The purpose of this short report is to give helpful hints about how to maximize any trading strategy for the different capital markets. Some of these principles may seem like common sense if you are a seasoned trader. I wanted to emphasize these points so I created this report rather than trying to fit them into another publication. I have put these tips together as an added resource for Rapid Forex traders. I may add to these tips in the future. These tips are not an attempt to fully cover the presented topics, but rather to give you some more things to think about implementing in your trading. It is worthwhile to state these tips and techniques to manage your money and establish a stable personal market psychology-
Money Management Rules (MMR Rules)
MMR Rule #1: Keep every trade the same size!
If you are investing the minimum trade of $10,000, then make sure all trades are $10,000 trades. After you have seen your account rise a minimum of 20%, you can and should increase your trading size. But once you increase your hade size - stick with it.
The reason for this is simple. Suppose you have 3 successful trades in a row. You invested $100 per trade. Now you say "I'm on a roll, I'll invest $300 on this next trade to cash in on this streak of luck", but statistically you are due for a losing trade at this point. So you lose $300 on this trade (this wipes out all of the profits you made on the 3 winning trades). So now you only invest $50 on the next trade because you don't want to lose as much money as you just lost. But on this trade you realize a profit but the profit is only 14 of the profit would have if you stuck to the original $100 investment. You continue in this crazy way of thinking for the rest of your trading career. This kind of warped-irrational psychology eats up your whole trading account. This is the most important money management rule.
MMR Rule #2: Paper Trade First
First open a demo account, and get to learn how to place orders with it. You shouldn't invest real money until you have shown a profit in a demo account. Many people have losing demo accounts and still believe that it will be different with real money. When you open a real account, stick to the systems in the Rapid Forex publications! You do not even have to think. If you follow the rules, you should make money. I can not legally guarantee that, but based on what my research has shown, people who do so should do very well. It is important that you don't change any of the rules.
MMR Rule #3: Take the Money and Run
If you have a trade that is either abnormally profitable or went up 30-50 pips in a half hour. Take the money and run. If you are happy with the profit you see in a trade, take it and don't look back. Please do not confuse this with taking any small profit as soon as you can. If you have a trade that is 10 pips up, don't cash it in. You could be sacrificing a big profit. If you took every trade when it was only 10 pips up, you would never make money. But it is ok to take a profit when you see a nice sized profit. A good benchmark
for a nice sized profit is a profit that is higher than the average profit you have made per trade so far. This will increase your average profit per trade! Especially when something shoots up extremely fast, because "what goes up fast, must come down fast"; that is my version of Isaac Newton's theory of gravity.
MMR Rule #4: Cut Your Losses
Let's face it, with any trading system you are going to have trades that lose (hopefully not too many). If you are going to be successful, you need to know when you are going to get out if things go wrong. You need to know your exit strategy before you place the trade. Follow an exit signal to let you know when the trade should be abandoned. The Advanced Options Strategies manual outlines the exact entry and exit price targets that you should place entry orders for and how to adjust these prices through trade monitoring. Every trading strategy should have a prescribed exit price that tells you that the trade has failed and you need to GET OUT NOW!
Each trading strategy will differ on their exit strategies. The most common strategy is to set a protective stop order to limit the potential for loss. Setting a protective stop order is usually a good idea. By setting a stop order, you guarantee that you can only lose up to a certain amount of money on that trade. When you set a protective stop order, you must be extremely careful. The main problem with stop orders is that they can prematurely cause you to take a loss on an otherwise profitable trade. Some trading strategies do not set protective stop orders as their primary exit strategy. It can be advantageous not to set a stop order. If you do not set a stop order, you need to have some type of criteria to monitor your trades. The next MMR Rule #5 deals with trade monitoring.
MMR Rule #5; Monitor Your Trades
There are literally hundreds of variables that affect the prices of foreign currencies, stocks, options, bonds, futures, etc... Every trading system should have some type of "monitoring criteria". This "monitoring criteria" should be able to tell you exactly when the trade has taken a turn for the worse (or when you should take the money and run). The "monitoring criteria" is also a way to maximize profits and limit losses beyond the power of your initial entry information. It should make sense that you should want to use all of the information available for the entire duration of the trade. This is important because as the information changes, so does your idea about how the trade will move in the future. Forex Sailing uses a special monitoring technique that allows you to monitor trades even though you do not set an original stop or limit order when you enter the trade. The Advanced Options Strategies publication combines an initial stop and limit order with trade monitoring.
Market Psychology Tips (
MS Tip#1: Don't Get Caught in the Moment
The biggest mistake that you can make with any trading system is to second guess the trading method in the middle of a trade. I am not sure if this has ever happened to you or not. I shamefully have to admit that I have fallen prey to getting caught in the moment myself I fired up my charts, I looked at some technical indicators and I found a perfect entry signal for a trade. I got into the trade and sat there and watched the tick-by-tick play of the stock screen. I anticipated making somewhere in the neighborhood of $1,700 on this trade. I sat there and watched the price go up, and then down, and then back up. I thought for sure this was it! But the stock dropped so my $500 anticipated profit fell to where I was at a $900
loss! I watched the prices and the stock just wouldn't go up for me to accept a $500 loss. When the stock reached a point where I would have lost $1,000,1 set an order to take a $750 loss. When I set that order, the stock had hit the low-point for the day. The stock climbed for the rest of the day. If I would have waited patiently, I would have collected up to $1,700! I thought to myself "If only I weren't watching that screen for the first half of the day." The main mistake that I made was that I got caught up in the moment. I allowed the price movement of the stock to influence my actions in a destructive way. If I would have mechanically adhered to my hading system and set my stop order for a $1,100 loss, I would have stayed in the trade and taken my $1,700 profit.
MS Tip#2: Control Your Entry
Yon definitely do not want to get caught in the moment. One easy way to avoid falling into that trap is to set entry orders exclusively. Any good trading strategy should show you exactly how to establish an entry order. Market orders are scary and should be
avoided no matter what. I can not stress this point enough. When you place a market order, it is the same thing as walking into a store and saying "I know you charge $25.00 for this shirt today, but I'll pay any price you decide to charge for the next month." Youdonot do this because it would be insane. The market order gets filled at whateverprice the currency pair or stock is trading at when the order hits the trading floor. This can take a few seconds or a few minutes. Prices can and do change by drastic amounts within a few seconds. Even if your trading provider promises "instant execution" there are no guarantees for getting the price you want to pay. The only way to guarantee what you pay is to place an entry order. The only problem with entry orders is that sometimes they do not get filled. The fact that entry orders do not get filled sometimes is not really a problem at all. If the price does not do what you want it to do - your entry order will not get filled. Most of the time an unfilled entry order prevented an otherwise losing trade.
MS Tip#3: Don't Re-invent the Wheel
Follow the trading system exactly as prescribed by the system itself. The purpose of sticking to the trading system is because you probably paid money to learn how to trade from someone who knows more about it than you do, or has some knowledge that youdon't have. Whoever designed this system has outlined the steps
necessary for you to succeed at trading according to their research and experience. It is important to understand the system you are following, and to stick to it. When you try to change the system you are only hurting yourself. If you are not following the system, you are engaging in chaos. Human emotions do control the capital markets. People who are speculating based on their emotions are the ones who are giving money away to people who are trading using calculated trading methods. When you start to trade seriously, you will learn to love irrational and emotional traders. These irrational traders are the ones who are providing the gains that you are taking from your trading system!
eReport By Brian Campbell
© 2004-2005 Infinite Limits Inc.
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