 3%) / (1.2600 - 1.2560)
S = $300 / .40
S= 75,000

Anyway this is the way I do it. I hope it helps...

Forex2stay

Here's a post by Lloyd on his blog at http://tradingforaliving-assess.blogspot.com 

American trader and hypnotherapist Robert Krausz argues that 75% of trading depends on your psychology and claims that hypnosis can be used to control your emotional state to maximise your trading performance.

However, he stresses on the importance of having a trading plan at the first place!

Here are the 5 basic tasks necessary to become a winning trader and my personal takes:

1. Develop an analytical methodology
-- For myself, I read fundamental news and run technical analysis

2. Extract a trading plan from this methodology
-- I set up short-term swing trades (1-3 days), always try to pick good entry and exit prices

3. Formulate rules for this plan including money management
-- Take profits while ahead, find the best place to get out on bad trades, not relying on stop loss

4. Back-test the plan over a long period
-- Start trading small positions and allow mistakes

5. Finally, stick to the plan
-- Having confidence and keep practicing till perfect

This week was my 4th straight losing week.  I lost $1220 this week which drops my overall profit over 15 weeks to $1243.  Even though my P/L isn't looking good as of late, I really am not discouraged.  I have the confidence and determination to continue onward and I have the belief that I will be successful.  I am just going through the stages of learning and if it costs me money to learn, so be it. 

This week I used my first self designed trading system and followed through on every signal it gave me.  Unfortunately it is a range trading system and the EURO had some pretty nice gains against the dollar this week.  Therefore, my trading system did not perform well.  I will continue to use it.  I will stick by my hours upon hours of work. 

John Carter was on ABC Money promoting his book, "Mastering the Trade" and talks about Making a Living As a Day Trader.

His 5 tips:

1.  trading is simple, but not easy
2.  trading should be boring, like factory work
3.  be aware of your own emotions
4.  the market reinforces bad habits
5.  don't focus on the money, focus on executing trades

You can check out the video at Making a Living as a Day Trader

I have nothing to report this week because I didn't make a trade.  As I said in my previous post, in between everyday responsibilities and being sick, I didn't have any motivation to sit in front of a computer screen.

If you don't trade, you can't lose but you can't win either.  I want to mention an excellent NEW article I read this week regarding money management.  Before I give the link, there was some pretty powerful substance to this article that I want to post:

Put two rookie traders in front of the screen, provide them with your best high-probability set-up, and for good measure, have each one take the opposite side of the trade. More than likely, both will wind up losing money. However, if you take two pros and have them trade in the opposite direction of each other, quite frequently both traders will wind up making money - despite the seeming contradiction of the premise.

Note that a trader would have to earn 100% on his or her capital - a feat accomplished by less than 1% of traders worldwide - just to break even on an account with a 50% loss. At 75% drawdown, the trader must quadruple his or her account just to bring it back to its original equity - truly a Herculean task! 

I would recommend you check out this article.  It really does drill home the money management principle.

Money Management Matters 

I've been reading more about the Commitment of Traders Report and how knowing not only non-commercial positions but commercial as well can assist in longer term trades.  For those of you that don't know what the Commitment of Traders report is, let me tell you.

Some of this information was provided with assistance from Alexander Elder's book, "Entries and Exits"

First, the report is really the only way for private traders to get an idea of the volume for each currency pair.  Each week (Wednesday), the Commodity Futures Trading Commission releases the number of open positions, short positions and long positions in a given commodity.  These positions are given for 3 groups of traders, hedgers, big traders, and small traders.   "Savvy COT analysts compare current positions to historical norms and look for situations where hedgers, or the smart money (big traders) and small traders... are dead set against each other.  If one group is heavily short while the other is heavily long, which one would you like to join?  If you find that in a certain market the smart money is overwhelmingly on one side, while the small spec are mobbing the other, it is time to use technical analysis to look for entries on the side of the hedgers."

Currently, I only provide non-commercial positions or small traders.  You can read more about how to use just this information by going to http://www.forexproject.com/forex_volume

In the upcoming weeks, I am going to start providing data and graphs for all 3 groups of traders.  I just have to put my programming hat on and find the time to do it. 

The supposed impending war against Iran over its nuclear program and the continuous supply problems from Nigeria have both contributed to the rise in the price of oil. A 2 percent increase was registered as US crude increased $1.35 to $68.74 a barrel, and London Brent climbed $1.46 to touch $68.75 a barrel. Nigeria, which supplied barrels a day, has had to stop sending its oil after rebel attacks in February. Even with the rising oil prices, finance ministers from Europe and Asia predict that there will be an increase in the world economic growth from 4.3 to 4.5 percent. FX Street reports:

Oil has risen 11 percent this year, continuing a rally that began at the start of 2002 with oil at $20. Investment money has poured into commodities. Gold matched a 25-year high, silver spiked to a 23-year peak, and copper hit a record.

Euro zone growth is seen to be gradually getting stronger. But along with the good comes the bad and in this case it is inflation that is predicted to increase. European Central Bank (ECB) President Jean-Claude Trichet said euro zone growth in the fourth quarter was at 0.3 percent. Though this is low, it is attributed to seasonal volatility.

Inflation is pegged to rise mainly due to rising costs of energy. At the same time, money and credit growth are expected to progress well. The ECB will keep an eye on the situation and monitor it as required. An increase in inflation might only be short term.

Brian mentions that this has been on the internet for years but it's the first I've seen of it.  It's pretty good.  I can and you should also be able to relate.  Thanks for the info Brian.

38 steps to becoming a trader

They are as follows:

1. We accumulate information - buying books, going to seminars and
researching.
2. We begin to trade with our 'new' knowledge.
3. We consistently 'donate' and then realize we may need more knowledge or
information.
4. We accumulate more information.
5. We switch the commodities  (products) we are currently following.
6. We go back into the market and trade with our 'updated' knowledge.
7. We get 'beat up' again and begin to lose some of our confidence. Fear
starts setting in.
8. We start to listen to 'outside news' and to other traders.
9. We go back into the market and continue to 'donate'.
10. We switch commodities  (products) again.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get 'over-confident' and the market humbles us.
14. We start to understand that trading successfully is going to take more
time and more knowledge than we anticipated.

MOST PEOPLE WILL GIVE UP AT THIS POINT,
AS THEY REALIZE WORK IS INVOLVED.

15. We get serious and start concentrating on learning a 'real' methodology.
16. We trade our methodology with some success, but realize that something
is missing.
17. We begin to understand the need for having rules to apply our
methodology.
18. We take a sabbatical from trading to develop and research our trading
rules.
19. We start trading again, this time with rules and find some success, but
over all we still hesitate when it comes time to execute.
20. We add, subtract and modify rules as we see a need to be more proficient
with our rules.
21. We feel we are very close to crossing that threshold of successful
trading.
22. We start to take responsibility for our trading results as we understand
that our success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and
our rules.
24. As we trade we still have a tendency to violate our rules and our
results are still erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and
trade.
28. Our trading results are getting better, but we are still hesitating in
executing our rules.
29. We now see the importance of following our rules as we see the results
of our trades when we don't follow the rules.
30. We begin to see that our lack of success is within us (a lack of
discipline in following the rules because of some kind of fear) and we begin
to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more about
ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes
boring, but successful)
and our trading account continues to grow as we increase our contract size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always
dreamed of.

Most traders will identify with this list and should be able to place
themselves within these steps. Keep in mind that very few people progress
through these steps in an orderly fashion. Developing your trading skills is
an iterative process. For example, you may reach Step 13., find that
although you were making money, your basic premise for trading was flawed
(you might have been benefitting from the bull market, rather than your own
trading prowess and then have been rudely awakened when the market entered a
bear phase) and you may drop back to Step 4. and start ‘climbing’ the steps
again. Having the proper mindset, attitude and psychological makeup becomes
increasingly important as you progress through the steps. The focus of the
earlier steps is on external issues, i.e. developing proficiency in the
mechanics of trading while the focus of the latter steps (particularly from
Step 30, on) is on internal issues, i.e. improving ourselves mentally and
psychologically, maturing as traders.

The May issue of Currency Trader Magazine has been released.  The highlights of this month's issue include the following:

•  Trading the Mexican Peso
•  Interview with Money Manager Peter PanHolzer
•  Forex Money Management Strategies
•  The Euro Index
•  Japan and the Yen: New Era or more of the same?