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(Forex) Forex Investing at the Right Time - The 10 am Rule and How it works
By David Jenyns
Sometimes it`s wise not to be the early bird when investing in forex, instead wait and see what the day will bring before you take action. The 10 A.M. rule is a great example of this concept, and is Read more...
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How to Get Started In FOREX Trading
By John Goodmann
You may have been hearing a lot about the foreign exchange market (FOREX) and the investment advantages it offers. You would like to try it out, but don't know where to start. This Read more...
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FOREX Trading Philosophy
By David Greene
Numerous beginning FOREX traders are enamored by the allure of effortless money. FOREX websites offer 'risk-free' trading, 'high returns' and 'low investment' . These claims have Read more...
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FOREX Trading Philosophy
By David Greene
Numerous beginning FOREX traders are enamored by the allure of effortless money. FOREX websites offer 'risk-free' trading, 'high returns' and 'low investment' . These claims have a kernel of truth in them, but the full truth of FOREX is quite a bit more complex.
There are two common mistakes that innumerable novice traders make. Many novice traders trade relieved of a strategy and by letting emotions guide their decisions.
After opening a FOREX account it is irresistible for many traders to jump right in and set in motion trading. Watching the movements of EUR/USD for instance, you may determine that you are letting an opportunity pass by you by if you don't enter the market directly. You buy and watch the market make a move against you. You panic and sell at a loss, only to see the market recover and move forcefully in your direction.
This kind of undisciplined approach to FOREX is guaranteed to lose you money. Successful FOREX traders are required to to have a clear-headed trading strategy and not allow emotions to rule their trading decisions.
To carry out rational trading decisions the FOREX trader must be well-educated in market movements. He must be capable to apply technical studies to charts and plot out entry and exit points. He should take advantage of the various types of orders to minimize his risk and maximize his profit.
The pre-eminent step in becoming a successful FOREX trader is to understand the market and the forces behind it. Who trades FOREX and why? Who is successful and why are they successful? This knowledge will allow you to identify prospering trading strategies and use them as models for your own.
There are 5 major groups of investors who engage in FOREX ? Governments, Banks, Corporations, Investment Funds, and traders. Each group has varying objectives, but the one object that all the groups (except traders) possess in common is external control. Every organization has rules and guidelines for trading currencies and can be held accountable for their trading decisions. Individual traders, on the other hand, are accountable exclusively to themselves.
This means that the trader who lacks rules and guidelines is playing a profitless game. Large organizations and educated traders approach the FOREX with strategies, and if you hope to succeed as a
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FOREX trader you must play by the identical rules.
Money Management
Money management is part and parcel of any trading strategy. In addition knowing which currencies to trade and recognizing entry and exit signals, the successful trader has to manage his resources and mesh money management into his trading system. Position size, margin, recent profits and losses, and contingency plans all require to be calculated before entering the market.
There are numerous strategies for approaching money management. Many of them rely on the calculation of core equity. Core equity is your starting balance minus the money used in open positions. If the starting balance is $10,000 and you have $1000 in open positions your core equity is $9000.
When entering a position try to limit risk to 1% to 3% of each trade. This means that if you are trading a standard FOREX lot of $100,000 you should limit your risk to $1000 to $3000 ? preferably $1000. You do this by placing a stop loss order 100 pips (when 1 pip = $10) above or below your entry position.
As your core equity rises or falls you can adjust the dollar amount of your risk. With a starting balance of $10,000 and one open position your core equity is $9000. If you wish to add a second open position, your core equity would fall to $8000 and you should limit your risk to $900. Risk in a third position should be limited to $800.
By the same principal you can also raise your risk level as your core equity rises. If you have been trading successfully and made a $5000 profit, your core equity is now $15,000. You could raise your risk to $1500 per transaction. Alternatively, you could risk more from the profit than from the initial starting balance. Some traders may risk up to 5% against their realized profits ($5,000 on a $100,000 lot) for larger profit potential.
As with any worthwhile professional activity to do well at trading requires that you be knowledgeable and have the proper mind set and exercise discipline. Top traders make enormous amounts of money on a regular basis. However, keep in mind that trading is a zero sum game and all of that money must come from somewhere. Do your homework before you start trading with real money. This will help to insure that some of that money is not coming from your pockets.
David traded forex and commodities before retiring at age 58 in 2000. He still follows the markets in a relaxed way from his retirment home in Thailand. He is still decompressing after over 20 years of trading. Trading is a lot of fun but is not a good way to relax.
