Monday, May 2, 2011
April Report
Well, April ran a little slow. I only traded for about two weeks out of the month due to other commitments. However, after those two weeks I closed out at $555, so still up from the starting level. That's better than being into the seed money. We'll see how May progresses.
Sunday, March 27, 2011
Closing out for March
Well, in like a lion it was as I posted before, but out like a lamb is just as appropriate. I managed to come in at $533 after falling below 480 for a day.
I'm now going to reanalyze my system and start again the first week of April.
I'm really glad the system broke down when I was only risking 10 cents a pip, it's a lot easier to deal with when the losses are actually fairly small.
Short post, but there's really not much more to say for tonight.
I'm now going to reanalyze my system and start again the first week of April.
I'm really glad the system broke down when I was only risking 10 cents a pip, it's a lot easier to deal with when the losses are actually fairly small.
Short post, but there's really not much more to say for tonight.
Sunday, March 20, 2011
Leverage: Pros and Cons
When you start looking at FOREX trading, you will see a lot about leverage (also referred to as gearing). Leverage is a powerful tool for any sort of wealth building, but like any tool it carries a great deal of risk. Some FOREX brokers, including some of the most reputable ones, offer up to 400:1 leverage. What this means is that for every dollar you have in your account, you can trade up to $400 worth of currency. For a micro-lot of $1000 you only need $2.50 in your account. In addition, you keep all the profits for these trades.
The downside is that you also assume all the losses for these trades. With a micro lot's value being about $0.10 per pip, $2.50 represents 25 pips. That is not a very large margin of error for a trade. In fact, it usually represents white noise in the trading environment, which means your trade can be shut down before it ever has a chance to succeed. You do not want that to happen.
Another problem with using large leverage in trades is that if you are in one trade, you may not be able to afford to enter another good trade it it presents itself. It is always wise to have enough money in your account to safely enter one more trade, since good opportunities come and go at any time.
Finally, there is a failure rate in FOREX trading of 90% or more. A lot of the failures happen because of poor business practices, especially under capitalization. If you think of investing in FOREX the same way as investing in a traditional business, you will see that who ever is putting up the money for your trades has to get paid back in some manner. In a business it is by taking a cut of the profits. Now if you have $400 invested in your business for every $1 you have put in, how much of the profits are you going to be able to keep? These reasons are the primary ones I recommend using significantly lower leverage even when 100, 200 or even 400:1 is offered by the broker.
So, now it's time to put my money where my mouth is. If I advise lower leverage, what leverage levels do I use? 2:1 for a single trade, at most. Yes, that is a simple answer. It's also simple to figure out, although the for a single trade part is important. For now, though, let's look at the 2:1 portion.
When I started my trading account, I had a micro account and funded it with $500. This is half a micro-lot, so if I'm in a single trade, it's 2:1 leverage. Until I'm up to $1000, I will not trade two lots on a single trade. That would take me over the 2:1 ratio. When I hit $1500, I may go up to 3:1 and so on. Ideally, however, I would like to eventually bring myself to a 1:1 ratio, where I have $1000 in the account for ever micro-lot I trade. This will slow down the compounding effects, but it will also lower my risk. My plan is to do this when I am able to draw out enough money every month from my account to quit my day job while still having enough left over to grow the account. At that point I will be financially independent, and so growing the account will be a bonus and not as much a necessity.
Now, what about the importance of for a single trade? I often am in more than one trade at a time, and so my actual leverage is higher than 2:1. If I'm in ten trades at the same time, which hasn't happened to date, my leverage at that point would be 20:1. Still a far cry from the 400:1 offered. Since I don't risk more than 150 pips on a trade, if all ten lose, then I'm out 1500 pips, less than a third of my trading account. That's a pretty serious blow, but one I can recover from. If I get my single trade leverage up to 1:1, 1500 pips would be just over 10% of my account size.
So, by all means make good use of leverage in your trading. Just be aware of what leverage can do for you and don't use so much that it puts your account at serious risk. In any trading activity, risk management and mioney management are twin keys to success. Respect the power of leverage, and you'll do well.
The downside is that you also assume all the losses for these trades. With a micro lot's value being about $0.10 per pip, $2.50 represents 25 pips. That is not a very large margin of error for a trade. In fact, it usually represents white noise in the trading environment, which means your trade can be shut down before it ever has a chance to succeed. You do not want that to happen.
Another problem with using large leverage in trades is that if you are in one trade, you may not be able to afford to enter another good trade it it presents itself. It is always wise to have enough money in your account to safely enter one more trade, since good opportunities come and go at any time.
Finally, there is a failure rate in FOREX trading of 90% or more. A lot of the failures happen because of poor business practices, especially under capitalization. If you think of investing in FOREX the same way as investing in a traditional business, you will see that who ever is putting up the money for your trades has to get paid back in some manner. In a business it is by taking a cut of the profits. Now if you have $400 invested in your business for every $1 you have put in, how much of the profits are you going to be able to keep? These reasons are the primary ones I recommend using significantly lower leverage even when 100, 200 or even 400:1 is offered by the broker.
So, now it's time to put my money where my mouth is. If I advise lower leverage, what leverage levels do I use? 2:1 for a single trade, at most. Yes, that is a simple answer. It's also simple to figure out, although the for a single trade part is important. For now, though, let's look at the 2:1 portion.
When I started my trading account, I had a micro account and funded it with $500. This is half a micro-lot, so if I'm in a single trade, it's 2:1 leverage. Until I'm up to $1000, I will not trade two lots on a single trade. That would take me over the 2:1 ratio. When I hit $1500, I may go up to 3:1 and so on. Ideally, however, I would like to eventually bring myself to a 1:1 ratio, where I have $1000 in the account for ever micro-lot I trade. This will slow down the compounding effects, but it will also lower my risk. My plan is to do this when I am able to draw out enough money every month from my account to quit my day job while still having enough left over to grow the account. At that point I will be financially independent, and so growing the account will be a bonus and not as much a necessity.
Now, what about the importance of for a single trade? I often am in more than one trade at a time, and so my actual leverage is higher than 2:1. If I'm in ten trades at the same time, which hasn't happened to date, my leverage at that point would be 20:1. Still a far cry from the 400:1 offered. Since I don't risk more than 150 pips on a trade, if all ten lose, then I'm out 1500 pips, less than a third of my trading account. That's a pretty serious blow, but one I can recover from. If I get my single trade leverage up to 1:1, 1500 pips would be just over 10% of my account size.
So, by all means make good use of leverage in your trading. Just be aware of what leverage can do for you and don't use so much that it puts your account at serious risk. In any trading activity, risk management and mioney management are twin keys to success. Respect the power of leverage, and you'll do well.
Friday, March 11, 2011
In Like a Lion
Well, March this year certainly lived up to the old saying, in like a lion. Here's hoping it'll go out more like a lamb. In the past ten days, the trading account lost $90 of the $100 gains from February. In a way this is good news, there is still a little profit left behind and I'm not into the $500 seed money, so at least the money management plan is working. I've gone back and refined the trading system and will start it up again on Monday and see how things go from here.
Monday, February 28, 2011
Money Management
Money management is the key to succeeding in pretty much any business, and if you become a Forex trader, then you need to treat it as a business.
Money management is the key area where most failed traders have actually failed. Like any business, a Forex trading account needs to be properly capitalized, protected from loss, and must only risk as much as the trader can afford to lose.
Many features of the brokers, however, try to work against these goals. Too many people enter Forex trading because they see how little is needed to start. With proper management, you really do not need a lot, but you will need a lot more than the minimum necessary amount.
Many brokers advertise the high amount of leverage available to traders. This can go as high as 400:1, meaning that for every dollar you put in to a trade, you are actually trading $400 worth of currency. In practice, this means that for $25, you can operate a single $1000 micro lot. At this level, each pip (which represents about 1/100 of one cent) is worth about 10 cents, profit or loss. Starting at $25, you could wipe out your entire account with just a 250 pip loss.
On the plus side, most brokers do something to help protect you. They will not allow you to continue trading if you have less than your required margin, which means if you are trading one micro lot, as soon as your account falls below $25, your trade is closed (referred to as a margin call). This can be beneficial, but can also work against you, but in the worst case, it does prevent you from losing more than what is actually in your account. If you are trading more lots, then you will need more money in your account to keep your trades open.
While it is nice that the brokers do this to prevent traders from losing more than they bargained for, it is in your best interest to develop your own rules to prevent a margin call from ever being a problem. Once you have rules, you also need the discipline to stick with them.
I follow a few simple rules to keep any trade from taking too much away from me.
1) Account funding: I must have at least $500 in my trading account for each micro lot I trade on any given position. This amount is rounded down, so until I am up to $1000 my trades are all one lot trades. This translates to 2:1 leverage if you only trade one pair at a time. I usually have more than one position open, but it still generally translates to less than 20:1 leverage at any given time. Some people would not be comfortable with even this, so it is very safe to increase your personal margin, $1000 per lot, $2000 per lot, whatever you are comfortable with. I strongly advise going below $500 per lot.
2) Stops: A stop is pretty much what it sounds like, the amount against you where you want your trade to stop. Most brokers allow you to set this amount when you set a trade up. It is an automatic signal to the trading system that you are ready to cut your losses and leave. In my time trading, I have never had the system miss one of my stops, but it can happen, so a stop is not absolute protection, but it is very strong. For my system, I keep stops within 2-3% of my account size, so I seldom enter any trade with a stop of more than 150 pips. Doing so would risk too much of my account at once. My stops are usually tighter than that. This prevents a single trade from draining my account too much.
3) Getting out: My trading system has a number of signals that warn me when a trade may be at risk. If too many are triggered, I will exit the trade and take what profits, or even what losses, have accrued. This may mean I only make 20 - 30 pips of a particular trade, it may even mean losing that much sometimes. The good thing is, any profit is profit, the trade is still a winner even if you don't win that much. Futhermore, the losses are much lower than they might be if I waited until the stop hit.
4) Stop Motion: I often move my stops around once a trade has been running. The trick is, the only ever move in one direction, toward the break even point, or toward higher profit. I will never move a stop if it means I will lose more money (or gain less) if the stop is triggered. Once I have decided how much I am willing to lose on a trade, I will not lose more. If I change my mind and choose to risk losing less, I will never settle for moving back to losing more. I will only accept a move that means losing less, or locking in more profits. Doing otherwise has the potential to break the system.
And that's it. Those four rules do a lot to keep me from losing fast, and are a big part of what allow me to make the gains I have.
Make sure money management is a central part of your strategy, and you'll already be ahead of ninety percent of traders.
Money management is the key area where most failed traders have actually failed. Like any business, a Forex trading account needs to be properly capitalized, protected from loss, and must only risk as much as the trader can afford to lose.
Many features of the brokers, however, try to work against these goals. Too many people enter Forex trading because they see how little is needed to start. With proper management, you really do not need a lot, but you will need a lot more than the minimum necessary amount.
Many brokers advertise the high amount of leverage available to traders. This can go as high as 400:1, meaning that for every dollar you put in to a trade, you are actually trading $400 worth of currency. In practice, this means that for $25, you can operate a single $1000 micro lot. At this level, each pip (which represents about 1/100 of one cent) is worth about 10 cents, profit or loss. Starting at $25, you could wipe out your entire account with just a 250 pip loss.
On the plus side, most brokers do something to help protect you. They will not allow you to continue trading if you have less than your required margin, which means if you are trading one micro lot, as soon as your account falls below $25, your trade is closed (referred to as a margin call). This can be beneficial, but can also work against you, but in the worst case, it does prevent you from losing more than what is actually in your account. If you are trading more lots, then you will need more money in your account to keep your trades open.
While it is nice that the brokers do this to prevent traders from losing more than they bargained for, it is in your best interest to develop your own rules to prevent a margin call from ever being a problem. Once you have rules, you also need the discipline to stick with them.
I follow a few simple rules to keep any trade from taking too much away from me.
1) Account funding: I must have at least $500 in my trading account for each micro lot I trade on any given position. This amount is rounded down, so until I am up to $1000 my trades are all one lot trades. This translates to 2:1 leverage if you only trade one pair at a time. I usually have more than one position open, but it still generally translates to less than 20:1 leverage at any given time. Some people would not be comfortable with even this, so it is very safe to increase your personal margin, $1000 per lot, $2000 per lot, whatever you are comfortable with. I strongly advise going below $500 per lot.
2) Stops: A stop is pretty much what it sounds like, the amount against you where you want your trade to stop. Most brokers allow you to set this amount when you set a trade up. It is an automatic signal to the trading system that you are ready to cut your losses and leave. In my time trading, I have never had the system miss one of my stops, but it can happen, so a stop is not absolute protection, but it is very strong. For my system, I keep stops within 2-3% of my account size, so I seldom enter any trade with a stop of more than 150 pips. Doing so would risk too much of my account at once. My stops are usually tighter than that. This prevents a single trade from draining my account too much.
3) Getting out: My trading system has a number of signals that warn me when a trade may be at risk. If too many are triggered, I will exit the trade and take what profits, or even what losses, have accrued. This may mean I only make 20 - 30 pips of a particular trade, it may even mean losing that much sometimes. The good thing is, any profit is profit, the trade is still a winner even if you don't win that much. Futhermore, the losses are much lower than they might be if I waited until the stop hit.
4) Stop Motion: I often move my stops around once a trade has been running. The trick is, the only ever move in one direction, toward the break even point, or toward higher profit. I will never move a stop if it means I will lose more money (or gain less) if the stop is triggered. Once I have decided how much I am willing to lose on a trade, I will not lose more. If I change my mind and choose to risk losing less, I will never settle for moving back to losing more. I will only accept a move that means losing less, or locking in more profits. Doing otherwise has the potential to break the system.
And that's it. Those four rules do a lot to keep me from losing fast, and are a big part of what allow me to make the gains I have.
Make sure money management is a central part of your strategy, and you'll already be ahead of ninety percent of traders.
Quick End of month update
This one will be very brief.
I did my final trades for February today, and when I logged out a few minutes ago, my account was just over $600 ($600.86). Of course there was a trade active at the time so that value could change up or down. The account started with around $500, and so this represents a 20% gain over the month of February, during which I did three weeks of trading.
Please note that this cannot be taken as a normal result. Your results in FOrex trading may vary dramatically from month to month. Look at the information out there (preferably the free information since they don't have an interest in selling you anything) before deciding FOrex is right for you.
I did my final trades for February today, and when I logged out a few minutes ago, my account was just over $600 ($600.86). Of course there was a trade active at the time so that value could change up or down. The account started with around $500, and so this represents a 20% gain over the month of February, during which I did three weeks of trading.
Please note that this cannot be taken as a normal result. Your results in FOrex trading may vary dramatically from month to month. Look at the information out there (preferably the free information since they don't have an interest in selling you anything) before deciding FOrex is right for you.
Thursday, February 24, 2011
Introduction
This blog, despite the way the name may sound, is about forex trading. Forex is short for Foreign Exchange, and relates to trading different currencies. Basically you buy one country's money against selling the money from another country. If the currency you buy gets more valuable in relation to the currency you sell, then you make money. If not, you lose money.
Forex trading is an investment, but one that doesn't have to take a lot of time and one that doesn't require a lot of money to start. The more you have to seed your account, the faster you could conceivably use the money you make from it to replace your current income of course. The flip side to that is, the more money you risk, the more you stand to lose if things don't go your way, and they won't all the time. Like any investment, there are risks. Managing your money is a skill as or more important than your actual trading most of the time.
So, you may be asking, "What's up with the title? What does that have to do with Forex trading?" Even if you're not I'm going to tell you. Feel free to skip ahead if you don't want to know. The scroll bar should be to your right.
My family has always enjoyed going to the horse races. No, we didn't consider it an investment strategy, it was just a fun day out. Like any group, of course, everyone had a different method to try to win, or at least break even. My grandmother was a very conservative better, and I'm told that my grandfather often used to complain that she would always pick the favorite and then bet it to show, which means she would win something if the horse chosen most likely to win the race came in first, second or third. She wouldn't win very much, but she'd get something back.
That is the essence of my forex trading, pick the winners, trade conservatively, and make sure you have enough money left in case things go wrong. I don't use huge margins, in fact my current goal is to bring my margin down as far as possible. I don't risk everything on one trade. I don't try to get in at just the point where things are starting to move, or wait until they are just about turn. I put my money on what look to be sure things, and then assume they will turn against me as soon as the opportunity presents itself.
So, that's the title, that's how it relates to Forex trading, and that's pretty much my time for this post. I future I will be putting up my methods, tracking my successes and failures and hopefulll providing some helpful tips from personal experience.
For now, I encourage you to check out some other learning resources on the net, specifically:
Babypips
Forex Indicators Guide
Forex trading is an investment, but one that doesn't have to take a lot of time and one that doesn't require a lot of money to start. The more you have to seed your account, the faster you could conceivably use the money you make from it to replace your current income of course. The flip side to that is, the more money you risk, the more you stand to lose if things don't go your way, and they won't all the time. Like any investment, there are risks. Managing your money is a skill as or more important than your actual trading most of the time.
So, you may be asking, "What's up with the title? What does that have to do with Forex trading?" Even if you're not I'm going to tell you. Feel free to skip ahead if you don't want to know. The scroll bar should be to your right.
My family has always enjoyed going to the horse races. No, we didn't consider it an investment strategy, it was just a fun day out. Like any group, of course, everyone had a different method to try to win, or at least break even. My grandmother was a very conservative better, and I'm told that my grandfather often used to complain that she would always pick the favorite and then bet it to show, which means she would win something if the horse chosen most likely to win the race came in first, second or third. She wouldn't win very much, but she'd get something back.
That is the essence of my forex trading, pick the winners, trade conservatively, and make sure you have enough money left in case things go wrong. I don't use huge margins, in fact my current goal is to bring my margin down as far as possible. I don't risk everything on one trade. I don't try to get in at just the point where things are starting to move, or wait until they are just about turn. I put my money on what look to be sure things, and then assume they will turn against me as soon as the opportunity presents itself.
So, that's the title, that's how it relates to Forex trading, and that's pretty much my time for this post. I future I will be putting up my methods, tracking my successes and failures and hopefulll providing some helpful tips from personal experience.
For now, I encourage you to check out some other learning resources on the net, specifically:
Babypips
Forex Indicators Guide
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