Forex Success Formula Presents Secure Your Money www.forexsuccessformula.com - 1 -
Risk Disclosure Statement The contents of this e-book are for informational purposes only. No Part of this publication is a solicitation or an offer to buy or sell any financial market. Examples are provided for illustration purposes only and should not be constructed as investment advice or strategy. All trade examples are hypothetical. No representation is made that any account or trader will or likely to achieve profits or loses similar to those discussed in this e-book. By purchasing this e-book, and/or subscribing to our mailing list you will be deemed to have accepted these and all other terms found on our web page www.forexsuccessformula.com in full. The information found in this e-book is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to the law or regulation or which would subject us to any registration requirement within such jurisdiction or country. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. www.forexsuccessformula.com - 2 -
Table Of Contents MONEY MANAGEMENT 5 What is Martingale effect? 5 PHASE 1 - PRE TRADING 7 How much to risk per trade? 7 When you are ready to trade 8 PHASE II - IN MIDDLE OF TRADE 9 a. If the trade is running in profit 9 b. If the Trade is running in Loss 13 PHASE 3 - POST TRADE CLOSE 15 PSYCHOLOGY NECESSARY FOR SUCCESSFUL TRADING - 16 CONCLUSION 19 www.forexsuccessformula.com - 3 -
Hey There Folks, Thanks for buying Forex Success Formula. If you are reading this manual then I imagine that you have already read the swing trading strategy Forex Success System. Though Secure Your Money is a supplement to that system, the fundamentals mentioned in this manual can be applied to any form of trading such as Forex, Commodities, stock or any other instrument. The purpose of this manual is to ensure that you know how to treat your money while trading. How to make sure that maximum profits are achieved in winning trades, how to cut your losses, what kind of mistakes to avoid and other soft aspects related to forex trading. I have mentioned on my sales page that the contents of this manual are worth the price of the entire course and I stick to it! So let us get started. Thanks & Regards, Rahul www.forexsuccessformula.com/forextradingblog www.forexsuccessformula.com - 4 -
Money management Like I have mentioned, Forex Trading is always considered as business by serious traders. These traders follow the same discipline as is needed for any other form of business. Apart from discipline there are some other ingredients also that are needed to succeed in any form of business. Out of these, the most prominent is approach of how to treat your money. A Forex Trading System is just one component. The other important parts include how to best spend the money, where to spend it and also how to secure the income already generated. To understand these money management concepts, we ll look into the entire process of trading, right from selecting a forex trading system to closing the trade!! Remember, implementing principles of money management aspects need certain different mindset. I have seen most of the traders lack it. They are in grasp of Martingale effect What is Martingale effect? Have you ever been to a casino & gambled? A typical gambler carries a mentality that after a series of losses, a win is natural. Due to this he increases his bet size after every loss so that if he wins, he not only recovers the money he lost in previous bets, but he also makes handsome profits. Vice-versa our gambler expects loss to follow after series of wins. So he reduces stakes after each win. So, let us look what is the effect of this approach by looking at an example. Lets imagine the gambler starts with bet size of $10 on 1 st bet. www.forexsuccessformula.com - 5 -
He loses this one, however due to Martingale effect he stakes $20 in next bet. He loses this one also, so he follows by placing $40 on next and so on Now, imagine if he has lost 5 bets in a row. In his 6 th bet, this means his bet size is already $320 and his loss is already $310. This is what is called Martingale effect!! Very soon such gamblers realize that they are out of funds to bet any more. If this same mentality is extended to forex trading, it doesn t take long before the whole account balance gets wiped out. That is because most of the traders cannot differentiate between trading and gambling. This is why having a right mentality is a must to succeed in trading. The psychology that is needed is just the opposite Increase the stakes during a winning streak and reduce during losing sequence. Haven t you heard A trend is your Friend until it Bends? Once you have this approach clear, the rest of the things become straightforward to understand. www.forexsuccessformula.com - 6 -
Phase 1 - Pre Trading Your money management principles kick start right at the point where you are deciding on a trading system to use. That s because selection of a system requires answer to a key question How much are you ready to risk per trade? How much to risk per trade? When it comes to trading, the 1 st thing that all the traders should think before selecting a system is how much are they ready to risk if the trade ends in a loss. A definite number may not be possible for them to say at that point, but a range should be good enough. Most of the expert traders say that you should not risk more than 2-3% of your entire account balance. Well, I don t agree with that! At least not entirely. For e.g. if a trader has only $500 in his account balance, 2-3% translate to only 10 or 15 pips which is not sufficient in terms of stop loss for any form of trading. Instead, I would suggest that you choose amount in terms of pips instead of %. And this amount should be on the basis of timeframe (1 hr chart, 15 min. chart etc.) you are or want to trade at. This can be done in two ways www.forexsuccessformula.com - 7 -
1. Either decide on the timeframe you are more comfortable with. If you are a day trader who trades on 15min chart or 5 min chart, 25-30 pips is reasonable enough to risk, however if you are into swing trading, you may want to increase the risk to a minimum of 45-50 pips per trade 2. Or decide how much can you risk and then on the basis of that decide on form of trading. For e.g. if you can risk only 30 pips, then day trading can be the only option for you. Knowing this in a way defines what kind of trader you become. You don t want to spend all the time studying a system which you later realize that you are not in a position to use. It s the number of pips that matters and not the % of your account balance. When you are ready to trade Let s say that you selected a system and have gone through it. For e.g. you zeroed on Forex Success Swing Trading System, practiced it on your demo account and are now ready to use it on live account. When looking at the chart for potential trades, you must always be aware of how much is the maximum that your system allows you to risk. The Forex Success swing trading system doesn t allow you to risk more than 50-55 pips per trade. Defying this rule would mean that you have just acquired more risk than was necessary which is not helpful in long run. Remember not to chase a trade; If you have missed a trade, don t enter late in the game as it would require you to risk more. There is always a next trade. Also, if you had a losing trade yesterday, you should forget about it before starting the next trade. Don t open the trading station with the attitude that you have to recover yesterday s loss. This will just put you in Martingale Syndrome! www.forexsuccessformula.com - 8 -
Phase II - In Middle of Trade This is a point where the trader has already opened a trade and is in middle of it. This is where things start getting more interesting and skills of money management start getting tested. The 1st and foremost thing to do in the beginning of any trade is to set a stop loss to cover your account incase the market turns against you. As you know, when you have started any trade there are two possible outcomes 1. The trade can end in profit 2. Or the trade can end in loss. We are not talking about the magnitude of profit or loss. The magnitude or amount of profit/loss is governed by your money management guidelines. Let s look at both the scenarios in more depth a. If the trade is running in profit It s a great feeling to see your trade in profit. I feel very enthusiastic if my trade is in profit even if by two pips. www.forexsuccessformula.com - 9 -
Let me tell you an experience of mine that I had when I started trading - I once was trading AUD/USD currency pair. I did all the necessary things like setting the stop loss, setting the limit price etc. After 3 hrs when I checked my trade I was in 42 pips profit. Great!! I reviewed my charts and felt that momentum is still strong. So, I decided to stay in the trade and I left my trade untouched. Then this strange thing happened. After few minutes, the market reversed very strongly. It not only wiped my whole profit from the trade, but it also hit my stop loss which was 47 pips from the point where I opened the trade. So, a trade in which I once was 42 pips in profit, I ended in loss of 47 pips. I won t hide the fact that I was upset. I checked with fellow traders on a forex forum and they gave me an important piece of information - You should learn some Money Management Principles One of them asked me Why didn t you move my stop loss to Break Even when you were in 40 pips profit? A very smart trader once said in a webinar that Never end a winning trade in loss That makes perfect sense. Losing money in a winning trade apart from hitting your account balance also hits you mentally. You start questioning if the system is good or not. And you start rectifying on things which are not the cause of problems in the 1 st place. There are two main MM rules in case of a successful trade www.forexsuccessformula.com - 10 -
i. Move your stop loss to break even after you are in certain pips profit. After how many pips should the stop loss be moved is dependent on the time frame you are trading. In day trading, you can move to breakeven after 15-20 pips in profit. On 1hr chart, I would suggest you to do as soon as you are in vicinity of 35-40 pips profit. ii. Keep moving your stop-loss up as your profits keep increasing. This ensures that if the market reverses any time soon and by any chance if you are not watching your trade, you still end up with certain level of profits. Here is your plan that I would suggest regarding moving your stop loss points for a swing trading system such as one included in this course - Current Profit (pips) Stop Loss (with respect to trade opening price) 0-45 to -50 35 0 55 20 75 40 95 60 110 75 125 90 135 100 145 110 155 120 Here is what the above chart means When the trade is opened your stop loss should be about 45 to 50 pips below the starting price of the trade When you are 35 pips in profit, move your stop loss to opening point of the trade. So from this point onwards you cannot end in loss. Once you are in 55 pips in profit, move stop loss further 20 pips in the direction of the trend. Now you are guaranteed to make 20 pips profit. Same, when you are in 75 and 95 pip profit. Once we are in 110 pips profit, start moving your stop loss every 15 pips. www.forexsuccessformula.com - 11 -
And once you are in 135 pips or above profit, you can move stop loss every 10 pips. This kind of plan when put in practice, it not only protects your trade from the market reversal, but also gives you clarity on how to manage your trade when it is open. Let s look at an example from real forex market - In the example above, each elipse (0) represents a particular price point where the stop loss was moved. The stop loss values are represented by horizontal lines ( ) www.forexsuccessformula.com - 12 -
As you can see, the when the trade was opened, the stop loss was 45 pips below the entry point. Once the trade was in 35 pips profit (Red Elipse), the stop loss was moved to entry point (Red Line). Similarly, when the trade was in 55 pips profit (Green Elipse), the S/L was moved to 20 pips profit (Green Line) And so on. There are two ways by which this whole process of Stop Loss adjustment can be done Manually Keep checking you trade every few hours and adjust your S/L Automatically Most of the trading stations give a functionality by which you can specify after when your stop-loss should be moved further up. For e.g. in FXCM trading platform, this feature is called trailing stop-loss b. If the Trade is running in Loss If that s the case, don t panic. Ending of a Trade in loss is part and parcel of this business. 1 st and foremost things you must check is i. Why the trade is in loss ii. How much is it in loss. You may want to check if there is any economic release that came out and moved the market in other direction or any other reason. If you feel that the market is showing temporary retracement and the loss is very low, then continue to keep the trade open. For e.g. if you are trading on 1 hr timeframe and you are currently in loss of 15 pips, then its nothing to worry about. www.forexsuccessformula.com - 13 -
For e.g. Please refer to the chart above. The red ellipse shows the point where the trade was opened and Red Line indicates the initial stop loss. Just imagine what would have happened if you would have closed the trade when the market would have reached the Green Ellipse. However, if there is a shift in momentum and your indicators start showing that market is going to retrace significantly, then its better to close the trade as soon as possible. The signal could be \for e.g. the price just retraced and crossed the primary EMA. www.forexsuccessformula.com - 14 -
Phase 3 - Post Trade Close Post closing of a trade is more of a time to look back at what you did today. What kind of decisions did you make? Did you take rational decisions or did you play with emotions? Also, this will be a time to check what the status of your account balance is. Is it growing steadily? If so, do you want to upgrade your account to full from mini? But if your trades are not going profitable, do you want to stop trading on live account and switch to demo? Or do you want to switch from day trading to swing or vice-versa. Also, you may want to update your trading journal with details of your trade. This is also the time when you should look what is the risk-reward of the strategy that you are using to trade. An ideal strategy always has risk to reward ratio of more than 1 : 1.5. This means that for every dollar you trade, the strategy earns you more than 1.5 dollars. So if in a particular trade you risk $50 and make $150 in profits, then you had risk-reward of 1 : 3 www.forexsuccessformula.com - 15 -
Psychology necessary for successful Trading - This is one of the most important chapters of this manual. The successful trader psychology allows you to look at things correctly and that helps in all aspects of forex trading. Though this is a very big topic in itself, Let me cover some of the common traps that an average trader falls into that you should avoid 1. Trap of Greed If you have ever traded, then tell me honestly Has it ever happened that you were losing money in a trade but you were not ready to get out of that? Not because that you felt that market can reverse, but because you were not ready to digest the thought of losing money? If you have gone through this, let me tell you that you are not alone!! This is common for a lot of traders especially the beginners in forex. The main reason for this is that all such traders come to the market with the perception that since forex market has so much money, they can make money in all the trades. This is more of self-fixing problem. Most of these traders later realize the truth and when they do, they become more mature and that s when the importance of money management becomes clear to them. 2. Trap of Jumping Between the systems Many traders get into habit of jumping from one system to another. Here is what they do a. They come across a trading system b. They read it and may be practice it 2-3 time c. They use it and face loss in first two trades www.forexsuccessformula.com - 16 -
d. They become frustrated. e. They dump the system and start searching for a new system They try a new system, same result and then they jump on new one. And this cycle goes on and on. If you are doing what I mentioned above, then please don t. You must realize that each system has its learning curve during which the trader has to understand what the system is, when does it work best, what kind of limitations does it has and what kind of mindset is needed to successfully implement it. I typically suggest that each should be tried atleast 20-25 times before forming a conclusion if it is working or not. 3. No Paper Trading This is a biggie. I recently read in a journal that about 30% of traders don t paper trade at all when implementing any new system. Wow!! The report said that about 83% of these traders fail! Now why am I not surprised? Paper trading is always a must and I have emphasized this in all my manuals. You must always check if the forex strategy is really works for you and what does it need to execute correctly. Remember if you are not successful in demo trading, there is no way you can succeed when trading with real money! 4. Trap of Martingale Effect Though I have covered this point earlier, let me touch on it again. This is an attitude of recovering the loss of previous trades during which the trader doubles the risk in the following trade. This approach is more of gamblers, which we are not!! www.forexsuccessformula.com - 17 -
5. Trap of Seeing the things you want them to be This trap is result of habit of overtrading and is very frequent among newbies (atleast it was in me..:-)). If a trader cannot resist placing a trade, they start analyzing the charts incorrectly and they simply start finding the reasons to trade. So, to them a Hammer candle may start appearing as Bullish candle They analyze the chart with approach that they have to trade. This approach affects their analysis. The correct approach a trader should carry is to look at the charts first and then decide if there is any potential trade that can be placed. www.forexsuccessformula.com - 18 -
Conclusion Like I mentioned earlier, to succeed in Forex Trading you need the same attitude as required in running any business. You need the same level of discipline, same money management principles and also suitable attitude. If you don t carry any of these, you are just hurting yourself in long run. These principles are very important. Without these, it doesn t matter how much good a strategy you have. Trading is a journey and not a destination. Please feel free to send me your questions or comments. I ll be happy to respond to those. Thanks & Regards, Rahul http://www.forexsuccessformula.com/forextradingblog www.forexsuccessformula.com - 19 -