Money Management and Two Trade Examples
In this video you will see 2 trades I made and how I managed them while using the Jump Start Strategy.
Long Term Trading vs Short Term Trading
If you are trading on the shorter time frames you have to trade a lot of hours. You are constantly looking at the charts trying to find the right setup to enter. The trades come and go. They are small so you have to do a lot of trades to make any money.
When trading on the longer time frames you have to spend less time in front of the computer. There are only going to be 1 or 2 trades per currency pair per week but you will be in them longer and make more money than you do trading the short time frames.
I feel that the key is on the 4 hour chart. You only have to look at the charts every 4 hours. By scrolling through 19 currency pairs every 4 hours you are only putting in about 10-15 minutes. The time will be less once you get the hang of looking for trades. When a trade is entered set your stop loss and target take profit and come back in four hours and see if you need to put on the automated trailing stop or not. You will find that you will have 2 to 4 trades on at any one time. Some of them will be starting out and others will be well into some good profits.
Random Thoughts-Helpful Tips
I had a few random thoughts about the market and thought that I would post them as tips below. I hope they can be beneficial and make sense!
1. Best way to manage risk.
- Always trade with a stop loss.
- Control the size of your trades-Know the Percent of your account to be traded. 5% max, no more than 2% on any one trade.
- How to figure the percent of your account to trade: total account size times by 5% divide by 50 = # of lots. For example, $3000 x 5% = 150 divided by *$50 of margin per mini lot traded gives you 3 max lots at a time traded, with 2 lots traded at any one time. It is better to use 1 lot to start with until you know which way the market is going for sure then add more lots as is appropriate. At first it would be better in one-lot increments or even fractions of lots. When your skill level increases then you may consider increasing the number of lots traded.
MINI ACCOUNTS
You can trade micro mini lots (pennies, and dimes)
|
Mini Lots |
Margin |
$ per pip on ‘USD’ pairs |
When To Trade With Real Money
When did the training wheels come off the bike? When does the parent let the new driver go solo? When can the new pilot fly solo? When does a trader start to use real money? The answer to these questions will be different for everyone.
One of the first things in each of these examples would be the level of confidence the participants have in themselves. With the bike rider, it might be when he/she does not touch the training wheels any more. With the student driver and pilot, it might be when they have passed some tests and practiced enough to be proficient in the operation of the car or plane. In trading it might be when the trader has more winning trades than losing trades in their demo accounts and knows how to operate the trading platform. Everyone progresses at a different pace and is ready to move on to the next level at different times.
These are the steps we recommend:
1. Learn how to use the trading platform
2. Learn the basics of a trading strategy
3. Practice simulated trading using the strategy
4. Practice demo trading
5. Practice visualization trading.
6. In the demo account there should be more winning trades than losing trades.
7. When the confidence is there move onto live trading.
Trend and Money Management
There are many Forex traders and thus there are many things that they feel are important to do to manage their money. We have found that the trend is the most important requirement to make money using technical analysis. The tools used to measure the trend are not perfect, yet very helpful…so a trader will need to be aware of the risk in trading and protect themselves against sudden turns in the market.
When a trader decides to enter a trade he must also decide when he is going to exit the trade. The trader needs to decide when to exit the trade if it is positive and if the trade turns negative. Making the decision at which price to set your stop loss before entering a trade is a way of protecting against large losses. If the stop loss is going to be far enough away from the entry price to make the trader feel uncomfortable then there are two things that can be done:
1. Trade with a smaller lot size.
2. Do not take the trade at all. It is best to be in control of your emotions and your investment capital before you enter a trade.
Placing the Stop Loss
One of the first things I was taught when I started trading was how to increase my trading by 100% in ten minutes. There were several parts to this formula but the one I want to talk about here is the stop loss. We all need to give the market a chance to breathe. The suggestion was to set the stop loss further away from the entry point than I was doing.
I started to move my stop losses further and further away from my entry point until I found something that works for me. It is not by a set number of pips, or at a pivot point, or a Fibonacci line. I set my stops where the market tells me to set it. Sometimes I am wrong but I am right far more often than not. The above video will show you where I place my stop more easily than with a bunch of words so take a look.
Do I Have The Right Kind of Money to Trade The Forex Market?
One of the best ways to lose your money is to try and trade when you need the money to pay bills. You do not have any room for a draw down. If you have a loss then you try harder to make it up to reach your required objective. When you do not reach it you start to over trade your account and lose the money faster. You start to break all of your trading rules and have no discipline. Then your emotions creep in and now you are out of control and frustrated. In fact you have almost lost any chance of being successful.
You do not have any control as to when and how much the markets will give you. You need to be relaxed and in tune with the market. Not stressed and fighting the market. The market does not care if you win or lose. So put the odds in your favor and only trade with money you can afford to lose.
Noise in The Forex Currency Market
What is noise? Noise is when the market is moving up and down in short moves. This can be seen in smaller time frames very easily. For example, on the 5-minute time frame you will see the market move in 10-15 pip cycles, then it moves for 20-25 in one direction or another and starts the 10-15 cycles again.
When you look at a larger time frame you will see the market moving in a good trending pattern. There is a good direction with few retracement moves on each individual candle. When you take the same time frame and look on a 5 minute chart you can see all of the up and down movement.
To Hedge or Not to Hedge
When I first started trading and heard about hedging I thought it was a great idea. Since then it has been a nightmare on a few occasions until I stopped using that trading method. The only way I have been able to trade out of a hedge was when it was small, less than 20 pips, and it was in the middle of a trend. The larger the hedge the harder it is to get out of.
Most people put on a hedge when they cannot emotionally or financially take the loss any longer. Most of the hedges are placed at the top or bottom of a movement in the market, so it becomes almost imposable to get out of. A hedge is usually at a point where you cannot take the loss any more so you lock it in the loss and then live with it. When you have a hedge in place it is a constant emotional drain of energy and seems to cloud your trading vision and your trading decision making ability.
Why You Should Blowup a DEMO Trading Account
Blowing up a trading account can be beneficial if you learn from it. The reason we suggest to blow up a DEMO account-never a live account-is to learn Money Management skills. Looking for the way the platform handles the free margin and free margin percentage is the key.
By knowing how the free margin moves up and down as trades are placed and closed is very important. The platform will close trades when the free margin percent goes below 50%. Many good traders keep there free margin percent above 1000%. Some trades are made using a small percent of your account like 1%, 3%, or 5% of the account. At other times just keeping the free margin percent above 1000% is enough. The way that is done is when there are several trades going very positive then the percentage gets larger so additional trades can be added and not affect the account negatively.
The following is an example of a blow up account we placed and just let it run.
