Any professional trader will tell you that spotting profitable trade setups is only one part of the trading equation. Managing the trade properly and minimizing risk while maximizing gains is…
Equally as important. Due to the importance of managing trades and setting profit targets, I decided to give you a sneak peak at how I manage my trades in order to achieve consistent profits in the Forex market.
Before I begin, let me state that the topic of managing trades and setting profit targets is a broad subject that can be expounded upon almost indefinitely. While today’s discussion doesn’t cover all of the details in regards to trade management and setting profit targets, it will serve as a general overview of the subject and provide you with valuable insight as to what goes through my mind when managing open trade positions.
Some scalpers and short-term traders don’t place stop losses, because they generally watch every trade from beginning to end and are out of a trade shortly after it is entered. However, most professional traders, myself included, prefer to adopt the set it and forget it trading methodology, this way we are not stuck staring at our charts all day long. Thus, stop losses play an integral role in my trade management.
When trading Foreign exchange, it’s important to always consider risk before reward. I also consider it important to determine stop loss placement before I determine the position size I want to open for a particular trade. The following theory covers my general thoughts on stop loss placement:
• I always want to place my stop losses at a logical place. This means stop losses should be placed at a level that makes sense in the context of the overall structure of the market and at a level that will tell me when a trade signal loses validity.
• I always begin with the premise that I want the market to take out my trade. Although I may sometimes manually exit a trade when I notice market conditions turning against me, my first option is to let my stop losses or profit targets determine the exit of the trade without my interference. I only manually exit a trade if there is convincing price action that is acting against my position. This type of manual exit is purely logic-based, as all trading decisions should be.
2) I manually exit a trade due to the formation of price action that provides a clear signal against my position.
The goal of every professional trader when determining the placement of a stop loss is to place it at a level that gives a trade a reasonable amount of room to breathe, but not too much room that may lead to a sizable loss. Basically, I want to place my stops at the closest logical level that will invalidate my trade signal, whether it is price action or another technical indicator. So, I never want to place my stops too far away, but I don’t want it to be too close to my entry point either. I want to give the market enough breathing room to bounce off of its natural retracements, but I also want my stop losses to be close enough to exit a trade before too much loss of capital occurs.
Unfortunately, many traders don’t put as much thought into their stop placements as I do, and this usually ends up in either getting stopped out early on a number of trades that would have been profitable or risking too much capital on any given trade. Many traders place tight stops because they want to trade a large position size. However, this results in trading account suicide, because their trades get stopped out before they even get a chance to begin. As you can see, there is a fine line that often needs to be walked when deciding on where to place stop losses, and I always consider stop losses as an integral facet of my trade management strategy.
A market trend is a direction in which a sector of the market moves over a period of time. Those who study finances speak of three types of trends — secular, primary and secondary — depending on the length of the time frames under consideration.
As with all market sectors, the most effective strategy is to “trade with the trend.” The trend is only your friend so long as it lasts. Longer time frames tend to dominate the shorter ones in analyses of long-term investments, but shorter time frames do tend to gain in importance when it comes to determining the day-to-day performance of an asset. You can use forex charts such as these to perform your studies.
Simple- and exponential moving averages are two very valuable tools that you can use to determine trends in the forex market. To calculate the simple, or arithmetical, moving average, you divide the sum of the closing prices of a security for several time periods by the number of those periods. The exponential, or exponentially weighted, moving average is similar but gives more weight to the most recent data available. It is calculated recursively in a rather complex formula, which you can find by clicking here.
The two types of averages are useful for different purposes: The EMA reacts more quickly to recent changes, and the most popular short-term averages — 12- and 26- day EMAs — are used to create the moving average convergence divergence (MACD — used to spot changes in the strength, direction, duration and momentum of trends in the prices of a stock) and the percentage price oscillator (PPO — a measurement of the difference between two moving averages, given as a percentage of the larger one). The EMAs that are most widely used to indicate long-term trends are the 50- and 200-day ones.
Now that we have covered the two types of average, let us look more closely at how to use them together to figure out the direction in which the forex market is moving. This form of tracking is, of course, best done on a chart.
If both averages show a tendency to simultaneously hit the bottom of the chart — a phenomenon known as a “double bottom” — then you can usually be sure of support in that area. You can also gage which direction the trend is moving by setting up a long-term SEA and a short-term EMA. Counting the number of “waves” or the “pivots” that each wave displays, you can make an educated guess as to whether a trade you intend to make will be with or against the trend. There are several theories regarding this point, but one — known as the “Elliot wave theory” — states that an impulse wave will consist of five swings while a corrective wave will consist of three. (The terms “impulse wave” and “corrective wave” both refer to the ways in the market moves, but they are used when the waves are in the direction of and contrary to the trend respectively.)
When you set the pivot count against the moving average diagnosis and subsequently make a “candle analysis pattern,” you can get a good idea of your chances of making a successful trade.
Other experts may not agree with this, but there are those who think that the word “trend” is overused when talking about the forex market. According to them, you can only speak of “trend” here in a retrospective sense, that is, after it is too late to make the trend. What distinguishes a good forex trader from a bad one is that the former knows when to enter the market and get things right more often than not.
The sooner you get into the trade before the end of the trend occurs, the lower your risk of losing money and the higher your reward will be. The secret here is to base your strategy on high probability time cycles — these will tell you when it is and is not a good idea to trade.
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When you are planning a trip to Europe for business or vacation, but you also want one way car rental discount, this is how to get it. You might want to drive to a specific destination, but fly back home. Then it’s absolutely convenient, once you have found the perfect one way car rental discount deal, to book it online.
Looking online is the fastest way to make sure what policies the different rental car companies have regarding their rental packages and whether they offer one way car rental discount. Once you have found the right one way car rental discount deal that suits you best, there are other factors to consider. Make sure to read the rental agreement through thoroughly and if it is not stated clearly, make sure of any penalties.
Also, make sure whether the one way car rental discount price includes or excludes the fee if there will be a second driver in the car. This is important as some car rental companies charge an additional fee for a second driver. Find out what the drop off charges are as well as other fees such as airport fees, insurance costs for different packages and taxes.
If it’s a company in another country, please check the current exchange rate. Renting a car and sending money at the wrong time can cost more. Make use of sites which offer latest currency rates, and send the money when the rate is in your favor.
It is your responsibility to make sure that everything is above board. If you neglect any details your one way car rental discount deal can turn into a nasty shock and become a very expensive deal. The benefit of a one way car rental discount deal is that many companies see this as a benefit to their company. It is better to have a rental car bring in a one-way deal fee than sit idly.
After three years of development, Web services are becoming established as enterprise and extranet middleware, enabling inter-business transactions and information flow by means of open and agreed message standards. Community collaboration can now be achieved without the need for great technical co-operation between competing firms, delivering savings for those that participate.
But overall, Web services and the adoption of the interfaces needed to deliver quantifiable benefits are still at an early stage. Many companies are still looking for bite-size steps that can be taken in the near term that will deliver the measurable benefits required to build a credible business case.
For many, one of the key areas in which Web services are providing value is in meeting growing customer demand for access to expertise or information via the telephone or Web. Much of the information these customers need is sitting on disparate legacy systems that were never designed to be accessed by customers and have no user-friendly interface. Building ‘point solutions’ that solve each customer requirement individually is expensive and time consuming. By using a Web services-based approach and providing interfaces to legacy systems, designers can build a library of services that can be used in numerous customer-facing applications.
In the retail finance industry, this information can be delivered via a help desk whose agents have access via a portal to what can be literally hundreds of legacy systems. Furthermore, data can also be delivered directly to customers through self-service Web applications that hide the complexity of the legacy systems behind them. This approach to both legacy and new applications is called a service-oriented architecture, as it enables applications to be built into new services relatively quickly without any modifications being made to the original functionality of the application.
Another area of customer service where Web services can help is with identity checking. The revision and tightening of the rules to prevent money laundering have brought with them a major headache for the retail finance industry. The regulations have made opening new accounts something of an obstacle course for customers, who often blame the bank for making this process so difficult. While the reaction of the high-street banks to these regulations has so far been a fairly uniform set of rules for the customer to present certain key documents, there is an obvious opportunity for any bank that substantially improves the experience for their customers. There are clear benefits to be gained from a Web service that can check an individual’s identity by reference to a range of data sources, such as electoral role and electricity supply.
Web services can also help in the area of aggregation and netting – giving the ability to pull together assets and liabilities across lines of business. Previously, solutions would be created that focus on specific product lines, so that customers would receive multiple statements or reports from different parts of the organization. The growing prevalence of Web services capability now allows interfaces to be built for both new and legacy projects. This is leading to the creation of applications and databases that provide a platform built for rapid cross business aggregation. This will enable retail banks to provide customers with a consolidated view of all their dealings with the organization, spanning multiple product lines. Similarly in the wholesale finance industry, there is the potential for new applications that can look across instruments and spot arbitrage or new derivative opportunities.