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Thread: Before making a trade

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    There are a few things I want to discuss with you before you even
    consider taking a trade. Although right now you may consider the
    trading system to be accountable for 90% of your success I am afraid
    you are wrong!
    50% of success is the system the other 50% is made up from money
    management and psychology.


    Money Management

    The importance of money management is highly underestimated
    amongst traders everywhere.

    It is almost like people are missing the whole point of trading. Too
    much time is devoted to finding the perfect trading system but any
    trading system without money management is doomed to failure,
    even the best one!

    Every trader has to incorporate money management into there
    trading system with the objective of controlling risk.
    Let's go over a simple conservative money management system
    using an account of $20,000 for this example.

    Each lot traded on the EURUSD is $10 per pip so to risk 1.5% of the
    account we can risk $300 on each trade. In pips we would be risking
    30 pips.

    Now for every $2,000 the account increases we can add another mini
    lot to the trade size. If the account grew to $22,000 then we would be
    trading $11 a pip and risking $330 on each trade.

    No matter what the size stop is on your trade even is it is 200 pips
    you must not risk more than 1.5% of you account.

    On the other hand if the account decreased from $20,000 TO
    $18,000 you would then have to reduce your risk per trade to $9 per
    pip to keep the risk of the account under 1.5%.

    You could also reduce you trade size if you feel that you are not
    trading well during a certain period of time, I know of many traders
    who do this and I think this is a great way of protecting you account.
    Take a small sticky note and write "You must always protect your
    account" now stick it on your monitor.


    Over Trading

    I thought this deserved to be in here because it is a problem every
    trader is confronted with at some time or another.

    I'm sure you know the feeling of loosing a trade and wanting to get
    back into the market as soon as possible only to have it happen again
    and again. Over trading is addictive and can destroy a trader if it gets
    out of hand. It is a fact that 95% of traders would be more profitable if
    they took only 1 trade a month or none at all. Just one good trade,
    they would be forced to plan and perfectly execute a trade.

    I suggest this to every trader I meet that is loosing consistently and
    you would be surprised how well it works!

    I set a maximum number of trades I can take per month, once I have
    reached that number I am no longer allowed to take any trades until
    the next month. This helps me focus on waiting for the very best
    setups.


    Cutting losses and letting profits run

    In my early trading years this was one of the main reasons I used to
    lose at trading overall, as soon as I saw any profits in my trade I could
    not resist to take them. Although this may not seem like a bad thing to
    do, if you are risking 50 pips and taking profit at 30 pips you have to
    maintain a huge win % to stay ahead in the long run.

    For example if you risk 50 pips to get 25 pips you need to have a
    66% winning trades just to break even not to make any money!
    Now if we risk 50 pips to get 150 we now only need to have winning
    trades 25% of the time to break even. Dont you think that would be
    easier?

    Can you see how important this can be to your success?


    Make a trading plan

    I have never come across a professional trader that does not have a
    trading plan, this could be the most important part of trading. Unless
    you are a robot you will need a trading plan to keep you from making
    silly mistakes throughout your trading day.

    I recommend creating a pre trade check list, an during trade check list
    and a exit trade check list.

    Your trading plan does not need to be complicated, simply state bullet
    points with your rules.

    Below is an example of the kind of things you would expect in your
    check list.

    Pre trade Check List

    If a news report is within 30mins do not trade.
    Are you trading with the trend?
    Have you determined your risk on the trade?
    Ect
    Ect

    Exit Check list

    Is my desired risk reward ratio met?
    Does the trade have more room to move?
    Am I letting greed take control?
    Ect

    Always run through your rules before, during and after a trade.


    Recording your trading results

    From the start of your trading career you should be recording every
    trade you make. This is the fastest way to fix your trading faults.

    What I want you to do is start a journal and make notes for every
    trade you make, state the reason for entering the trade and reason
    for exiting along with what you are felling throughout the trade.

    After every week of trading I want you to read over your trades, I think
    you may be shocked by some of the trades you made. Put a green
    mark by every trade you feel that you traded according to your rules
    and place a red mark by the trades that you feel were a result of
    emotion and desperation of missing out on a move.

    After several weeks of this exercise you will start to see patterns in
    your behavior and will in the future be able to avoid them easily.


    Be careful with winning

    Winning is what we are trading for however almost all traders (even
    professional traders) will encounter a problem after having many
    consecutive wins.

    The feeling of over confidence can be disastrous, this is when you
    are most likely to break your rules and over leverage your account
    resulting in a sever loss. I find that after a certain % gain in my
    account per week/month it is a great idea to take some time off and
    regain a sense of respect for the market. Remember it can be taken
    away as fast as it gave it. Try to keep level headed after a great
    streak of wins, getting cocky can ruin a trader.



    Back testing

    Another thing that I believe was the turning point for me into
    profitability was when I started back testing. I think of myself as a
    back tester who trades once in a while.

    Whatever system you decide to use you should be back testing and
    listing your results in spread sheets. Start from the beginning of the
    year and move forward on your specified time frame candle by candle
    making notes of your entries and exits.

    This will give you an immense sense of confidence in your system
    and you will be able to recognize the setups far easier. I can not
    recommend this highly enough, I know it is some work but you will
    love the feel of knowing the exact odds of a trade being profitable.

    I must point out that back tested results are only a basis for your
    trading results. Highly profitable trading comes form experience and getting a feel for your trading system, these cannot be back tested
    and require time to learn.

    For example, I have a system that I know is profitable in back testing
    but with the use of my candlestick formation knowledge for entries I
    can increase the win %.

    I could go on with this section for 100's of pages but the fact remains
    that most people will not read it and jump straight to the system
    section. Therefore I wanted to keep this nice and short while still
    pointing out the main points that need to be considered in order for
    you to succeed in this business.

    I would advise you to read through this section twice before
    proceeding and keep each point in mind while trading. If you dont
    already then start a trading journal and make notes of every trade you
    take.
    Last edited by FXOjafar; 03-15-2008 at 03:39 PM. Reason: postbuilding

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    thanks for giving all of us such a valuable information
    i will definatelly think in my mind abt these thing before making a trade
    Thanks a lot abderehman

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    over trading
    thats the thing i need to overcome
    i am making 100 pips a day

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    thx for the article.
    "Winning is what we are trading for however almost all traders (even
    professional traders) will encounter a problem after having many
    consecutive wins. " <<< I think this is the most important part in trading.

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    well be patient and have large free margin available and u will see your trade in profit

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    Quote Originally Posted by abderahmen View Post

    Over Trading

    I thought this deserved to be in here because it is a problem every
    trader is confronted with at some time or another.

    I'm sure you know the feeling of loosing a trade and wanting to get
    back into the market as soon as possible only to have it happen again
    and again. Over trading is addictive and can destroy a trader if it gets
    out of hand. It is a fact that 95% of traders would be more profitable if
    they took only 1 trade a month or none at all. Just one good trade,
    they would be forced to plan and perfectly execute a trade.

    I suggest this to every trader I meet that is loosing consistently and
    you would be surprised how well it works!

    I set a maximum number of trades I can take per month, once I have
    reached that number I am no longer allowed to take any trades until
    the next month. This helps me focus on waiting for the very best
    setups.
    this overtrading some time make my self un worthy, because when i get return more than 100% and after that I lose it in just one single trade.. tired that what i feel..

    my friend abderahman is right ... so stay away from over trade, make you overconfidance.

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    Default i think more than that!

    psychology takes far more than 50%. i would give 70% to psyk and 30% to others

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    Yes man, Lots of losses are caused by lack of money management and psychology. If we management the funds we have in our account we noticed that we can stay in the market for a long period of time. Psychological effect also contribute a lot to some losses..

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    money management is the 1st way to get & win in forex

  10. #10
    skazaks
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    Smile Before makin a trade.

    This is a good one. plz keep the fire burning. cheers!

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    Some more VVI tips I follow.

    1. If u win 1st trade play another
    2. If u win then another go as long as u don't loose. When u loose 1 trade no more traede for that day.
    3. If ur 1st trade is looser then don't take for 2nd for that day , at least for that session. Don't try to revenge of ur loose.
    4. Try to trade same volume if u follow my rule.
    5.Cut your loose when when it is small. And ride on ur profit setting stop loss.
    6. When u r 15 pips + then set ur stop loss in break even. Remember Not loosing is a winning trade. Just keep follow ur profit in a bull market staying 15 pips behind from current rate.When ur hunger meets up. just close and take a break.

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    Quote Originally Posted by jinnah View Post
    Some more VVI tips I follow.

    1. If u win 1st trade play another
    2. If u win then another go as long as u don't loose. When u loose 1 trade no more traede for that day.
    3. If ur 1st trade is looser then don't take for 2nd for that day , at least for that session. Don't try to revenge of ur loose.
    4. Try to trade same volume if u follow my rule.
    5.Cut your loose when when it is small. And ride on ur profit setting stop loss.
    6. When u r 15 pips + then set ur stop loss in break even. Remember Not loosing is a winning trade. Just keep follow ur profit in a bull market staying 15 pips behind from current rate.When ur hunger meets up. just close and take a break.
    once after entering the forex we will become addicts to it like alchoholics, then self controling our greeds is quite difficult

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    Quote Originally Posted by lifesdream View Post
    over trading
    thats the thing i need to overcome
    i am making 100 pips a day
    but one bad day is enough for u to become over looser, so take care

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    Quote Originally Posted by lifesdream View Post
    over trading
    thats the thing i need to overcome
    i am making 100 pips a day
    100 pips per day ! I think its on demo account it seems

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    Quote Originally Posted by nicks View Post
    well be patient and have large free margin available and u will see your trade in profit
    Yup.... Thats a must bro!

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