Support & Resistance Forex Trading system

Learn how to trade support and resistance levels in an easy to use system including risk management.

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Foreign currency trading – key factors involved

The reason we see currency values soaring and declining everyday, is because there’s a foreign exchange (or forex) market. You probably heard of George Soros’ story of making 1 billion dollar within a single day only though currency trading. But be aware, there’s significant risk involved and people end up losing a large part of the investment at times.

And with technological breakthroughs of the World Wide Web, the market of foreign exchange has turned out to be accessible online. So currencies are traded online now. This way of trading has a lot of advantage. The first one is that there’s no question of being a tycoon money manager for trading here, as traders or investors are regular people just like anyone in your neighborhood.

Controlling Risk

Risk management happens to be some the most crucial ingredients in trading. So risk management should be calculative. A trader must be fully aware of the amount of risk he are she is willing and about to take. Along those lines, the trader must plan ahead of time the level up to which he or she will tolerate losses. When that limit is reached, the trader is known it’s time to quit trading and the whole plan should be reevaluated.

Risk should be managed in 2 ways:

1) By quitting trading before the losses surpass your alarm level that you determined as your maximum level of tolerance.

2) By putting a limit to the “leverage” or the position size traded by you for a certain account size.

Cutting Losses

In many cases, the beginner trader might get overly focused on the accumulation of losses in. Most traders keep losing mounts, with a “hope” that things would soon turn around radically and the losses will transform into gains.

Just about all winning trading strategies come with a highly disciplined process for curbing losses.  So when the trader is clearly down on his positions, numerous emotions keep appearing, making it very difficult to curb losses when it should be. According to most experts, the smoothest strategy would be to set a tolerance level where the trader will quit. This limit has to be set even before the trade is initiated.

This is alternatively known as account risk. To illustrate, when you’ve opened your account with $1500, should it be fair to lose the entire $1500? Or should you just settle on $750?  Actually, what the risk limit should be will vary from one person to the other. But the most important thing is that you will stick to the limit you decided on.

Deciding on position size

Before you start a trading program, you should firstly go for an assessment regarding what your highest account loss limit should be. This estimation is to be done per lot basis. As for an instance, say you’ve decided that the worst you are ready to tolerate is just 25 pips. So that’ll translate into roughly $250 each $100,000 of position size. And if that $100,000 worth position size equals 1 lot, 5 consecutive losing their trades will end up in a total loss of $1,250 (5 x $250).

If it is about an account worth $10,000 trading 1 lot, that will translates into around 15% loss.  That means, although it is somehow possible trading five lots or over with the $10,000 account, the resultant “drawdown” would tend to be too high – wiping out over 50% of that account’s value. So you got to learn how to be risk proficient with foreign currency trading.

Originally posted 2009-11-07 07:49:34. Republished by Old Post Promoter

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