Psychology vs Trading

Some people are not built right emotionally to be successful traders, others are not built right intellectually to be successful writers, and most people are not built right physically to be NBA stars! But many people who try their hands at becoming successful traders are not getting all the help that is available to them.
Here are another series of Forex Trading tips that will have a high impact on your trading results...

1 - Turn Your Computer Off Once Daily Risk is Reached
Successful traders are goals-oriented traders, as well as those who manage risks with a very strict discipline...If you want to be successful, you have to set a daily maximum loss. When this level is reached, turn your computer off, uninstall the trading software, and leave your trading environment. (If you trade from home, go out, very far from where you live). It may make you laugh, but when you will apply this simple discipline, looking back later at your trading results, you will see how much money you will have saved and made.
In our early career, we used to trade with a proprietary trading firm. The company had a specific software already installed on traders' computers. When your daily drawdown reached the daily maximum, a little clock would appear on your screen giving you 1 min for recovery. If you couldn't recover the loss during that minute, the computer would freeze and stop working...till the following day.
One day, all of the 10 traders were down, which was a total losing day for the company. Imagine, if that company didn't have such software, and we were to take other trades that could have turned bad again...
Without such a radical discipline, the company would not have been able to survive till today. The firm is still alive, and still makes profits each year in the market. Our instructor told us that one of their best traders turned $50,000 into $10 millions in 3 years. But 2 years later, his account was only up for $700,000 !!! We are sure you get the point...

2 - Turn Your Computer Off Once Daily Target is Reached
The principle is the same. As with your daily risk, when your daily goal is achieved, turn your computer off, uninstall the trading platform, and walk away . The problem with emotions is, no one can manage nor master them.
As traders, we are like any car driver. We under-perform when we are too happy, and also when too nervous and frustrated. An accident is just around the corner...Overcoming the uncertainty principle is impossible ! A very good trader always has a daily, weekly and monthly goal. When the weekly goal is reached by Wednesday, please stop taking trades ! and shut down your computer.

3 - Turn Your Computer Off, Once Trade is Initiated
We are not saying to leave the computer on, and walk away from it. We say to turn the computer off as soon as you took the trade. One of the main reason why day traders don't make money is because they want to sit in front of the screen and watch the market movements. Candlesticks opening and closing show all kind of patterns you may know. And the strength of some movements is so powerful that you will think your stop loss will be hit, causing you to close a will-be winning trade. What a waste ! A market analysis before the open, and the one made in the heat of market liquidity are 2 contradictory things.
The cloud of emotions, revenge, frustration, excitation will aggressively blind your mind during critical times. And this is where trading higher time frames can help and provide you significantly good results.

4 - Encourage Yourself Looking At Other Traders' Results
Sometimes when we are in a severe series of losing trades, we think we are bad traders and others are doing better. This is very painful to accept, and at the same time very devastating on our psychology...Checking form time to time other traders' results, and knowing they are not as extraordinary as we think can reduce market frustration.
This doesn't mean we shouldn't improve our trading skills, but at least it will prevent us from giving up or quitting the forex game thinking we will never succeed in the market. Good traders make money on less than half of their trades. This means they lose more than half of their total transactions.

Source: www.forex-trading-relief.net

Forex News Trading Strategy That Works

It is undeniable that the main economic events can move the market significantly. In order for such thing to happen the deviation between the forecasted and the actual numbers should be considerable. If the difference is big enough it is usually being “priced in” very quickly giving the traders good opportunity for gaining the profit. In this article I’d like to share with you one of the most effective and simple strategy to trade during the economic news releases.

Where do you start?

First of all, you have to make a list of the economic events during which you’d like to trade.  According to my own researches and a long-time experience as a forex trader, those are the main releases with the highest influence to the market:

• Nonfarm payrolls

• Retail sales

• Inflation (consumer price or producer price)

• Unemployment

• Industrial production

• Trade balance

• Manufacturing sector surveys

• Interest Rate Decision 

• FOMC Statement

It is well known, that the economic news from the USA impact markets the most. However, the other countries’ releases can also be valuable. So the next thing you do is choosing your currency pairs. My recommendation is to start with one major pair if you’re new in trading. And after you get better with the news trading, you can spread your activity. But keep focused; make sure that you’re trading only one event at the time. And now we’re coming to the strategy itself.

STEP 1. Preparation and research

When you figure out what would be the events you want to trade, write them down with the time of release and the forecasted numbers.  Then prepare the trigger sheet (see also example):  an Excel file with the event name, forecasted number and the trigger numbers which will show you whether or not enter the trade. During the news release, the trigger sheet will help you to save time thereby increasing your profit.

There are two ways to estimate the deviation trigger:

• You can do your own research by comparing the historical data during the similar releases.
• You can use simple 20% rule: if the actual number is 20% worse than the forecasted one – sell the respected currency, if 20% better – buy.

Let’s take a look to an example: If you trade the Unemployment Claims news report and the forecast (expected) number is 328k but the actual number (release) is 396k, the deviation is significant and the difference will be “priced in” quickly. In this example deviation is 20.73%, which can be considered as a good trading opportunity.

STEP 2. Shortly before the release

It is very important to stay focused during the news release, and nothing should distract you. So what you have to do is take away whatever can make you lose the concentration, like Skype, music, cat. Also erase all the unnecessary elements from your trading terminal. However, you want to be sure that you have the one-click trading activator on your chart with the lot size already setup. It will save you plenty of time during the trade.  You know like old samurais say: before the battle, empty your heart and clean up your mind.  Just kidding, but keep it as optional, though.

STEP 3. During the trade

First of all, you have to remember that 95% of your success is the preparation. So you want to make sure that you really worked hard on it. When the news will be released the market usually goes pretty wild, but you have to stay cold minded and follow your trigger sheet for 100%.  The market could act according to the two different scenarios.

The first one is when the deviation is not big enough, and the price didn’t reach any of your triggers. In this situation, it is very important to remain calmness and do not try to force the trade. If this happened, than it wasn’t good enough for trading.

The second scenario is when the trigger is reached. This is the time you’ve been waiting for. Enter immediately and place the order in accordance to which trigger has been reached. Although, if you did your homework careful, the direction of the price movement is very predictable, don’t forget about SL and TP. As a basic recommendation I’d say to set the SL at 20 pips and TP at 60 pips. It is also a good idea to change your SL into the trailing SL.

Profit expectations

News trading strategy is considered to be an effective and simple strategy. Your profit depends of the trading lots, but in general, it is around 5%-15% per month. Even though risk range is not high, since you only enter the market when the news is on your side, and from that point price, action is quite predictable. I would still recommend the new traders to start with the smaller lot size until you gain enough confidence in what you’re doing and  learn to be cold-minded.

Forex tools for news trading

So now let’s look on what could help you in your news trading quest. First of all, it is a trigger sheet. You could keep it as an Excel file, or print it and keep it next to you.
Another very helpful thing would be the FX Pulse 2.0 – free Meta Trader 4 plugin that delivers the main forex economic news directly to your chart. It is very fast and displays the news at the same moment they appear. So you already see everything on your chart window, while all the others are overloading the forex news websites by hundreds refreshments per second. So go ahead and download FX Pulse 2.0 from here.

10 Essential Money Management Rules

Money management in Forex is one of the most important and yet most ignored topics. Too often we hear and see many trading strategies being advertised all over the place, but very little information out there on money management. Why is money management in Forex so important?

Profitable trading is not all about one or two fluke profit trades. Profitability in Forex is the ability to make Forex trading profits over time, with consistency and regularity. Forex money management is what makes the difference between a winning trader, and one who wakes up in the morning afraid to check his trading platform because he doesn’t know what to expect.

It is possible to have six trades in a month, with three winners and three losers, and still come out on top with profits. It is also possible to win 5 out of six trades, and then have the single losing trade wipe you out and return you to baseline level for the month.

What is at play here? The answer is simple: money management. The intention of this article is to put into your hands, ten essential money management rules so that you can transform your trading habits to make you consistently profitable. Here they are:

1. Start Your Account with a Reasonable Opening Balance

Let me start by jarring some nerves with my contrarian view on this issue. Many brokers out there will tell you that you can start trading with as little as $200. Some even step all the way down and tell you that $50 can get you on your way. Market makers will tell you this because they know the truth: the chance of that money ending up in their hands is nearly 100%. Good money management practices are usually thrown to the dogs with such an account balance. No trader wants to earn money in cents or in single digit dollars. We all want to walk away with hundreds and thousands of dollars, and so a trader will most likely push his luck by using lot size’s way beyond what is acceptable in order to achieve this target. Save yourself from this temptation, which has afflicted nearly all retail traders by opening your trading account with a reasonable account balance.

2. Do Not Over-leverage Your Accounts

The allure of Forex trading is in leverage: the ability to control large positions with a small amount of money. Many industry experts do not advocate using more than 1:100 leverages, but we see traders being offered leverages as high as 1:500 for trading. Leverage in Forex is a two-edged sword. It can work in the trader’s favour, or against him. Most of the time leverage works against traders.

3. Do Not Overtrade

Over trading can mean taking too many trades at a time, thus increasing your risk exposure to the market. It can also mean trying to chase pips all over the market by placing too many trades in a day, especially after a losing run in an attempt to get back some of what was lost. Either way, you run the risk of losing big.

4. Use Acceptable Risk

No matter how juicy a trade may look, limit your risks so you can live to trade another day. Most experts have stipulated 5% as the maximum exposure your account should have in the market at any given time.

5. Trade with Stops and Targets

Not using a stop loss or a profit target is pure suicide! In Forex, an overnight event can send an unprotected trade badly into the negative territory. It happened in early 2008 when the Feds cut interest rates in an unscheduled weekend move, and more recently with the SNB and Bank of Japan’s interventions. You would never know what hit you.

6. Use Trailing Stops

This is a feature that helps a trader to protect and lock-in profits.

7. Never Take Trades, Which Do Not Deliver Risk-Reward Ratios of at Least 1:2

A risk-reward ratio of 1:2 means your profit target is twice your stop loss. If your trade has a R-R ratio of 1:3, it means that for every winner, you will need to lose an equivalent trade three times to wipe out profits. If you make 600 pips in a trade (with a 200 pip stop loss), you would, then need to lose three trades using the same R-R ratio to cancel the profitable trade. This is why a trader can have two winners and three losers in a month and still make money.

8. Do Not Trade During Sleep Hours

Trading at hours when you normally sleep disturbs your body rhythm and brain function. You will be more prone to mistakes that affect money management.  If you want to know what are the best hours to trade on Forex market, read article:

9. Aim to Compound Small Profits over Time

Trying to score jackpots in trading is what usually gets traders taken to the cleaners. An approach of compounding small profits for bigger gains much later is the way to go.

10. Use Matching Instruments for Your Account Size

Trying to trade a currency pair like the USDZAR with a spread of 50 pips and a daily range of 1,000 pips on a $1,000 account is risky; the trading account will not be able to handle the draw-downs.

Money Management really is one of the key elements in Forex trading. You can use the best strategy ever developed, have the best trading plan, be perfectly disciplined but when you don’t use proper money management rules you won’t succeed.

Practical Money Management That Works

Rule 1:  

" Risk no more that 2% of account balance "

Rule 2:  

" Use natural support / resistance to set the stop-loss "

Rule 3:  

" Use the range between current price and the proposed stop-loss to calculate lot size "

The golden rule of money management is "Never risk more than 2% of account funds on any one trade", which refers to the amount that may be lost, and not the amount that may be traded.
You could trade 5%, 10%, even 20% of your account funds, but your stop-loss must not allow more than 2% of account funds to be at risk.

Using this 2% risk factor and combining with the stop-loss range (number of pips), you can calculate the lot size that can be traded without exceeding your 2% risk factor if the stop-loss is triggered.
The most important element in this calculation is the stop-loss.

SETTING THE STOP-LOSS:
Any indicator that identifies support and resistance can be used. You could use lines drawn at support or resistance, or you could use a Moving Average, or Parabolic SAR, for example, provided your choice provides a clear reference point on the price chart. My preference is to use either a Moving Average or Parabolic SAR, as both of these automatically move with the price action and provide regular points at which to set my Trailing Stops. I will use Parabolic SAR in this example.

CALCULATE STOP-LOSS RANGE: For long position, subtract Parabolic SAR from the current price to determine number pips between Parabolic SAR and the current price. This is the stop-loss range.

CALCULATE 2% OF ACCOUNT FUNDS.

10 Major Rules Forex Money Management

1. Look risk before trade and don't look on profit or number of pips .
2. Keep in mind your risk level that how much money you are going to loose per trade.
3. For long trade always use 1:3 or 1:4 means low lose and high profit .

4. Use trailing stop if you are use to or place S/L at break even when you're in profit.
5. S/L should take place on each trade. this is the point where a lot of peeps loose their account in a while.
6. For beginners risk should be 1-2% per trade.

7. Do not increase lot size in start , always increase volume when your deposit is double. Example:If your deposit is 300$ you should start trade with one point = 0.01
If your deposit reaches 600$ you can increase lot size = 0.02 and so on...

8. Study chart patters if you can or use indicators but prefer to use chart patters as they give more probability than indicators . How ever indicators can also give good result some times .

9. Never do trade when you're confused about chart pattern i.e whether it is head and shoulder or double bottom. Wait for a right pattern then start trade.

10. Never use risk reward ratio 1:1 , 2:1, 3:1 and so on. Means don't trade on low profit and high loss other wise it will emptied your account in few days .

Do You Waste Your Time on Reading Market Commentaries?

What do you think about people who go to a fortune teller. Probably that they are stupid or naïve. But do you know that people go to a fortune teller and read market commentaries because of the same reason?

Before I will get into details I want to say that in this post I discuss only commentaries which explain PAST market movements.

Why do people go to a fortune teller? Because they are confused about their life and they need someone smarter to explain it and tell them what to do.

Why do people read market commentaries? Because they are confused about their trading or investing and they need someone smarter who will explain them past market movement and tell what to do.

Does a fortune teller know the future. No.

Do market commentators know why a market went up or down? No.

If a market is big and liquid (like EUR/USD) then there are so many investors and traders on this market that nobody knows why they buy or sell. It is also very hard to manipulate such a big market. And even if someone is rich enough to do it then he or she will not tell about it to anyone, even the most famous market commentator.

So market commentators have problem. People want them to explain why a market went up or down. But they have no idea why it has happened. So they find some explanation which looks smart but usually isn’t true.

Do I read any PAST market commentaries. Usually not. I can do it only to check if I have included all essential data in my trading decisions. For example if I trade supply and demand zones then I may read other traders’ posts to check if I didn’t overlook any zone.

In other situations don’t waste your time on reading market commentaries. Spend time with your family, take a walk or drink a beer. It will be much more effective.