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How to take a loss

There are quite a few books written on how to make money in the market. Some of them are even written by people who have made money as traders! What you don't see often, however, are books or articles written on how to lose money. “Cut your losers and let your winners run” is commonsensical advice, but how do you determine when a position is a loser? Interestingly, most traders I have seen don't formulate an answer to this question when they put on a position. They focus on the entry, but then don't have a clear sense of exit—especially if that exit is going to put them into the red.

One of the real culprits, I have to believe, is in the difficulty traders have in separating the reality of a losing trade from the psychological sense of feeling like a loser. At some level, many traders equate losing with being a loser. This frustrates them, depresses them, makes them anxious—in short, it interferes with their future decision-making, because their P & L is a blank check written against their self-esteem. Once a trader is self-focused and not market focused, distortions in decision-making are inevitable.

A particularly valuable section of the classic book Reminiscences of a Stock Operator describes Livermore 's approach to buying stock. He would sell a quantity and see how the stock responded. Then he would do that again and again, testing the underlying demand for the issue. When his sales could not push the market down, then he would move aggressively to the buy side and make his money.

What I loved about this methodology is that Livermore's losses were part of a grander plan. He wasn't just losing money; he was paying for information. If my maximum position size is ten contracts in the ES and I buy the highs of a range with a one-lot, expecting a breakout, I am testing the waters. While I am not potentially moving the market in the way that Livermore might have, I still have begun a test of my breakout hypothesis. I then watch carefully. How are the other averages behaving at the top ends of their range? How is the market absorbing the activity of sellers? Like any good scientist, I am gathering data to determine whether or not my hypothesis is supported.

Suppose the breakout does not materialize and the initial move above the range falls back into the range on some increased selling pressure. I take the loss on my one-lot, but then what happens from there?

The unsuccessful trader will respond with frustration: “Why do I always get caught buying the highs? I can't believe “they” ran the market against me! This market is impossible to trade.” Because of that frustration—and the associated self-focus—the unsuccessful trader does not take any information away from that trade.

In the Livermore mode, however, the successful trader will see the losing one-lot as part of a greater plan. Had the market broken nicely to the upside, he would have scaled into the long trade and likely made money. If the one-lot was a loser, he paid for the information that this is, at the very least, a range-bound market, and he might try to find a spot to reverse and go short in order to capitalize on a return to the bottom end of that range.

Look at it this way: If you put on a high probability trade and the trade fails to make you money, you have just paid for an important piece of information: The market is not behaving as it normally, historically does. If a robust piece of economic news that normally sends the dollar screaming higher fails to budge the currency and thwarts your purchase, you have just acquired a useful bit of information: There is an underlying lack of demand for dollars. That information might hold far more profit potential than the money lost in the initial trade.

I recently received a copy of an article from Futures Magazine on the retired trader Everett Klipp, who was dubbed the “Babe Ruth of the CBOT”. Klipp distinguished himself not only by his fifty-year track record of trading success on the floor, but also by his mentorship of over 100 traders. Speaking of his system of short-term trading, Klipp observed, “You have to love to lose money and hate to make money to be successful…It's against human nature what I teach and practice. You have to overcome your humanness.”

Klipp's system was quick to take profits (hence the idea of hating to make money), but even quicker to take losses (loving to lose money). Instead of viewing losses as a threat, Klipp treated them as an essential part of trading. Taking a small loss reinforces a trader's sense of discipline and control, he believed. Losses are not failures.

So here's a question I propose to all those who enter a high-probability trade: “What will tell me that my trade is wrong, and how could I use that information to subsequently profit?” If you're trading well, there are no losing trades: only trades that make money and trades that give you the information to make money later.

Brett N. Steenbarger, Ph.D. is Director of Trader Development for Kingstree Trading, LLC in Chicago and Clinical Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. He is also an active trader and writes occasional feature articles on market psychology for a variety of publications. The author of The Psychology of Trading (Wiley; January, 2003), Dr. Steenbarger has published over 50 peer-reviewed articles and book chapters on short-term approaches to behavioral change. His new, co-edited book The Art and Science of Brief Therapy is a core curricular text in psychiatry training programs. Many of Dr. Steenbarger's articles and trading strategies are archived on his website, www.brettsteenbarger.com

source: fxpalace.com

Trending Everyone?? Hmmm I Wonder.....

Is the trend predictable? Well, in theory, no, it isnt, it's just pure gambling. But in the wild things are a little bit different.

1. Lets suppose you flip a coin 3 times. You might get 3 tails on a row, or 3 heads on a row, according to probability laws it is possible and it can happen very ofter. But if you flip a coin 100 times, there is a VERY (and i mean VERY) small chance of getting 100 tails of 100 heads in a row. You'll most likely get around 50 tails and 50 heads. So, there is no way to predict this, it's pure luck. I have made a computer simulation of this, 1 for tail, 0 for head, numbers are being randomly generated. Here is the result:

001110001111101010001100110011111010010100100000101
011110001010100111001010000001001000000111101010

2. Lets now flip a coin 300 times. The result looks like this:

111000000000001000010011010010000100111010101111101
100110011011001001010000101101110000000000100010100
111111111111010011010001011001001111100010100010111
1101001011000000101000110100011011000100011010000100
1101110010100111110011101110110010111100100110001110
0000010110101010111111000111110000111000110

Please note that at the beginning we have a row of 11 zeros (heads). After the first 3 flips, one might say: "Enough heads, it's time for me to bet on tail". But no..head comes up again. After 5 or 6 consecutive losses one might say: "6 loses in a row? The next one must definitely be a tail". But he/she looses again, because the coin does not have memory, each event (flip) is independent. Pure chaos, we know that on a long term we have around 50% chances of getting a head or a tail, but on a short term, no one can predict the result. Thats exactly my point. Consider this while reading this tutorial further.

Here is another situation: we have 100 people, each one of them have a ball. The ball must be thrown in a basket daily. When the ball is thrown in the basket, we write down the time. We do this, every day, 10 days in a row. After 10 days, we gather and analyze the results. The examiner might notice that most of the balls were thrown in the basket around, lets say 13.00 PM. So we might say that the next day, most of the balls will be thrown around same hour. This is an example of a predictible event. The conclusion is that everything that depends on humain behaviour CAN sometimes be predicted.

Lets go back to our trend:

1. Do not apply technical analisys to a small timeframe, because no one can predict the trend on a small timeframe, things are quite chaotic there (the volatility is random). Pivot points, resistance and support levels, chart patterns are useless there. We can improve our odds on small timeframes, but wel'll see how on another tutorial.

2. Pay attention to support and resistance points, but also to price momentum (wait for the price momentum to change, do not suppose it will happen, because sometimes price can break the support/ resistance levels).

3. Choose a pair and stick to it, watch its timeframes, write down hign and low daily points and the time when that happened, so one can predict the values for the next day. Watch carefully the support/resistance levels, see if the limits are being broken, how, what conditions, etc. Some pairs are more predictable than others.

4. Use as many indicators as you can for a timerame

5. In our first example we saw that results can be predicted on a longer timeframe, but not on a smaller one. Use weekly support/resistance levels in order to get more accurate results.

source: fxpalace.com

Online FOREX Trading - To Be A Success Don't Pay Attention To The News!

Can studying the news help you make profits in online FOREX trading? The answer for most traders is a no.

In fact, paying attention to the news in online FOREX Trading will lose money. Why? Read on and let’s find out.

How and why prices move

In online FOREX trading (and any financial market for that matter) prices move based upon the following equation

Supply & demand fundamentals + Trader psychology = Market price

Which is most important? In today’s markets definitely the latter – Why?

Quite simply, markets discount fundamentals quickly and with the internet its done in seconds.

In all corners of the globe the internet delivers information quickly and it’s immediately discounted in the market price.

This means traders make opinions on what will happen in the FUTURE and it is their psychology that is the key to future price direction.

Sure, the papers and news wires are great at telling you why things DID happened and their normally wrong about WHAT will happen.

Traders get deluded by the experts in online FOREX trading and fail to see their wrong most of the time.

Will Rogers once said:

“I only believe what I read in the papers”

Now, he was joking, but most traders take news services as gospel.

Reuters and Bloomberg stories agree with them, so they must be right, is the view of most online FOREX traders. Don’t think so, in fact we know so, based upon the facts and the so called experts past performance.

It’s easy to be wise in hindsight, but looking into the future is much more difficult!

They write stories for a living they DONT trade, traders that are interested in making profits should not be following news stories or media hype.

It’s a fact: Most important market tops and bottoms and formed when the news is most bullish or bearish. When the trends change of course, news wires have an explanation but that does not help you trade!

In the 1987 crash they were bullish in the tech stock boom they were bullish and these are just tow examples of media experts being wrong and there are many others.

Understand the past and look to the future

This is the key to successful online FOREX trading. Quite simply the fundamentals are digested in seconds and reflected in the price.

Its trader psychology that’s important as they look at the future and how they determine the supply and demand situation is reflected in price changes.

Human psychology has remained constant over time and thats why many price patterns are so reliable and point to important market tops and bottoms when the market is either very bullish or bearish.

Of course, prices then go the other way! confounding the so called media experts.

Technical analysis of markets

The only way you can win in online FOREX Trading is to use a technical analysis system that focuses on price.

Why use a technical system in online FOREX trading?

There are two main reasons

1. You will not be distracted by media stories and news hype and will keep your emotions in check.

2. If you are involved in online FOREX trading you can look at charts and see long term trends that last for months or years and many of them (in fact most of them!) run against what the papers and the so called experts say!

To be a success in online FOREX trading all you need to do is focus on these trends and forget the news and media, media experts don’t get paid to trade, they get paid to write stories.

Focus on the reality of the price, not the media hype and you can make big profits in online Forex trading.

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On finance including investments and becoming a succesful trader succesful trading visit our website for articles features and downloads at:http://www.net-planet.org/index.html

Article Source: http://EzineArticles.com/?expert=Sacha_Tarkovsky

source2 : fxpalace.com

Risk Management:
How to avoid losing your shirt while trading forex.

Ask not for whom the margin calls.

Have you ever seen things like these on a website or in a review?
"I followed those trading signals, and my account dropped 70% in 3 days."
"I tried this method and got margin called in less than a week."


Let me put this simply. It doesn't matter if some trading method, trading room, signals service, or anything else has a perfect reviews and a 5 year history showing that it never had a single losing trade. It doesn't matter if it's endorsed by Felix, Crazy Cat, Sir Pipsalot, me, and the heads of the IMF, ECB, and the US Treasury. Not matter what "proof" is offered, no matter how well endorsed it is, no matter what the guarantee is, DO NOT EVER RISK TOO MUCH OF YOUR ACCOUNT ON ANY ONE TRADE.

No human, no computer, no "perfect" signals or other trading method can be right 100% of the time. It's possible to backtest and optimize something so that it's "perfect" with old data, but the forex market is an unpredictable beast. Good systems and signals can be right much of the time, but NOTHING will ever be right 100% of the time if you let it run long enough.

Risk Management is the concept of having a plan that sets a maximum amount of risk that you will place on any one trade. How much risk is "too much" risk is the subject of much debate. I've seen numbers ranging from 1/2% to 5%. Some of this will depend on the forward tested success rate of your system, and some will depend on what you consider to be an acceptable level of risk.

"But if I don't risk much, I can't make much." is a common complaint against risk management. To some extent, this is true. On the other hand, if you have nothing in your forex account to trade with, you won't make any money at all. If you risk too much and there's a big gap in price (or your broker gives you too much slippage), you can not only lose all the money in your account, but you can possibly even end up OWING money to your broker.

Let's say you have $10,000 in your account. Then you decide to risk $5000 for the chance to make $5000 (a 1:1 ratio). If the trade goes your way, you have $15,000. That's great, but what if it goes the other way? Then you only have $5000. Now, you need to double your $5000 to get back to where you started. If you risk half your account again and the "99% accurate" system fails you again, then you only have $2500 left. Now you would have to quadruple your account to get back to where you started. Fail one more trade like this and you have only $1250 left. You would have to have more than 5 perfect trades gaining 50% each time to get back to where you started. After 3 losses in a row wiping out over 85% of your account, would you really want to trust this trading method to work 5 or 6 times in a row now?

Let's say you feel like using the highest end of typical risk management recommendations and risk 5% of your $10,000 account on each trade. Once again, we'll use a 1:1 ratio just to keep the math simple. This means you'll risk $500 on the first trade while hoping to make $500. If the first trade goes bad, you have $9500 left. You would have to lose many trades in a row to lose half of your account, and far more to go all the way down to $1250. It is true that you won't be able to make money as fast, but what good is making huge sums of cash if you can lose most or all of your hard earned profits from a single bad trade.

I would NEVER risk more than 1/2 percent of my account per trade on something I hadn't personally forward tested on a live account for an extended period. If I have confidence in a system that I have tested live over time, I slowly and carefully scale up the size of each trade. I’m not going to say exactly what my personal maximum risk is, since I want you to select your own, not just copy what I do.

If you want to try something new, first try it with a demo account, but remember that demo accounts get filled quicker and have little or no slippage. A real account is much more likely to have slippage and requotes, thus cutting into potential profits. If demo testing looks good, then move it to your live account and trade the smallest amounts possible, just to see how the trading works with your broker.

The Daily Trading Signals here at the FPA are a good example of how different demo and live accounts can be. It's not that hard to catch a news spike (or to straddle the price with pending orders) on a demo account. With a live account, even the best broker won't fill every order perfectly if you try to catch the news spike. Some brokers even go so far as to prohibit news trading. This means that if you make a profit trying to catch a news spike, they will confiscate it. Somehow, they never will give you a refund if you lose money on a news trade. Since I'm primarily a technical trader, this isn't a problem for me. If you really want to try to catch news spikes, Felix strongly recommends MB Trading. I haven’t tried them out for news trading, so I can’t give a personal opinion on this.

If you are using forex signals or some other system and you have successfully traded it for long enough to be comfortable with it, ask the signals (or other product’s) support staff what the maximum risk they recommend is. They should be more familiar with the product than anyone else. Just remember to start small on any new system and never to exceed your own personal maximum risk per trade no matter what anyone else says.

Although a historic record of pip gains for a signals service, trading room, or trading method is a good thing to consider, the actual results you get will always be a little different. See where I've been reporting the results of my tests of Intelli4x's signals. At the moment due to pure dumb luck, I've actually been doing a little better in total pips on the trades I’ve taken than the "official" record for the signals I've taken from them. Sometimes I've entered a little better, sometimes I've missed a close signal and something went on and hit the take profit number. If my schedule had been a little different, this could just as easily gone the other way and cut into the results.

Setting your risk is easy with most brokers. You just need to set a stoploss on each trade. Remember that xxxUSD pairs are worth $10 per pip for a full lot, $1 per pip for a minilot, 10 cents per pip for a microlot, and 1 cent per pip for a nanolots. For other pairs, it's a very good idea to check a pip value calculator. If you wanted to take a maximum risk of $100 on a trade, then you can only set the stoploss to a mere 10 pips if you plan to trade a full lot of a xxxUSD pair. On the other hand, you can trade 5 minilots and with a 20 pip stoploss or 1 minilot and use a 100 pip stoploss. Usually, the stoploss is determined by your trading method and then you need calculate the maximum lot size of the trade that you can risk. If the smallest amount your broker will let you trade would exceed your maximum risk, skip the trade (or find a broker that lets you trade smaller amounts).

Remember, some brokers are better at closing your order exactly where you set the stoploss. Others frequently have very bad slippage and will fill your order at a price that is worse for you. If your broker does this too often, reduce your total risk per trade to compensate for the potential slippage loss and look for a better broker.

If you plan to leave an order open after the New York trading session ends on Friday afternoon, be aware that there might be a gap in price when the Tokyo market opens (Sunday evening in New York). If price gaps across your stoploss, you could lose a lot more than you planned. Alternatively, some brokers won't observe the stoploss under these circumstances and the price could continue to move against you even more. Until you have a solid understanding of market dynamics, your broker’s methods, and understand all of the risks involved, you might want to close all positions on Friday before the market shuts down for the weekend and then re-open them when the market opens on Sunday.

My personal advice for ANY trading method you are considering would be to start with a combination of backtesting as well as forward testing on a demo account. Don't base your decision to go live on 1 or 2 trades. Remember, coin tosses are accurate 1/2 the time, and getting heads or tails 3 or even 4 times in a row isn't that hard to do. Once you have enough data to feel confident, trade TINY amounts of money live to make sure that the method can work under real world market conditions with your broker. If it's still profitable, scale up at a reasonable pace, but NEVER exceed the maximum amount of risk per trade that you set for yourself. Even the best system in the world will still have an occasional losing streak.


Always remember this. You can't make your fortune if you lose most of your account on a few bad trades. To get rich trading forex, you must first learn not to go broke.

I can't promise that following this advice will absolutely save you from losing all of your money, but at least you'll lose it slowly enough that you'll have a chance to improve your trading technique before blowing your account.

from FPA forumers for education purposes

Fed Discount Rate Cut Statement

The Fed has cut the Discount rate by 25 bps in an emergency market to primarily "Reduce the spread between Fed Funds rate and Discount rate".

The Fed is still likely to cut the headline Fed funds rate by 75 bps on Tuesday, its scheduled meeting.

The Statement along with Discount rate cut has been given below. It has been taken from http://www.federalreserve.gov/newsev.../20080316a.htm

The Federal Reserve on Sunday announced two initiatives designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth.

First, the Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York.

Second, the Federal Reserve Board unanimously approved a request by the Federal Reserve Bank of New York to decrease the primary credit rate from 3-1/2 percent to 3-1/4 percent, effective immediately. This step lowers the spread of the primary credit rate over the Federal Open Market Committee’s target federal funds rate to 1/4 percentage point. The Board also approved an increase in the maximum maturity of primary credit loans to 90 days from 30 days.

The Board also approved the financing arrangement announced by JPMorgan Chase & Co. and The Bear Stearns Companies Inc.

Trade Wise, Trade Well!
__________________

Vikrant Goyal
Kshitij Consultancy Services Analyst
Forex Factory Analyst

erm.. put anything