Posted by March 9th, 2010
by Rapid Forex
Forex trading is not at all like playing Poker, Blackjack, or any other casino game. Forex trading is an activity best done by people who are educated about it, who have a plan, and who follow the plan.
If you are relying on any element of luck in your forex trading, then you will not be a successful trader. While no forex trader is profitable 100% of the time, traders who are educated about how the market works, who create a forex trading plan and trade that plan, who do not allow themselves to become emotionally involved in any trade, are the traders who are consistently successful.
The education you received in the last 30 rapid forex blog posts will contribute greatly to your success as a forex trader, providing that you practice what you have learned.
In addition, it is important to be psychologically prepared as a forex trader in order that your emotions do not overrun your intellect and begin making trading decisions for you.
There are several forex trading strategies, in addition to forex education, that will help you succeed as a forex trader:
- Decide to be a day trader or a position forex trader
- Manage your risk. You may or may not be able to quantify how much you could potentially profit in a trade, but you can quantify how much you could potentially lose, and from that decide how much you are willing to risk.
- Risk no more than 5% of the value of your forex account on any single trade. If you risk more than 5% of the value of your forex account on any one trade you will be overtrading your account, a practice that successful traders do not engage in.
- Once you have identified the risk in a given trade, decide if that amount of potential loss fits within your equity management plans. If it does not, pass on the trade. There will be other trades that do meet your equity management requirements.
- Use Proper Risk/Reward Ratio- The amount of money that you could potentially lose on any given forex trade should be proportional to the amount of money that you could potentially win; this is called your risk/reward ratio. That ratio should be, at least, 1:1.5 on every trade you make.
For example, if the distance between your entry and your stop loss covers 40 pips, you are risking about $400 on that trade, so you want to make sure that you can set a profit limit order at least 60 pips away from entry such that your potential profit is about $600, 1.5 times your potential loss.
- Learn how to take a loss. You will lose – no trader profits 100% of the time. Know, however, that percentages mean nothing.If you practice sound equity management, set your stop orders and limit orders according to a risk/reward ratio of at least 1:1.5, and only enter trades where potential loss is relatively small, then you will likely profit (make money) overall.For example, consider a forex trader who wins 30% of the time and loses 70% of the time. If that trader goes for rewards of $2000 on each trade and minimizes his potential losses on each trade to $300, then he will still net $3900 in profit, even though he lost 70% of his trades.# of wins is 3 out of 10 (30%) * $2000 profit limit for each trade = $6000 gross profit
# of losses is 7 out of 10 (70%) * $300 stop loss for each trade = $2100 gross loss
= $3900 net profit
Following these six steps for having a solid plan for your forex trading will help you become a forex winner trader (nobody wants to be a forex loser trader). These are fundamental concepts, if you ever start losing money as a forex trader you should re-review this blog post.
Posted in
equity management
Posted by March 9th, 2010
by Rapid Forex
Understanding price swings is a great skill to have for online forex trading.
The downtrend price swing, retracement, and potential extension are the exact opposite of the uptrend price swing, retracement, and potential extension explained in my last post.
We all benefit from multiple examples, so if you want to succeed in online forex trading, it’ll crystalize your understanding.
A downtrend price swing is a wave (swing) that starts at the high and stops at the low. Remember that to qualify as a downtrend the market must be making lower lows and lower highs. Following the down price swing is a reaction, also called a retracement of the down swing.
This reaction becomes an up price swing, which is also followed by another reaction (also called a retracement of the up swing). This happens in forex trading online frequently (just look at practically any forex price chart).
The retracement of the up swing becomes a down price swing that can either lead to a sideways movement or an extension (of the overall trend). The retracement of the up swing often moves sideways before it makes a new low (that is, before it becomes an extension of the overall downtrend).
As it is important to not lose sight of the original price swing in an uptrend swing, it is also important to not lose sight of the original price swing in a downtrend swing.
The market does not make an extension (extending the overall downtrend within which the swing exists) unless it passes through the last level of support and makes a new low.
The market can move sideways within the original swing before breaking or continuing the downtrend. Always keep in mind that there are swings inside of swings and trends inside of trends. You’ll be much better at online forex trading when you can fully understand this concept.
Don’t lose sight of your long-term outer and outer trend lines as well as your inner trend lines.
A down price swing, retracement, and extension in online forex trading
In the next rapid forex blog post I’m going to explain how the fibonacci sequence can be applied to online forex trading
Posted in
Fibonacci
Posted by March 8th, 2010
by Rapid Forex
The fibonacci ratio is extremely useful in fx trading. Fibonacci numbers provide excellent price targets for forex trades.
In order to understand and properly use Fibonacci numbers for forex trades with fx trading, you must understand first price swings. To understand this concept completely, you whould read my past blog post which discusses price swings, trends, and trendlines, for a thorough explanation.
The Uptrend Price Swing
An uptrend price swing, also called a rally, is a wave (swing) that starts at the low and stops at the high. Remember that to qualify as an uptrend the market must be making higher highs and higher lows. Following the up price swing (rally) is a reaction, also called a retracement of the up swing.
This reaction becomes a down price swing, which is also followed by a reaction (also called a retracement of the down swing). This creates a great opportunity for forex trades.
The retracement of the down swing becomes an up price swing that can either lead to a sideways movement or an extension (of the overall trend). The retracement of the down swing often moves sideways before it makes a new high (that is, before it becomes an extension of the overall uptrend).
When analyzing uptrend price swings in your fx trading it’s very important to not lose sight of the original price swing. The market does not make an extension (extending the overall uptrend within which the swing exists) unless it passes through the last level of resistance and makes a new high.
The market can move sideways within the original swing before breaking or continuing the uptrend. Be sure to keep this in mind when placing your forex trades.
An up price swing, retracement, and extension
I’ll be dicussing the specific use of fibonacci numbers in fx trading in my next few blog posts. If you want to have successful forex trades, you’ll want to follow this topic closely.
Posted in
Fibonacci
