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Money Management

We get a lot of questions about various complex money management (MM) formulas and our preferences. We don�t comment on this subject very often because money management is such a personal issue that it would be impossible to give any universal advice that would be specific enough to have value. Everyone seems to have different goals and tolerances for risk, not to mention varying amounts of capital for trading.

However we do have some basic thoughts and opinions that might be helpful in picking a suitable MM strategy that will help you to become a winner.

Be careful about trying to use formulas that are designed to optimize the returns. In my experience I have found that the most successful traders, over the long run, are not seeking to maximize their returns. The best traders are always seeking to carefully control their risks and to achieve as much consistency as possible. They look for methods to achieve consistent returns with low drawdowns and they are willing to accept smaller returns in the process. My policy has always been to worry about the risk and the consistency first and then to accept whatever returns that prudent approach will allow. I�m sure I will never win any trading contests and I have never bothered to enter one. In my opinion, no one should ever trade like the winner of a trading contest. I apologize for getting off on a different subject here. Lets get back on track and talk about trading in the only contest that matters - the trading that you do every day.

In recent years the strategy of risking a small percentage of capital on each trade has become quite popular and deservedly so. This MM strategy, often referred to as fixed fractional trading, reduces our dollar amount of risk as we experience losses and increases our risk level as we earn profits. The possibility of ever going to zero with such a strategy is virtually nonexistent. However this strategy has an inherent weakness that tends to constantly work against us. If we assume an equal number of winners or losers in a sequence this popular strategy produces net losses if the winners are not larger than the losers. To keep things very simple lets just look at a series of five wins followed by five losses with the wins being equal to the amount we risk. Lets also keep the math really simple and begin with starting capital of 100 and risk 5% of our current capital on each trade. I think that most traders would assume that if they had five losers followed by five winners they would be even. Unfortunately that is not the case.

Here are the numbers: Risk is always 5% of current capital. (I�m going to round the numbers to two decimals.)

Capital $ Risk W/L Account balance
100.0 5.00 L 95.00
95.00 4.75 L 90.25
90.25 4.51 L 85.74
85.74 4.29 L 81.45
81.45 4.07 L 77.38

OK we are already tired of losing. Let�s have five winners in a row and see if we can get our money back.

Capital $ Risk W/L Account balance
77.38 3.87 W 81.25
81.25 4.06 W 85.31
85.31 4.27 W 89.58
89.58 4.48 W 94.06
94.06 4.70 W 98.76

As you can see we had an equal number of winners and losers yet somehow we lost money. Perhaps it is because we had bad luck and got started in the wrong direction. Lets reverse the sequence of trades so that we start out on a winning streak instead of losing. Maybe that will help.

Capital $ Risk W/L Account balance
100.00 5.00 W 105.00
105.00 5.25 W 110.25
110.25 5.51 W 115.76
115.76 5.79 W 121.55
121.55 6.08 W 127.63

Looks good so far. Starting off with winners looks much better than starting with losses. But now we have five losers coming up.

Capital $ Risk W/L Account balance
127.63 6.38 L 121.25
121.25 6.06 L 115.19
115.19 5.76 L 109.43
109.43 5.47 L 103.96
103.96 5.20 L 98.76

Hmmm. It doesn�t seem to matter if we start out with a string of winners or a string of losses. Somehow we wound up losing the same amount of money either way.

Obviously we don�t have a very good system at work here but it is not a losing system. With the proper MM strategy we should break even. Our winning trades are only equal to our risk and to have a winning system the winners need to be bigger than the losers. We are winning on only half of our trades and we would be profitable if we could win on more than half. Even though our system is not a good one you would think that it would at least be a breakeven proposition (we haven�t included any costs) because the winners are always equal to the amount at risk and we win 50% of the time. That sounds like a breakeven system, doesn�t it? But if we employ the popular money management strategy of risking a fixed percentage of our current capital we manage to turn the system into a loser. However, if we risked a fixed dollar amount on each trade the system results would improve and we would break even.

The fixed percentage of risk approach to MM is a good one because it keeps us from going broke and it compounds our profits rapidly. Both of those are desirable characteristics but we need to be aware that they come at a price. We should realize that our recovery from drawdowns might not be as fast as we would like and that we can give back profits even faster than we made them.

One strategy that can help solve the problem of giving back the profits too rapidly is to periodically sweep some of the profits out of the account and place them in some other place where they are adding to our diversification and reducing our risk. Now and then we should take some of the profits out and spend them on something that improves our quality of life. This important step gives the dollars at stake a new meaning and boosts our morale tremendously. What is the point of winning and losing and accumulating profits only to give them back at some later date? If we make it a practice to routinely sweep some of the profits our account will continue to grow but it will be compounding at a slower rate than if we left our profits at risk. However if we stumble into a losing streak we will be glad that we took out some of the profits and reduced our bet size.

If we are good traders and we make it a practice to withdraw some of our profits on a regular basis we will eventually reach the point where we have taken out more than we started with. There are very few traders, particularly in futures, who can claim that they have truly beaten the market. Until you have taken out more than you started with the market can still beat you. Trading futures is a zero sum game and winners are few and far between. Taking out profits now and then rather than getting carried away trying to optimize the gains to infinity is contrary to what is being taught these days. Everyone is obsessed with finding formulas to optimize the returns. We need to remember that the trader who has the optimum gains today could easily be tomorrow�s biggest loser. That is a game we don�t need to play.

I think we all need to take a step or two back and look at the big picture. Trading is not really just a game. The money is real. Lets make sure that we are true winners and not just habitual players. Take some profits now and then and put them out of harms way. When we have done this I can assure you that the game is a lot more fun and our trading will improve. Nothing builds confidence like knowing for sure that you are indeed a winner.

Good Luck and Good Trading
by Chuck LeBeau
http://www.traderclub.com/

Thoughts On Forex

currency exchange



Yes, no liquidity and no conviction by players make the market look like a vagrant loitering in his usual area. Good forecasts and trades. Good sleep is essential for good trading but most of the traders I know of seem to sleep with one eye open
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The Forex trading is perhaps the largest financial market in the world, with a daily average turnover of approximately $1.5 trillion. Foreign Exchange is the simultaneous buying of one currency and selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example EUR/USD or USD/JPY or USD/INR etc.
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forex capital markets



The real battle of bulls and bears for medium-term trend is always around 20 day MA line in Yen market. Daily option activities here and there are of no relevance as far as medium-term trend is concerned.
Yen position traders sit on their positions gunning for several hundred pips at one go. For day trades, much more nimble approach is required. As Yen position trader, please never buy anything below falling daily 20 MA and never sell anything above rising daily 20 MA, no matter how attractive they look. So start buying only when daily 20 MA starts rising, from whatever level, is not only safe but also proven way of making money although it sounds so simple. You can read how Yen traders make intraday moves by watching 30 min USD/JPY candlestick chart or line chart if you are not familiar with candle nuance. 4, 8 hourlies are for positional moves.

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This is only a guide.


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How to Win the Forex Battle

Every trading activity is in fact participating in a battle. Winning the battle is a matter of knowledge, skill and experience. If you miss any of those you are going to join the long line of losers. Some says that 95 to 99 percent of the traders are lining up on the loser�s side.

How to win the battle in the currency market? It is easy to answer that question, based on the above approach � prepare yourself for the battle. If you treat currency market activity as a hobby you�ll ultimately lose all investments there. If you treat it as a business you still may loose everything.

The correct approach is: consider each pressing of the Buy/Sell button as entering a battlefield. If you enter it without having a knowledge, skill and experience on how to win, you are destined to fail. You may have some lucky trades in the beginning, though. That, by the way, is the worst case scenario for the rookie in trading.

The earlier you get your �bad� lessons, the better for your overall experience. No mater how good you consider yourself prepared, after demo trading lessons, you have no idea of the forces ruling on the real market.

In fact the worst enemy you are going to face in the very beginning is not hiding behind the walls of the global currency trading centers. Your most dangerous foe is hiding deep inside of you. That enemy is so powerful that you will be amazed how quickly it will wash away all your carefully considered decision.

No one has been able to evade the force of that destructive power. No one can understand or realize that force unless it has been confronted face to face. Start trading with real money and you will face it too. Fear, Greed or Hope are some of the names of that power.

Fear forces you to sell near the bottom and buy near the top. Greed forces you to get out of the market prematurely. Hope will keep in the trade until you loose everything. Fear may save you but hope may wreck you completely. Greed will never make you rich.

It is easy to give advice to trade without emotions and use the logic, only. How you can achieve that if you never have been there. You need to go through that turmoil, pick up your loses due to your emotional decisions and than analyze.

Study all your �bad� trades, because they are the most precious gifts on the way to proficiency in trading. Growing as an experienced trader is possible only after getting your losses in the beginning. Then sit down and carefully study the lessons they brought to you.

One thing traders never want to do is to admit of being wrong. The market is a constantly changing and it demands flexibility in taking decision. That implies monitoring and constantly adjusting, changing your decision and action. When your logical analyzes suggest that you are wrong � get out, quickly.

Once you overcome the emotions, concentrate on developing your signature way of trading. You can start with following different advisors and system and picking from them the things you like. Demo trade and test your ideas until you find the trade system which is matching completely your personality.

Now, you have to go back to emotion in a controlled way. Every time your system suggests a trade look inside you and see how you feel about this trade. You feel bad � discard it. If you feel good � keep it.

Here comes the final step: Looking for the final approval sign before submitting the trade. Here is the time, where the mastership shows up. Your weapon is loaded, the target is clearly seen on the visor and the finger is on the trigger. You have to make that final exhale, get the target over the cross point and shoot it.

How much knowledge, skill, experience and patience you need to build within in order to reach that very final stage of trading proficiency? Only you�ll know that and only you can do it. The rest is just numbers in your bank account.

Building a fortune by trading currency is not a mirage in the desert of live. There are hundreds of traders who are making living of that business and you can do it too. Study all you can find on the net and follow the steps of the best if you want to win that battle.

Teo Gee http://www.thesecretmarketing.com/

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Forex Mentality
When I interview prospective young traders, I always look for disciplined and strong-willed person as my first priority as long as one has decent education, but strangely in many cases, it is some kind of genius or half-genius with lots of brains with no disciplines who turn up for an interview thinking only bright people can make good traders.
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Another thing to keep in mind is that just because you are trading with a minimum marginal deposit does not mean you should trade at levels above your portfolio. The myth that you can get away with this every time is not true. You should not over leverage yourself. By trading in small amounts, you will be able to make safe investments that will not result in huge losses. You will win some and lose some, especially when you are first starting out.
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foreign exchange students



Unlike other financial markets, the Forex market has no physical location or central exchange. Since the Forex market lacks a physical exchange, the market trades continuously on a 24-hour basis, moving from one time zone to the next, across each of the world�s major financial centers every day. Trillions of dollars of foreign exchange activity takes place every day. From 1997 to the end of 2000, daily forex trading volume surged approximately from US$5 billion to US$1.5 trillion and more (according to various recent studies it has touched $1.7 trillion per day and dwarfs all other markets for trading in size and volume). It is really difficult, if not impossible; to determine an absolutely exact number because trading is not centralized on an exchange. But one thing is for sure that the Forex market continues to grow at a phenomenal rate.
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Always leave the forecasting to the pros unless you are playing the Forex as a hobby and don't have a lot of money invested...Or like most people you will learn the hard way.

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