Two Timeless Rules in FOREX Investing
August 26, 2010
RULE #1) ~ Cut your losers; let your winners ride.
One important thing that every new trader must know before entering this highly profitable business is that life is not perfect, even in FOREX land, and you should always know one fact: YOU WILL HAVE LOSING TRADES.
Every FOREX trader does. The key to being a consistent, predictable, reliable trader is to, at the end of the day, add up more wins than losses. And, when you KNOW(based off your trading rules), without a doubt, that YES, indeed you are, in a losing trade, don’t keep losing money (lowering your stop loss) just to *prove you are right* or your rules are wrong (however you want to look at it).
Let’s face it - you can’t turn a sow’s ear into a silk purse. You can’t change the spots of a leopard and you can’t turn chicken poop into chicken salad. The best trades are usually “right” immediately (the techniques, rules, methods and strategies you can learn in our resources list will be your best indicator for just what a “right” trade really is).
Disgruntled
July 28, 2010
The following situation happens quite often to many traders. Look it over and see if it has been happening to you:
You have been faithfully following your trading plan and the rules you’ve set for trading. By following them you are now in a trade that doesn’t look so good. At the same time, by following your trading plan, you see that you’ve missed a beautiful move in a different market, one that could have made you a lot of money.
You are in a bad trade and you’ve missed out on a great trade. You become disgruntled. You think to yourself that your trading plan must not be so great. You think there must be a better methodology that you should use that will prevent this from happening. You think to yourself, "Yes! That’s it, I’ll change the way I do things." So you create a new rule or modify an old one so that such a rule would have let you capture the trade you missed and avoid the one you took. Have you been making this mistake?
Experience
June 27, 2010
Throughout our course on futures trading, we have tried to point out to you that there is a great difference between having an investor attitude and being a trader. There are also many similarities. In one sense, a trader is someone who invests in his own trading ability. Therefore, in that sense trading is investing. Trading and investing are interrelated. You come to realize this through experience.
For the most part, the trading approach comes from a much shorter- term mindset than the mindset of an investor. It can also be much more based on technical information than on fundamental information. But here again we find a dilemma. What exactly is technical information? What exactly is fundamental information? Where do the two overlap, or do they? Are they interrelated? Sure they are. But again, it is through experience that you learn about and develop an appreciation for these concepts.
TECHNICAL VS FUNDAMENTAL??
As futures traders, we get to hear some pretty weird things, and also as writers, and teachers in the business of educating people about futures trading . One of the strangest things we get to hear is when people try to separate trading into either technical or fundamental. Why, oh why, does everything have to be put into a box? Would someone please explain how to separate one from the other? Is it possible, or is there some middle ground that cannot be classified as either technical or fundamental?
The Nature of the Trading Business
May 28, 2010
Consider the following: As a trader you are in a business. Your strongest opponent has plenty of capital. He follows a program and he does it without emotion. He is totally aware of the fact that no one knows where the next tick will fall. Whereas he usually has good insights regarding the major forces that drive the market, he does not fool himself into thinking he can explain the vagrancies of price movement intraday or even from day to day. He knows that no one truly can.
The successful trader has learned his lessons by actually trading. This is a business driven by fear, greed, and selfishness, and very few worthwhile pointers are given out by the industry, other traders, or the myriad of so-called trading gurus who plague the pages of trading magazines and pages of their websites. The most valuable information is closely guarded and not often put in books or on web pages. Learning about trading is a ‘forever’ experience.
As the markets change and as we adjust to them, we learn. The learning is ongoing. It stops only when you no longer trade. During the time we trade we can always improve.
The Secret of Reduced Margin Spreads
April 29, 2010
One of the best kept secrets in trading is that of reduced margin spreads. You cannot name a trading method that provides more safety or a greater return on margin than does a reduced margin spread, while also being one of the least time- consuming ways to trade. Have you ever asked yourself why it is that many of the largest, most powerful traders trade spreads? I’m going to show you why!
WHAT IS A REDUCED MARGIN SPREAD?
Because of perceived lower volatility, exchanges grant reduced margins on certain types of spreads. Spreads consist of being long in one or more contracts of one market and short in one or more contracts of the same market but in different months-an Intramarket spread; or being long in one or more contracts of one market and short one or more contracts of a different market, and in the same or different months-an Intermarket spread.
DISTORTIONS ABOUT SPREADS
There are some distortions about spread trading that need to be dispelled. If we get them out of the way, I can show you the tremendous advantages spread trading has over any other form of trading.
Money Management, Part 2
March 30, 2010
FEARING LOSSES
There is a huge difference between being risk averse and fearing losses. You must hate to lose. In fact, you can program your brain to find ways to not lose. But not losing is a logical thought-out process, rather than an emotion-based reaction.
Two human-based tendencies come into play. The first is the sunk-cost fallacy and the second is the exaggerated-loss syndrome.
Sunk-cost fallacy: You are in a trade that begins to go against you. You reason that you have already spent a commission, so you have costs to make up for. Moreover, you have spent time and effort researching and planning this trade. You reckon that time and effort as cost. You have waited for just such an opportunity and you are afraid that now that it has come you will have to miss this trade. The time spent waiting for opportunity is something you also count as cost. You don’t want to waste all these costs, so you decide to give the trade a little more room. By the time you realize what you’ve done, the pain is almost overwhelming. Finally, you have to take your loss which is now much larger than it might have been. The size of the loss adds to your fear of ever losing again. The end result is brain lock and inability to pull the trigger on a trade.
Money Management, Part 1
February 28, 2010
There are some common mistakes I’ve seen traders make in the area of money management. First, let’s understand what money management is all about.
Money management overlaps with risk, trade, business, and personal management, yet it has many aspects that make it unique, distinctly different from all of the other areas of management. In this chapter we want to examine some areas of money management that seem to involve mental quirks leading to costly mistakes.
LISTENING TO OPINION
Adaptation to the Realities of the Market
January 29, 2010
Do you think adaptation to the realities of the market is the most important thing?
Many times in the past I’ve written about the need to adapt, the need to be able to change your behavior relative to the market because the markets are ever changing. I’ve stated that mechanical systems may be workable, but for only a short time relative to the life of markets. You must learn to trade what you see and to understand what you see on a chart.
When I first began trading there was no such things as futures contracts for foreign currencies. Why didn’t they exist? Because there was no need for them! In the 1970’s all that changed when the US dollar went off the gold standard and began to float against other currencies. Following that, the Chicago Mercantile Exchange began to create currency futures to provide a place where currency traders could hedge the risks associated with dealing in foreign currencies. Some of these risks are direct and some are indirect. Direct risk is involved for those who deal directly in foreign exchange. Indirect risk involves companies who export or import and receive payments or make payments in the currency of another country. Ever since currency futures were created, they have been in a state of flux. More recently, for purposes of futures trading, currency gyrations have centered on a massive move away from currency futures to more direct trading in the forex markets. Currency futures, while maintaining their volume and open interest figures, are actually less liquid than they had been previously. Volume and open interest do not reveal the picture of what is happening in the currency futures pits. Volume and open interest levels are being maintained by fewer and fewer futures traders.
Forex Trading
December 30, 2009
Foreign exchange market, or better known as FOREX, is the world’s largest and most prolific financial exchange market originated on 1973. Bearing the status of largest and most prolific currency exchange market, FOREX is the center stage where a vast majority of the currency trading or FOREX trading takes place, with a total daily turnover of currency worth more than $1.2 trillion.
For having such an enormous sum of total turnover everyday, FOREX can be considered as a liquid market ideal for Forex trading. Unlike many other securities, FOREX does not trade on a fix exchange rate, instead, currencies are traded primarily between central banks, commercial banks, non-banking international corporation, hedge funds, private investors and not to forget, speculators. Previously, smaller investors are precluded from trading in FOREX due to the large amount of deposit required. However, until the recent years, with the continuous growing of Internet and the rise of competitions, smaller investors can now trade in FOREX as the requirement to trade in FOREX has been amended.
The Miracle of Forex
November 30, 2009
My father, who owns a small parts store and garage for vintage British sports cars, called me up recently and droned on and on about how he is getting killed by the Euro. Confused as to how the Euro could possibly be affecting his small and seemingly insignificant business, I asked him how. "Because of the Euro!"
He went on to explain, after calming down of course, that the distributor that he orders his vintage parts from had increased their prices by roughly 30% due to the dollar’s poor performance against the Euro. Apparently, it takes about $1.30 USD to buy the same merchandise that may be acquired with 1 Euro.
Essentially, the relationship between the dollar and the Euro is the same as we have always had with the Canadians-only we have become the Canadians in this bizarre scenario!
After getting off the phone with dad I decided to investigate this currency exchange question a lot further and came to one startling but very true realization-the stock market is for chumps! Foreign Exchange is where it’s at.
