PUTTING IT TOGETHER
MARGIN A private trader can leverage their account by trading on margin A margin requirement of 1% allows the trader to control a transaction size of 100 000 with $ 1 00 The margin/deposit is used as a security deposit. Remember that as the client, you must always retain the margin while any position is open. Always think of margin as a double edged sword: It is great for winning trades as you can control large positions and earn large amounts of money with relatively small amounts of money. However, you can control these large positions and lose large amounts of money with the same small amount of money. The correct usage of available outsized margins is that individual position margin requirements should not exceed 5% of your trading capital.
UNDERSTANDING RISK MANAGEMENT The best strategies mean nothing without risk management Risk equals the measurable probability of loss Number one objective is to preserve capital If you have an approach that makes money, then money management will make the difference between success and failure Monroe Trout The elements of good trading are: 1. cutting losses, 2. cutting losses, 3. cutting loses Ed Seykota Every good and successful trader will still have losing trades. The secret is to maximize gains and minimize losses. No one strategy will always work and the market will sometimes beat us even if we have a proven successful strategy. The key is that we have a strategy that cuts losses and accepts losses as being a normal part of the business of trading. Before entering a trade know what the downside is and how much you can lose if the trade goes against you.
THE NUMBERS The numbers say it all; it is vital to keep loss sizes to a minimum. Nothing good can come from holding a losing trade and hoping it will turn around. If it does not turn, a 5% loss can become a 30% loss or bigger. Study these numbers and understand them before starting to trade. Start trading with a realistic amount of working capital so that you can trade confidently using money management principles.
MANAGE YOUR MONEY Professional: 3% risk of working capital Practical: 10% max of working capital Determine risk/reward ratio Objective - 2:1 need to win 4 out of every 10 trades The 2:1 risk/reward strategy should be adhered to. In this way the trader can afford to have losing trades and will not be under pressure to win more than 50% of trades taken. A 3:1 ratio would be ideal and allow the trader to use their strategy they have developed without looking for home runs to get them back to break-even. The larger the working capital the lower the % at risk for each trade. For average retail traders, the % at risk on any trade should not be more than 10% of the working capital.
TRADER S PSYCHOLOGY Patience Diligence Discipline Determination Subjective Qualities Humility The ability to handle losses and move on is what separates winning from losing traders. Lawyers, electricians, doctors, etc. all learn and practice their skill. Why does one think they can be a profitable trader without practice and knowledge? Be humble and prepared to learn and practice. Treat your trading as the professional business that it is, whether you trade multiple hours a day or only a few hours a week.
THE 10 LAWS OF TRADING Adapt these laws to your personal goals: 1. Start small 2. When in doubt, get out 3. Don t add to a losing trade 4. Don t overtrade the market 5. Have a per trade loss limit 6. Stick to the plan 7. Manage the trade 8. Cut your losses and let your profits run 9. Be aware of the trend 10.Think pips not money These rules are all relevant to a successful trading plan. Be sure to understand their meaning and consult or ask a trading expert for help or advice if any of these are unclear to you. Remember humility is essential to your trading success.
PERSONALIZED TRADING PLAN Create your own personalized trading plan What goes in your trading Journal: Date Currency Pair Time in Entry Price Time out Exit Price Time Frame Strategy Reason Just as any business has a set of books which reflect it s business activity, trading is also a business and all trading activity must be recorded so that you can learn from past trades. Make a trading journal with details of trades taken so that as a trader you can check past trades to learn from both winning and losing trades. Thinking that we will remember all the information is foolish and wrong and disrespectful to your business. Be professional.
KEEP IT SIMPL E