Controlling risk is one of the most important ingredients of successful trading. While it is emotionally more appealing to focus on the upside of trading, every trader should know precisely how much he is willing to lose on each trade before cutting losses, and how much he is willing to lose in his account before ceasing trading and re-evaluating.
Risk will essentially be controlled in two ways: 1) by exiting losing trades before losses exceed your pre-determined maximum tolerance (or "cutting losses"), and 2) by limiting the "leverage" or position size you trade for a given account size.
Cutting Losses
Too often, the beginning trader will be overly concerned about incurring losing trades. He therefore lets losses mount, with the "hope" that the market will turn around and the loss will turn into a gain.
Almost all successful trading strategies include a disciplined procedure for cutting losses. When a trader is down on a positions, many emotions often come into play, making it difficult to cut losses at the right level. The best practice is to decide where losses will be cut before a trade is even initiated. This will assure the trader of the maximum amount he can expect to lose on the trade.
The other key element of risk control is overall account risk. In other words, a trader should know before he begins his trading endeavor how much of his account he is willing to lose before ceasing trading and re-evaluating his strategy. If you open an account with $2,000, are you willing to lose all $2,000? $1,000? As with risk control on individual trades, the most important discipline is to decide on a level and stick with it.
Determining Position Size
Before beginning any trading program, an assessment should be made of the maximum account loss that is likely to occur over time, per lot . For example, assume you have determined that your worse case loss on any trade is 30 pips. That translates into approximately $300 per $100,000 position size. Further assume that the $100,000 position size is equal to one lot. Five consecutive losing trades would result in a loss of $1,500 (5 x $300); a difficult period but not to be unexpected over the long run. For a $10,000 account trading one lot, this translates into a 15% loss. Therefore, even though it may be possible to trade 5 lots or more with a $10,000 account, this analysis suggests that the resulting "drawdown" would be too great (75% or more of the account value would be wiped out).
Any trader should have a sense of this maximum loss per lot, and then determine the amount he wishes to trade for a given account size that will yield tolerable drawdowns.
Saturday, March 29, 2008
Monday, March 24, 2008
Dollar slips against euro
Tue, Mar 25 2008, 01:56 GMT
NEW YORK (AP) - The dollar edged down slightly against the euro late Monday night in New York. The 15-nation currency rose to $1.5433 from $1.5418 it traded in the late afternoon.
Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
NEW YORK (AP) - The dollar edged down slightly against the euro late Monday night in New York. The 15-nation currency rose to $1.5433 from $1.5418 it traded in the late afternoon.
Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Friday, March 7, 2008
Dollar sets low against euro, rebounds
The dollar briefly fell to a record low against the euro Friday after data showed U.S. job cuts rose to the biggest monthly number in five years.
But the greenback regained lost ground and was trading higher against the euro by late afternoon as traders pondered the Federal Reserve's announcement that it would provide more cash to banks that need it.
The U.S. Labor Department said American employers cut 63,000 jobs in February -- the starkest sign yet that the U.S. is heading toward a recession or has entered one already.
Those fears pushed the 15-nation euro as high as $1.5463. It was the latest in a string of all-time highs but the surge was cut short as the focus shifted to a Fed announcement that it would boost the size of auctions planned for March 10 and March 24 to $50 billion each.
That amount is up from the $30 billion limits it had previously unveiled. The auctions serve as short-term loans to get banks the cash they need to keep lending to their customers.
That pushed the euro down to $1.5335 in late afternoon New York trading -- below the $1.5365 it bought late Thursday.
European businesses say they are starting to feel the pinch, notably from U.S.-based buyers who assert that the high euro makes European goods more expensive.
Also Friday, the British pound traded above the $2 mark for a second day, buying $2.0173 -- above the $2.0092 it bought the previous day. It had jumped Thursday after the Bank of England kept its key interest rate unchanged at 5.25 percent.
The dollar fell as low as 101.40 Japanese yen, near a three-year low, before it recovered to 103.09 yen in late New York trading, unchanged from late Thursday.
In other New York trading, the dollar rose to 1.0175 Canadian dollars from 1.0144 Canadian dollars Thursday, but slipped to 1.0249 Swiss francs from 1.0255 Swiss francs.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
But the greenback regained lost ground and was trading higher against the euro by late afternoon as traders pondered the Federal Reserve's announcement that it would provide more cash to banks that need it.
The U.S. Labor Department said American employers cut 63,000 jobs in February -- the starkest sign yet that the U.S. is heading toward a recession or has entered one already.
Those fears pushed the 15-nation euro as high as $1.5463. It was the latest in a string of all-time highs but the surge was cut short as the focus shifted to a Fed announcement that it would boost the size of auctions planned for March 10 and March 24 to $50 billion each.
That amount is up from the $30 billion limits it had previously unveiled. The auctions serve as short-term loans to get banks the cash they need to keep lending to their customers.
That pushed the euro down to $1.5335 in late afternoon New York trading -- below the $1.5365 it bought late Thursday.
European businesses say they are starting to feel the pinch, notably from U.S.-based buyers who assert that the high euro makes European goods more expensive.
Also Friday, the British pound traded above the $2 mark for a second day, buying $2.0173 -- above the $2.0092 it bought the previous day. It had jumped Thursday after the Bank of England kept its key interest rate unchanged at 5.25 percent.
The dollar fell as low as 101.40 Japanese yen, near a three-year low, before it recovered to 103.09 yen in late New York trading, unchanged from late Thursday.
In other New York trading, the dollar rose to 1.0175 Canadian dollars from 1.0144 Canadian dollars Thursday, but slipped to 1.0249 Swiss francs from 1.0255 Swiss francs.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Sunday, March 2, 2008
10 Tips for your success in Forex trading
1. Implement a trading plan.
“If you fail to plan, you plan to fail”. A trading plan is especially crucial in Forex trading to stay ‘in-control’ against the emotional stress in speculative situation. Often, your emotions will blind and lead you to the negative sides: greed causes you to over-ride on a win while fear causes you to cut short in your profits. Hence, a well organized operation has to be predetermined and strictly followed.
2. Trade within your means
If you cannot afford to lose, you cannot afford to win. Losing is a not a must but it is the natural in any trading market. Trading should be always done using excess money in your savings. Before you start to trade in Forex, we suggest you to put aside some of your income to set up your own investment funds and trade only using that funds.
3. Avoid emotion trading
If you do not have a trading plan, make one. If you have a trading plan, follows it strictly! Never ever attempt to hold your weakened position and hope the market will turn back in your favor direction. You might end up losing all your capital if you keep holding. Move on, stay within your trading plan, and admit your mistakes if things do not turn as you want.
4. Ride on a win and cut your losses
Forex trader should always ride till the market turns around whenever a profit is show; while during losing, never hesitate to admit your mistakes and exit the market. It is human nature to stay long on loses and satisfy with small profits – this is why as we mentioned earlier that a strictly followed trading plan is a must-have.
5. Love the trends
Trends are your friends. Although currency values fluctuate but from the big picture it normally goes in a steady direction. If you are not sure on certain moves, the long term trend is always your primary reference. In long run, trading with the trends improves your odds in the Forex market.
6. Stop looking for leading indicators
There aren't any in the Forex market. While some firms make a lot of money selling software that predicts the future, the reality is that if those products really worked, they wouldn't be giving the secret away.
7. Avoid trading in a thin market
Trade on popular currency pairs and avoid thin market. The lack of public participation will cause difficulties in liquidate your positions. If you are beginners, we suggest the big five: USD/EUR, USD/JPY, USD/GBD, USD/CHF, and EUR/JPY
8. Avoid trading in too many markets
Do not confuse yourself by overtrading in too many markets especially if you are a beginner. Go for the major currency pairs and drill down your studies in it.
9. Implement a proper trading system
There is hundreds of trading systems available on line. Pick one that you are most comfortable with and stick with it. Stay organized in your trades and fully utilized stop-loss or limit functions in your trades.
10. Keep learning
The best investment is always the investment on your brain. Without a doubt, Forex trading needs much more than just a few guidelines or tips to be successful. Experience, knowledge, capital, fortitude, and even some help of luck are all crucial in one’s success in the FX market. if you lose in a trade, do not lose the experience in it. Learn from your mistakes and regain your position in the next trade.
“If you fail to plan, you plan to fail”. A trading plan is especially crucial in Forex trading to stay ‘in-control’ against the emotional stress in speculative situation. Often, your emotions will blind and lead you to the negative sides: greed causes you to over-ride on a win while fear causes you to cut short in your profits. Hence, a well organized operation has to be predetermined and strictly followed.
2. Trade within your means
If you cannot afford to lose, you cannot afford to win. Losing is a not a must but it is the natural in any trading market. Trading should be always done using excess money in your savings. Before you start to trade in Forex, we suggest you to put aside some of your income to set up your own investment funds and trade only using that funds.
3. Avoid emotion trading
If you do not have a trading plan, make one. If you have a trading plan, follows it strictly! Never ever attempt to hold your weakened position and hope the market will turn back in your favor direction. You might end up losing all your capital if you keep holding. Move on, stay within your trading plan, and admit your mistakes if things do not turn as you want.
4. Ride on a win and cut your losses
Forex trader should always ride till the market turns around whenever a profit is show; while during losing, never hesitate to admit your mistakes and exit the market. It is human nature to stay long on loses and satisfy with small profits – this is why as we mentioned earlier that a strictly followed trading plan is a must-have.
5. Love the trends
Trends are your friends. Although currency values fluctuate but from the big picture it normally goes in a steady direction. If you are not sure on certain moves, the long term trend is always your primary reference. In long run, trading with the trends improves your odds in the Forex market.
6. Stop looking for leading indicators
There aren't any in the Forex market. While some firms make a lot of money selling software that predicts the future, the reality is that if those products really worked, they wouldn't be giving the secret away.
7. Avoid trading in a thin market
Trade on popular currency pairs and avoid thin market. The lack of public participation will cause difficulties in liquidate your positions. If you are beginners, we suggest the big five: USD/EUR, USD/JPY, USD/GBD, USD/CHF, and EUR/JPY
8. Avoid trading in too many markets
Do not confuse yourself by overtrading in too many markets especially if you are a beginner. Go for the major currency pairs and drill down your studies in it.
9. Implement a proper trading system
There is hundreds of trading systems available on line. Pick one that you are most comfortable with and stick with it. Stay organized in your trades and fully utilized stop-loss or limit functions in your trades.
10. Keep learning
The best investment is always the investment on your brain. Without a doubt, Forex trading needs much more than just a few guidelines or tips to be successful. Experience, knowledge, capital, fortitude, and even some help of luck are all crucial in one’s success in the FX market. if you lose in a trade, do not lose the experience in it. Learn from your mistakes and regain your position in the next trade.
USD Losses Accelerate
by Korman Tam
The beleaguered dollar found no reprieve against the majors, with the accelerated selling pushing the currency to fresh all-time lows against the euro, Swiss franc, 24-year lows versus the Aussie and 3-year lows versus the yen. Underscoring the greenback’s weakness has been the continued deterioration in US economic reports, raising fears of an imminent recession and reaffirming the Fed’s need for further aggressive monetary policy easing over the coming months. The reports today included January PCE, consumption, personal income, February Chicago PMI and the University of Michigan sentiment survey. Inflation remains firm as the January PCE price index edged higher with the monthly figure ticking up to 0.4% from 0.2% and 3.7% versus 3.5% a year earlier. The core PCE price index firmed to 0.3% m/m and 2.2% y/y. Personal consumption was flat in January and personal income eased to 0.3%, down from 0.5%. Boding poorly for the economy and the greenback was a dismal February Chicago PMI report, which fell sharply to 44.5, far greater than the expected decline to 49.7 from 51.5 from January – beneath the key 50-level. However, the University of Michigan sentiment survey in February fell by slightly less than estimates, declining to 70.8 instead of forecasts for a fall to 70 from 78.4 a month earlier. Central bank policy decisions and US economic data will dominate the headlines next week. The ECB, BoE, BoC, BoJ and RBA are scheduled to announce policy decisions, with the Reserve Bank of Australia seen tightening rates by 25-basis points to 7.25%. The key highlight from the US will be Friday’s labor report, with the unemployment rate for February expected to edge higher to 5.0% from 4.9% and non-farm payrolls reversing the 17k jobs contraction from January, growing by 35k.
The beleaguered dollar found no reprieve against the majors, with the accelerated selling pushing the currency to fresh all-time lows against the euro, Swiss franc, 24-year lows versus the Aussie and 3-year lows versus the yen. Underscoring the greenback’s weakness has been the continued deterioration in US economic reports, raising fears of an imminent recession and reaffirming the Fed’s need for further aggressive monetary policy easing over the coming months. The reports today included January PCE, consumption, personal income, February Chicago PMI and the University of Michigan sentiment survey. Inflation remains firm as the January PCE price index edged higher with the monthly figure ticking up to 0.4% from 0.2% and 3.7% versus 3.5% a year earlier. The core PCE price index firmed to 0.3% m/m and 2.2% y/y. Personal consumption was flat in January and personal income eased to 0.3%, down from 0.5%. Boding poorly for the economy and the greenback was a dismal February Chicago PMI report, which fell sharply to 44.5, far greater than the expected decline to 49.7 from 51.5 from January – beneath the key 50-level. However, the University of Michigan sentiment survey in February fell by slightly less than estimates, declining to 70.8 instead of forecasts for a fall to 70 from 78.4 a month earlier. Central bank policy decisions and US economic data will dominate the headlines next week. The ECB, BoE, BoC, BoJ and RBA are scheduled to announce policy decisions, with the Reserve Bank of Australia seen tightening rates by 25-basis points to 7.25%. The key highlight from the US will be Friday’s labor report, with the unemployment rate for February expected to edge higher to 5.0% from 4.9% and non-farm payrolls reversing the 17k jobs contraction from January, growing by 35k.
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