Hi mate,
Well, just for your knowledge, I post here, another forums, blogs, articles, and its all my work, so if you find these posts anywhere else that’s me who posted, I don’t quote anywhere else, this is my PERSONAL experience.
Thanks for posting on the thread.
you did not mention, but I a asking if benchmarking is also included in risk management. is it?
Yes mate, it is, I’ll explain benchmarkingm signals & indicators soon.
To understand pips on the forex market you must understand how the market works. If you are new to forex trading there are many worthwhile, free offers and software online to help you learn and practise before risking your money.
Forex is an abbreviation of foreign exchange, the buying and selling of one foreign currency for another. As one currency strengthens so another weakens and knowing when to buy and sell is how money is made on the Forex markets. The Forex market is similar to the buying and selling of stocks but in many ways it is much more difficult. On the stock market you may spot a company that has potential, buy shares and hopefully make a profit, but on the money market there may be long term trends where a currency strengthens and weakens, but much of the trading is based upon daily fluctuations that change by the minute.
A pip is the smallest unit of price that is traded for a currency. Most currencies are traded to four decimal points, so that a pip is 0.0001 or 1/100 of a cent. This may seem a minuscule amount until you realise that on a standard trade of $100,000 that is $10. The exception to the four decimal points is the Japanese yen which is normally traded to two decimal points.
Obviously if you are buying a currency you must also be selling another and therefore prices are always quoted in pairs, the USD/EUR being the most active. The more active a pair the narrower the difference between the bid/ask price is likely to be, with a possible spread of just two pips for the most actively traded.
Unlike the stock market there are no broker fees to pay, but as each trade involves both selling one currency and buying another, the difference in the spread is the cost of the transaction and must be taken into account when calculating profit. Therefore, as a buyer, the pip spread is very important to you. When you buy you have to accept an immediate loss. The value of the currency you have bought must rise by the extent of the pip spread before you break even and the value rise again to make a profit. The lower the spread the easier it is to make a profit.
Active markets tend to have a lower pip spread, for example 2-3 pips. Currencies that are bought and sold less frequently may have a far higher spread. However, before you go to a broker offering a very narrow spread, do check that they are reputable. You should also remember that pip spreads are not guaranteed, they can change if the market fluctuates widely. It is wise to check a broker’s spread policy before trading.
Don’t you think rule number 1 might appear rather inflexible for some tastes?
How about those occasions where the market offers a trader the chance to follow prices up or down by trailing their entry?
There are instances where a pair will travel way beyond your own pre determined target point, thus providing far greater percentage returns than sticking religiously to a static risk reward ratio.
I realise the above scenario will be the exception rather than the rule, but it’s that scenario that would provide a welcome bonus to your bottom line & help to offset any losses faster when they do appear.
Nobody knows how far the market will move after entry. It seems silly to cap profits just because a trade reaches your particular pre determined profit target. As long as you’re covering the move by locking in profit you’ll ensure that a profit never turns into a loss.
It also allows the market to make the exit decision for you rather than you having to impose your opinion on where the profit should be taken.
You’re all right, but what you’re saying is an exception, and it might be risky too, we don’t know how are the indicators going while we’re talking, right ?
Yes I did say that it would be an exception rather than a rule. You’re only going to employ that type of trade management when the conditions are favorable.
Why would it be considered risky?
If you’d set a target prior to entry & price bowled straight through it without a second glance, surely the smart option would be to click into flexible mode, track it & let it find it’s own level wouldn’t it?
Why would you want to cut a profitable position short just because it happened to cover your original target?
When the market offers you a golden opportunity to snowball a profit you’d be foolish to turn it down. It doesn’t offer those kinds of opportunities very often!
What’s to stop you simply moving your stop loss in step with the move & securing profit along the way?
I’m afraid you’ve lost me with this comment. What indicators? I was referring to your point about covering targets.
Thanks for noticing me, I’ve really lost you lol.
i think the point is indicators never help reach targets.
Some times indicators are on your side, but mostly are against you, so you have to know how to exploit indicators to make profits, mostly by hedging (some people don’t like that way of trading).
[B]Where should I place my stop and take profit orders? [/B]
As a general rule of thumb, traders should set stop/loss orders closer to the opening price than take profit orders. If this rule is followed, a trader needs to be right less than 50% of the time to be profitable. For example, a trader that uses a 30 pip stop/loss and 100-pip take profit orders, needs only to be right 1/3 of the time to make a profit. Where the trader places the stop and take profit will depend on how risk-adverse he is. Stop/loss orders should not be so tight that normal market volatility triggers the order. Similarly, take profit orders should reflect a realistic expectation of gains based on the market’s trading activity and the length of time one wants to hold the position. In initially setting up and establishing the trade, the trader should look to change the stop loss and set it at a rate in the ‘middle ground’ where they are not overexposed to the trade, and at the same time, not too close to the market.
Trading foreign currencies is a demanding and potentially profitable opportunity for trained and experienced investors. However, before deciding to participate in the Forex market, you should soberly reflect on the desired result of your investment and your level of experience. Warning! Do not invest money you cannot afford to lose.
So, there is significant risk in any foreign exchange deal. Any transaction involving currencies involves risks including, but not limited to, the potential for changing political and/or economic conditions, that may substantially affect the price or liquidity of a currency.
Moreover, the leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. The possibility exists that you could sustain a total loss of your initial margin funds and be required to deposit additional funds to maintain your position. If you fail to meet any margin call within the time prescribed, your position will be liquidated and you will be responsible for any resulting losses. ‘Stop-loss’ or ‘limit’ order strategies may lower an investor’s exposure to risk.
Easy-Forex foreign exchange technology links around-the-clock to the world’s foreign currency exchange trading floors to get the lowest foreign currency rates and to take every opportunity to make or settle a transaction.
As a forex trader, if you check several different currency pairs to find the trade setups, you should be aware of the currency pairs correlation, because of two main reasons:
1- You avoid taking the same position with several correlated currency pairs at the same time and so you do not multiply your risk. Additionally, you avoid taking the positions with the currency pairs that move against each other, at the same time.
2- If you know the currency pairs correlations, it may help you to predict the direction and movement of a currency pair, through the signals that you see on the other correlated currency pairs.
Now I explain how currency pairs correlation helps. Lets start with the 4 major currency pairs: EUR-USD ; GBP-USD ; USD-JPY and USD-CHF.
In both of the first two currency pairs (EUR-USD and GBP-USD), USD works as the money. As you know, the first currency in currency pairs is known as the commodity and the second one is the money. So when you buy EUR-USD, it means you pay USD to buy Euro. In EUR-USD and GBP-USD, the currency that works as the money is the same (USD). The commodity of these pairs are both related to two big European economies. These two currencies are highly connected and related to each other and in 99% of the cases they move on the same direction and form the same buy/sell signals. Just recently, because of the economy crisis, they moved a little differently but their main bias is still the same.
What does it mean? It means if EUR-USD shows a buy signal, GBP-USD should also show a buy signal with minor differences in the strength and shape of the signal. If you analyze the market and you come to this conclusion that you should go short with EUR-USD and at the same time you decided to go long with GBP-USD, it means something is wrong with your analysis and one of your analysis is wrong. So you should not take any position until you see the same signal in both of these pairs. Of course, when these pairs really show two different direction (which rarely happens), it will be a signal to trade EUR-GBP. I will tell you how.
Accordingly, USD-CHF and USD-JPY behave so similar but not as similar as EUR-USD and GBP-USD, because in USD-CHF and USD-JPY, money is different. Swiss Franc and Japanese Yen have some similarities because both of them belong to oil consumer countries but the volume of industrial trades in Japan, makes JPY different.
Generally, when you analyze the four major currency pairs, if you see buy signals in EUR-USD and GBP-USD, you should see sell signals in USD-JPY. If you also see a sell signal in USD-CHF, then your analysis is more reliable. Otherwise, you have to revise and redo your analysis.
EUR-USD, GBP-USD, AUD-USD, NZD-USD, GBP-JPY, EUR-JPY, AUD-JPY and NZD-JPY usually have the same direction. Just their movement pattern sometimes becomes more similar to each other and sometimes less.
how can i change the demo account to real account? and there’s any different between them?
Hi xtrader
The demo account is an account offered by some brokers to practice trading and to know how the indicators and market goes, live account is an account with real money, you make profits or lose your money, so be very sure you are comfort with the forex market because its risky ( before you really take the step of opening a live account).
Well, when you start opening a live account you forget about the demo account, you register a new account and make the deposit, demo accounts cannot be transfered to live accounts, I hope that helped man.
If you need any questions just post it and I will help as much as I can.
When a currency is quoted, it is done in relation to another currency, so that the value of one is reflected through the value of another. Therefore, if you are trying to determine the exchange rate between the U.S. dollar (USD) and the Japanese yen (JPY), the forex quote would look like this:
USD/JPY = 119.50
This is referred to as a currency pair. The currency to the left of the slash is the base currency, while the currency on the right is called the quote or counter currency. The base currency (in this case, the U.S. dollar) is always equal to one unit (in this case, US$1), and the quoted currency (in this case, the Japanese yen) is what that one base unit is equivalent to in the other currency. The quote means that US$1 = 119.50 Japanese yen. In other words, US$1 can buy 119.50 Japanese yen. The forex quote includes the currency abbreviations for the currencies in question.
[I]What is a good risk-reward ratio? Experienced traders report that a 1:2 ratio is acceptable. But this is a minimum. A better ratio is 1:3 or 1:4. However, a trader should never enter a trade with a 1:1 or 2:1 risk-reward ratio. If it does not meet the minimum 1:2 ratio, the trade is simply not worth the risk.[/I]
Question: What is a risk-reward ratio and how do you calculate/estimate it?
Thank you!
A risk reward ratio is the amount of risks you have to take in order to get good returns.
For example if you need to use 50% of your account (let’s say 5 000$) to be able to make 200$
Your risk-reward ratio is way to high.
The key to succesfull forex trading is in my opinion trtying to risks a small amount of money in order to gain a big amount of money.
I got the idea but how do you determine the risk/reward ratio BEFORE entering the order. Is it determined by the Stop/Limit?
Thank you!
You place your stops and limits based on your r/r scenario.
And you choose your lot size based on your risk.
If you use a fixed target or not, the rrr and all other parameters are part of a system. It only makes sense if your system is consistently profitable. This way, even a risk reward ratio of 50:1 could work. I mean 50 pips risk and 1 pip reward. If you have 99% profit trades via statistics, you are set. Because you earn 99 times 1 pip which is 99 pips and you lose only 50 pips.
In fact, the rrr would be around 1:2 then over statistics. Don’t calculate all the risk based on one trade! Calculate that in dependence of statistics!
It’s exactly not fixed to any particular parameter. All reliable systems have their own specific rules and if you follow the rules, statistics will help you.
Traders lose not, because a rrr is “bad” or they use not trailers or something like that. Traders lose, because:
- They let their emotions trade.
- They let their ego trade.
- They don’t have a reliable system (but think they have).
- They have no system at all.
So, all generic discussions about rrr or trailer or not or something like that on a single trade base is like discussing what ist better: Sun or rain. 