Forex Success Formula 3 of 3 [Secure Your Money]

7/28/2019 .Forex Success Formula 3 of 3 [Secure Your Money]

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www.ForexSuccessFormula.com - 1 -

Forex Success Formula

Presents

Secure Your Money




Risk Disclosure Statement

The contents of this e-book are for informational purposes only. No Partof this publication is a solicitation or an offer to buy or sell any financial

market. Examples are provided for illustration purposes only and shouldnot be constructed as investment advice or strategy. All trade examplesare hypothetical.

No representation is made that any account or trader will or likely toachieve profits or loses similar to those discussed in this e-Book.By purchasing this e-Book, and/or subscribing to our mailing list youwill be deemed to have accepted these and all other terms found on ourweb 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 suchdistribution or use would be contrary to the law or regulation or whichwould subject us to any registration requirement within such jurisdictionor 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.




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 SUCCESSFULTRADING - 16

CONCLUSION 19




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 tradingstrategy “Forex Success System”.

Though “Secure Your Money” is a supplement to that system, thefundamentals 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 yourmoney 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 areworth the price of the entire course and I stick to it!

So let us get started.

Thanks & Regards,Rahulwww.forexsuccessformula.com/forextradingblog




Money management

Like I have mentioned, Forex Trading is always considered as business

by serious traders. These traders follow the same discipline as is neededfor any other form of business.

Apart from discipline there are some other ingredients also that areneeded to succeed in any form of business. Out of these, the mostprominent is approach of how to treat your money.

A Forex Trading System is just one component. The other importantparts include how to best spend the money, where to spend it and alsohow to secure the income already generated.

To understand these money management concepts, we’ll look into theentire process of trading, right from selecting a forex trading system toclosing the trade!!

Remember, implementing principles of money management aspects needcertain different mindset. I have seen most of the traders lack it. They arein grasp of “Martingale effect”

What is Martingale effect?

Have you ever been to a casino & gambled? A typical gambler carries amentality that after a series of losses, a win is natural. Due to this heincreases 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 makeshandsome profits.

Vice-versa our gambler expects loss to follow after series of wins. So hereduces stakes after each win.

So, let us look what is the effect of this approach by looking at anexample. Lets’ imagine the gambler starts with bet size of $10 on 1st bet.




He loses this one, however due to Martingale effect he stakes $20 in nextbet. He loses this one also, so he follows by placing $40 on next and soon

Now, imagine if he has lost 5 bets in a row. In his 6th

bet, this means hisbet 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 longbefore 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 stakesduring 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.




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 asystem requires answer to a key question – “How much are you ready torisk per trade?”

How much to risk per trade?

When it comes to trading, the 1st thing that all the traders should thinkbefore selecting a system is how much are they ready to risk if the tradeends in a loss. A definite number may not be possible for them to say atthat 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% translateto 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 insteadof %. 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 twoways –




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 intoswing 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 thatdecide 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’twant 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 accountbalance.

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 yourdemo account and are now ready to use it on live account.

When looking at the chart for potential trades, you must always be awareof how much is the maximum that your system allows you to risk. TheForex Success swing trading system doesn’t allow you to risk more than50-55 pips per trade. Defying this rule would mean that you have justacquired 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 enterlate in the game as it would require you to risk more. There is always anext trade.

Also, if you had a losing trade yesterday, you should forget about itbefore starting the next trade. Don’t open the trading station with theattitude that you have to recover yesterday’s loss. This will just put youin Martingale Syndrome!




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 moneymanagement start getting tested.

The 1st and foremost thing to do in the beginning of any trade is to set a stop lossto 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 profit2. 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’slook 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 mytrade is in profit even if by two pips.




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 reviewedmy charts and felt that momentum is still strong. So, I decided to stay in thetrade and I left my trade untouched.

Then this strange thing happened. After few minutes, the market reversedvery strongly. It not only wiped my whole profit from the trade, but it also hitmy 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 forexforum 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 Evenwhen you were in 40 pips profit”?

A very smart trader once said in a webinar that “Never end a winning tradein loss”

That makes perfect sense. Losing money in a winning trade apart from hittingyour account balance also hits you mentally. You start questioning if thesystem is good or not. And you start rectifying on things which are not thecause of problems in the 1st place.

There are two main MM rules in case of a successful trade –




i. Move your stop loss to break even after you are in certain pipsprofit. After how many pips should the stop loss be moved isdependent on the time frame you are trading. In day trading,you can move to breakeven after 15-20 pips in profit. On 1hrchart, 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 byany chance if you are not watching your trade, you still end upwith certain level of profits.

Here is your plan that I would suggest regarding moving yourstop loss points for a swing trading system such as one included

in this course -

CurrentProfit (pips)

Stop Loss (with respect to trade openingprice)

0 -45 to -50

35 0

55 20

75 40

95 60

110 75

125 90

135 100

145 110155 120

Here is what the above chart means –

• When the trade is opened your stop loss should be about 45 to 50pips below the starting price of the trade

• When you are 35 pips in profit, move your stop loss to openingpoint 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 inthe direction of the trend. Now you are guaranteed to make 20 pipsprofit. Same, when you are in 75 and 95 pip profit.

• Once we are in 110 pips profit, start moving your stop loss every 15pips.




• And once you are in 135 pips or above profit, you can move stoploss every 10 pips.

This kind of plan when put in practice, it not only protects your tradefrom the market reversal, but also gives you clarity on how to manageyour 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 pointwhere the stop loss was moved. The stop loss values are representedby horizontal lines (______)




As you can see, the when the trade was opened, the stop loss was 45pips below the entry point. Once the trade was in 35 pips profit (RedElipse), the stop loss was moved to entry point (Red Line).

Similarly, when the trade was in 55 pips profit (Green Elipse), the S/Lwas moved to 20 pips profit (Green Line)

And so on.

There are two ways by which this whole process of Stop Lossadjustment can be done –

• Manually – Keep checking you trade every few hours andadjust your S/L

• Automatically – Most of the trading stations give a functionalityby which you can specify after when your stop-loss should bemoved further up. For e.g. in FXCM trading platform, thisfeature 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 parcelof this business.

1st and foremost things you must check is –

i. Why the trade is in lossii. How much is it in loss.

You may want to check if there is any economic release that came out andmoved the market in other direction or any other reason. If you feel thatthe 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 hrtimeframe and you are currently in loss of 15 pips, then its nothing toworry about.




For e.g. Please refer to the chart above. The red ellipse shows the pointwhere the trade was opened and Red Line indicates the initial stop loss. Just imagine what would have happened if you would have closed thetrade 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 toclose the trade as soon as possible. The signal could be \for e.g. the price just retraced and crossed the primary EMA.




Phase 3 - Post Trade Close

Post closing of a trade is more of a time to look back at what you did today. Whatkind of decisions did you make? Did you take rational decisions or did you playwith emotions?

Also, this will be a time to check what the status of your account balance is. Is itgrowing 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 liveaccount and switch to demo? Or do you want to switch from day trading toswing 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 thestrategy that you are using to trade. An ideal strategy always has risk to rewardratio of more than 1 : 1.5. This means that for every dollar you trade, the strategyearns 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




Psychology necessary for successful Trading -This is one of the most important chapters of this manual. The successful traderpsychology allows you to look at things correctly and that helps in all aspects offorex trading.

Though this is a very big topic in itself, Let me cover some of the common trapsthat an average trader falls into that you should avoid–

1. Trap of Greed – If you have ever traded, then tell me honestly – Has itever happened that you were losing money in a trade but you were notready 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 mainreason for this is that all such traders come to the market with theperception that since forex market has so much money, they can makemoney in all the trades.

This is more of self-fixing problem. Most of these traders later realize thetruth and when they do, they become more mature and that’s when theimportance 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 systemb. They read it and may be practice it 2-3 timec. They use it and face loss in first two trades




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. Andthis cycle goes on and on.

If you are doing what I mentioned above, then please don’t. You mustrealize that each system has its learning curve during which the trader hasto understand what the system is, when does it work best, what kind oflimitations does it has and what kind of mindset is needed to successfullyimplement it.

I typically suggest that each should be tried atleast 20-25 times beforeforming a conclusion if it is working or not.

3. No Paper Trading – This is a biggie. I recently read in a journal that about30% of traders don’t paper trade at all when implementing any newsystem.

Wow!!

The report said that about 83% of these traders fail! Now why am I notsurprised?

Paper trading is always a must and I have emphasized this in all mymanuals. You must always check if the forex strategy is really works foryou and what does it need to execute correctly.

Remember if you are not successful in demo trading, there is no way youcan succeed when trading with real money!

4. Trap of “Martingale Effect” – Though I have covered this point earlier, letme touch on it again. This is an attitude of recovering the loss of previoustrades during which the trader doubles the risk in the following trade.

This approach is more of gamblers, which we are not!!




5. Trap of Seeing the things you want them to be – This trap is result ofhabit of overtrading and is very frequent among newbies (atleast it was inme..:-)). If a trader cannot resist placing a trade, they start analyzing thecharts 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. Thisapproach affects their analysis.

The correct approach a trader should carry is to look at the charts first andthen decide if there is any potential trade that can be placed.



www ForexSuccessFormula com 19

Conclusion

Like I mentioned earlier, to succeed in Forex Trading you need the same attitudeas required in running any business. You need the same level of discipline, samemoney management principles and also suitable attitude.

If you don’t carry any of these, you are just hurting yourself in long run. Theseprinciples are very important. Without these, it doesn’t matter how much good astrategy 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,Rahulhttp://www.forexsuccessformula.com/forextradingblog

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Forex Success Formula 3 of 3 [Secure Your Money]