Personality And Trading Style
Much of a trader’s success has to do with his personality matching up with the trading style he chose. No matter what the approach is you must plan your trades and trade your plans. If not, your strategy is no better than random, and that is hardly a stable platform for long-term success.
If a trader trades money he can’t mentally afford to lose it will lead to trading the money and not the trading plan. If a trader finds it difficult to wait through a trade that is going against him or does not move as fast as expected in the beginning then finding a strategy that minimizes both of these scenarios, may be even more important than seeking out rules that produce the absolute largest profit per trade.
For swing traders, there are plenty of trading opportunities that can become profitable trades. In the end the trading strategy must fit the trader’s style, personality, and risk tolerance. If the style and personality match up then a swing approach trading in the direction of the overall trend, has the potential to turn many losing trades into winning trades.
Trading a system that matches your personality will take much of the frustration out of trading. Something that works for one trader may not work for the next trader. So find the strategy that works for you, stick to the rules, and be happy and profitable.
O.P.L.P. Approach To Trading
Here are a couple of ideas of how to shorten the learning curve in foreign currency trading.
OBSERVE the good trading habits of others. You can get this information from some of the following areas
1. Personal observation
2. Seminars / webinars
3. Books / magazines
4. Reconstruct trades you hear about and see what the market was saying when the
trade was opened.
PRACTICE What you have learned from your observations
1. Simulated trading
2. Demo trading
3. Visualization trading
4. Live trading
LEARN figure out what you learned from you observations and practicing. Internalize the things you like and have worked for you.
PROTECT YOUR SELF at all times
1. By placing stops on all trades
2. By using good money management practices
3. Continuing to study
4. Getting control of emotions and greed.
5. Trusting your indicators
6. By following a trading plan.
O= Observe
P= Practice
L= Learn
P= Protect yourself
False Sense Of Security May Cost You
A trader can be in a trade that goes down but is only a little against him. He has his stop on at a comfortable level but he knows the trade is wrong but stays in because the stop has not been hit. Since he has not been stopped out he holds on thinking it is a good trade. Since he has his stop set he thinks he is on the right side of the trade. This can be dangerous thinking.
When you are in a trade and it is not going the way you thought it should and you start to feel uncomfortable about the trade get out of the trade and forget about what you thought was a good trade in the beginning. Just because you have not been stopped out does not mean you are safe. You don’t need to wait to be stopped out take a smaller loss and get on with the next move. If the trade starts to look wrong then get out no matter if you are a little positive or a little negative. This can save you a lot of money in the long run.
If you placed a trade because of a market movement and some good signals but the market fails to follow through and starts to linger exit the trade. There is no need to wait until the market hits your stop level to get out. If it isn’t working as it should, odds are that eventually it will hit your stop so why not take the small loss now and look for another trade.
Exiting trades when the reason your entered the trade has changed is good money management. It is also a sign that you are maturing as a trader. You are in tune with the market and will probably make money on another trade that is just around the corner. If you can cut your losses by 25% you are way ahead when the good moves come along for a pip saved is a pip earned.
How Much Of My Account Should I Risk?
When a trader first starts to trade there are many things to learn like:
1. How to use the platform
2. Which trading style I should use
3. Which indicators should I use
4. What time frames best meet my life schedule
5. How much money should I trade with
6. How much should I place on each trade
7. How much of a loss should I take
There are many other things to consider when trading but the one I want to address here is how much money you should risk in the market at one time. Here is one formula of how to calculate the amount of money you may want to trade at any one time.
You should trade with no more than 5% of your account on any one trade. i.e. $2000 account x 5% = $100. Divide The 5% or in this case the $100 by 50, which is the amount of margin you will be using in a mini account. This gives you 2 lots per trade.
This is only a formula, be sure to trade on the side of caution.
How The Currency Market Stacks Up
I was reading an article in e-FOREX magazine. It was talking about a survey that was taken that highlights the activity of the foreign currency market. It said “Did you know that the market in daily Foreign Exchange volume is bigger than those of OTC Interest Rates, Us Treasuries, Us Equities and Europe, Middle East and Africa Equities put together?” WOW that is big.
The Daily traded FX volume has more than doubled between 2001 and 2007 but an increase by some 50% between 2007 and 2010 might once again still be expected. This will be largely due to the growing importance of Foreign Exchange as an asset class.
The article went on to say besides classical FX trading there is a growing importance of emerging market currencies. The most important emerging market currencies are the Hong Kong Dollar, Polish Zloty and South African Rand.
What we gathered from the Article is that the currency market is well and strong. We already know that it is a fun trade. So Learn and trade well.
Letting Winners Run
There is an old saying that says you should “let your profits run”. In regards to this there are two schools of thought. One: this is good advice and it should be followed. Two: it is better to be consistent and follow your system and take several trades out of the long run. The down side of letting the winners run is that you lose perspective of what is average. The really big winners do not come along that often. By staying away from all of the big moves and stick to your trading plan you will not become confused as to whether it is a big move or an average move. By sticking to your trading plan then you can keep your mind and your capital free to make the most of several trades over the life of the larger trade.
A good method of trading is to be consistent in the way you trade even though you will take small losses once in a while. By trading the same way every time, you will have a better chance of seeing your account grow on a steady bases. When you do this, you are freeing up time and money that can be spent on other average trades—trades with which you are familiar and know how to handle without panicking. In the end this should prove itself more profitable.
Setting Stops To Close
We feel that there is only one thing worse than not using a stop loss and that is setting the stop to close to the entry price. We really get frustrated when we set our stop the market moves against us, stops us out then moves in the direction we had originally planned. There is an art to setting stops you need to be far enough away to let the market breath yet close enough that you do not lose too much. Setting a stop to close can be the result of fear of losing too much, not having a clue where to place the stop or just thinking you need to cut your losses. Inexperienced traders place there stops where many other traders are placing stops for example near the low of a move. Their evaluation of the market can be correct but with a poor timing on the entry and setting the stop to close they are taken out. When the market starts to move in the original direction the trader gets back in close to the place they had entered in the first place.
Best or Worst trader Or Be The Best You Can Be
When studying traders that seem to have it all together learn concepts do not try to copy exact. We want to know what they did and exactly what happened. That is good in trying to learn but do not compare yourself to other people; Just compare yourself to your own efforts.
Yoga students do not compare them selves to the other yoga students that is detrimental. The same goes for trading. If we compare ourselves to other traders we may not know the real story. They may only be trading demo accounts. We hear people talk about how they made all these pips and it starts to make us feel like we do not know anything. But we do not know anything about the truth of that trader.
We ask how someone trades and no matter how much I am told about it I will not be able to do exactly what that trader did or does. The market moves and may not do what it did the last time. So I will not be able to create the same results. We need to learn concepts and read them for ourselves to be the best trader we can be.
Types of Exits
When exiting a trade, you can do so under four different assumptions. In the best of worlds, exit technique number one is the profit target. Exit technique number two is the trailing stop, which comes into play when the market is starting to move against you after you have accumulated an open profit. Number three is the stop loss for the occurrences when the trade goes against you right off the bat. Finally, you also can exit with a time-based stop, possibly in combination with any of exit techniques one to three. The time based stop is setting a time like at end of the day or when you leave for work etc.
Just a note:
A “margin call” in not an exit strategy.
Which Is Best: Trading on Offense or Defense?
We have all been told that we should only trade with money we can afford to lose. This does not mean to be wild and care free with your trading money. So we do not want to think of our trading account as money you can afford to lose. We just have to know that we can lose this money and not affect our life style. You want to be stingy with this money and try to keep it and guard it with all the skill we have.
Playing offence is important but you will keep and make more money by playing defense with your money. Before making a trade you should always think defense and check the risk before you place the trade. Once you have the risk figured out and you are willing to accept that level of risk you need to figure out the number of lots you will trade. It is best to think about how much you will lose rather than how much you will gain. When you approach trading defensively first, then money management will have a higher priority in your trading decisions.
keep looking »