Showing posts with label trading plan. Show all posts
Showing posts with label trading plan. Show all posts

Friday 13 April 2012

*Make BIG Money Trading -WATCH NOW!

- Ultimate Trading Cycles - by Greg Secker

Martin J. Pring's Trading Rules - Webinar



Rule 1: When in Doubt Stay Out
Rule 2: Never Invest or Trade Based on Hope
Rule 3: Act on Your Own Judgment or Else Absolutely and Entirely on the Judgment of Others
Rule 4: Buy Low (into weakness), Sell High (into strength)
Rule 5: Don't Overtrade

Rule 6: After a Successful and Profitable Trading Campaign, Take a Trading Vacation
Rule 7: Take a Periodic Mental Inventory to Check How You Are Doing
Rule 8: Constantly Analyze Your Mistakes
Rule 9: Don't Jump the Gun
Rule 10: Don';t Try to Call Every Market Turn

Rule 11: Never Enter into a Position Without First Establishing a Reward to Risk
Rule 12: Cut Losses Short, Let Profits Run
Rule 13: Place Numerous Bets on Low Risk Ideas
Rule 14: Look Down (at the risk potential) not Up (before your reward potential)
Rule 15: Never Trade or Invest More Than you Can Reasonably Afford

Rule 16: Don't Fight the Trend
Rule 17: Whenever Possible Trade Liquid Markets
Rule 18: Never Meet a Margin Call
Rule 19: If You are Going to Place Stop, Put it in a Logical, Not Convenient Place

Thursday 24 November 2011

The Importance of the Risk to Reward Ratio


The Importance of the Risk to Reward Ratio

Written by Thomas Long 

Trader A has a win percentage of 75% on all trades while trader B has a win percentage of closer to 40% on all trades. Which trader is more profitable? Of course we can't answer that as we don't know how much each trader makes when they are right compared to how much they lose when they are wrong. So the win percentage is not the most important factor in trading. I'm sure that we would all like to win most of our trades, but if our goal is to be profitable, then there is more to the equation. It is called the risk:reward ratio and is one of the most important aspects of money management and a key to becoming a consistently profitable trader. Let's take a look at some examples:


If you risk 100 pips and look for 300 pips in profit, your risk:reward ratio is 1:3 or one pip of risk for every three pips in potential profit.
If you risk 100 pips and look for 200 pips in profit, your risk:reward ratio is 1:2 or one pip of risk for every two pips in potential profit.
If you risk 100 pips and look for 100 pips in profit, your risk:reward ratio is 1:1 or one pip of risk for every one pip in potential profit.
If you risk 100 pips and look for 50 pips in profit, your risk:reward ratio is 2:1 or two pips of risk for every one pip in potential profit.
If you risk 100 pips and look for 25 pips in profit, your risk:reward ratio is 4:1 or four pips of risk for every one pip in potential profit.


So forex trader A would not be profitable using a 4:1 risk:reward ratio while maintaining a win percentage of 75%. On the other hand, trader B using a 1:2 risk:reward ratio while maintaining a win percentage of 40% is a profitable trader. I would recommend that new traders use a 1:2 risk:reward ratio in their trading. If you open a trade with a risk of 25 pips, then try to get twice that or 50 pips in profit. I would also recommend moving your protective stop up to breakeven when the market moves halfway to your target.


An example of this would be if you bought at 1.2500 and placed your protective stop at 1.2475, your risk is 25 pips. Using a 1:2 risk:reward ratio means placing your limit order to take profits at 1.2550 for a potential gain of 50 pips. When the market moves up halfway to your target which would be the 1.2525 level, you move your protective stop from 1.2475 up to your entry level of 1.2500. At this point, you can only win or break even on the trade. Then you can spend your time looking for the next trading opportunity instead of following the current trade.


Thomas Long, FX PowerCourse Instructor
FXCM



“Top 10 questions a Trading Plan must answer“.


A Trading Plan has only one purpose which is to guide the Trader to achieve his goals in Trading and in Life. It must pre-define a course of action to all situations a Trader will encounter. It must contain a system that can be easily followed, otherwise it is likely the trader will eventually not follow it.
Developing your trading plan is an essential process for a trader on his or her road to success, it can be a process which evolves over time as you expand your knowledge and learn about yourself.

Below are all the posts in this series:
  1. What are your Life Goals & Trading Goals?
  2. What is your Trade Entry Method?
  3. What are your Trade Exit Methods?
  4. What type of orders will you use to enter & exit?
  5. What are your Money Management Techniques ?
  6. How will you manage your Position Risk versus Reward?
  7. What is your Process for Open Trade Review & finding New Trades Picks?
  8. What is your Trading Success Profile?
  9. How will you Review your Trading System to measure & improve?
  10. What is your Trading Daily Routine-(Part1 & Part 2)?