## Wednesday, December 9, 2009

### Smart money management for you manual traders

Here is a complete checklist to determine the most important aspect of money management, position sizing:

1. What is my account balance? \$4234.58
2. What percentage of my account balance will I be risking? 1.0%
3. What is my stop loss on this particular trade? 50 pips
4. What currency pair am I trading? GBP/USD
5. How much is a pip worth on a 10K (mini) account? \$1
6. CALCULATION What is my dollar risk amount? (Account Balance x Percentage Risk) \$42.35
7. CALCULATION What is my position size (Dollar Risk Amount x 10000) ÷ (Stop Loss x Pip Worth)

It’s up to you to determine what percentage of your account balance that you want to risk. I’ve heard traders risking from 1.0%-5.0% per trade. I risk no more than 1.0%. It’s important to determine what your stop loss will be before continuing with the checklist. None.

This is the hardest to determine by hand with the exception of currency pairs with the USD in the quote currency such as the GBP/USD, EUR/USD, and AUD/USD. These currency pairs always have a pip worth of \$1 on a 10K (mini) account. Take the account balance and multiply it by .01 (1.0%), .02 (2.0%), etc. to obtain your dollar risk amount. This is the most important calculation. Do it right.

EXAMPLE #1 (Answer questions 1 - 7)
\$4234.58
1.0%
50 pips
EUR/USD
\$1
USING A CALCULATOR-> (\$4234 x .01) = \$42.35
USING A CALCULATOR-> (\$42.35 x 10000) ÷ (50 x \$1) = (423500) ÷ (50) = 8470 units

What you might be thinking… I can only trade a mini-lot which is 10,000 units. This is more than my calculated position size. This means that you are under-capitalized. You need more capital to trade mini-lots. Another option is to use a variable-lot size broker like Oanda where you can specify 8470 units. Another option is to risk a smaller percentage per trade (use 0.5%.)

EXAMPLE #2 (Answer questions 1 - 7)
\$10582.26
2.0%
75 pips
USD/JPY
\$0.8829

USING A CALCULATOR-> (\$10582.26 x .02) = \$211.65
USING A CALCULATOR-> (\$211.65 x 10000) ÷ (75 x \$0.8829) = (2116500) ÷ (66.22) = 31962 units

In this example, you could enter a trade in the USD/JPY with 3 mini-lots or 30,000 units. If you have a variable-lot size broker like Oanda, you can enter a trade with 31,962 units. There may be a better or quicker formula for calculating position size. This method works but if you know of a more efficient way, let me know. FYI if this is a bit complicated for some of you, no need to worry as the forex megadroid software automatically trades with conservative settings, but risk automatically increases as the account coutinues to grow. The URL for this automated trading platform is:

## Monday, December 7, 2009

### Why we need forex megadroid for trading in the forex market?

Foreign Exchange Market is a highly volatile, complex and fastest growing market of modern era. Every day, it is bringing up great opportunities for investors to trade and earn maximum returns. A number of people want to participate in trading for earning huge amount of money. Many of the automated trading systems are designed in order to facilitate the traders especially newcomers.

## Sunday, December 6, 2009

Do you despise waiting in line? Are you constantlyin a race against time? Patience is defined as calmness, self-control,and willingness or ability to tolerate delay. I took an online patience test yesterday because I was curious of how I compared to the norm. My score was 48/100 which put me surprisingly in the middle. I'm mentioning this because over the past couple of months, I have made a conscious effort to improve my patience as it relates to trading. I remember the days when I was trading too much. I would trade at all hours of the day and many times just to be in the market. I didn't have the patience to wait for a setup and would jump to conclusions or assumptions before the setup materialized. Sometimes I would actually win but many times I would also lose. The biggest issue with my impatience was that it formed some really bad habits. I am now just starting to fix them.

Part of my "therapy" was to set a realistic monthly goal of 260 pips. 260 pips don't sound like a lot over a month's time and there is the possibility of making this on 1 trade. I felt that setting a daily or weekly goal only contributed to overtrading. For example, it is Sunday, Dec 6th and I have yet to make a trade in the month of Ded. If I had a 60 pip weekly goal, I might have felt forced to enter the market this week just to reach that goal. Instead, I don't care if I trade this week or not. I still have 18 trading days left to reach my monthly goal.

### What is more important than making an income trading forex?

I haven’t been able to make any progress monetarily in about a
month. I’m up about 4% this month but breaking my account balance
all-time high has been a struggle. I’m pretty much stuck where I was
around this time last month. I’m not all that concerned and shouldn’t
be considering I was preaching patience a couple of days ago. It’s just that everytime I open my trading platform, the account balance is just staring me in the face.

It’s more important that I progress as a risk-aversed trader. For newer traders, it’s very important for you to understand that learning methods to control your risk should be a priority. Making gains monetarily is obviously important but making gains and strides elsewhere are more important. When I first started trading mostly with demo accounts, I had some unbelievably profitable trades but my strategies were random and my risk and leverage too high. A lot of this is just pure luck and not going to take you to the next level. Your account balance shouldn’t be used as a guage for success. Some questions to ask yourself to guage your success may be:

Have you maintained consistency?

Have you been able to control your emotions?

Have you developed a complete trading system that you’ve been able to follow without deviation?

If you haven’t been profitable, have you at least been able to turn those gushing drawdowns into slow bleeders?

If you’re new to trading forex or have been trading for a couple of years, the #1 goal is to stay in the game as long as you can. I’ve talked to many traders over the years and many of them have been in and outers. They’ll jump in head first, blow up multiple accounts, and jump out never to be heard from again. There are other traders I’ve known who couldn’t consistently turn a profit and instead turned into mentors or forex marketers. Heed caution… There are also others who couldn’t stand the non-regulation of forex and went back to trading futures or stocks. There are a couple traders still around since I started but I can count them on one hand. It takes years to become a trader and I can’t even say that for certain. I’m still not there but I’m still around and giving myself at least 5 years. If it doesn’t work out for me or you after 5 years, just think of the countless people who have gone to college and have never entered into the field of their degree.