Forex for a trader
How long should i keep my open forex position

How long should i keep my open forex positionWhat happens when I leave my Forex positions open overnight? In Forex, when you keep a position open through the end of the trading day, you will either be paid or charged interest on that position, depending on the underlying interest rates of the two currencies in the pair. In the examples below, we'll show you how to calculate the amount that will be credited or charged, factoring in only the interest rates and the broker's commission, but in reality, the "storage" for holding a position overnight may depend on a variety of factors: The current interest rates in the two countries The price movement of the currency pair The behavior of the forward market The dealer's expectations The swap points of the broker's counterparty. Here's what we mean when we say storage depends on interest rates: Let's say that the interest rate of the European Central Bank (ECB) is 4.25% and the Fed (US) interest rate is 3.5%. You open a short position (Sell) on EURUSD for 1 lot. Here, you are essentially selling 100,000 EUR, borrowing at a rate of 4.25%. In selling EURUSD, you are buying US Dollars, which earn interest at a rate of 3.5%. When the interest rate of the country whose currency you are buying is more than the interest rate of the country whose currency you are selling, storage will be added to your trading account (this may not always hold true, as brokers often charge a fee or markup for overnight swaps). If the interest rate is higher in the country whose currency you are selling, as is the case in this example (4.25 > 3.5), storage will be deducted from your account. Now let's say the broker charges an extra 0.25% for the swap. Add this to the 0.75% difference in the interest rates and you get 1.00%. For the position described above, the storage you will be charged will be equivalent to being charged 1.00% interest. Calculating the swap on a short position: Here we are buying USD and selling EUR. Since the interest rate of the currency we are selling (EUR: 4.25%) is higher than that of the currency we are buying (USD: 3.5%), we will add the Markup in the formula: SWAP = (Contract ? (InterestRateDifferential + Markup) 100) ? rice DaysPerYear. Contract: 100,000 EUR (1 lot) rice: EURUSD - 1.3500 InterestRateDifferential: 0.75% (the difference between the interest rates in Europe and the US) Markup: 0.25% (the broker's commission) DaysPerYear: 365 (number of days in a year) SWAP = (100,000 ? (0.75 + 0.25) 100) ? 1.3500 365 = 3.70 USD. When your short position on EURUSD is rolled over to the next day, 3.70 USD will be debited from your trading account for storage. Calculating the swap on a long position: When we buy EURUSD, we are buying EUR and selling USD. Since the interest rate of the currency we are buying (EUR: 4.25%) is higher than that of the currency we are selling (USD: 3.5%), we will subtract the Markup in the formula: SWAP = (Contract ? (InterestRateDifferential - Markup) 100) ? rice DaysPerYear. SWAP = (100,000 ? (0.75 - 0.25) 100) ? 1.3500 365 = 1.85 USD. When your long position on EURUSD is rolled over to the next day, 1.85 USD will be credited to your trading account. Please Note: When the difference between the interest rates is smaller than the broker's commission, you will be charged storage for both Buy and Sell orders. How long can a trader keep a short position? There is no mandated limit to how long a short position may be held.

Short selling involves having a broker who is willing to loan stock with the understanding that they are going to be sold on the open market and replaced at a later date. A short position may be maintained as long as the investor is able to honor the margin requirements and pay the required interest and the broker lending the shares allows them to be borrowed. Investors short stocks anticipating that the market price will fall, allowing them to buy shares to replace them at a lower price. Stocks are shorted by many investors every day. Some specialize either largely or exclusively in short selling. A stock that doesn't decrease in value quickly enough ends up costing the investor interest. The proceeds of the initial sale go into the investor's account and he or she pays the broker a percentage, which is usually around the U. S. prime rate plus 2%. At any point in time, the investor may buy replacement shares on the open market and return them to the brokerage. If he or she is able to buy them at a lower price, the investor keeps the difference as a profit. If the price is higher, the investor suffers a loss. For skilled investors, the terms offered by brokers for short selling can be quite favorable. Making stock available to be shorted at an interest rate just a few percentage points above prime appears to be a very good deal. The price of the shares can be much lower at the time of purchase, and the broker will have only received a small percentage of their original value. This suggests that brokers regularly suffer significant losses in the share-lending business.

Nevertheless, share lending is very profitable for brokerages. Investors may find that the best candidates for short selling are unavailable to be shorted. The availability of stocks for shorting changes regularly. Many stocks offered by smaller companies may not be available for shorting at all. How Long Should You Hold A Position Before You Let It Go And Cut Your Losses? Rationally deciding to exit a position and cut your losses is extremely tough. As humans, we naturally have a fear of losing and closing a losing position only reinforces that fear. Unlike winning trades, losing trades have a great impact on our emotions. This could be the #1 reason we tend to hold onto a losing position far longer than we ever should in the first place. We think that magically the market will reverse, and our losses will turn into gains; and until we close the position we haven't lost money yet. Oh, the tricks we play on our minds! Know When You Should Have Already Exited. In my opinion, if you start to second guess and question the position you should have already been heading for the exit doors. Typically those "feelings" you have deep in your stomach will try to keep you in the position as you think to yourself, "it will turn around soon." How long should you hold on then? Only long enough to realize that the investment is not going to turn around. When you hope and pray more than anything else, you should hit the sell button.

Remember the 14 stages of investor emotions? It's the same cycle that's played out time and time again with each of us. But I would rather see you live to fight another day. Take the loss and make adjustments for the future. Guided Video Training At Your Own Pace w Option Alpha “Tracks”: Options trading can be overwhelming if you don't know where to start. Our “Tracks” are guided learning courses that help you reach your goals. Each program was hand-crafted to help you regardless of your current options trading experience. Click here to choose your track ? Forget What Happens After You Get Out. Sometimes after you exit a position, you'll watch it turn around and do exactly what you "thought" it was going to do. This is horrible for traders - beware! When we see this happen we naturally think to ourselves that we were wrong, and we knew it was going to turn around. We kick ourselves in the head and swear up and down that next time we'll stick to our guns. Don't fall into for this trap! This is horrible habit to get into because the next time could be the last time you trade if you blow up your account. Whatever happens after you exit is a clean, fresh slate. You made a rational decision to exit (I hope), and now you have to re-analyze the market. Remember that if you are focusing on high probability option trades like we teach in our free course, you know that eventually you'll have some winning trades that will more than overshadow a couple losers.

Learn From Your Mistakes, Keep Moving Forward. There is no right or wrong answer here but only the lesson that at some point bad trades will occur. Recognize them early and get rid of them. Keep making trades and learning from past mistakes. The best traders know that hedging early and often saves thousands of dollars each year. Sure you'll give up a little profit to protect you positions, but in the end it more than outweighs the risk of letting losers drag you down. Is there a buy-and-hold strategy in forex, or is the only way to make money by trading? Typically there are different ways to trade in most markets. Traders have been classified into three groups, primarily based on the time frame they prefer to trade. For simplicity, we can label these three groups as day traders, swing traders and position traders. Some people consider a position's trade or buy-and-hold strategy as an investment, but in reality it is just a long term trade. Nevertheless, in the forex market, one can hold a position for as long as a few minutes to a few or more years. Depending on the goals of the trader, one can take a position based on the fundamental economic trends in one country versus another. For example, a long-term trade in the forex market, or a buy and hold position, if one prefers that term, would have been good for someone who had sold dollars to buy euros back in the early 2000's and then held on to that position for a few years.

Suppose an American buys shares in a company in Europe, they will have pay for those shares in euros, thus there is a requirement to convert dollars into euros. Not only is the American speculating on the growth of the European company, but also on the appreciation of the euro against the dollar. In this example, the American may have benefited from an appreciating value of the shares that he or she bought, but also benefit from an appreciating currency. Of course, in the converse, had someone in Europe bought shares in a company like General Motors (NYSE:GM), they would have had to pay for those shares in dollars but would have lost value in both the shares and the currency during the same time period. If one wants to buy and hold a currency, one would possibly sell a currency that pays a low interest rate, such as the yen and buy a currency that pays a high interest rate, such as the Australian dollar. This would be considered a carry trade, where the trader will earn the interest differential between the two currencies. While he knows how much interest he will receive, he does not know how the two currencies will continue to perform against each other. Most of the Forex traders though, tend to be short term traders, constantly timing the market swings in the hope of profiting from doing so. (For more, see Forex Tutorial: The Forex Market .) This question was answered by Peter Cherewyk. How long should i keep my open forex position. My friend Peter just blew his account. After spending $15,000 on Forex courses, $10,000 on coaching, and losing $5,000 to a scam broker (InvesttechFX) – he was ready to call it quits. After all of that, he decided to give it one last try. He bought an Expert Advisor (EA, also known as a trading robot). After 6 months, boom… his trading account was gone – again .

“I am just stupid! Bloody stupid.” he told me. However, Peter didn’t understand that it wasn’t his fault . He wasn’t “stupid”. He was being harsh on himself. It wasn’t his fault for believing marketers and people with their “track records”, MyFXBook results, and hundreds of testimonials. It is hard to resist. Upon closer inspection though, it was obvious to me that this would never have worked. Do you really think Warren Buffet relies on MyFXBook or a MetaTrader 4 account to make his buying decisions? Do you think that anybody in the City of London or Wall Street make trading decisions based on that? I do have an unfair advantage though. I spent 23 years on Wall Street trading wealthy client accounts.

The last 13 years have been spent trading for myself. During that time I have seen a number of miracles happen. One of my biggest wins early in my trading career was a trade in 1982. I started with a paltry $8,000 to my name and I used it to buy silver on the futures exchanges. As it turns out my analysis was spot on, and I ended up running my $8,000 account to a little over $280,000 in only 30 days. Since that time I have modified my trading strategy – slightly . After 120,000 trades, 1,200 trading accounts, and 8 Wall Street Firms – I am going to give you an exact guide to walking away with 4 additional winning trades per month and avoid losing your shirt – like Peter did (I’ll tell you what happened to him in a minute). Before you read this article you must agree to the following statements: There’s no magic pill. The markets are full of sharks and they will eat you alive. You need to stick to simple and sensible rules. The Forex systems and robots churned out by internet marketer’s are laughable. – especially if you think that’s how they make money on Wall Street. And trust me, they DO make tons of money.

Forget about making 20% per month. That’s how poor people think. I’ll let you know exactly how much you can actually make later in this article. Now, if you agree with all of those statements then I salute you. If you disagree with any of them, then close this page right now. Still here? Good… You are part of a small group of people who can separate reality from outright dreams and lies. And for that reason you will understand the words in this article better than anyone. I don’t have time for ‘internet traders’, the ‘Forex forums’, or any other breeding ground for newbies who pretend they really know how the markets work – and neither should you. This article is going to be simple. I am going to show you how to get 4 – yes, just 4 – additional winning trades every month. Don’t be fooled by the goofy EA developers and internet marketers out there.

Having 4 profitable trades per month is more than enough to push you into the big boys club. You can make more, but my aim is to get you started with something consistent. Once you’ve got that mastered you can increase your output. Why you won’t make a dime from the information contained in this article. Most people reading this won’t make a single dollar. Not because the content sucks – I believe it is some of the best trading tips in the world. It is because people are lazy and don’t implement what they learn. It is because people lose their shit and take too much risk. And it is because you might not be able to handle my style.

My past results really are no indication of you making any money whatsoever. You might simply not have what it takes. However, there are a small percentage of people who do. And by following the rules you might be one of them. There are no guarantees. So read carefully and make sure you examine every word on this page as if your life depends on it. Because it might just change it forever – if you have what it takes. #1. The last opportunity for major profits in the Forex market. Have you ever been stopped out of the trade, just for it to change direction immediately? Do you ever feel like every decision you make is the wrong one? There is this big lie out there that hundreds of thousands of Forex traders believe. And you may have believed this too at one point. “The Forex market is the most liquid market in the world and therefore it cannot be manipulated “.

That is plain wrong. Governments have been cracking down on big banks because of their manipulation of a whole host of markets. Check out this article on the BBC: Have a look at this chart they supplied: Have you ever been knocked out of a trade that just seemed totally random? Well, chances are somebody rigged it. And chances are… you didn’t confirm your trade with a “2-pattern overlay”. More on that in a little bit. You and I are small fish who are competing with much MUCH bigger sharks. Sharks who know the waters better than you do. I used to swim with them. Merrill Lynch was only one of 8 companies I worked for on Wall Street. They did NOT take prisoners. There are entire teams who’s job it is to cheat the system.

And those are some of the brightest minds in the world from the best universities in the world. You have to accept that you cannot beat them. That’s why, what I’m about to reveal, is the very last opportunity to profit in the Forex markets. Forget scraping a few pips off the charts. Forget taking daily pivot trades, or “snipers”, or FAPTurbos, or whatever else these idiots are selling these days. You have to stick to simple daily trades that unfold over a period of days, weeks, and sometimes months. By riding the wave on a boat, you’ll be safe from the sharks on Wall Street. #2. How to dominate a currency with profitable trades. That’s a lie. You can never ‘dominate’ a market. That kind of thinking will get your account murdered. However, you can put the odds severely in your favor by doing one thing. You can use a simple “2-pattern overlay” before entering a trade. I’ve been using this since the 80s and it still works better than anything. One million dollar client at EF Hutton & Co (another Wall Street company) dubbed me the “2-pattern wizard”.

Every time I used it he knew he was about to make enough cash to buy another house. All you do is look for a minimum of two chart patterns to “confirm the trade”. Now, that doesn’t mean you confirm an entry. You simply confirm that you potentially want to take a trade. Here’s an example from one of my trades: I saw a triple “core support bounce”, and then a simple overhead resistance. (If you don’t know how to spot price patterns then don’t worry… I’ll get to that). DON’T jump into the trade just yet – it isn’t that easy. You still have to know when to enter. I use a very specific ‘trigger’ that usually means the market is coiled like a spring, ready to burst in the right direction. Keep reading and you’ll learn all about it. #3. Use this simple trigger. Most newbies would simply jump into the trade because they saw a “double bottom” or some other pattern. You and I know better.

You have to wait for the market to form a coil. There are several different types of market “coils”, however the one I’m about to reveal is the easiest to spot and tends to give me better results. It is called an “inside day bar”. So, looking at the daily chart I would wait for this bar to form. Here’s a real live example from a trade I took a while ago: Two inside day bars were the beginning of a nice coil. Here’s another example: #4. Have a tight stop loss and await the coming burst in movement. Remember that silver trade I told you about in the 1980s? It was my first big win. Even though I turned $8k into $280k the risk was minimal. I did that by scaling into a rocketing market. Despite what people say… NEVER do that. Not until you understand the true risks involved. It can take a heavy psychological impact on you. I once saw a guy at Commodities Corp (now a division of Goldman Sachs) throw his computer across the room because he leveraged his position by scaling in too much. Theres no need to do it. Simply stick with what I am about to reveal and you could walk away with a handful of winning trades each month. Keep the initial stop loss tight, and then keep it loose… The initial stop loss is very tight. I anchor it close to the previous bar. If you’ve established the correct price action and trigger bar, you should see it shoot off in the right direction.

Only 1 out of 2 trades tends to linger around. If they turn, then it means the trade is a dud and your stop loss will kick you out quickly. However, when it goes… it goes. Here’s an example of a good trade I took. I made a fat 5.2% in about one week. This example shows how it immediately jumped in my favor. That means I spotted a good coil. By the way… those are actual trades. My trading platform marks them with those little circled arrows. Here’s another example: EURGBP immediately jumped after a trigger coil for a 2.5% gain in just one day. I don’t usually exit trades in the same day, however, 2.5% is a lot of money in my world. You don’t often see 2.5% days. If everyday was like that my account would grow by a billion every month.

So when it happens… I take it. #5. Exiting the trade for a fat profit. This is how you get 4 additional winning trades. If you get the coil right. Your trade should shoot out of the block like Usain Bolt. This allows you to have a tight stop loss. It puts you in a great position to make huge gains with a tiny risk. If your stop loss was far away from your initial entry then your risk would be greater and you’ll have to reduce your position size. Therefore, I would recommend a hard and fast 3:1 risk reward ratio. If your stop loss is 35 pips away, your profit target will be 105 pips (three times the stop loss). Now, admittedly I use a way more complicated process for my exits.

I could write an entire book on it. However, when I looked back at my last 300 trades, I noticed that if I used THIS exit strategy I would still have made a great return. It is simple and it takes psychology out of the equation. I learned this while working at Bridgewater Associates (they manage about $170 billion) from a funny looking Irishman. Back in 20112012 I forgot this rule and I duly got slaughtered. There is a story inside of the book ‘Marketing Wizzards’. It talks about a great trader who locks himself in a room with no distractions. No windows. No TV. No Computer. He has his assistant bring him his chart-book without the instruments named.

So he doesn’t know if he’s trading pork bellies or gold. He doesn’t care. All he cares about is the price and the fact that he has no distractions. It means he ‘never loses’. My rule gives me the same sort of piece of mind. Before I let you in on it you must know what I mean by ‘never’ lose. When you lose a trade – you aren’t ‘losing’ . It is simply part of the process. It is the equivalent of a business expense. You will always lose trades. However, when you lose your mind and you don’t follow your own rules. That’s when you truly lose. So here are the exact rules you need to follow to NEVER lose, always stick to your rules, and always win in the long run. Do not share your trading results. I did once.

And only once. It was a huge mistake. All of the sudden I was answerable to thousands of people who happen to stumble across my profile. This doesn’t work when you are a trader. I lost focus. I kept fussing about whether a trade was a winner or a loser. I didn’t focus on whether it followed the rules or not. As long as you follow the rules… you are winning. When you don’t follow the rules – you are losing (even when you make a profit). Systems and routines are the only thing that make you profitable in the long run. It is the only thing that’ll protect you against the sharks. So whatever you do – don’t share you trading results.

Not even with your husband or wife. It’ll put external pressures on you. Don’t even mention a winning trade or a losing trade. Simply tell them you’re winning because you followed the rules. #7. How to make $1m from trading. Do you want to know the real secret? The one that most people ignore, because they don’t really take their trading seriously? Well, it is a system of recording and documenting your trades in detail. I call it a trade journal. Super original right? Every single time I am about to take a trade, I stop. I take a snapshot of the chart, I write out my analysis (the reason WHY), and then I enter the order.

90% of my orders are pending orders, which means they only enter when the market reaches a specific price. This is an example of three pages inside of my journal. By doing this with your trading you’ll be able to get a lot more focussed. When you look at the markets you will feel excited. You will get a rush of adrenaline. Stop. Take a deep breath and start recording the trade before it happens. It gives you the breathing room you need to make rational decisions. It helps you to be a winner every time by following the rules. Seriously. Get my journal. It’ll show you how you should structure yours for maximum results.

You’ll also get a better feel for the way I trade. #8. Past trading results on MyFXBook will drain your trading account. This is the biggest difference between the Wall Street traders and normal folk. On Wall Street – we know that past results don’t mean anything. They really are no indication of future performance. Even if the results are third party verified. Think about it. How many times have you bought a system or a program based on their past results? And… how many times has it worked out? Now you have two choices. I should congratulate you. You’ve read the entire article. However, this is just the start. You now face two choices. Choice #1. Forget what I told you and keep doing what everybody else is doing. It is easier to follow the herd after all. Some of the things I talked about aren’t easy. Some of them are plain boring. Yet this is what it takes.

And I think you know that, which is why you’ll probably go for… Choice #2. This is the choice smart Forex traders go for. You grit your teeth and follow the rules. So that you can finally break away from the ‘internet herd’ and actually start taking pride in being a trader. Don’t fall into the same trap as Peter. Be the person that “actually makes money”. How nice would that feel for a change? I’ll help you out by giving you my 21 Power Strategies without asking you for a dime. Just let me know which email address I should send it. What is the Number One Mistake Forex Traders Make? by David Rodriguez , Timothy Shea. Your Forecast Is Headed to Your Inbox. But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly. You are subscribed to David Rodriguez. You can manage you subscriptions by following the link in the footer of each email you will receive.

An error occurred submitting your form. Please try again later. Summary: Traders are right more than 50% of the time, but lose more money on losing trades than they win on winning trades. Traders should use stops and limits to enforce a riskreward ratio of 1:1 or higher. Big US Dollar moves against the Euro and other currencies have made forex trading more popular than ever, but the influx of new traders has been matched by an outflow of existing traders. Why do major currency moves bring increased trader losses? To find out, the DailyFX research team has looked through amalgamated trading data on thousands of live accounts from a major FX broker. In this article, we look at the biggest mistake that forex traders make, and a way to trade appropriately. What Does the Average Forex Trader Do Wrong? Many forex traders have significant experience trading in other markets, and their technical and fundamental analysis is often quite good. In fact, in almost all of the most popular currency pairs that clients traded at this major FX broker, traders are correct more than 50% of the time : The above chart shows the results of a data set of over 12 million real trades conducted by clients from a major FX broker worldwide in 2009 and 2010. It shows the 15 most popular currency pairs that clients trade. The blue bar shows the percentage of trades that ended with a profit for the client. Red shows the percentage of trades that ended in loss. For example, in EURUSD, the most popular currency pair, clients a major FX broker in the sample were profitable on 59% of their trades, and lost on 41% of their trades.

So if traders tend to be right more than half the time, what are they doing wrong? The above chart says it all. In blue, it shows the average number of pips traders earned on profitable trades. In red, it shows the average number of pips lost in losing trades. We can now clearly see why traders lose money despite bring right more than half the time. They lose more money on their losing trades than they make on their winning trades . Let’s use EURUSD as an example. We know that EURUSD trades were profitable 59% of the time, but trader losses on EURUSD were an average of 127 pips while profits were only an average of 65 pips. While traders were correct more than half the time, they lost nearly twice as much on their losing trades as they won on winning trades losing money overall. The track record for the volatile GBPJPY pair was even worse.

Traders were right an impressive 66% of the time in GBPJPY – that’s twice as many successful trades as unsuccessful ones. However, traders overall lost money in GBPJPY because they made an average of only 52 pips on winning trades, while losing more than twice that – an average 122 pips – on losing trades. Cut Your Losses Early, Let Your Profits Run. Countless trading books advise traders to do this. When your trade goes against you, close it out. Take the small loss and then try again later, if appropriate. It is better to take a small loss early than a big loss later. Conversely, when a trade is going well, do not be afraid to let it continue working. You may be able to gain more profits. This may sound simple – “do more of what is working and less of what is not” – but it runs contrary to human nature. We want to be right.

We naturally want to hold on to losses, hoping that “things will turn around” and that our trade “will be right”. Meanwhile, we want to take our profitable trades off the table early, because we become afraid of losing the profits that we’ve already made. This is how you lose money trading. When trading, it is more important to be profitable than to be right. So take your losses early, and let your profits run. How to Do It: Follow One Simple Rule. Avoiding the loss-making problem described above is pretty simple. When trading, always follow one simple rule: always seek a bigger reward than the loss you are risking. This is a valuable piece of advice that can be found in almost every trading book. Typically, this is called a “ riskreward ratio ”. If you risk losing the same number of pips as you hope to gain, then your riskreward ratio is 1-to-1 (sometimes written 1:1). If you target a profit of 80 pips with a risk of 40 pips, then you have a 1:2 riskreward ratio. If you follow this simple rule, you can be right on the direction of only half of your trades and still make money because you will earn more profits on your winning trades than losses on your losing trades. What ratio should you use? It depends on the type of trade you are making.

You should always use a minimum 1:1 ratio . That way, if you are right only half the time, you will at least break even. Generally, with high probability trading strategies, such as range trading strategies, you will want to use a lower ratio, perhaps between 1:1 and 1:2. For lower probability trades, such as trend trading strategies, a higher riskreward ratio is recommended, such as 1:2, 1:3, or even 1:4. Remember, the higher the riskreward ratio you choose, the less often you need to correctly predict market direction in order to make money trading. Stick to Your Plan: Use Stops and Limits. Once you have a trading plan that uses a proper riskreward ratio, the next challenge is to stick to the plan. Remember, it is natural for humans to want to hold on to losses and take profits early, but it makes for bad trading. We must overcome this natural tendency and remove our emotions from trading. The best way to do this is to set up your trade with Stop-Loss and Limit orders from the beginning . This will allow you to use the proper riskreward ratio (1:1 or higher) from the outset, and to stick to it. Once you set them, don’t touch them (One exception: you can move your stop in your favor to lock in profits as the market moves in your favor). Managing your risk in this way is a part of what many traders call “money management” . Many of the most successful forex traders are right about the market’s direction less than half the time. Since they practice good money management , they cut their losses quickly and let their profits run, so they are still profitable in their overall trading. Does This Rule Really Work? Absolutely.

There is a reason why so many traders advocate it. You can readily see the difference in the chart below. The 2 lines in the chart above show the hypothetical returns from a basic RSI trading strategy on USDCHF using a 60 minute chart. This system was developed to mimic the strategy followed by a very large number of live clients, who tend to be range traders. The blue line shows the “raw” returns, if we run the system without any stops or limits. The red line shows the results if we use stops and limits. The improved results are plain to see. Our “raw” system follows traders in another way – it has a high win percentage, but still loses more money on losing trades than it gains on winning ones. The “raw” system’s trades are profitable an impressive 65% of the time during the test period, but it lost an average $200 on losing trades, while only making an average $121 on winning trades. For our Stop and Limit settings in this model, we set the stop to a constant 115 pips, and the limit to 120 pips, giving us a riskreward ratio of slightly higher than 1:1. Since this is an RSI Range Trading Strategy, a lower riskreward ratio gave us better results, because it is a high-probability strategy. 56% of trades in the system were profitable.

In comparing these two results, you can see that not only are the overall results better with the stops and limits, but positive results are more consistent. Drawdowns tend to be smaller, and the equity curve a bit smoother. Also, in general, a riskreward of 1-to-1 or higher was more profitable than one that was lower . The next chart shows a simulation for setting a stop to 110 pips on every trade. The system had the best overall profit at around the 1-to-1 and 1-to-1.5 riskreward level. In the chart below, the left axis shows you the overall return generated over time by the system. The bottom axis shows the riskreward ratios. You can see the steep rise right at the 1:1 level. At higher riskrewards levels, the results are broadly similar to the 1:1 level. Again, we note that our model strategy in this case is a high probability range trading strategy, so a low riskreward ratio is likely to work well. With a trending strategy, we would expect better results at a higher riskreward, as trends can continue in your favor for far longer than a range-bound price move. Game Plan: What Strategy Should I Use? Trade forex with stops and limits set to a riskreward ratio of 1:1 or higher. Whenever you place a trade, make sure that you use a stop-loss order. Always make sure that your profit target is at least as far away from your entry price as your stop-loss is. You can certainly set your price target higher, and probably should aim for 1:2 or more when trend trading . Then you can choose the market direction correctly only half the time and still make money in your account.

The actual distance you place your stops and limits will depend on the conditions in the market at the time, such as volatility, currency pair, and where you see support and resistance. You can apply the same riskreward ratio to any trade. If you have a stop level 40 pips away from entry, you should have a profit target 40 pips or more away. If you have a stop level 500 pips away, your profit target should be at least 500 pips away. For our models in this article, we simulated a “typical trader” using one of the most common and simple intraday range trading strategies there is, following RSI on a 15 minute chart. Entry Rule: When the 14-period RSI crosses above 30, buy at market on the open of the next bar. When RSI crosses below 70, sell at market on the open of the next bar. Exit Rule: Strategy will exit a trade and flip direction when the opposite signal is triggered. When adding in the stops and limits, the strategy can close out a trade before a stop or limit is hit, if the RSI indicates that a position should be closed or flipped. When a Stop or Limit order is triggered, the position is closed and the system waits to open its next position according to the Entry Rule. The Traits of Successful Traders. This article is Part 1 of our Traits of Successful Traders series. Over the past several months, the DailyFX research team has been closely studying the trading trends of clients from a major FX broker, utilizing their trade data . We have gone through an enormous number of statistics and anonymized trading records in order to answer one question: “What separates successful traders from unsuccessful traders?

”. We have been using this unique resource to distill some of the “best practices” that successful traders follow, such as the best time of day, appropriate use of leverage, the best currency pairs, and more. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. How Long Should You Hold A Position Before You Let It Go And Cut Your Losses? Rationally deciding to exit a position and cut your losses is extremely tough. As humans, we naturally have a fear of losing and closing a losing position only reinforces that fear. Unlike winning trades, losing trades have a great impact on our emotions. This could be the #1 reason we tend to hold onto a losing position far longer than we ever should in the first place. We think that magically the market will reverse, and our losses will turn into gains; and until we close the position we haven't lost money yet. Oh, the tricks we play on our minds! Know When You Should Have Already Exited. In my opinion, if you start to second guess and question the position you should have already been heading for the exit doors.

Typically those "feelings" you have deep in your stomach will try to keep you in the position as you think to yourself, "it will turn around soon." How long should you hold on then? Only long enough to realize that the investment is not going to turn around. When you hope and pray more than anything else, you should hit the sell button. Remember the 14 stages of investor emotions? It's the same cycle that's played out time and time again with each of us. But I would rather see you live to fight another day. Take the loss and make adjustments for the future. Guided Video Training At Your Own Pace w Option Alpha “Tracks”: Options trading can be overwhelming if you don't know where to start. Our “Tracks” are guided learning courses that help you reach your goals. Each program was hand-crafted to help you regardless of your current options trading experience. Click here to choose your track ?

Forget What Happens After You Get Out. Sometimes after you exit a position, you'll watch it turn around and do exactly what you "thought" it was going to do. This is horrible for traders - beware! When we see this happen we naturally think to ourselves that we were wrong, and we knew it was going to turn around. We kick ourselves in the head and swear up and down that next time we'll stick to our guns. Don't fall into for this trap! This is horrible habit to get into because the next time could be the last time you trade if you blow up your account. Whatever happens after you exit is a clean, fresh slate. You made a rational decision to exit (I hope), and now you have to re-analyze the market. Remember that if you are focusing on high probability option trades like we teach in our free course, you know that eventually you'll have some winning trades that will more than overshadow a couple losers. Learn From Your Mistakes, Keep Moving Forward. There is no right or wrong answer here but only the lesson that at some point bad trades will occur. Recognize them early and get rid of them.

Keep making trades and learning from past mistakes. The best traders know that hedging early and often saves thousands of dollars each year. Sure you'll give up a little profit to protect you positions, but in the end it more than outweighs the risk of letting losers drag you down. Knowing when not to trade Forex is crucial to your success. There are a number of scenarios where it is inadvisable to trade Forex. These can be separated into personalenvironmental reasons and market reasons. Personal reasons not to trade: Get rid of all distractions. You need to keep your focus on the charts and not lose your concentration to other things going on. For instance, you might be waiting for a trade and get distracted. When you come back to your chart you have missed the trade, or even make an error in creating your trade. Distractions can cost you money. However, life is full of them so just put the cat in the hallway and shut the door. Put your baby in a playpen so you don’t have to worry that she has wandered off again. Whatever your potential distractions are, find a way to manage them before you start to trade. Emotional times.

If something emotional is happening in your life and you can’t maintain your objectivity, don’t trade! This could be any number of things that had a negative impact on your day. It could be that you had some road rage earlier or broke up with your partner etc. When trading, you need to be able to assess what is happening in quite a short amount of time. If you are mentally elsewhere then this will have a negative impact on your trading account. Emotionally taxing events are without doubt a sign of when not to trade. The personal times that you should avoid trading in can be summed up as times when you are out of sync with your normal mental rhythm. There are absolutely times where your emotions or environment negatively affect your trading. This may impact the likelihood of a successful trade. The good news is that these things tend to be in the realm of your control. The market reasons for not taking a trade are different in this sense. Market reasons tend to be external issues where you have very little control. These can really kick you in the leg and leave you limping for a while. Ignore them at your peril!

Market Reasons not to trade: Bank Holidays. These are scheduled and there is nothing you can do about it. If there is a U. S. or UK bank holiday I typically won’t trade. This is because the Banks are the biggest participants in the Forex market. If they are on holiday then the volume of transactions being carried out is greatly reduced. This can lead to either really static markets or on occasion erratic markets. Either way, I steer clear. If, however, it’s a Bank holiday in another country such as Japan or Australia then I wouldn’t trade currency pairs that belong to those countries (EURAUD, USDJPY etc.) but I would trade all the other pairs. It isn’t always about when not to trade, but also what not to trade. News.

There are scheduled news releases and economic news throughout any given day. These can be found in advance by using an economic calendar. The most popular one is Forex Factory’s calendar. It can sometimes be difficult to know when not to trade when it comes to news. There are 3 types of news: yellow, orange, and red. Each has a different expected impact which is explained in the calendar. High impact, red folders tend to really move the market, sometimes spiking in both direction, before finally settling down. These are high risk times where a lot of people get stopped out of trade. The one’s I specifically avoid would be the ISM Manufacturing data, interest rate announcements, and NFP related news announcement. However, it’s not just the announcements themselves that can affect the market. Rumours surrounding what the potential numbers will be can cause the market to move in anticipation.

Therefore, it’s generally not a good idea to trade the hour before and after news releases. With NFP, it’s a good idea not to trade that entire day. That may seem extreme, but these can be the biggest account killers that lead to traders quitting. Speeches. These tend to be on the economic calendar as well. If specific people are talking, please, do not trade. These people include the ECB President Mario Draghi , Fed Chairman Jerome Powell , and BOE Governor Mark Carney . It’s important that when the BOJ Governor Haruhiko Kuroda speaks to pay attention. These tend to happen when people are asleep, but if you are trading the Japanese session then be wary! These people are notorious for dropping hints about economic policy changes that are likely to happen with the currency they are responsible for. These hints can cause a lot of speculation in the market which results in a lot of price movement. This can affect price substantially as they are responsible for setting interest rates for those countries. As mentioned earlier, interest rate announcements can cause big movements. Erratic Periods . There will be times where a currency is moving differently from normal. Perhaps price is spiking and you don’t know why. This is a good time to stay out of the market.

If you can’t understand why price is behaving in a certain way, it is usually due to some unscheduled news that has been released or leaked. That is bad news because the market will be unsure as to how to react. For instance, this happened recently during the credit crunch and the various Banks reporting that they were having major difficulties. Weekends. It is not recommended to hold trades over the weekend unless your method is a long-term strategy which incorporates holding trades for a long time – weeks, months. A lot can happen over a weekend. All it would take is for one Bank to go bust over the weekend for your position to flip on its head. Current tensions in a lot of countries around the world lead to violence which heavily impact the market. These type of events will generally lead to the market opening after the weekend with a large gap and generally a large change in your position. This can often cause serious harm to your trading account balance. Market closeopen. It’s a good idea to avoid these or be wary around these times.

At market close a number of trading positions are being closed. This will lead to volatility in the currency markets which can then cause price to move erratically. The same applies at market open. A lot of people are opening positions as they didn’t want to hold them over the weekend for the reasons stated above. December and Summer Holidays. Banks tend to trade the Forex market at least once a day for balance sheet reasons. They can also trade multiple times throughout the day for speculation reasons. When I say balance sheet reasons, I mean to balance out their currency book. They need a certain amount of each currency to meet the demand of their customers – both personal and business – that will need to buy foreign currency from the bank or exchange their foreign currency into their local currency. Banks have to balance this out each day otherwise they leave themselves open to Foreign Exchange risk.

This means Banks are the major players in the Forex market. So during December and the summer months a lot of bank staff take their holidays. Therefore, the Forex market tends to be slower in these months because there are fewer participants. This is typically a good time for private traders, such as us, to take our holiday! If the markets are flat there is no point in trading. You may as well go off and enjoy yourself. You’ve got to keep your body in prime trading condition and holidays are a big part of giving your mind some time to relax. Recharge those batteries so that you are ready to go when you get back trading. If you know when not to trade, you will be better prepared for when you should trade! How Much Money Should I Have to Open a FOREX Account? You need to make some decisions before opening a live account, and do a bit of soul searching. The answers to these questions will determine how your 30-trade campaign will operate for you. How much money do you have to put into a currency trading account? Realistically, it should be at least $300.00 minimum to trade a micro-account with lots of 1,000. But the amount is your decision. Just remember that it should be risk capital: if it is lost, it will not affect your lifestyle and will not cause you to lose too much sleep.

What do you need for a FOREX grubstake? For a rough guideline, put aside $300.00 to $500.00 for a micro-account, trading 1,000-pair lots worth $0.10 the pip; $3,000.00 to $5,000.00 for a mini-account, trading 10,000-pair lots worth $1.00 the pip; and $30,000.00 to $50,000.00 for a standard account, trading 100,000-pair lots worth $10.00 the pip. Many sources will tell you these numbers are high; you can trade those levels with a lot less capital. True. If you either are willing to ride along the ragged edge -- or get very lucky early in the game. I would rather you did not do the former and do not count on the latter. "How much can I make?" you ask? Forget the advertisements you see; no one makes 2,000 pips a month -- at least not for many months. Such returns imply an extremely high level of exposure, sure to be the trader's undoing in due time if not jig time. Consider professional money managers, the best ones who have been trading 10, 20, 30 years. They are happy to make 15 to 20 percent consistently per annum. Fifty percent is a great year. But even the best have a bumpy road.

No one makes money every month, every quarter, every year. The long term belongs to those who are not only skilled, but patient, determined, and are willing to sit on their hands much of the time. Tip: Plot your equity curve on a weekly basis for several months. It may be a useful diagnostic once you have some data to analyze. As a trader, I have had as many as 16 consecutive winners. I have also had a dozen consecutive losers. But the best answer is to manage the risk as well as you can, and let the market determine how much you make. Think risk avoidance. You have to break even before you can make a profit. Two-Day Trader Workouts. The "How Much Do I Have to Trade?" Approach. I will assume you have decided to be day trader. You can adjust this workout for any of the profiles mentioned in Trading Spaces.

I do recommend you select between day trader and scalper. Guerilla and position traders at the extremes have special needs and skill sets. There are a lot of numbers to figure, and most of them are co-dependent. For an example, let us work with a grubstake of $3,000.00. This seems to be a fairly typical level for new FOREX participants. As I continue, if you have a different number in mind, you can make adjustments by percentages. I will try working backward from some useful markers to see what size trades you can make and how many simultaneously. Tip: For the new trader, I recommend only one trade open at a time. Then move to two, then three. I rarely have more than five open. It just becomes too complicated and you run into the issue of correlation and trading against yourself. Here I assume you will at some point be open to three simultaneous open trades. You never want to be more than 75 percent margined.

For this example, that means $2,250.00 in open trades, based on where you open them, with no profits or losses. Thus, you can allocate $750.00 to a single position based on what we have down now. At a 50:1 leverage rate, your account is able to absorb a 750 ? 50 = 37,500 lot size. Assuming you could trade that odd-lot value, your pip would be worth $3.75. So far, it sounds great! But wait . What happens if you lose 100 pips on each of those three trades? 100 ? 3 = 300 ? $3.75 = $1,125.00. Your grubstake is down below $2,250.00. In fact, when it fell below that level, the broker would lend you a hand by dropping one or more of your positions. Can you see the problem? Thinking in terms of how much you can trade will not work. Of the 100 new FOREX traders who will be shown the door today, 50 of them thought in terms of how much they could trade. Tip: You need to think in terms of how much you can lose. That is where the 30-trade campaign enters the picture. The Risk-Avoidance Approach.

Go back to the maximum $2,250.00 to margin. Divide it by 30. That yields $75.00. The 30-trade campaign says you can risk $75.00 per trade. You have 30 opportunities to get the ball rolling. But you do not have all the information you need as yet. $75.00 is 7.5 pips at 100,000-pair lot, 75 pips at 10,000-pair lot, and 750 pips at 1,000-pair lot. Hold that while we consider your trading profile. Both risk and reward are going to vary, but you need a range within which to work, where you will either accept a trade or pass on it. You can see with $75.00 per trade, you are right in the ballpark at the 10,000-pair lot level. Here is how the full day trader profile breaks down for a 30-trade campaign.



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