Posted by admin | Posted in Uncategorized | Posted on 16-08-2010
Tags: julia ivanov robot, julia robot, noname robot
With so many methods, systems and automated programs, how do you select the one that is best for you, or the one that gives you the best opportuntity for trading success?
I’ve developed a simple set of rules to follow when evaluating a trading method, course, system or program and today I want to share them with you.
First and foremost, any trading method you consider must be complete. By complete, I mean the trading method must teach you the following:
1. The precise conditions under which you can consider a trade to be entered into. These are known as the “setup” conditions and refer to the technical indications (usually) that a trade possibility exists.
2. The exact point at which you would enter into a trade (price). This refers to the Entry Point (or Entry Rules) and means the price at which a trade would be executed.
3. Rules for establishing initial and ongoing stop loss marks for an open trade. As part of Risk Management, it is imperative to have Stop Losses ALWAYS in place. If a trading method or system does not teach or define these, you should abandon it — without effective stop loss management you can be easily wiped out in a single trade should the market move against you.
4. The exact points and an effective strategy for exiting a trade. It is also important that a method teach you a strategy for exiting a trade once that trade has become profitable.
Combined, these four elements will help you to eliminate chance by streamlining your trading decision-making process. Without any of these, no trading method, system or program should be considered because in each individual case, traders will be exposed to steep losses or taking poor positions.
Keep in mind that not every setup will execute into a trade, nor should every trade be taken. Combined, these rules will help to protect you both in evaluating a method for its use and in executing the method when trading Forex.
Risk Management
Next, let’s talk about risk management. This is perhaps the area where 95% of traders make mistakes and lose money. Managing risk is about reducing your losses and about protecting trade capital by employing specific strategies to accomplish each of these simultaneously.
What do I mean by that and why is it important?
First, most traders make simple trading mistakes: they take too large of a position and expose themselves to serious and steep losses should the markets move against them. Second, they fail to protect their ENTIRE account by allowing ONE trade to put their full account balance at risk.
Here’s a quick and perhaps extreme example using Forex:
Suppose a Forex trader has a $10,000 account balance. The Forex trader takes a 5 standard lot Forex trade on the EUR/USD pair. The Forex trader now has at least $5,000 ‘margin’ at risk (or 50% or more of the Forex trader’s account balance).
For every 1 point that this Forex trade moves against the Forex trader, the trader loses 1/2% of the total account balance. At first glance, that may not seem like a steep loss. However, should the Forex trade move a total of 50 pips against the Forex trader, and the trader subsequently exits the position, the Forex trader’s total loss would be an INCREDIBLE $2,500! (25% of the trader’s account balance). This is poor risk management and it frequently leads to complete wipeouts of Forex trading accounts.
How did we calculate that loss? 1 pip for the EUR/USD pair is equal to $10 (on a standard lot trade). A 50 pip loss equals a monetary loss of $500; and remember our example Forex trader had traded 5 standard lots — for a whopping loss of $2,500!
Instead, any trading method should teach you very specific guidelines for incorporating Money Management and risk management into every Forex trade you take.
Money management should involve the distribution of an account among the various trades a trader takes. For example, you should never trade your entire account on a single trade, and you should rarely have more than a few open positions. By utilizing multiple positions, you distribute the risk among each of the trades you have taken.
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