7 ways How to win at Forex Trading

1    Expectations:  In spite of the information available to them many traders hope that income will grow steadily and that there are no drawdowns. The reality is that most systems go through drawdown phases and the results are achieved after a considerable number of negative transactions and drawdowns.  Very few traders have realistic objective expectations which take both positive and negative aspects in to account.

2    System design: Most systems (manual and automated) were developed in varied market conditions based on historical market behaviour. Although not perfect this is one of the only ways techniques can be developed and tested. There are many shortcomings and limitations using this approach. Some systems will always do better in a sideways market and others in a trending market. So many systems are average systems. On average they make profits. This means they lose in poor market conditions and they make better profits in favourable market conditions. On average they make profits.

3    Joining time: This is the big one. Most traders join systems at the wrong time. Traders only want to join successful trading systems. So because of anticipated pleasure they invariably join when profits are peaking. They don’t like loses. So because of pain they invariably exit a system when it is having a drawdown. This means they are always getting into the market when it is at the top and exiting when it is at the bottom. The worst investment strategy possible. This strategy will make losses in the strongest growth market. But, that is human nature. The correct approach is to enter when there is a recovery after a drawdown and exit when profits become too good to be true. It takes an exceptionally disciplined trader to do that.

4    Marketing: As we have seen above trader want to join successful systems. They are not interested in ones that are experiencing drawdowns. So marketers naturally market when systems are doing well and keep quite when they are not. They would be crazy to do otherwise. They know that the only thing that sells is greed and impatience. This adds wood to the fire for the “joining time” problem mentioned above. Forex traders should let the Forex Market teach them how it wants to be traded. This is what marketers do – they let the customers tell them what marketing messages they want to hear.

5    Trader Maturity: Not many Forex traders regard Forex trading as gambling. If they want to win at Forex Trading, it would be to their advantage if they do. Successful gamblers know that the odds are heavily stacked against them and they know that winning takes consistent cleverness, discipline, risk management, money management, mental and psychological abilities not found in the normal person. They are prepared to lose when things don’t go well but they stay discipline. They get in and get out at the right time. They know the risks and the limitations and strengths of their system. Not like the average Forex trader. They know that they are in the game for the long haul. Treat Forex trading like gambling and your only job is to stack the odds in your favour – this attitude is closer to the truth. Not many Forex traders realise how the odds against success are stacked against them by something small like the spread. The spread, basically prevents you from turning 90% of unsuccessful systems into a successful systems by trading them in reverse – makes you think doesn’t it?

6. Objective attention to detail: Most Forex trading system supply considerable amount of information to evaluate risk. If the trading system you are using has had drawdowns in the past, acknowledge the fact and expect drawdown double in size when trading live. If the system has factors that allow you to manage risk like the maximum number of open deals at any one time, evaluate this risk management feature. It only takes a few minutes to objectively assess your risk. Greed, trust in information supplied and laziness to do the ground work required can results in disappointing results. Then again some traders or EA investors are very lucky and achieve initial success without paying attention to detail.

7. Greed and laziness: Most traders want to plug and play and switch off the brain. This applies to manual systems and automated systems. They spend zero time testing and refining the system and understand how it works. They never learn (from back testing) when it makes losses and know when it makes profits. It is so much easier to blame the designer or teacher if the system does not work. Or to call the system and the designer a scam -  the best escape of all. When you can call a bought system your own, is the right time to implement it. Most people call a car their own when they drive it for the first time. Why don’t Forex traders do this to bought EAs and Forex techniques – if only they knew what a change it would make.

So the sad fact is that the average Forex trader will not succeed due to many of the factors mentioned above – there are main more (like lack of focus on what matters, or too much choice and information overload) but these are thebove ones are the main ones.

Hopefully you have a better idea or feel of how to win at Forex Trading

Trader's Corner - An Interview With A Success

Trader's Corner - An Interview With A Success By Matt Blackman | August 17, 2004


When asked how he likes to trade, Dan Zanger responds using a race car analogy.

"I like to go 180 mph just inches from the wall. That means being margined 2 to 1 and either long or short a stock that is highly volatile and getting ready to make a big move," he says.

Zanger puts his money where his mouth is. He holds the unofficial record in trading stocks by turning $11,000 into more than $18 million in 18 months in 1999-2000. He grew that to an incredible $42 million in less than two years and has the tax receipts to prove it.

082504_1.gif
Figure 1 – Imclone (IMCL) chart showing a major melt down in progress and comments by Zanger above the chart. Chart provided by www.chartpattern.com.
First introduced to stock markets in 1976, Zanger dabbled for a few years while working his full-time pool contracting business. His two biggest mentors during his formative years as a trader were Gene Morgan and William O'Neil. He learned everything he could about chart patterns and important fundamentals, but the style he developed is very much his own. He got really serious in 1989 and spent the next 10 years honing his craft.

How Does He Do It?
"I use absolutely no indicators whatsoever," he said in an interview with me last year. "I simply rely on chart patterns, price and volume. Who has the time to look at so many indicators when you're scrolling through 400 stocks a night?"

082504_2.gif
Figure 2 – Novellus Systems (NVLS) chart and comments from Dan Zanger\'s www.chartpattern.com newsletter.
The type of set ups Zanger looks for is exemplified in figure 1. After a strong trend up from March through June, Imclone started to break down. After breaking the trend line, it put in one of his favorite chart patterns, the bear flag. If the lower trend line of the flag is broken it means a potential short. If it is broken on high volume, as it was on July 21, Zanger jumps in with both feet, rides the move until the excitement dies down a little, and then exits.

Novellus Systems exhibits an example of another good short trade. Zanger identified the bear box in figure 2 when the stock was trading at $27 to $28. Four days later it was trading in the $25 range.

"I don't really use stop losses in the classical sense," says Zanger. "When it takes an increasing amount of volume to drive a stock and the pattern starts to lose steam, it's time to start feathering out. I want to get in near the beginning of the move and out when it begins to peter out. Why wait until it runs out of gas and goes against you? That approach can be quite costly," he says.

082504_3.gif
Figure 3 – Semiconductor Index (SOX) in July 2003. Provided by www.chartpattern.com.
Volume plays a very important part in Zanger's trading approach, but interestingly enough he doesn't use volume indicators like Mark Chaikin's Money Flow Index. "I have not found a way to make it work effectively. I have seen it fail so many times and in no way will this indicator highlight or pinpoint the big movers in the market," he explains.

Markets have changed dramatically since the first article highlighting Zanger's incredible achievement - entitled "My Stocks Are Up 10,000%!" - appeared in Fortune Magazine in December 2000.


"For much of the 90s, we were in a huge bull market. That is when I learned to trade. My mistakes during that time can be traced in a large part to a belief that stocks could go no way but up. No matter how good the earnings were, they would only continue to get better. But then the stock would drop 30% and on 2 to 1 margin, I'd lose most of my money. When you begin to believe that a stock can only go in one direction, that is when you will have your head handed to you."

Throughout the 1990s, Zanger made and lost it "three or four times." He was able to recognize market bottoms, cycles, important time frames and could see when stocks were taking off, but he had a harder time seeing when they were getting ready to tank.

That changed during the Asian financial crises that caused the market meltdown in 1997.

"Oil and oil drilling stocks were leading the market at the time. Oil at times moves up toward the end of a bull market and leads a recession," he comments. It helped him recognize the market top, which before he had a hard time seeing. He says it was a defining moment in his career.

Unfortunately he got caught in a stock that was collapsing so fast he couldn't get out. It almost wiped him out, but he bounced back. More importantly, his education had come full circle.

But Zanger was still not immune to large losses. He remembers one day in October 2000 very vividly. After the big bubble run up, he "had so much cash that it was mind-boggling." But, he was in "just about every hot fiber stock at the time … with that mind-boggling money leveraged at 2-to-1 margin," when sector leader Nortel Networks (NT) warned of a revenue shortfall after the close of trading. He considers himself lucky to have walked away after losing more than 30% of his portfolio the next day.

It is lessons like this that have helped shape the trading strategies Zanger uses today. He combines technicals with fundamentals he learned from stock guru William J. O'Neil, discussed in his book "How To Make Money In Stocks" in a method he calls CANSLIM.

Zanger has read the book countless times and continues to reference it regularly today. He is a CANSLIM convert looking for stocks that have a global reach, that are leaders in their industry and that have earnings that demonstrate continuous improvement. He says that combining technicals AND fundamentals greatly increases his chances for success. He likes stocks that are under-known and under-owned.

It is also important to find timely market leaders by sector, industry and company. In the early 1990s during the first Gulf War it was biotechs that were huge market leaders. Later in the decade it was Internet stocks such as Amazon.com. In 2000, it was the fiber optics stocks. Find the sector that is in favor and then find the company that leads it. When the leader begins to trend down it's time to move on. Zanger is interested only in stocks that are "frisky."

"You have to know what's hot and follow that group or stock … and stay with the winners. Why own a stock that is making a $2 gain per day when you can play one that makes a $5 move?"

How Does He Find Stock Candidates?
Of the 1,400 stocks he scans nightly, Zanger may choose 50 to 60 to watch on his quote screen during the following day. He focuses on those that show building volume and potentially profitable patterns. When a pattern breaks out or breaks down on volume he makes his move.

He Still Prefers Bull Markets
"You can make 300 to 400% on your money in a bull market, but the most a stock can move down is 100% and that's if it goes to zero. That doesn't happen very often. You play the bear market just to hang around so that when the big move finally does come, you're there," he says.

It is why he is a big believer in cash during a bear market. He wants to be ready for the next rally.

Zanger also did well in the 2003 rally. His newsletter, The Zanger Report at chartpattern.com, identified a descending channel breakout in the Semiconductor Index (SOX) in July 03, when it hit 368 (figure 3). By December, it was trading at 560.

So how has Zanger done since the first article about him in Fortune Magazine?

In 2003 his portfolio gained 150% while the S&P 500 Index (SPX) gained 36%. When we spoke to him in August 2004, his 2004 portfolio was up more than 100% on top of the 2003. This compared to a loss of 3% for the SPX from the first trading day of January to mid-August.

One thing he didn't mention during our interviews is that, while he prefers bull markets, his system also works extremely well during trading range markets when most investors and traders are sidelined. As long as even a few volatile stocks he refers to as his "frisky buddies" are breaking up or down, he can make money.

When does he go on vacation?

"Not very often. I have a large motor yacht and a home on both coasts but stocks are my life. If markets are open I have to be there. There is nothing more exciting and enjoyable. I'm so blessed to be doing what I want to do and get paid to do it. When I'm on vacation I can't wait to get back to the market where all the action is," he exclaimed.

"I just can't wait for very high-speed satellite and a reasonable rate to come around so I can trade from my yacht from anywhere in the world."

With that kind of passion and commitment, it's not hard to see why Dan Zanger has been so successful.


Read more: Trader's Corner - An Interview With A Success | Investopedia http://www.investopedia.com/articles/trading/04/082504.asp#ixzz3v8f1PbLT
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How To Grow Your Account Fast Without Increasing Your Risk

How To Grow Your Account Fast Without Increasing Your Risk

I’m sure you probably have heard that compounding can help grow your account geometrically. But the normal way of compounding can take some time to grow your account. My method of using compounding takes it to the extreme to grow your account much faster without increasing your risk greatly.

Here, I would like to share a strategy which, if used properly, can help you grow your account pretty quickly. It introduces compounding into your money management strategy. 

First, let me show you the power of compounding through the normal way by a hypothetical example below:
If you have $10,000 invested and it gives you a rate of return 20% every year, you will have $380,000 at the end of 20 years by re-investing the profits (i.e. compounding),while you will only have $50,000 at the end of 20 years without compounding. You can see that compounding increase our total account by more than 6 times. 

Okay, let me move on to talk about using compounding in Forex Trading. 

But, first let me digress a bit. For those who are not familiar with R-multiple concept, let me explain a bit on that. It was introduced by Dr Van Tharp. 'R' is simply the dollar risk per trade. It’s nothing but a reward-to-risk ratio. Let say you risk $100 dollar per trade to make $500. Your risk to reward ratio is 1 :5. Your risk is 1R and your reward is 5R. Another example, you are risking $1000 dollar per trade to make $500. Your risk reward ratio is 2:1. Your risk is 1R and your reward in this case is 0.5R. We always take our risk as 1R and calculate your reward in terms of R-multiple. 

Let's get back to compounding. Let say our 1R is set to be $10( meaning we risk $10 per trade). We increase our dollar risk per trade(the dollar value of 1R) by our previous winning after each winning trade. Please take note that we are NOT compounding after each and every trade. We only compound after we had a winning trade with the expectation that we will have a winning streak( based on our testing data). If you hit a losing streak, your risk would be the same amount regardless whether you are using compounding or not.

So, let us see the results for 4 consecutive winning trades:

For a risk reward ratio of 1:2:
$10 --> $30 --> $90 --> $270 --> $810
(For our first winning trade, we risk $10 per trade,and with a risk reward ratio of 1:2, we make $20 in profit and have a total of $30 now. We then can risk $30 for our second winning trade, we make $60 in profit and have a total of $90 now. The same goes for the third and the fourth winning trade. At the end of fourth winning trade, we will have $810 in total which is a whopping 8100% return over our initial risk.)

For a risk reward ratio of 1:3:
$10 --> $40 --> $160 --> $640 --> $2,560
(At the end of fourth winning trade, we will have $810 in total which is a whopping 25600% return over our initial risk.)

For a risk reward ratio of 1:4:
$10 --> $50 --> $250 --> $1250 --> $6,250
(At the end of fourth winning trade, we will have $810 in total which is a whopping 62500% return over our initial risk.)

For a risk reward ratio of 1
$10 --> $60 --> $360 --> $2,160 --> $12,960
(At the end of fourth winning trade, we will have $810 in total which is a whopping 129600% return over our initial risk.)

We will take a look at another scenario where we risk $50 per trade:

For a risk reward ratio of 1:2:
$50 --> $150 --> $450 --> $1,350 --> $4,050

For a risk reward ratio of 1:3:
$50 --> $200 --> $800 --> $3,200 --> $12,800

For a risk reward ratio of 1:4:
$50 --> $250 --> $1,250 --> $6,250 --> $31,250

For a risk reward ratio of 1
$50 --> $300 --> $1,800 --> $10,800 --> $64,800

As you can see the huge potential comes with incorporating compounding into your money management strategy. You are simply 'reinvesting' your previous profits into your next trade and expotentially increase your profits for the next trade when you are on a winning streak. The higher the risk reward ratio and the higher the initial dollar risk per trade, the greater effect compounding has on your overall profits of a winning streak.

What kind of trading strategies can compounding strategy be useful for?

it is suitable for trading strategies that are:

(1) have a risk reward ratio higher than 1:1
(2) frequency of having winning streak of 2 and above is considerably high

Take Note: Compounding Strategy is not used to turn a losing trading system into a profitable trading system. It is used to increase your profits and grow your account faster for a profitable trading system. 

Let me illustrate by a few hypothetical examples:
Example 1: Trading Strategy A with a Risk Reward Ratio of 1:4 and Win ratio of 35%. It frequently has 3 winning trades in a row. Our starting trading capital is $1000. Our risk per trade(1R) is $20.

Sample Trading Data : 



Example 2: This is just a hypothetical scenario where winning trades and losing trades alternate. Our starting trading capital is $1000. Our risk per trade(1R) is $20.

Sample Trading Data : 




With a compounding strategy, an originally winning trading system turned into a losing trading system because it doesn't fulfill one of the two important prerequisite which is high occurrence of consecutive winning trades. 

Win Rate Needed To Be Profitable Based On Risk Reward Ratio



As you can see, the higher the initial risk reward ratio brings you a much higher overall r-multiple win with more consecutive winning streaks. For example, if you risked 1:5 and aim to get one set of 3 consecutive win streak, all you need is just 1 winning set in 216 trades to be profitable (roughly a win rate of 0.005%).

Try out in your own trading and let me know how it goes!

Read more: http://forums.babypips.com/risk-management-and-trading-plan/69189-how-grow-your-account-fast-without-increasing-your-risk.html#ixzz3v7dAcD3P

Stop Order

I think the reason why most beginners lose at this is because they start out with the wrong mentality. I was there too.

When we get to forex, we want to make some serious money, and we think that the more we trade the more we can earn! So naturally we aim for the shorter time frames where swings happen by the minute or even seconds.

However the problem with that is that it is extremely hard to trade a short time frame and be profitable. Here's why:

1) You need to be very good at reading price action to succeed at short term trading.
2) You need to be able to change bias constantly.
3) You need to set wider stops because you need to give the trade space to play out.
4) You need to calculate RR constantly and the orders are relatively fast paced - a small mistake can kill your MM.
5) You are taking more trades so you are more prone to getting emotional.

etc.

And I think many of us are guilty of increasing our risk beyond what our account can handle and what we can handle emotionally.

AND sometimes we move out stops back hoping the market will come back - sure it does at times, but you need to have a plan for moving stops (such as seeing some sort of price action that CONFIRMS your trade but you realise the trade needs more breathing space) etc. and you cannot do it more than once. 

All these are not easy to accomplish for more human beings like you and I...

But I am sure if you start out with longer term trading, and find a working strategy (there are MANY out there) and you be satisfied with a small win every week - you will be able to make it in the long term... But it is tough emotionally and tough mentally.

No one said it was easy.

Oh by the way, do you guys know what is the holy grail of trading? 

It is called stop orders. Reason being: if you enter with momentum you are seldom wrong and you will seldom suffer a drawdown, and if you happen to be wrong, you can usually get out on a pullback.

Read more: http://forums.babypips.com/newbie-island/12-does-anyone-really-make-money-off-forex-7.html#ixzz3v32gPEFA

Leverage

Leverage don't mean shoot; it's position size that matters, if my risk calculations say I can afford £0.22/pip then that's it, leverage is irrelevant, incidently I'm at 50:1, suits me just fine. And about the matter really under discussion; I've just started, in the last month or so, to grow my equity an average of 2% per day, and for the last 2 weeks - 4.3% per day!(and that includes weekends) Ka-Chingg! And that's by completly cutting off doing stupid things like chasing price and overtrading. Letting some trades run for a couple of days if I think I'm in a good position has definetly helped put money in the bank, only putting in orders at levels of confluence, using bigger stops, taking 50% profits off at first targets, etc etc. I first heard of forex and opened a demo account in November 2011, I've been trading live since Feb this year and lost £900 out of my initial £1200 before I began to sort myself out, or I should say the wise teachings of our very own fx sensei ICT sorted me out! 

Read more: http://forums.babypips.com/newbie-island/12-does-anyone-really-make-money-off-forex-7.html#ixzz3v2jwedyW

It takes hard work

It takes hard work, I can't even tell you how many hours I spent glancing over charts...because I stopped counting. And that's after 5 years of business, real estate, economics, and finance for my BSc, and another year for my MSc in Real Estate. I probably spend more hours on learning about forex than for my MSc. 

Like anything in life it takes effort, discipline, and dedication. 

The thing about forex is that there is a TON of wrong information on the web. People who believe they can walk into a library and buy a book about heart surgery and then successfully do such an operation are called CRAZY. Yet somehow there's this perception that by simply copying a system or reading some forex book you will somehow turn into a millionaire overnight. That's simply nuts!! 

To someone who's good at it, it might seem easy...but he/she had to put in a lot of effort. 99.99999% aren't born great traders. Read "Hedge Fund Market Wizards" and you'll realise that every single one of the "great traders" were massive failures when they started out. I mean, you have guys who did all the usual mistakes when they started out...overleveraging their trades blowing massive sums. Yet the one trait they all have in common is they NEVER GAVE UP. And that goes for pretty much everything in life. 

I loved that one story where one of those now-great fund managers started out by getting fired from one trading job over and over and over and over again. When the interviewer (Schwager) asked him if he ever thought about giving up the answer was "no". THAT'S what will make you successful. 

Start slowly, read the Babypips school, open a demo account, try different systems until you find one that works FOR YOU. Then back and forward test it for a few weeks/months on a demo account. Only once it's proven to be profitable for a few months take it live by starting a small real money account. Trade that for a few weeks/months to get used to the psychological stress...and not matter how calm you are, stress does play an important role. I lead negotiations for multi-million $ sales of upscale hotels and that almost never stresses me out, yet the first time a trade I was really sure of didn't work out it freaked me out 

Slowly build up that live account and as confidence grows (because of good results...and ONLY then), seed it with some money from your regular business. Don't dump it on there all at once, add a bit every month and only during months where you're profitable. Work up your bankroll. 

On a side note, don't buy into signal services or EAs...if you want to be a TRADER you have to fully understand WHY you are taking a trade...otherwise you're just a (blind) investor who isn't in control. 

Cliff notes: Yes, it's worth it...but as with everything in life, it takes hard work.

Read more: http://forums.babypips.com/forextown/4783-reality-making-money-trading-forex.html#ixzz3v2Xcjo00

The reality of making money in trading Forex

The reality of making money in trading Forex.

Alright, I haven�t put much time and effort into this whole thing at all yet. But before I go any further I need to understand if this is a worthy venture.

After talking to my father about trading Forex and asking whether I should get into it, he told me this� (ill admit that he is an engineer and has never been any sort of risk taker at all)

�remember when your step son wanted to be a professional basketball player? You told him that the odds of becoming a professional sports star were 1000�s to 1, very slim, and that his efforts should be placed somewhere with a greater possibility of return. Well this is just like that!�

Now I am all for �living the dream� and believing in ones self. But I�m also a realist. I don�t live in the clouds, I know there are no get rich quick schemes and that there are some things that even though they may be attainable, have a margin for unatainability, and therefore are a great risk.

This venture into pipland will require much TIME, EFFORT, AND MONEY! I have a family of 6 and I owe it to them to not invest in anything that is not a fairly sure thing.

Read more: http://forums.babypips.com/forextown/4783-reality-making-money-trading-forex.html#ixzz3v2VdCz4T