How to Manage Forex Trades The Right Way

Hello and welcome to another edition of the bulls vs the bears. Today we are going to look at how to manage forex trades the right way. Basically we are going to look at “Forex  Trade Management 101.”

Forex Trade Management has become the elephant in the room as far as forex traders are concerned. It’s not something traders like talking about. Now don’t ask me why. I have no idea. But I’ll tell you this. Fore trade management is absolutely essential for any forex trader. It’s the difference between exponential growth and your trading account taking a humongous hit.

Once your trade entry goes live, you have to  to play manager.  Unfortunately a lot of traders simply ignore this simple admonition. And when you do that it’s only a matter of time before you hit the self-destruct button. What looks like a winnable trade setup could turn into a losing cause if you manage your trade properly. It’s the nature of the beast.

So without wasting much time we are going to learn a few  forex trade management tips you can put to use in future trades.

Make Sure You Take 100% of  Your Winnings

You want to make sure you take  100% of your winnings.  Some of  you are “Of course I’ll take the profits. Why would I leave them on the table?”. Point  taken. However, you need to  take these all your winnings to cover your losses in future trades in case the market does an unexpected 360 on you. And so, you must be consistently making winning trades. Or else, you will find yourself in a hole on your trades.

Let’s say you lose a trade at 3% risk. With multiple profits from previous winnings, you can use them to absorb your  losses. Someone is probably asking”How do we do that? By using the breakeven option. If used properly, you can generate even bigger profits.  I hear somebody asking this question”What happens if I take 50% at the first profit target? I move my stop loss to break even, only to be stopped at break even?

Let’s look at this illustration in the graphic below

breakeven Forex trading

Ladies and gentlemen this is a classic illustration of a breakeven situation. As  I stated, 50% profit is  taken at  target one. But the rest of the trading position gets  stopped out at break even point. If  let’s say 3% was risked for the trade  you’ll end up with 1.5 % profit.

On the surface of things someone may say”That’s not too bad. However, things become a little hairy when you make a loss on the very next trade and lose another 3%. Next thing you know, you are  hemorrhaging money. That’s why it’s absolutely crucial that you make full profits regularly on your trades so you can absorb huge losses from these trades. Even more important, it helps in your overall risk reward strategy.

Next  We’ll learn how to manage trades the right way using a sell position and a buy position. Let’s start with: the

Stop Loss in Buy Position

Make sure your stop loss is at the tip of the downtrend. If you want to move your stop loss further up, make sure the pattern is higher than the current stop loss. You absolutely must not move your stop loss when you are in a buy position. Let’s look at an illustration

Ladies and gentlemen, this is the uptrend for the Eur/USD pair. As you can see the initial stop loss is placed at the tip of the down pattern along the line of support,. Now let’s look at the next chart to see the break even situation

 

This time the stop loss has moved higher up at break even point around the line of

resistance. Once either the profit target or stop loss is hit, the trade is completed and

the profit or loss will reflect in your account balance.

Last but not least is:

Stop Loss in Sell Position

If you find yourself in a sell position, you move your stop loss to the tip of every new pattern. If you want to move your stop loss to breakeven make double sure that the pattern is lower than the stop loss. Let’s take a look at the illustrations below.

 

 

This is an illustration of the breakeven situation using the the same EUR/USD pair. As you can see the stop loss has been placed at the tip of the pattern at the line of resistance. Now let’s look at the break even situation.

As you can see  the stop loss has  been relocated to the  new breakeven point at the line of support. And just like the buy scenario, once the profit target or stop loss is hit, you will make a profit or incur a loss. Of course, either of these scenarios will reflect in your trading account.

For information on trade management, look up What Next After Entering A Forex Trade?

That’s a wrap for “How To Manage Forex Trades The Right Way.” It’s absolutely crucial that you have a trade management policy when you trade. Failure to do that could bring you eternal misery, not to mention, a nuclear-sized crater in your trading account. If you utilize your breakeven policy properly you could make yourself a handsome profit and save yourself a humongous headache.

Til next time take care.

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If you’re looking to open a live trading account sign up with EasyMarkets

 

How To Get The Hang of Using Stop Loss and Take Profit in Forex

Hello and welcome to another edition of the bulls vs the bears. A thousand apologies for not updating the blog for so long. I experienced a few technical hitches with my blog right after uploading the first post. But thankfully that has been solved. Hopefully it wont happen again.

Now onward to today’s lesson. Today we ‘re going to learn how to get the hang of using stop loss and take profit orders  in forex trading. Basically I’m going to explain how to place a stop loss and a take profit when trading forex. I will then show you how to place stop losses when using certain trading strategies. It is absolutely crucial that you know how to set a stop loss and take profit as a forex trader. IF you cant do this, you are doomed.

I get the question you need to be asking is:

What is Stop Loss and Take Profit?

Well stop loss is a simple order you send to your broker to limit your losses on an open trade. Think about this request as damage control to save your trading account from going up in smoke. On the other hand take profit is an order you send to your broker to close your trading position when price hits your profit target. Basically you want to head for the exits once you price hits your profit target. Let’s take a look at an illustration of stop loss and take profit loss in both buy and sell scenarios-starting with the buy scenario.

Ladies an gentlemen this is what the stop loss and take profit look like in a buy situation. With a buy trade the stop loss is placed just below the entry price. So that if price dips and hits your stop loss you incur a loss. The important point here is you decide how much money you can afford to lose and you are saving your account from going up in smoke.

The take profit is pretty obvious. As you can see  take profit is is placed above the entry price. Once price hits your take profit target, you make your profit and head for the exit.

Now let’s look at the stop loss/take profit in the sell scenario

Ladies and gentlemen, this is what  the stop loss/take profit in the buy trade looks like. Unlike the buy scenario, the stop loss is placed just above the entry place. While the the take profit is placed below the entry price. If the price rises and hits your stop loss you incur a loss. And just like the price scenario, the stop loss is there to save your account from going up in smoke.

The take profit is the complete opposite. When price drops and hits your take profit target, you make an instant profit-no questions asked. And when you make your profit, your profit is instantly recorded in your account. You don’t need to stick around to find out.

I guess the next question that is burning on everybody’s mind is:

How Do I Place Stop Loss and Take Profit Orders on MT4?

That’s fairly straight forward. First you open your order entry box  by pressing F9 or using the right click option. Next you select “Trading and “New Order.”

Immediately the MT4 dialog box pops on your screen as shown above. You then go ahead and fill the parameters for your stop loss and take profit orders.   If you want to sell, you click “Sell By Market.” And if you want buy you click”Buy by Market.”

Wanna learn more about stop loss and take profit? Look up How To Place A Stop Loss To A Tee and   A Few Rules On Taking Profits From Forex Trades

That’s a wrap for “How To Get The Hang of Using Stop Loss and Take Profit in Forex.”You’d be absolutely insane if you don’t  factor stop loss and take profit  in your trading decisions.  You need to treat forex trading as a business.

Every trade you enter has the potential of making you a profit or blowing your account into the ozone. With that in mind you need to weigh the risk of the trade as well as its potential reward. So if you want to be a profitable forex  trader, make use of your stop loss and take profit orders.

Til next time take care.

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Open Demo Trading Account 

But if you want to get a feel for the platform first  and practice your trading strategies before going live, open a free demo account with EasyMarkets

The Most Effective Way To Prosper As A Forex Trader

Hello and welcome to the New Year’s edition of  the bulls vs the bears. This week we are going to find out the most effective way to prosper as a forex trader. If you don’t know by now forex trading is  about patience. You need to lie in wait like a crocodile and  allow the right trade to pop up on your screen.

This trading approach should be the cornerstone of your trading strategy. Come to think of it, it should be part and parcel of your trading edge. If you perfect it like the back of your hand, it should edge ever so closer to being a prosperous forex trader. I guess the burning question on everybody’s mind is:

What Is The Most Effective Way To Prosper As A Forex Trader?

Simple. Don’t jump head first  into the market. Instead lay low for a retrace, pull back or a complete break in the market. Now I can hear someone asking “How is laying low like a crocodile supposed to help me as a forex trader?” Well there are three ways laying low like a crocodile can help you as a forex trader.

1)Laying low like  a crocodile helps you get a tighter stop loss which then allows you breathing space to cash in on a trade by upping your risk reward. Not only that but allows you to increase and trade on a bigger position without risking much money.

2) Laying low also saves your stop loss from being blown to bits-Assuming your stop loss is put in a safer spot.  In so doing  You give your trade more oxygen to breath. So that instead of incurring a loss on a trade you are in a position to make a healthy profit on a trade. And you can afford to take significant risks based on your risk/ratio. It will most certainly do your trading account a whole lot of good.

3) Laying low also give you the option of holding out on trades you are not sure of and reluctant to take a chance on. In such a scenario, you can put in a stop loss. Better safe than sorry. Isn’t it? Even more important, you eliminate the  possibility of  a stop out(or your stop loss being smashed). That should afford you a good night sleep don’t you think?

Now let’s look at a few  pictorial examples.

pic.1

 

Ladies and gentlemen, here is a classic example for waiting for the  right trade using the EUR/USD pair. Here you are entering a trade you are absolutely sure about. As you can see waiting for the right trade  increases the risk reward on the trade. The 3:1 risk ratio at the  resistance level illustrates my point here. Notice the placement of the stop loss 50 pips below the entry price. This increases the likelihood of a huge risk reward.

 

Now on to the next graphic

03-Using-Pin-Bar-Price-Action-Trade-Forex-Confluence-1024x480 (1).png

This is a classic illustration of entering a trade on a hot trend.  Here you see pin barsignals forming after pullback at support and resistance levels. It’s what you call confluence of factors. After pullback then the uptrend continues. This will be the perfect opportunity to make your move,

 

That’s a wrap for The Most Effective Way To Prosper As A Forex Trader”.” Yes it’s possible to profit from breakouts and breakouts. The whole  idea behind being effective trading is to get a hot entry and to get safer stop losses. This helps you escape market uncertainty and gives your trades more  time to rack up the profits.

Even more important, your trades have to be part of your trading plan. It must be part of your trading armour. You can’t go to war devoid of weapons. Can you?

Til next time take care.

Open Live  Forex Trading Account 

If you’re looking to open a live trading account sign up with EasyMarkets

Open Demo Trading Account 

But if you want to get a feel for the platform first  and practice your trading strategies before going live, open a free demo account with EasyMarkets

Some Costly Mistakes You Should Avoid Like The Plague As A Forex Trader

Hello and welcome to another edition of the bulls vs the bears. Today we are going to look at some costly mistakes you should avoid like the plague as a forex trader. You know the forex market turns over 5 trillion dollars a day. Meaning there is a gold mine of cash out there on the forex market. Meaning there is enough money to go around a billion of times ove.

However, there is a catch. You have to be wise as a serpent if you want to get a slice of the 5 trillion dollar juggernaut called the forex market. So I’m going to help you  get a  huge slice of the 5 trillion dollars by pointing out huge mouse traps that you should watch out for  while you trade on the forex market. This way you will be better prepared to sidestep these traps.

Mistake No 1

Failing to Prepare

Ever heard ” If you fail to plan, plan to fail”?. Well, the same  phrase applies to the forex market.  I’m going to piggy bank from the above statement by stating”Fail to prepare, prepare to fail.” Look, forex trading is not a walk in the park. IT is downright  competitive out there. You need to sharpen  your trading edge  in the forex market in other to survive. Even the most accomplish traders struggle stay above the fray out there on the market.

You can’t just go out there and wing it like a Las Vegas gambler and expect to rack up the profits just like everybody else.It’s like a rookie basketball player going up against Lebron James without training in the offseason. And yet he expects to outplay him. That’s tantamount to suicide. It’s the same situation with forex trading. Treat it like Russian Roulette  and you will be laughing at the wrong side of your mouth.

You need to understand that you are not just competing against anybody. You’re competing against international banks, hedge funds, and other forex market professionals. They’re coming prepared to make some serious money. It only makes sense that you do same. The least you can do is have a trading plan as to how you are going to compete against them. You must develop a trading routine such that when your trading setup appears on your screen you are ready to execute without breaking a sweat.

Next up is

Neglecting to Use A Stop Loss

You’d be crazy not to use a  stop loss.You need to understand that aside being a trader you are also a risk manager. And risk management should be your primary concern as a forex trader.  And the best way to manage risk is putting a stop loss on all your trades. In fact  you might as well put in a hard stop while you are it.

I can hear someone asking “Well what is a hard stop? Well a hard stop is not your typical market order. Rather it’s a pre-conceived idea that  if a price level is touched it will activate an order to sell. The whole idea behind a hard stop is cut your losses on your open position. You do not want to inflict too may wounds on your open position. So the logical decision would be to cut and run as fast as you can.

At the same time you do not want to create an artificial stop in your head either. Now what do I mean by artificial stop? This is where you have decided from the top of your head where you will head for your exit. Or even worse you are so sure about your trading position making endless profits that you don’t see the need to out in a stop loss. Ladies and gentlemen, that is a recipe for suicide.

You are basically looking for an excuse to stay in a trade longer than necessary. If you have decided at which point of the trade to bail out of the trade, then there is no need to stay in the trade longer than necessary.  So it makes sense to put in the hard stop.

Poor Risk to Reward Strategy

There is fallacy making the rounds that the best trading systems are those with a 70%-90% winning rate. News flash! You are setting yourself for  extreme poverty if you start chasing castles . These strategies have low risk to reward ratios which make the probability of making significant profits next to non-existent.

Let’s take at two trade strategies –  a high win rate strategy and a moderate win rate strategy.

Strategy A wins 70% of the time and the average Win to Loss is .50 : 1, meaning that the amount per winning trade is half the amount per losing trade.

Strategy B wins 40% of the time and the average Win to Loss is 2 : 1, meaning that the amount per winning trade is 2 times the amount per losing trade.

As you can see, Strategy B wins  all the time. Some may be saying”Now wait a minute. Strategy B has a lower win rate. Strategy B cant be the winner.” Well Strategy B may have a lower win rate. But its’ higher average win makes it  more profitable. Let’s find out what makes Strategy B a profitable option.

The Trade Expectancy for Strategy A is calculated as follows: (assuming $ 500 Avg Win)
(Win % x Average Win Size) – (Loss % x Average Loss Size)

(.70 x 250) – (.30 x 500) = $ 25 per trade

The Trade Expectancy for Strategy B is calculated as follows (assuming $ 500 Avg Win)
(Win % x Average Win Size) – (Loss % x Average Loss Size)

(.40 x 500 ) – (.60 x 250) = $ 50 per trade.

You see you should not focus on the  ridiculous myth that strategies with higher win rates  make for better profits. Rather fix our gaze on the risk reward profile of each trade.

Overtrading

That’s just it!Stay calm and don’t overtrade. I know the allure of fast money and 24 hr action on the forex market is very tempting. But it’s only a trap that is going to drag you in and tear you to bits.

There is this nasty rumour making the rounds  that you need  to be in front of your screen the entire day trading.New flash! That’s absolute balderdash. You don’t need to be trading round the clock all the time. Instead of looking for scalping opportunities how about trading higher time frames such as the 1 hr and 4 hr time frames fro better prosperity and emotional stability?

Not only are these higher time frames but they’ll save you a ton of money as far as transaction costs with your broker goes. The less you trade the less money you give away to your broker. You need to understand that your broker survives by way of transaction costs on your trades. So if you want to avoid making broker get rich at your expense . Jus get the best trades. It makes no sense lumping a bunch of five minute trades an making your broker rich at your expense.

Next is

Poor Position Sizing

If you want to be prosperous  as  a trader you need to get your position sizing spot on. You need to set parameters to better your suit your position sizing strategy – be it a fixed fractional model, a fixed ratio model, e.t.c. The long and short is you need to develop a thorough strategy that states how many lots you you will use on a given trade.

Let’s say you allocate 2% of your trading account on your trade. This is what you call a fixed fractional account in that you’ve set this amount for every trade that you enter in. Now if you have a $50000 trading account and the maximum allowable risk is $1000. If you choose your stop level as $450 from the entry level, then you will be allowed two lots on that trade.

Let me make one thing absolutely. You can’t  be entering trades based based on your emotions and feelings about previous trades that went haywire. Sure, you want to make up for trades that you lost. But you need to get out of your own way in these situations. Instead of jumping back into the deep end, step back, take a chill pill, and go over your trading plan.If there are a few things that need tweaking do that. It’s better  tha  jumping back into the market and blowing up what;s left of your trading capital.

Losing Objectivity While You Trade

The worse thing you can do is lose your objectivity while you trade. The biggest danger about forex trading is that the moment you enter a trade  sometimes you become so attached to a trade that you lose all objectivity when you enter that trade- so much so that your mind starts playing tricks on you.

You start forcing to see things that don’t really exist on the charts.. Consequently you enter market orders to the detriment of your trading account, not to mention your trading sanity. I can hear somebody saying”It’s uncomfortable just sitting there and doing nothing.”But sometimes doing absolutely nothing is the best thing you could ever do. Constantly watching and tweaking  your trading position can be counterproductive. IF anything it leaves you prone to making serious mistakes;mistakes which could seriously affect your trading account in a big way.

I can hear somebody saying”So how do I stay objective while I trade?” Just employ a popular policy called Set and Forget. Basically you you do all your chart analysis in advance before you enter your trade. Based on your early analysis you determine your stop loss and your take profit the moment you enter you enter your trade And then the market goes to work. There is no need for you sit behind your screen watching over  your trade.  Just take a walk outside and smell the roses. By the time you get back you should see a handsome profit in your account.

That’s a wrap for Some Costly Mistakes You Should Avoid Like The Plague As A Forex Trader”.” Just make sure you you cut down to the bearest minimum the above mistakes that you make. There is no such thing as a perfect trader. You are learining all the time. The trick is no to keep making trhe same mistakes over and over again. Even more important, you ate constantly learning as a forex trader. Just look for ways to be a efficient as a forex trader.

It’s all about putting in the time to improve your trading. When you do that you will experience prosperity onn a daily basis. If you  fail to put in the time, you will be pulling your hair out every day because you feel you are losing money.

Til next time take care.

 

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How To Trade Breakouts Via Rectangle Chart Patterns

Hello and welcome to another edition of the bulls vs the bears. Last time we touched on How to Trade Cash In On Wedge Chart Patterns.  This week we are going to touch on how to trade breakouts via rectangle chart patterns

. First we’ll define what a rectangle chart patter is. Then we get into the really exciting stuff. We’ll look at two types of rectangle chart patterns and how to trade them.

So First off:

What Is A Rectangle Chart Pattern?

Well, a rectangle chart pattern comes into play when price is bound by parallel support and resistance levels. A rectangle chart pattern takes shape after a period of consolidation between the bulls(buyers) and the bears(sellers). In case you’ve forgotten what consolidation is about, this is where buyers and sellers reach a stalemate after trading uppercuts with each other.

Price then takes a crack at(or tests)  support and resistance levels several in a desperate attempt to break out and head for the hills or the slope(depending on whether the bulls or the bears are in charge.. Fortunately price breaks out of prison and heads wherever direction the wind  decides to blow it. That of course depends on when whether the bulls or the bears are in charge.

Let’s look at an illustration of the price action on the rectangle chart

Rectangle with support and resistance

As you can see price is sandwiched by  support and resistance levels running parallel to each other.  Now all you have to do is hold your horses and wait for one of these levels to go on the break and tag along for the ride.

Now shall we look at the two types of rectangle chart patterns that I told you about.

Starting with:

Bearish Rectangle

A bearish triangle  takes shape during the downtrend when price consolidates for a while. Of course during the consolidation period, the bulls and the bears trade uppercuts in an attempt to get the upper hand.

But of course  the fight ends in a stalemate. This causes the bears  to  take a breather and revise their notes before deciding where else to drive the price. Let’s take a look at the price action with the bears

Bearish rectangle after a downtrend

The bears break out at the bottom of the rectangle chart and go at full speed down the slope. If you are smart, you’d put in a sell order just below the level of support and rack up some sweet profits along the way.

Now let’s see how it pans out in the  price action breakout

Bearish rectangle pattern and breakdown

Now price, led by the bears surge beyond the level of support. The surge of the bears is the same size as the rectangle pattern,which is illustrated by the blue upward arrow. It is also where you set your take profit target.

Notice how the bears surge past the take profit target. That’s a queue for you to amass more profits along the way.

Last but not least is:

Bullish Rectangle Chart Pattern

The bullish rectangle chart pattern shows up in the uptrend. Now just like the bearish pattern, price goes into consolidation. And just like the bearish pattern, the bulls try to knock out the bears but to no avail. So the bulls take a breather to decide on where else to drive price.

I can hear someone saying”Which direction is price heading to?” Well, there is only one way to find out.

Bullish rectangle after an uptrend

And as you can see, price is heading in one direction -upwards according to the blue arrow.  Now let’s see by how much the bulls headed upwards

Forex bullish rectangle pattern and breakout

Well the bulls, accompanied by price have broken through the rectangle by a country mile  and are heading  for the hills. However the height of the bulls surge is similar to that of the rectangle chart pattern-  as the blue upward arrow  suggests.

So if you want to make some money just place your buy order(or long order) just above the level of resistance. It would be worth a lot of cash and your while at the same time.

 

That’s a wrap for “How To Trade Breakouts Via Rectangle Chart Patterns.”  We started by saying the rectangle chart pattern comes about when price is stuck between support and resistance levels.  And during that formation price goes into consolidation where the bulls(sellers) and the  bears(sellers) take turns throwing left hooks but neither side lands the knockout punch. They then take a breather to decide  where to drive price to next.

We also did say that there were two types of rectangular patterns. There first was a bearish rectangle pattern which occurs during the bearish trend  where price consolidates while the bears catch their breath. The same situation happens in the bullish trend where price also consolidates with the bulls also catching their breath and deciding what to do next.

Next time  we will look at how to trade bearish and bullish pennants

Til next time take care

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