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Monday, October 26, 2009

You Got To Have A Stop Loss (Part I)

By Ahmad Hassam

Lets assume that you already have got a trading system that tells you where to enter the market. Now you have a trading system that tells you when to enter the market. Does this system also tell you where to get out before you enter the trade?

On the road to profitability, lets start by agreeing that we need stop loss exits. In other words are you taking the market conditions into account and willing to give your trade a breathing space so that you dont get whipsawed or repeatedly get stopped out.

After this agreement, we need to determine how to effectively select stop loss exits to avoid excessive stop outs. Just dont forget, the more trades you place, more commissions or spreads you will have to pay and the higher your trading cost will be.

So right there you can increase your profitability if you increase the number of winning trades that is your win ratio thereby decreasing your trading cost. The best way to do this is to develop a stop loss strategy that takes into account currency market conditions.

A trading system is like having a girl friend. You can only have one girl friend at one time. There need to be a connection between you and your trading system. It truly is like having a personal relationship. Finding the right trading system can be a lengthy process. You must believe in your trading system and have a high degree of trust that it can produce consistent level of profits overtime.

If you have a trading system that isnt working for you and your win ratio and your payoff ratio dont generate a profit over time then you need to rethink your trading strategy. But you must also understand that no trading system can be perfect and no trading system can produce 100% winning trades.

Make adjustments to entry and exits. Determine if it is your trading system that isnt working or is it your trading psychology that is off. Maybe the market conditions have changed and you havent adjusted your trading system to the new market conditions.

Test your trading system overtime. Make a number of trades with your trading system. Just keep this in mind that if you dont give your trading system a chance to work jumping constantly from one trading system to another trading system in search of a holy grail wont help you.

Divorce is never a good idea. But if the things dont work out there is no recourse except taking a divorce. Divorce of any kind can be emotionally and financially expensive so proceed with caution when divorcing your trading system. The decision to divorce your trading system should be a carefully thought out one.

If you feel comfortable and confident with your trading system, you ultimately will also be profitable. The primary purpose of your trading system is to make you feel comfortable and confident.

You will feel confident when your trading system has proven to you and you have proven to your trading system that both can work together. Its a team work. - 23208

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Currency Day Trading - Is It The Best Way To Trade Forex?

By Sebastian Thompson

An investor purchasing & selling foreign exchange in the same day is known as performing currency day trading. This means that all deals are complete within the same twenty-four hours and nada is held for over a day by the trader. Previously this type of foreign exchange business could only be indulged in by large companies & fiscal institutions however now anyone can do currency day trading.

Currency day trading uses debt leverage to grant the traders access to a lot greater rewards or losses than his original punt, which makes foreign exchange a really engaging pastime to individuals trading from home. Investors are often found to be city boys operating for larger institutions such as banks, nevertheless in reality they can now operate from home just as easily for themselves, although with fewer resources free to them there.

Successful currency day trading means having usually invested a lot of your own time in concentrating on one or two specific currency couples which you will eventually become an expert on. This reinforces the sound fact that the traders who systematically make money in foreign exchange are those with experience as they can choose the easiest trades to enter and exit with clean timing with their knowledge.

The foundation of currency day trading is rooted in sets of analysis which prescribe how and when a investor will commit his dealings in a currency with the design of getting a profit in the twenty-four hour period. As you can imagine each trader will expend a lot of time producing their private currency day trading systems which will automate a detailed amount of the process for them. These are based upon either the fundamental principles method which uses up-to-date intelligence from around the earth or the technical analysis method which is dependent upon charts.

The most recent additions to these systems have been the release of currency day trading systems that claim to run a foreign exchange trading business altogether autonomously. The foundation of this is that someone has programmed into the computer software all the knowledge they have gained about graph signals and when to trade. Mental factors of losing money or trying to maximise a profit are taken out of the equation with this method, as the software program does not have the same issues and chugs along.

However there is unlikely to ever be a currency day trading system which consistently makes a lot of money and no losses as the owner of would be very unlikely to want to sell or share his system.

When currency day trading you should ensure that you read up on all the risks involved in it. The most likely thing to happen when you are starting is that you will have losses but these that are all part of the learning process and you'll need to accept that experience is going to be the main factor for achieving success. - 23208

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Parameters To Select Your Trading System

By Ahmad Hassam

As a trader you will need to develop your own trading system. You need to test your trading system overtime. Why you need a trading system? You need a trading system to make sure that your trading decisions are not arbitrary and based on your whims or emotions. A trading system will make your trading almost mechanical and emotion free. When selecting a trading system, first try to paper trade it. You need to paper trade your trading system to get the bugs out. Paper trading is not a substitute for live trading but still you can assume that 75% of the results that you achieve in demo trading can be replicated in live trading.

Win ratio and the payoff ration are two highly important figures to know for any trading system. Use the results of these paper trades to calculate your win ratio and payoff ratio. Determine what your personal win ratio and payoff ratio are in using that trading system over time.

The trading system, your money management system and you yourself, all three of you have to gel together. Now in the case of a successful trader, it takes three to tango here. The more profitable you will be over time, the stronger and more developed the relationship is between the three of you. So you have to develop not only a trading system but also a money management plan that suits your personality.

A trading system is not enough. You need a good money management plan as well. These numbers are required in developing a sound money management plan that will work hand in hand with that trading system. What can be the best parameters to selecting your trading system? When selecting your trading system, use these five parameters:

1) Trade entries in the trading system are defined by market price activity, key support and resistance levels, volume and volatility dynamics and not on random and spontaneous decisions.

2) The initial stop loss exit is determined before entering your trade.

3) The trading system that you select is rule based. Just like the trade entries, the trading system determines the trade exits by market price activity, key support and resistance levels, volume and volatility dynamics and fundamental rules, not on any arbitrary dollar loss that you feel comfortable with.

4) Your trading system has been adequately paper traded or live traded and you have determined your personal statistical performance. You need to know your win ratio and the payoff ratio.

Win ratio and the payoff ratios are two number that are personal to you and your trading system. Some traders would like to use the win ratio and the payoff ratio achieved by the other traders. Do not rely on the results that the other got with that trading system. Use the actual results that you attained while using that trading system in calculating your win ratio and the payoff ratio.

Do not try to rely on computer back tested results. Your personal performance results are the real results that matter. You cannot depend on computer results and other traders results.

5) This is very important. Your trading rules should be written out step by step in sequence so that the entries and exits are consistent, clear and above all quantifiable. This makes your trading mechanical and emotions free.

Have you ever heard of the Turtle Trading System? One perfect example of a rule based trading system is the Turtle Trading System. This system was developed for the commodities futures market.

The story of Turtle trading rules is very interesting. You must know the story of Turtle Trading Rules. The creators of that trading system had a discussion one day. One master was of the opinion that great traders can be made. The other master said great traders are only born.

Both had a bet. Advertisements were placed in the Wall Street Journal and the Barrons. A number of completely new traders were selected to teach them those rules and see if they could become successful traders. Many succeeded with this trading system and became highly successful traders. - 23208

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Understanding How Forex Pips Work

By Bart Icles

Forex traders, even though they are not the one actually managing their forex accounts, should have ample knowledge about the workarounds in the forex market and trading in it. Those who are planning to engage in forex trading should make sure that they go through the phase of educating themselves about the different twists and turns in the forex trading world, otherwise, it would be like Alice in Wonderland but in the real world this time.

A big chunk of forex trading basics are dedicated to learning the different forex terms or jargons that are embedded in all the trading activities that a forex trader will be engaging in, whether he or she has been doing trading for a long time now or is just a beginner in the field. Learning what the different terms are for and understanding them at the same time would be a great help in making sure that a forex trader is on the right track.

The most common term used in forex trading is the term "forex pip." Even if you aren't trading yet, by now, you might have heard of this term at one point or another. What is a forex pip? How come it's important in all your forex trading activities?

PIP is actually an acronym, which stands for "Percentage In Point." As a general rule in forex trading, all the profits and all the losses that a forex trader will be incurring in all his or her forex trading activities are measured using forex pips. Because of this simple fact, it is very much a necessity for any forex trader to know what a forex pip is and what its significance is in the forex market.

Generally speaking, a forex pip is the smallest price increment that a currency being traded can make. It allows traders to check the rise and fall in forex currency values in terms of percentage. It is an alternative measure of dollars and cents in trading. It is necessary to measure forex spreads in terms of forex pips because there isn't a universal value that can indicate forex values. So, depending on the currency in question, the value of the forex pip would vary when profits and losses are computed. It is like a universal measure of profits and losses in forex trading.

All major forex currencies except the Japanese Yen are quoted to 4 decimal points. The Japanese Yen is an exception since its value is much lower than the other currencies. To make it more clearer, if you are trading EUR/USD, 1 forex pip is equivalent to 0.0001. If you are trading USD/JPY, then one forex pip is equivalent to 0.01.

Learning about forex pips would, eventually, help you understand all your forex trading activities better. Start with the basics and you will go a long way. - 23208

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Forex Secrets - There's Money To Be Made

By John Eather

If you are interested in making money on the Forex trading system, then there are a number of things you will need to take into consideration. With the right type of Forex secrets, you will be able to higher your chances of making money on the system. However, you should take note that nothing is guaranteed, this system is all about risk. As you read this article, you are going to come across some forex secrets that you should take to heart.

We must say, when we started to use these secrets, our luck with the trading system changed. You see, we tried trading out during the 1980's, but nothing seemed to work, so we gave it up. Then, during the year 2000, we discovered some secrets and decided to give it a try. We must say, our chances of winning nearly tripled.

Before you start in this system, you should first decide how much money you can lose. There are so many people out there that look into how much money they could win and this is where they make mistakes.

It just goes with the says, 'don't go counting your hens before they even hatch out of those eggs!'

Do you know what gets in the way during forex trading? Those emotions! You know, greed, happiness, guilt and all of the above. Those emotions are human nature and it is hard to get away from them. However, during trading time, you need to do your best you can in order to get rid of them. When you have emotions, such as greed, you will end up losing more money that you have won. So now you know that, there are no excuses for not being succsessful at online forex trading. - 23208

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