Yup, let’s revisit this fun topic about “Equity Management”. There are a few important points to make here for “Forex Sailing” in contrast to what I’ve already mentioned in “Forex Surfing”. This concept is the key to being an overall successful trader, and is what ultimately separates unsuccessful traders from the successful ones. If you know proper equity management principles, and, more importantly, IMPLIMENT (!) those principles, then you too can be one of the “elite” traders that are ***consistently*** profitable, making some excellent ‘chaching’. I’ll have some comments along these lines in the next pack I produce titled “10% to 30% Monthly ROI”, but here I’ll stick to what is necessary to know for the techniques presented here in this eBook, “Forex Sailing”. The strategies presented in this eBook are drastically different than what was presented in “Forex Surfing” (though there are many similarities in techniques). The difference is primarily in the scope or size of the trades sought after. In “Forex Surfing” most of the strategies required tiny stops of say 20 pips, however in “Forex Sailing” most of the strategies require significantly larger stops of 100 pips or more. Don’t let the fact that the “Sailing” techniques require larger stops scare you off because the target gains are proportionally larger as well for excellent risk to reward ratios. It is important to realize two things here: (1) Following proper equity management principles (which will be elaborated upon shortly) you should only trade the primary techniques taught in “Forex Sailing” if you have a minimum of $5,000 in your trading margin account (preferably $10,000 or more). (2) For those of you who have less than the required minimum then you can use a modified technique by combining the strategies learned in “Forex Surfing” to use as an entry technique into trades more appropriate for “Sailing”. More about this will be discussed later in this eBook. Here is a thought for you: Trading one regular lot for 20 pips is the same thing as trading 1 mini lot for 200 pips, 2 mini lots for 100 pips, 4 mini lots for 50 pips, etc. Bottom line is to just think of these types of larger trade risks as being the same thing just scaled differently. Back to our discussion about proper equity management applicable to the techniques in this eBook.
The most common mistake made by rookie traders (of Forex, Stocks,
Commodities, or whatever) is that they fail to understand the purpose of
setting “Stops”. Many seem to think that a stop is placed to limit how bad a
trade can go based on what they can afford to loose. The mentality is that if
they can only afford to loose a specific amount of money then they place their
stops there. This is complete “bovine excrement” and is a surefire way to
loose your money as a trader. The market couldn’t care less about what you
can afford to loose, and it certainly won’t stay away from your stop price just
to be nice to you. Your stops must be set at prices not based on what you
can afford to loose, but rather based on strategic price levels, that
indicate to you that your original assumptions about the direction the
market will move in were wrong. One thing I always strive to make sure
you are aware of in all my materials is at what strategic price level to cut your
losses and the logic behind the reasons for those price levels.
The other most common mistake made by rookies (I’m not really sure which
is more common than the other, but they both happen) is that they DON’T use
stops. YIKES!!! Just the thought of this makes scenes of horror movies and
the theme song of the movie “Jaws” flash through my mind. I’ve heard
people say stupid things like “don’t worry, I’m watching what’s going on and
can manually exit a trade if things go sour”. Folks, trading without a stop is
one of the dumbest things you can possibly do (other than deliberately trying
to loose money by trading). What could happen if you loose your Internet or
electrical power while in the middle of the trade and can’t sit there to baby-sit
your computer watching to see what happens? Even worse, what if the market
dives sharply & quickly due to some unforeseen news? Bottom line is a “stop
loss” is there to protect yourself from unnecessary losses. Just do yourself a
favor and ingrain the following thought into your mind. NEVER EVER
EVER TRADE WITHOUT A STOP.
Now having a stop loss set is of course a very good idea, but you need to be
aware that since September 2004 most Forex brokers now have a new policy
that they’ll guarantee stops under all market conditions except in
circumstances of extreme market volatility (the reason why is explained as a
supplementary information at the end of this section). What this means is that
the only time that your Forex broker might (and the key word here is “might”
because they still often do) not honor your stop loss is if a Fundamental
Announcement blows the current market price (a gap) way far beyond your
set stop loss level. Knowing this you need to be aware of when FAs are being
released so you can make the appropriate decision whether to engage/remain
in the trade or not.
Now that you know that you should always trade with a stop in place you also
have to know how much you are willing to loose on any one trade. Again, as
stated above, where (at what price) you set your stop is not arbitrary but at a
strategic price level that would prove that your original assumption of which
direction the market will move in was wrong. What I am meaning here how
much of your margin account balance may be risked for any single trade.
2% is the ideal risk level for most traders. Less than 2% (i.e. 1% or 0.5%) is
even safer, and it is usually what professional traders stick to, but significantly
less than 2% will usually yield to small gains for the tastes of most solo
speculators.
What does 2% mean? Simply put, for ever $100 you have in your trading
account you should not risk more than $2 on any trade. If you have $1,000
then $20 is your maximum risk, if you have $10,000 then $200, if you have
$100,000 then $2,000, and so on. You can do the math to figure out what
your maximum risk amount should be based on how much money you have in
your trading account by simply dividing by 50.
Usually traders that have small trading account balances bend this rule to have
their accounts grow larger faster, and also simply because they simply
wouldn’t be able to engage in some trades. Thus they take bigger risks, which
is fine, but if you are one of them then realized that your account balance will
swing wildly rather than experience a nice steady climb.
Only half of the equation of being a profitable trader is having cultivated the
skill of consistently picking trades that out perform the inevitable losses. The
other half is consistent application of equity management strategy.
Why limit yourself to 2%? Simply because this is an important part of being a
successful trader. If you were to “bet the farm” (bet all or a huge percentage
of your equity) on one trade then you could possibly walk away triumphantly,
but chances are you would loose terribly and will abort your career as a Forex
trader. Maximizing your losses at 2% means that you can weather out a series
of potential losses (also known as “draw down”) to allow you to stay in the
game long enough to catch some winners. Remember that the deeper you “go
into the hole” (loose equity) the harder it’ll be for you to just recover to the
breakeven point. For example, if you were to loose 50% of your account then
you’d have to shoot for a 100% gain just to recover. You’ve heard the cliché,
“a dollar saved is a dollar earned”, well a part of the overall success of a trader
is to protect your equity and not to squander it. Protect your balance from
significant losses – not loosing much is part of the overall strategy of building
0 التعليقات:
إرسال تعليق