As any accurate brochure or legitimate broker will inform you, Forex is a risky business. You are taking a risk with every trade you place; it’s a calculated risk, and since nothing in life is certain, this isn’t an unreasonable way to make a living. You’ve probably heard people say that investors are gamblers. Many are—but a few aren’t, and it’s the few who aren’t who succeed. The difference between a gambler and a real investor comes down to risk management.
There are three main components of risk management in Forex: money management, a trading method, and psychology. There is no trading method which is invulnerable to the changes in the market, and no trading system which is foolproof. At the same time though, it’s extremely important that you have some kind of a method, and that you test that method and prove its efficacy before you trade real money. This keeps your trades from being random—up to a point. Your system isn’t all you need to test. You also need to test yourself.
How do you handle risk in Forex? There is no one single best approach to dealing with risk in Forex or any other pursuit, since everyone is different. Most people will err on the side of either caution or recklessness. Before you trade with real money in Forex, it is essential for you to figure out which you tend toward—caution or recklessness. It’s fairly obvious why reckless trading can blow your account; overly cautious trading can be just as destructive, though. Erring on the side of caution may lead you to exit (or simply not take) all the best trades before they become profitable—while still suffering substantial losses.
Whether you tend to trade too often and exit too late, or trade too seldom and exit too early, the failure is in not trusting your methodology. If this is because you haven’t done enough testing, then it’s back to demo until you feel more confident. If you’ve tested your trading method and you have excellent results, then you will need to examine why you aren’t confident. It may have nothing at all to do with the Forex system you’ve developed—you may exhibit the same patterns in other parts of your life. If so, you will need to learn to adjust for those behavioral patterns in your Forex trading.
Finally, managing risk involves managing money. You should never trade more than a tiny percentage of your account at any point in time. Most successful Forex traders only trade 2.5% of their accounts on any given trade. If you do add on when a trade goes in your favor, you’ll need to create a systematic way of doing so with discipline.
You’ve probably read or heard that you need to learn to trade Forex without emotion. While you can control your emotions to some degree, the reality is that all of us are going to feel some emotional response to risk now and again while trading Forex. The key is to learn how best to integrate those emotions into your trading or remove your trading from your emotions—depending on the person. The only way you can do that is to study yourself, not just the market.
If you have any questions or want to share your opinion on the role of proper risk handling in Forex trading, please feel free to reply using the commentary form below.
Material taken from http://www.forexnewbies.com/risk-management-in-forex/
неделя, 13 май 2012 г.
неделя, 6 май 2012 г.
What Weekly Return Can You Expect in Forex?
Many traders are drawn to the foreign exchange market when they see promises of massive returns. Have you seen advertisements for systems which can double your account in a week? Or give you returns of 1000 percent? The people who promote these systems say that they work because with Forex you’re allowed to trade using leverage — meaning you can control substantially more money than you actually have, and collect the profits from those massive trades. Of course, what these so-called Forex traders neglect to mention is that you can also take massive losses, the kind which can shut you down overnight — or even in minutes or seconds.
The reality of Forex is that while leverage is available, most successful traders use it sparingly or not at all. The majority of traders who actually make it will only invest something like 2.5 to 5 percent of their accounts on any given trade. That’s a pretty small percentage of their bankrolls. How many trades you take in a given week or month and how successful those trades are will determine how much money you can actually make in a given time period. Most really good Forex traders are pleased if they can pull in 5 to 10 percent returns per month!
Does that mean you can’t make more than that? It doesn’t, but you have to be careful how you go about it. You could bring in 1000 percent returns in a week with a lucky gamble after all — and then lose 1000 percent the next week and be out of the game. Would you rather make huge returns for a week or two and then go broke, or make smaller but consistent profits which will add up over a long time frame? You can’t build a living on wild speculation, but you can build a living off of consistency in Forex.
So how can you increase your earnings without gambling? One way would be to take more trades. You cannot compromise on the integrity of those trades, however — they need to all be A-trades, the very best trades you can find. You may be able to find more Forex trades to take by examining more currency pairs than you do already, or you might be able to find more trades if you look at a faster timeframe. Use caution when trading faster timeframes, however; it is a completely different experience and most (but not all) beginners are more profitable with slower timeframes.
Forex takes a great deal of patience, unless you’re coming into it with a massive bankroll already, in which case you should be perfectly happy with 5 to 10 percent anyway. Remember that there is theoretically an exponential growth curve if you can stick with this for the long term, but only if you can pull in consistent profits. So work on that 5 to 10 percent, and know that your patience and diligence are going to pay off for you in the long run. If you feel the need to accelerate things, then concentrate on funding your account — not compromising your discipline.
Material taken from http://www.forexnewbies.com/what-weekly-return-can-you-expect-in-forex/
The reality of Forex is that while leverage is available, most successful traders use it sparingly or not at all. The majority of traders who actually make it will only invest something like 2.5 to 5 percent of their accounts on any given trade. That’s a pretty small percentage of their bankrolls. How many trades you take in a given week or month and how successful those trades are will determine how much money you can actually make in a given time period. Most really good Forex traders are pleased if they can pull in 5 to 10 percent returns per month!
Does that mean you can’t make more than that? It doesn’t, but you have to be careful how you go about it. You could bring in 1000 percent returns in a week with a lucky gamble after all — and then lose 1000 percent the next week and be out of the game. Would you rather make huge returns for a week or two and then go broke, or make smaller but consistent profits which will add up over a long time frame? You can’t build a living on wild speculation, but you can build a living off of consistency in Forex.
So how can you increase your earnings without gambling? One way would be to take more trades. You cannot compromise on the integrity of those trades, however — they need to all be A-trades, the very best trades you can find. You may be able to find more Forex trades to take by examining more currency pairs than you do already, or you might be able to find more trades if you look at a faster timeframe. Use caution when trading faster timeframes, however; it is a completely different experience and most (but not all) beginners are more profitable with slower timeframes.
Forex takes a great deal of patience, unless you’re coming into it with a massive bankroll already, in which case you should be perfectly happy with 5 to 10 percent anyway. Remember that there is theoretically an exponential growth curve if you can stick with this for the long term, but only if you can pull in consistent profits. So work on that 5 to 10 percent, and know that your patience and diligence are going to pay off for you in the long run. If you feel the need to accelerate things, then concentrate on funding your account — not compromising your discipline.
Material taken from http://www.forexnewbies.com/what-weekly-return-can-you-expect-in-forex/
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