There are so many things in the school that don’t make sense no matter how many times I read them. Here’s my latest two:
Reward to Risk. This sentence from the school baffles me. [I]Another way you can increase your chances of profitability is to trade when you have the potential to make 3 times more than you are risking.[/I] While I understand that stop losses can limit your risk, how do you know that your potential profit is 3 times?
Fibonacci. The software will give you several lines, any one of which might, or might not be a place where the price makes a significant change. Since we don’t know which one it will be, if any of them, of what practical use is this tool? Surely, if you draw lines into the future at four different levels, the odds are that the price will change near one of them. Couldn’t I just use animal entrails? (Not that I would want to)
Also, can .500 be the result of a fibonacci number?
Thanks. The school is great but I find that reading through creates more questions than it answers.
for fibonacci lines, I think that lots of traders use them to place stops and orders and so they become a sort of self fulfilling profecy? otherwise they would have no significance? Same is true of pivot points? I was mildy amused by the schools pivot point discussion. somewhere in there it says that if price is at this point then it will either go up to the next pivot point or down to the lower one… ok so price will either go up or down well duh. but those are targets to aim for, why? because everyone else does.
risk/reward. if based on your analysis you think price will go from where ever it is now to some specific point, a support or resistance area for example then you have an idea of how far price will move and in which direction so that’s your reward, you should risk less than that. That’s the way I see it anyway. I’m still a noob too
one thing that’s helped me in another thread is that someone said you should move your stop to break even as soon as possible. the idea is not just to make a profit but to prevent a loss. that’s half the battle. When I did that I started getting more wining trades and fewer loosing ones.
Pippy, As you continue to study you will learn there are a couple different methods to help predict price targets, places the move may come to an end. About Fibonacci I would recommend more study. As I worked my way through the school I would do a Google search on each subject after I finished reading it. The additional information on the internet is vast, and I found the Google video results to the search very helpful. And I’ve tried the animal entrails, it didn’t help.
IF i am not wrong you are mixing up two different aspects. First the 3:1 is what you set as your reward-risk ratio at. It’s kinda like a wager you could make. You could bet somebody $1 to win $3. You would set a stop loss at 1 and setup your take profit at 3 times the stop loss level. (The 1 and 3 are just easy number to use, usually it would be more like 20-30 pips SL and then a TP at 60-90 pips)
Am i right in thinking that you are asking when do you know that the odds are in your favor at 3:1 by looking at the charts? If that is the case then that would depend on your ability to look at the charts to find that situation.
it works quite well, but you are right in that is difficult to know which level it will respect
yes, the sequence is 0, 23.6 ,38.2, 50, 100, 161.8, 261.8, 423.6
it may help if you start placing these on charts and then follow the retracements to each level
Yes, however according to proper money management rules, you only risk 2% of your account at any one time. So for the above example of having a stop loss of $100 you would need an account of $5000.
$5000 x .02 (2%) = $100.
Don’t know why it’s not stop gain, but “Take Profit” does sound real good! If i had to guess why they don’t use stop gain, it would be because of the negative connotation of stopping a gain.
Edit: of course the +$300 and -$100 is at the price above and below where you purchase/sell the currency.
Reward to Risk. This sentence from the school baffles me. [I]Another way you can increase your chances of profitability is to trade when you have the potential to make 3 times more than you are risking.[/I] While I understand that stop losses can limit your risk, how do you know that your potential profit is 3 times?
.[/QUOTE]
I think they mean by doing this you could increase the overall positive expectancy of a method.
If you were bit more experienced and could spot trades that the SL was in a good place and the 3x reward was at a realisitic price point, every winner has the potential to wipe out three losers. So, that is very powerful.
Don’t get all excited and think you can just put your TP automatically 3X your SL. The TP point has to be somewhere price is actually likely to go. Not placed because you are hoping for it or simply because it’s 3x your SL. You have to combine that risk/reward with a decent win/loss rate for it too matter. If you have a string of 9 losers for 1 winner, you still aren’t doing very well.
Just the same if you have a method that won 9 trades in a row, but risked 3 to gain one you wouldn’t be doing very well.
This is just another method tweak, that you should understand. Some methods ONLY trade if the risk/reward 1/x or greater, and analysis shows a good probability of it happening.
If the $5000 is on a real account, please please please, with all of the sugar on top you want, please reconsider this. You will not only hear this from me, but every senior member here at babypips, that that would be a very bad idea.
It would be best to demo first, using $5000 demo account, with your respective broker and learn the platform they use. Demo using the same amount of money that you are going to use in your live account.
Learn: Money Management, R/R, Leverage, everything you can. Develop a strategy that works for you, preferably on a 4hour or above time frame.
Start out with only $100 buck or so and trade for pennies and small amounts first and deposit the rest into a bank account or a certificate of deposit.
I second that. When you feel you’re ready to open a live account only do it with $100 or so. Then after a few months, if everything is going ok, you can add the rest of your $5000.
Starting with $5000 all at once is a really bad idea…
Yes, I plan on demoing for several months to make sure whatever trading strategy I use actually works long term. I haven’t yet even decided what pair to trade or the time frame. But if I risk only 2%, as is recommended, and a good R/R ratio, and I use the same trading strategy that worked for several months in demo mode, where is the danger? What factor am I not considering which could cause me to lose that $5000?
The market is a living breathing entity (per se), and as such it changes. So one day your trading strategy can work and then the very next day it may not work for some time to come, if at all. Ever noticed the thousands of strategies floating around in all of the forex forums and wonder why that there are so many?
pippy, on a demo account there is no danger of losing real money. In fact i have heard of people losing $3,000,000 dollars in demo accounts before they opened up real accounts.
The danger resides in the emotional/psychological effects that you will not realize until you trade for real money and the ever changing market.
Keep reading forex forums awhile and you will read countless stories of people losing thousands of dollars.
It is your money, and if you think you can handle losing $5000, by all means, good luck. That is not to say that you will, but that you can. Good luck if that is what you do.
