Essential Elements of a Successful Trader

Courage Under Stressful Conditions When the Outcome is Uncertain

All the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery “You gotta be in it to win it”. Trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.

You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.

However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue – you’re overconfident and not focused enough on the risk you're taking.

Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.

Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who’s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.

The difficulty doesn’t end with “pulling the trigger”. In fact what comes next is equally or perhaps more difficult. Once you are in the trade the next hurdle is staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.

For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a 'hold on until it comes back' strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.

The other side of the coin is staying in a trade that is working. The most common pitfall is closing out a winning position without a valid reason. Once again, fear is the culprit. Your subconscious demons will be scaring you non-stop with questions like “what if news comes out and you wind up with a loss”. The reality is if news comes out in a currency that is going up, the news has a higher probability of being positive than negative (more on why that is so in a later article).

So your fear is just a baseless annoyance. Don’t try and fight the fear. Accept it. Have a laugh about it and then move on to the task at hand, which is determining an exit strategy based on actual price movement. As Garth says in Waynesworld “Live in the now man”. Worrying about what could be is irrational. Studying your chart and determining an objective exit point is reality based and rational.

Another common pitfall is closing a winning position because you are bored with it; its not moving. In Football, after a star running back breaks free for a 50-yard gain, he comes out of the game temporarily for a breather. When he reenters the game he is a serious threat to gain more yards – this is indisputable. So when your position takes a breather after a winning move, the next likely event is further gains – so why close it?

If you can be courageous under fire and strategically patient, foreign exchange trading may be for you. If you’re a natural gunslinger and reckless you will need to tone your act down a notch or two and we can help you make the necessary adjustments. If putting your money at risk makes you a nervous wreck its because you lack the knowledge base to be confident in your decision making.

Patience to Gain Knowledge through Study and Focus

Many new traders believe all you need to profitably trade foreign currencies are charts, technical indicators and a small bankroll. Most of them blow up (lose all their money) within a few weeks or months; some are initially successful and it takes as long as a year before they blow up. A tiny minority with good money management skills, patience, and a market niche go on to be successful traders. Armed with charts, technical indicators, and a small bankroll, the chance of succeeding is probably 500 to 1.

To increase your chances of success to near certainty requires knowledge; acquiring knowledge takes hard work, study, dedication and focus. Compile your knowledge base without taking any shortcuts, thereby assuring a solid foundation to build upon.

Learn Forex Trading before you Start Investing and you to could Become Wealthy due to the FX Markets

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How To Choose An Online Broker For Currency Trading

With major advances in technology there has been a boom in trading currencies online over the past decade. With so many online forex brokers to choose from, it is important to do your research before opening an account.
The majority of online currency brokers are market-makers. Usually when you buy or sell a currency, you are dealing directly with the broker. This means that you buy from the broker and sell to the broker. The advantage of this is that most brokers that are market-makers will let you trade whatever currency you want at any time.
Online currency brokers will usually offer variable spreads or fixed spreads. Variable spreads will fluctuate depending on how heavily a certain currency pair is being traded. Fixed spreads will remain the same no matter what is going on in the markets. Variable spreads are typically favorable to short-term traders while fixed spreads can benefit longer-term traders.
Another type of online currency broker is the one that claims to be a non-dealing desk. This means that they advertise to be giving you the trading price straight from the interbank market. Most legitimate non-dealing desk brokers will offer very tight spreads and charge a commission for the trade.
There are increasingly more and more brokers that offer online currency trading. It is extremely important to do your research before choosing a broker. There are many online sites that compare and review different forex brokers. Taking time to choose the right broker for you should pay off in the long run

The Ideal FX Trading Robot For Regular Profits

An FX trading robot is actually a software program that automatically enters and exits tradings in the foreign exchange market with the actual aim of earning money. A lot of traders switch to these systems since they're sick and tired of the trouble associated with manual exchanging. When exchanging manually you must spend countless hours each day keeping track of the marketplace, and you also should spend countless hours being up-to-date on your own recent deals. A currency trading robot gets rid of the problem but nevertheless lets you take advantage of the earnings from the foreign exchange market.
I'd like to show everyone which robot is the best, however before that all of us may need to look at the reason why this robot is best.
Several forex robots simply include one way to buy and sell. They follow 1 specific group of rules, regardless of how the market problems are, and perhaps they are meant to trade just about every currency pair. This can be a difficulty considering that the market is constantly altering every day, and each currency pair is actually traded in a different way. The most effective fx trading bot is different, it continuously receives updates from foreign exchange professionals who are generally monitoring the forex market.
Additionally with this particular trading program you get the guarantee of satisfaction. It is one of the most wanted bots that you can buy, so you understand that it profits nicely since many traders are using it day after day. It will always be best to opt for a product or service which is widely recognized, and selecting a forex automatic trading program is no different. So which trading software was I referring to?
The title for top forex trading automated software program goes to the Ivybot. The number of success stories with this particular piece of software is way more compared to its rivals. There are lots of reasons why the Ivybot performs so nicely and this is one thing that the competitors are trying to incorporate into their software package too.
For starters, the Ivybot is really four robots in one. This can be a huge edge on the competition, who make an effort to produce "one-size-fits-all" robots. But there is one thing about this robot that really makes it the greatest to have ever hit the market.
The most important advantage to using this intelligent forex trading software program is the fact that you will be given continuous revisions for life, which is something that is unheard of with some other forex systems. Most forex robot owners can make an extremely hyped up revenue page and then try to get the cash from your own pockets, these people don't care if you make money with it or not. Purchasing the Ivybot is supported by a group of forex experts who constantly keep track of forex and revise the robot as needed to really make it profitable in today's market conditions.

Foreign Exchange Investing Class

If you've been tempted by the guarantees of easy income to be had from foreign money buying and selling, it's good to know that these promises are solely half way to the truth. However in a glass half-empty sort of way, the earnings could be made, however they certainly aren't easy.
The Forex markets are extra accessible now than they've ever been. But just because you probably can walk by an open door, that does not mean you will not get tripped up by what lies beyond. The bit that can make it easy is the training - Forex buying and selling coaching to be exact.
Forex trading coaching is a bit like getting your driving license. Most of us may have some concept of what the assorted bits and items of a automobile do, before we begin driving. But you do not just get in, and pull away - you get driving classes first. That is what foreign money trading coaching is all about: helping you to avoid turning into concerned in a automobile crash with your money.
What is involved in currency buying and selling coaching? Well, most programs today are conducted over the internet. You'll have a set of tutorials that will cover the whole spectrum of currency trading coaching concepts.
They could cover areas comparable to how the foreign exchange market works; what the difference is between fundamental and technical trading; how you can set up profitable trading methods; and easy methods to properly manage your money into your trading activities.
An excellent currency trading training course may even have in-depth on-line resources pay a visit to every tutorial, with back-up printed materials. They want to positively have on-line videos that take you through each concept, step-by-step; ideally these ideas needs to be demonstrated in a real foreign exchange system, one you want to have free access to.
If you get stuck throughout your currency trading training, you will have some assistance to get you back on track. So Forex coaching courses can have good help techniques - it is best to be capable of cope with experts by e mail, textual content, or phone.
It can also be good to get onto the road, because it were, with some supervised and safe foreign exchange 'driving'; this may be achieved by utilizing a simulated foreign money trading system, that can assist you to place trades using digital money. If you occur to can hone your foreign money trading coaching on considered one of these, preferably a system you utilize in real buying and selling later, you'll be throwing your foreign currency trading L-plates off in no time.

A Free Forex Trading System - How To Trade Forex Using Flag Patterns

In this article you will find an outline of a profitable and free forex trading system. The article shows how to trade forex with flag patterns

So what are Forex Flag Patterns?

Forex flags are a pattern that has a distinct resemblance to a normal flag that can see flying on any standard flagpole. A flag pattern is a continuation pattern that indicates that the market will continue in the direction of the flagpole.

Flag patterns are attractive to trade because:

    * Flags occur in both bull and bear markets so you get bullish and bearish flags.
    * They generally move very fast to their price target once they are activated.
    * They are simple to recognise on a chart and don't need complicated indicators.
    * Forex flag patterns is that they occur in all timeframes and therefore you will find regular and frequent set-ups.
    * Flag patterns is that they give very good risk return profiles.

Using my SERTN approach to forex trading, this free forex trading system has trade planning elements for:

    * The Setup.
    * The Entry.
    * Risk and money management elements
    * Trade administration taking into account initial stop loss, trading stop loss and profit taking
    * Note taking.

In summary what we are trying to find is a great setup. This requires a well formed flagpole which breaks a support / resistance zone or a trend line. The flagpole must form in two to five bars. We are also seeking a classic flag pattern itself. In a bull flag we are searching for a downward sloping trading band. We wish to notice price action remaining inside the trading range..

And then you're looking for the price to break out upwards. If it is possible to see the volume you have to be expecting volume to be falling as the flag develops and you should expect to notice volume expand as the price action breaks out of the trading band.

For the trade entry you could either:

    * Wait for the price to finish over the upper at level of the trading range and enter on the open of the following bar.
    * Or you can set a stop to buy order two to 5 points over the higher point of the trading range and be entered into your investment when any price action moves higher than the upper trend band.

When opening the trade, you are recommend to structure your purchase into two units. The reason for this is explained in detail in the risk management video.

For a bullish flag, you put in your initial stop loss right under the lowest low of the flag pattern subsequent to the forex rate has moved from the dealing range. For a bearish flag you set the first stop just above the highest high from the trading band.

You then would proceed to move your stop loss as promptly as possible to a no loss situation after the price has moved from the trading band. And then you run your trailing exit by using the lowest low of the previous 3 bars as your stop loss point.

You set the trade objective for this forex trading strategy by calculating the length of the flagpole by assessing the distance from the source for this flagpole to the top for the flagpole and then adding the measured amount on to forex rate where it moved out from the flag trading band. As soon as the fx rate meets your target you close half of your trade at the price objective.

You will likely find this free forex trading strategy is quite profitable. However it is always recommend you test any forex trading system yourself because there needs to be an excellent fit between the trading strategy and the trader.

After that appraise the system via demonstration account with a broker you can begin dealing with real cash and small quantities of risk. When you have shown the forex trading system and how you utilize it is worthwhile for you personally, you could genuinely earn some money.

Automated Forex Trading System – several tips to choose the best one

Currency trading enables many people around the world to earn good money working just several hours a day. Foreign currencies market is very profitable, but at the same time it is very risky. Every day we can hear the sad stories from the people, who lost their last money because they wasn`t enough careful working with foreign exchange rate market.

So the only way to succeed in foreign currency trading is to use the Automated forex trading robot. You should already know that the Automated Forex Trading System is the sophisticated software based on the complicated mathematical algorithms, optimized for analyzing the dynamics of the rate exchange trend.

Automatic Forex Trading is much more simple than manual trading. You just need to install and setup you trading system. After that it will handle the entire trading process by itself. This automation level is fascinating, but on the other hand you need to have really highly reliable software to let it trade with your real forex account (where you have you REAL money).

Automated Forex Trading SystemThere are several main rules you must follow to choose the right FX robot. For example let us check EA Sigma Automated Forex Trading System. Firstly we should pay attention at the Testing period. For EA Sigma it is about 10 YEARS!!! I guess you understand how important this parameter is. And what is still more important – the Profit Trades % through these 10 years is about 82%. If you compare this combination of 10 years and 82% with the other available Automated Forex Trading Systems, you will find out that EA Sigma has really awesome results.

On the example of EA Sigma you can also see the significance of complex auto adaptive algorithms, which are used by the system. You must understand that the foreign exchange rates dynamics is constantly altering and we can do nothing about that. But EA Sigma is able to adopt the changes and so you may be sure that in several years it will gain you the same profits as at the moment.

Why Use Multiple Exits?

A recent message from one of our members questioned our use of multiple exits and the fact that the exits in a particular system were very complex and would sometimes move closer to the prices and then suddenly move farther away. The member questioned whether the exits were working properly and wondered about the logic of having so many different exit strategies operating within one system. I sent the member a brief reply and promised to write a Bulletin that explained our philosophy and procedures about the use of multiple exits in more detail.

When we develop trading systems the entry is usually just a few lines of code but the exit strategies and coding are often very complex. We may have a system with only one very simple entry method and that system may have a dozen or more exit strategies. The reason for devoting so much effort and attention to achieving accurate exits is that over our many years of trading we have come to appreciate both the importance and the difficulty of accurate exits.

Entries are easy. Before we enter any trade we know exactly what has occurred up to that point and if those conditions and events are satisfactory according to the rules of our system we can generate a valid entry signal. Entries are easy because we are able to set all the conditions and the market must conform to our rules or nothing happens. However, once we have entered a trade anything can happen. Now that we are in the market the possible scenarios for what might happen to our open position are endless. It would be extremely naïve to expect to hope to efficiently deal with all possible trading events with only one or two simple exit strategies. However, that seems to be the common practice and, in fact, many popular trading systems simply reverse the entry rules to generate their exits.
      We believe that good exits require a great deal of planning and foresight and that simple exits will not be nearly as efficient as a series of well planned exits that allow for a multitude of possibilities. Our exit strategies need to accomplish a series of critical tasks. We want to protect our capital against any catastrophic losses so we need a dependable money management exit that limits the size of our loss without getting whipsawed. Then if the trade is working in our favor we would like to move the exit closer so that the risk to our capital is reduced or eliminated. As soon as possible we need to have a "breakeven" exit in place that prevents our profitable trade from turning into a loss.          


In most of our systems, our goal is to maximize the size of our profit on each trade so we do not simply take a small profit once we see it. This goal means that we need to implement an exit strategy that protects a portion of our small profit while allowing the trade to have the opportunity to become a much bigger profit. If the trade went in our favor every day the exits could be greatly simplified but unfortunately that is not the way markets typically trade. We have to allow room for some minor fluctuations on a day to day basis. In order to facilitate our objective of maximizing the profit of each trade, in some cases we may decide to move our exit point farther away to avoid getting stopped out prematurely. For example, lets look at our Yo Yo exit that is based on the theory that we never want to stay in a position after a severe one-day move against us. (See Bulletin number 14 for an explanation of the Yo Yo exit.)

This highly efficient exit is based on measuring the amount of price movement from the previous day's close. For example we may want to exit immediately if the adverse price movement reaches one and a half Average True Ranges from the previous close. This volatility-based exit will move away indefinitely as the result of a series of adverse closing prices caused by days where the price moved against us but our volatility trigger was never quite reached. Obviously an exit that can move away from prices indefinitely is no use at all in limiting the size of our losses so the Yo Yo exit must always be used in conjunction with other exit strategies that do not move away. Now that we have implemented the Yo Yo exit to protect our trade from a severe one-day reversal in direction, we have still not addressed the question of taking profits. So far, we have exits in place to protect from large losses, to lock in a break-even point and to get us out on a sudden trend reversal but we still have not addressed the important issue of taking some profits on the trade.

We like to shoot for big profits and the bigger the profits become the closer we like to protect them. This strategy calls for multiple profit-taking exits. If we have a $1,000 profit we might want to protect 50% of it and be willing to give back $500 of our open profit. We can place an exit at $500 above our entry price. This will allow us to hold the position in the hope that the profit will grow. However if we have a $10,000 open profit I'm sure we wouldn't want to give back 50% of that. Also, let's hope that our exit stop is not still sitting back there at $500 above our entry price. For best results our exits need to adjust at various levels of profitability.

Many traders have asked us about the robustness of a system that has a many exit rules. The general perception is that a system with fewer rules is likely to be more robust. However I would disagree with applying that common belief without careful thought. Look at the exits in these two over-simplified systems:

System A:
Use a $1500 money management stop. (Limits loss to $1500.)
When profit reaches $5,000, exit with a stop at entry plus $4500.


System B:
Use a $1500 money management stop. (Limits loss to $1500.00)
When profit reaches $1,000, exit with a stop at entry price.
When profit reaches $2,000, exit with a stop at entry plus $1,250.
When profit reaches $3,500, exit with a stop at entry plus $2,500.
When profit reaches $5,000, exit with a stop at entry plus $4500.
When profit is greater than $7,500 exit with a stop at the previous day's low.

Some system traders might argue that since system A has fewer rules it should be more robust (most likely to work in the future.) We would suggest that system B is much more likely to work in the future even though it has more rules. System A is not going to make any money at all if the open profit never reaches $5,000. Once the profit exceeds $5,000 the only exit is at the $4,500 level. System A is very limited in what it is prepared for. It either makes $4,500 or it loses $1500.

As you can see, system B is obviously prepared for many more possibilities. It is conceivable (but not likely) that system A may somehow produce better test results on a historical basis because of an accidental (or intentional) curve fit. However, we would much rather trade our real money with system B. Simpler is not always better when it comes to exit planning.

Trailing Stops - The Chandelier Exit

In a previous article we discussed the Channel Exit which trails a stop based on previous LOW points. In this Article we will discuss a stop placement strategy that trails our stop based on previous HIGH points.         

The Chandelier Exit hangs a trailing stop from either the highest high of the trade or the highest close of the trade. The distance from the high point to the trailing stop is probably best measured in units of Average True Range. However the distance from the high point could also be measured in dollars or in contract based points

Here are three simple examples: (As usual we will use long side examples. Simply reverse the logic for short trades.)

1. Place a stop at the highest high since we entered the trade minus three Average True Ranges. 2. Place a stop at the highest high of the trade minus $1500.00. 3. Place a stop at the highest high of the trade minus 150 points.

The value of this trailing stop is that it moves upward very promptly as higher highs are reached. The Chandelier name seems appropriate and should help us to remember the logic of this very effective exit. Just as a chandelier hangs down from the ceiling of a room, the Chandelier Exit hangs down from the high point or the ceiling of our trade.

The reason we prefer to use units of Average True Range to measure the distance from the high to our stop is that the ATR is applicable across markets and is adaptive to changes in volatility. We can use the same formula to trade corn, yen, coffee, or stocks. If the trading ranges expand or contract our stop will automatically adjust and move to the appropriate level continuously staying in tune with changing market conditions. (Members who are not already familiar with the many valuable applications of Average True Range should be sure to review Bulletins #10, 11, 13, and 14.)

In Dr. Van K. Tharp's excellent book, Trade Your Way to Financial Freedom, he refers to a study he conducted to demonstrate that an effective exit strategy could produce profits even with random entries. We were not surprised to see that the exit methodology he used to produce the profitable test results across a diversified portfolio of futures markets was the Chandelier Exit. (Tharp used three ATRs trailing from the highest or lowest close and used a ten-day exponential moving average to calculate the ATR.)


Protecting Open Profits
      When we discussed the Channel Exit in Bulletin #34 we suggested that at the beginning of a trade we should use a wide stop and then, as profits are accumulated, tighten the stop by reducing the number of bars in the Channel. The same profit-protection logic can be applied using the Chandelier Exit. At the beginning of a trade the distance to the stop in most futures markets should probably be in the neighborhood of 2.5 to 4 Average True Ranges. As the trade becomes increasingly profitable we can bring the stop closer by reducing the units of ATR from the high to our stop.          

Let's assume that we started with 3 ATRs at the beginning of the trade. After we have reached our first profit level we might tighten the stop to trail the high point at only 1.5 ATRs. After the second profit level is reached we might want to tighten the trailing stop to only one ATR. We have had good results with some highly profitable trades by trailing exits as close as a half an ATR. We have found that some markets have better trending characteristics than others and we prefer to adjust the trailing stops on a market by market basis so there is no universal formula that we would recommend. The important message we want to convey is that to capture the maximum profit potential of trend-following trades the trailing stops need to be tightened as significant profits are accumulated.

Keep in mind that although the highs used to hang the Chandelier move only upward the changes in volatility can shorten or lengthen the distance to the actual stop. If you want to see less fluctuation in the stop distance use a longer moving average to calculate ATR. If you want the stop placement to be more adaptive to changing market conditions, use a shorter moving average. We normally use about twenty bars to calculate the ATR unless there is a specific reason to adjust it. In our experience the use of very short averages (3 or 4 bars) for the ATR can often create problems when there are brief periods of small ranges that tend to bring the stops too close. These abnormally close stops may cause us to exit prematurely. If we want to have a short and highly adaptive ATR without risking placing stops that are too close, we can calculate a short average and a longer average (maybe four bars and twenty bars) and use the average that produces the widest stop. This technique allows our stops to move away quickly during periods of high volatility without the risk of being unnecessarily whipsawed during brief periods of low volatility.

Combining the Channel Exit and the Chandelier

We like to start our trades with the trailing Channel Exit and then add the Chandelier Exit after the price has moved away from our entry point so that the open trade is profitable. The Channel Exit is pegged at a low point and does not move up as new profits are reached. The Channel Exit will move up only when enough time has passed that the previous low is dropped from the data period of the channel. The Channel Exit moves up very gradually over time but it does not move up relative to any recent highs that are being made. This is why we need the Chandelier Exit in place to make sure that our exits are never too far away from the high point of the trade.

By combining the two exit techniques we can use the Channel Exit as an appropriate stop that very gradually rises at the beginning of the trade. However if the trade makes a run in our favor the prices will quickly move very far away from our slowly trailing Channel Exit. Once we are profitable we need to have a better exit that protects more of our profit. At this point it would make sense to switch to the Chandelier Exit which will rise instantly whenever new highs are reached. This valuable feature of the Chandelier makes it one of our most logical exits from our profitable trades.

As you can see, the Chandelier Exit is a very useful tool. However coding the Chandelier Exit in TradeStation is not necessarily a straightforward matter.

The Money Management Exit

   

In 'Importance of Exits' we emphasized the importance of exits in general and pointed out that it is the exits and not the entries which actually determine the outcome of our trades. Now that we have established the importance of exits we will be more specific and write about various types of exits. Probably the simplest and most critical exit is the money management exit or the classic "stop loss". This is the exit that protects our trading capital and prevents ruin.

To trade futures and other leveraged investments without a money management stop is certain ruin. Well-known trader and author Victor Niederhoffer lost tens of millions of dollars of his client's money when he traded his fund down to zero and some twenty-million beyond. No surprise there. The inevitable outcome of an investment with this ill-fated trader was clearly determined years ago when Niederhoffer wrote:

"I have never used stops, even to bail myself out. Somehow, having a fixed rule to exit provides my adversaries too great an advantage. " - Victor Niederhoffer, from "The Education of a Speculator", page 376
      Niederhoffer's demise was no surprise to industry professionals. The only speculation was on how long it would take for him to go bust. To his credit, he lasted longer than was generally expected. Niederhoffer's paranoia about money management stops is not uncommon among naive beginners but it is an attitude that is rarely seen among seasoned professionals. The first priority in trading must always be to preserve our trading capital from the risk of catastrophic ruin. Everything else becomes secondary to this objective.          

Note carefully how we have stated this goal. We did not say that our goal was to eliminate or reduce the risk of loss. Reasonable losses are an integral part of the trading process. Good traders accept losses as a cost of doing business. In fact I have observed that good traders probably take more losses than bad traders do. The critical issue in this discussion is the size of the losses that are acceptable. Catastrophic losses must be avoided at all costs and these losses are easily avoided by always employing a simple money management stop.

Niederhoffer mistakenly assumed that he was such a good trader that he could violate the cardinal rule of trading and not use money management stops. The truth is that good traders actually need money management stops more than bad traders do. Bad traders are going to fail very quickly whether they use money management stops or not while good traders will survive and prosper indefinitely. The better and longer you trade the more likely that you will eventually encounter a potentially catastrophic event.

The money management stop commits a trader to a pre-defined loss point that a trader can accept and the stop will allow him to exit a losing trade unemotionally. The trader who uses a money management stop knows from the outset that he can only give the trade a limited amount of room to move against him, and after that, he will cut his losses by exiting the trade according to his plan. This is a tremendous psychological advantage. Having a fixed point to exit a trade with a loss removes a great deal of stress in dealing with any losing position. The trader with his stop in place always knows exactly when he has to exit and avoids the pain of having to watch the loss grow larger and larger day after day.

This psychological advantage of money management stops also helps the trader before he takes a trade. Suppose the system called for us to take a trade in a specific market tomorrow, and we had an unknown and unlimited potential for loss. No knowledgeable trader would be willing to take such a trade. However, if you have a money management stop and know exactly what the worst loss could be beforehand, it is psychologically much easier to pull the trigger and confidently enter that trade. We already know and are prepared for the worse case scenario and we have determined that the amount of risk is acceptable to us. Money management stops give the trader the benefit of a worst loss estimate on any trade. This knowledge gives us the confidence to enter the trade and the psychological preparation to accept the loss should it occur. Of course money management stops may not always predict the exact amount of the worst loss, since markets can sometimes gap against the position and cause a much larger loss than planned. However in most cases the money management stop is a reasonable indication of the worst loss likely in a trade.

Over the course of this series of articles about exits we will describe a few of the basic money management stops that all traders should be familiar with. We will describe the basic Dollar Stop in this Bulletin and describe other recommended Money Management stops in subsequent bulletins.

The Dollar Stop: The simplest money management stop is a stop that is positioned a fixed dollar amount away from the entry price of a trade. Dollar stops are easy to implement and most trading software allow for easy incorporation of dollar stops into any trading system. Simple as this may sound, there are incorrect and correct ways to use a dollar stop in your systems.

The incorrect way to use dollar stops is to figure the maximum amount you can afford to lose in the trade, and then set the dollar stop accordingly. Unfortunately, the market does not make adverse price movements based on how much money you can afford to lose.

The correct way to set dollar stops is to use market characteristics and system testing statistics to determine its placement. For instance, dollar stops should not be placed too close to the markets because random price movement will cause the trade to be stopped out prematurely. Neither should dollar stops be placed too far away from the market, since that means you are willing to take a much larger loss than is necessary. In our experience, dollar stops should be placed based on some volatility measure of the market. For instance, if the average daily range of a market is $1,000, it is recommended that the dollar stop on that market should be at least $1,000 if not more. This amount should keep the stop out of the random price movements while maintaining its function of capital preservation. Again, it must be stressed that adequate system testing and analysis must precede the implementation of any dollar stop to ensure proper performance.

It is important to understand the volatility characteristics of the market you are trading and not to blindly use a fixed dollar stop for all markets, nor even for a single market if that market has changing volatility characteristics. The challenge then is to develop money management stops that are adaptive to current market volatility conditions.

Switch Time Frames For Better Exits

I just returned from a weeklong Trader's Camp hosted by Dr. Alexander Elder in a beautiful island nation in the South Pacific called Vanuatu. When I studied geography in school many years ago, Vanuatu was known as the New Hebrides islands. Vanuatu is located about 1,000 miles west of Fiji.

If you have read Elder's excellent book, Trading For A Living, you will recall that Dr. Elder is an advocate of using multiple time frames for trading both stocks and futures. For example, he suggests looking at the weekly chart to make sure that the weekly trend is firmly up before trading the long side of a market based on the daily chart patterns. This approach makes good sense and I highly recommend his book and his strategy.

While listening to Dr. Elder explain his multiple time frame strategy for entries, my thoughts wandered to the application of his ideas to my favorite subject - exits. One of my goals in trading is to find exit strategies that do a good job of protecting open profits. One method of accomplishing this goal is to simply move the daily stops closer once a specific profit objective has been reached. However, it might also make sense to simply switch to a chart with a shorter time frame once we have reached a reasonable profit objective.

Here is an example of how such a strategy might work. Let's say that we have been trading XYZ stock on an intermediate term basis using daily charts. The trade is working out very well and we now have six ATRs of open profit. (See previous Bulletins for an explanation of how to use Average True Range to set profit targets). Up to this point we have been using our well-known Chandelier trailing stop placed at 3 ATRs below the high point of the trade.

However, now that we have reached our primary profit objective we want to tighten up our stop to protect more of our profits. We could reduce our Chandelier stop from 3 ATRs to 2 ATRs and continue using the daily bars or we could switch our chart to one hour bars and continue to trail the Chandelier exit at 3 ATRs based on the intraday one-hour bars. The basic idea is to switch to a chart with a shorter time frame once we have reached our profit objective. This procedure should allow us to let our profits continue to run but we would be protecting our open profits with much closer stops by using the chart with a much shorter time frame.

      Combining our exit strategy with Dr. Elder's entry strategy would provide the following sequence: for entries we first examine the weekly chart and then use the daily chart to trigger the trade. Once we are ready to exit our trade we examine the daily chart and then trigger our exit using the hourly chart.          

Of course this strategy would require some extra work as well as the use of intraday data. The alternative would be to simply reduce the number of ATRs used to hang the Chandelier exit on the daily chart. Either way we do it, the logic is to move our stops closer once we have achieved a worthwhile trading profit.

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Notes On Bear Markets

One of the best ways to gauge a bear market is to observe the reaction to good and bad news. In a bear market the averages go down even when the news is good. (For example, look what happened the last time the Fed cut interest rates.) We will know that the bear market is finally over when we observe the market reacting favorably to good news. In the meantime, we can take some consolation in the fact that at the present rate of decline we will soon be at zero. At least at that level we should be able to safely resume trading stocks from the long side.

The Key to Forex Trading Success

Forex traders that wish to succeed in these treacherous markets must have a trading plan and discipline. The trading plan should include a set of rules that the trader follows, such as when to enter or exit a trade, and when to place a stop loss order. I can confess from my trading experience that most of my losses in the forex market were not due to a faulty strategy, but lack of discipline. I often broke my own rules and even moved stop loss levels that were set to limit my risk. After several painful losses that could have been much less had I followed my own strategy, I realized that I was my own enemy and often sabotaged my own trading strategy. Don't be surprised, it is part of being human.
Achieving discipline is not easy. You must first understand who you are and what your trading temperament is. Automating your trading actions will help you act in a disciplined manner. Emotions and impulses should be dormant when you trade, and should not affect your trading decisions. To stay disciplined, I printed my trading rules in big letters and posted them next to my computer. My goal was to follow these rules like a robot.
If you are like me and get very emotional while trading, and have difficulty executing the rules in your trading plan, you should consider automated software that trades based on preset rules. The software becomes a robot that applies sound trading and risk management strategies without the interference a human, thereby removing the emotional component from trading.
The MetaTrader platform, offered by several forex brokers, offers an Expert Advisor (EA) feature that allows the trader to fully automate trading by programming their trading strategy. While programming the MetaTrader rules may be cumbersome for a beginner, especially with limited computer knowledge, there are several effective robots or Expert Advisors available for sale. These forex robots, programmed by professional traders, can be easily installed by a beginner into a MetaTrader supported brokerage account using a special drag and drop function. Take the emotion out of your trading and begin enjoying the benefits of an automated and disciplined strategy.

The Best Forex Robots Minimise Your Work and Increase Your Earnings

The Foreign exchange market or the Forex market is filled with traders from all over the world. If you want to enter the world of Forex then you need to be prepared to face the heat. For a newcomer it becomes really hard to make huge profits unless he/she gets help from automated trading software.
The best Forex robots ensure that the amateur trader gets a fighting chance in the cutthroat market. Forex is a global market that operates twenty four hours for the most of the week, thereby making it very difficult for a person to monitor it continuously at all times of the day.
If you already have a primary source of income, you can simply get the best Forex software and let it handle your workload. The Forex robots can be set to auto mode, where the trader can go on attending to his chores and the robot trades by itself. The result of the Forex trading robot is mixed bag of losses and profits, with the profits outnumbering the losses.
The fact remains that if you do not have a dime of knowledge in the Forex market, you can never succeed even if you use the best Forex robots. The best idea would be to get trained as a Forex trader so that you can get the best out of the Forex software. Forex rewards people who have the diligence to follow it and make trades effectively. So use the Forex trading software after you get to know more about them.
If you are looking to increase your trading portfolio and make more money with Forex trading, then what you need is Forex Software.

Back to Basics on Forex

Forex or foreign exchange market is the largest market worldwide where currency is converted to another. It is a market without physical location and is being monitored, on a 24-hour basis, by individuals or entities--like investors--that are concerned with monetary investment. Forex is also where people from different countries consult the value of their currency to US dollars or Euro compared to other countries' currency. US dollar is usually the currency that is being used to compare other currency value in Forex, since it is the widely use currency worldwide. For example, an individual from Philippines would want to know his currency value in Yen, he would have to convert Peso to Dollar and then Dollar to Yen.
Forex is necessary in international business transactions because it enables entities to pay their business obligation in foreign countries with their own currency having the same value as of that foreign countries' currency. These entities could be a Forex broker, banks or other investors.
In Forex, currency conversion is represented in this format: XXX/YYY 1.2345. It means that the 1.2345 is the amount of YYY in every unit of XXX. For instance, EUR/USD 1.5090 would mean that 1 euro is equal to 1.5090 US dollars. This figure is referred to as "Forex rate."
Currency values are not determined by decisions of entities or investors participating in Forex. It is determined by the monetary movement, macro businesses involved in international transactions, and individual country's economy. The value of each currency in Forex fluctuates depending on the economic status of each country. Investors either gain or loss investment interests as currency values inflate or deflate in Forex. Investors monitor the daily change of Forex rate to take advantage of the currency values for their profit.

Fundamental Analysis Essentials

The forex trading business sees forex traders breaking down the currency markets via a multitude of ways and methods. These methods generally fall within one of three categories. Fundamental analysis, technical analysis and a combination of both principles.
Whilst all 3 methods maintain their good points, a forex trader that has a great understanding about both technical in addition to fundamental analysis philosophy normally is able to obtain a enhanced representation from the forex markets.
Fundamental analysis looks at the major factors for each currency. The aspects that steer currencies are all economic in addition to political in nature. This is the major motive of why the forex markets act in response to economic data such as the unemployment rates, non farm payrolls in addition to retail sales of a certain country.
Despite the fact that the economic situation about a nation critically affects the movement of a particular currency, the internal political state is able to move currencies with good effect. Political upheaval, disease, natural disasters all can have an effect and are taken into consideration in fundamental analysis.
This gives rise to a big problem with fundamental analysis. Fundamental Analysis requires a great perception of both micro and macroeconomics on top of market sentiment to properly profit from it. Decisions made by individual central banks and the monetary policies they come out with also drives the currency market greatly. How the markets react to such policies is normally identical regardless of what central bank you are concerned with.
Forex fundamental traders evaluate all this information and make a decision based on it. Interest rates as well as international trade all exceptionally crucial elements to take in as well. The forex markets can react relatively violently to news releases that have a huge effect. Expect to see spikes of a hundred pips or more on volatile currencies.
More extraordinary is the whiplash that can sometimes take place as there is mass buying plus selling that happens one after another. A 100 pip movement both ways has occurred in the past. Mostly when dealing with volatile currencies like the Pound/Yen.

The Key Success in the Forex Market

Greater trading hours and liquidity attracts a lot of new traders to the forex market every day. The figures report that most new traders fall flat on their faces and lives much all their initial investment and the reason is typically either lack of a trading plan or inability to react quickly and effectively enough to get out in time.
This market is ideally suited for day traders because of the great volatility, and there is a great deal money to be made. If you've been interested in breaking the forex market, do yourself a favor and take the precautions. This is the secret of success in the forex market.
First, it's very important to have an exit strategy every time you enter a trade. Just as important as having a strategy of acting on it. Oftentimes the trader will lose out because emotions get in their way and they stand to trade longer than they should. Have a trading plan, and stick to it.
Forex trade programs which are automated have been garnering a number of favorable reviews in the market these days amongst critics. Programs like FAP Turbo or Forex Tracer keep a constant watch over real time market data, looking for profitable trading opportunities, and investing accordingly once they find one.
These programs even work defensively so the you're always on the winning end of your trades as they track their trade's performances in the market to ensure that it's constantly on the incline. Once that trade proves nonprofitable for you, it cuts the cord and repeat the process again.
If you are new in starting out or simply don't have the time or experience to do the analytical work for yourself, a number of these traders have been using these programs to see some reliable gains come from the forex market.