Money Management Principles

Trade With Sufficient Captial

One of the worst blunders that forex traders can make is attempting to trade without sufficient capital.The trader with limited capital not only will be a worried trader, always looking to minimize losses beyond the point of realistic trading, but he will also frequently be taken out of the trading game before he can realize any sense of success trading the method(s) or patterns.

Exercise Discipline

Discipline is probably one of the most overused words in forex trading education. However, despite the clich¨¦, discipline continues to be the most important behaviour one can master to become a profitable trader. Discipline is the ability to plan your work and work your plan.It¡¯s the ability to give your trade the time to develop without hastily taking yourself out of the market simply because you are uncomfortable with risk. Discipline is also the ability to continue to trade the methods and patterns even after you¡¯ve suffered losses. Do your best to cultivate the degree of discipline required to be a world-class trader.

Employ Risk-to-Reward Ratios

The following shows you possible risk-to reward ratios, and the win ratios required to break even in a trading system.Risk-to-Reward Ratio (in pips)and Win Ratio Required to Break Even(%)40/20 (2 to 1) = 67%, 40/40 (1 to1) = 50%, 40/60 (1 to 1.5) = 40%,40/80 (1 to 2) = 33.5%,60/20 (3 to 1) = 75%,60/60 (1 to 1) = 50%,60 /90 (1 to 1.5) = 40%,60/120 (1 to 2) = 33.5%

Important Note

Never risk more pips on a trade then you plan to make. It doesn¡¯t make sense to risk 100 pips in order to make only 10. Why? See below example.Profit taking level (pips): 10Stop used or pips at risk: 100You win 10 times which makes 100 winning pips. You ONLY lose once and have to give back all profits!!!This type of trading makes no sense and you will lose on the long term guaranteed!

Forex Money Management

Forex money management is one of the most important things you can learn before you actually begin making live trades.The money management principles discussed here will teach you how to avoid the costly mistakes many new traders make, often to the degree that they lose their entire investment on the first handful of trades.Psychology is really the most important factor to money management in forex. You have to be able to separate yourself from any emotional attachment you may have to your money. This is not very easy to do, but it works and it can be done.If you allow yourself to become emotional on a trade, you will not exit the trade properly, and this could mean holding on to a trade when you should have let it go, or letting go before the trade had a chance to turn profitable.First and foremost, you should consider leverage and risk. It is advisable that you never risk more than two percent of your account balance on any trade. However, some go further and allow for as much as ten percent, but never more than that. This gives you the ability to withstand market fluctuations, and if the trade goes bad, you still have money to try again. You should never operate under the assumption that you will profit from every trade. You should also plan for losses. Therefore, most traders will tell you that the best thing to do is to keep your gains large and your losses small. Develop your trading strategy around this idea.Keep track of your gains and losses. Keeping accurate and detailed records of your account activity will allow you to see whether or not the strategy is working, or if it needs to be re-built.Never go blindly into trading without a way to keep track of results. You will lose all of your funds and never understand why it happened.Finally, it is highly advisable that you first practice a strategy on a demo account. Nearly all brokers offer a virtual account whereupon you make trades in real-time, but with imaginary money, so nothing is risked. This is the best way to test a strategy before you put your real money on the line.However, be careful, once again, of the psychology of trading. When you play with fake money, nothing is risked. When real money is on the line, you must not get emotional. If you do, you will find yourself with very different results, most likely losses, than you had with the demo account.

How far can the dollar go down?

Theoretically, the US Dollar can go to zero. While unlikely, it should be remembered that nearly every currency that has ever existed throughout history, eventually has a crash that destroys 90% of absolute value, or more.

Won't foreign Central Banks support the dollar?

Why should they? If you are hungry, and your 600 lb. neighbor (who is now so fat he can't even walk anymore he needs to use one of those little carts) missed a few meals, which happen to be 5x expensive as yours, would you finance his dessert? Of course not. You are thinking many things, but supporting his habit of overeating isn't one of them. The US consumes over 25% of the world's resources but produces less than 10%. Economists may not care for such a crude analogy, but the situation with the US Dollar is very, very simple, and should not be overcomplicated. The USD has been a reserve currency for the post WW2 world, but since Nixon abandon gold standard, the USD is backed by only the belief and faith in US Government. We are seeing a commodity boom, not because of a bubble in commodity asset prices, but because of a decline in the USD, the world's reserve currency in which many commodities (especially Oil and Gold) are priced. In any event, it's not likely that foreign central banks will bail out the dollar, because that would in effect make them eat a realized loss in their current account. Moderately wealthy nations cannot afford to take the loss of the US, the largest and wealthiest economy in the world. The US has been a financial big brother who have bailed out other failing economies  but the US has no big brother to lean on, except maybe Russia, although that wouldn't go over too well in Washington. So if the US Defaults, who can come to the rescue?

Gold is cheap

Adjusted for inflation, Gold should be above 1500  without considering any boom. Many are wondering if commodities can continue to increase, without considering how depressed commodity prices were in the late 90's. An economy can live without services, or money, but people cannot decide not to eat or use Oil. Gold is money, the high price in Gold is reflective of investors concern about the value of money  any money. The US Dollar is a reserve currency so when USD goes down, so do many other currencies. The majority of USD holders are foreigners, but that is changing (in the past 10 years foreign USD holders have decreased from 77% to 62%).

What to do?

An argument of this nature should end in a that's next or that you should do. Unfortunately, this is a complex situation with no magic bullet solution. On a basic personal finances level, one should sell your mortgage at any price and become debt free with low cost of living. Don't bet on any economic upturn that will save your finances, things will only get worse. Second, do what you do well  no matter what the value of the dollar or the state of the economy, there will always be demand for goods and services (unless you happen to be in real-estate business, in which case you could start looking into farms.) The good news is that in any time of chaos, uncertainty, and reorganization, there are always massive opportunities. Taking advantage of them may not require huge amounts of capital. Knowledge of the situation can cause one to be in the right place at the right time or at least not in the wrong place at the wrong time for example it would not be smart to be in south Florida amidst economic suffering which could lead to crime, rioting, overall fraud, and a depressed local economy.Property surrounding small country towns has been doubling in 1 year! Farmland has increased by as much as 500% in some areas over the last few years. There are plentiful opportunities in this market, but they may not be the traditional opportunities that investors are accustomed to.It's 2008There is a new market thinking, accept it or not. We don't live in the 1970's, it's not 1970 it's 2008. In 1970 Russia was communist, now there are more billionaires in Moscow than in New York. In 1970 Oil had not yet peaked, there was no Internet, financial markets were not deregulated to the extent that they are now, there were no derivatives, no climate change, and no Oil hungry China. In 1970 Europe was scarcely organized, only 25 years of reconstruction post ww2, and there was no Euro.

Blue chip stocks - not a poker game

Investing in conservative blue chip stocks may not have the allure of a hot high-tech investment, but it can be highly rewarding nonetheless, as good quality stocks have outperformed other investment classes over the long term.Historically, investing in stocks has generated a return, over time, of between 11 and 15 percent annually depending how aggressive you are. Stocks outperform other investments since they incur more risk. Stock investors are at the bottom of the corporate "food chain." First, companies have to pay their employees and suppliers. Then they pay their bondholders. After this come the preferred shareholders. Companies have an obligation to pay all these stakeholders first, and if there is money leftover it is paid to the stockholders through dividends or retained earnings. Sometimes there is a lot of money left over for stockholders, and in other cases there isn't. Thus, investing in stocks is risky because investors never know exactly what they are going to receive for their investment.What are the attractions of blue chip stocks? 1. Great long-term rates of return.2. Unlike mutual funds, another relatively safe, long term investment category, there are no ongoing fees.3. You become a owner of a company.So much for the benefits - what about the risks?1. Some investors can't tolerate both the risk associated with investing in the stock market and the risk associated with investing in one company. Not all blue chips are created equal.2. If you don't have the time and skill to identify a good quality company at a fair price don't invest directly. Rather, you should consider a good mutual fund.Selecting a blue chip company is only part of the battle - determining the appropriate price is the other. Theoretically, the value of a stock is the present value of all future cash flows discounted at the appropriate discount rate. However, like most theoretical answers, this doesn't fully explain reality. In reality supply and demand for a stock sets the stock's daily price, and demand for a stock will increase or decrease depending of the outlook for a company. Thus, stock prices are driven by investor expectations for a company, the more favorable the expectations the better the stock price. In short, the stock market is a voting machine and much of the time it is voting based on investors' fear or greed, not on their rational assessments of value. Stock prices can swing widely in the short-term but they eventually converge to their intrinsic value over the long-term.Investors should look at good companies with great expectations that are not yet imbedded in the price of a stock.

A Market Which Never Closes
Many of the trading markets around the world are situated in fixed locations and operate within strict trading hours, often limited to just five or six hours a day between Monday and Friday. The Forex market however is open 24 hours a day.
This means that traders can not only take advantage of international events and react literally as they happen, but they also have the ability set their own trading hours. If you prefer to work in the mornings then that’s fine but, if this doesn’t suit you, then you can choose to trade during the afternoon, late evening or even in the middle of the night if you want to.
Low Trading Costs
In many markets, like the equity market, traders not only have to pay a spread (the difference in price between buying and selling a stock) but also have to pay a commission to the broker. On small trades this commission can typically be about $20 and this can rise rapidly to over $100 for larger trades.
Because the foreign currency exchange market is a wholly electronic market many of the traditional trading costs are eliminated and you are in affect reduced to paying nothing more than the spread. In addition, the extremely liquid nature of the global currency exchange market means that spreads are normally much tighter than those seen in other markets.
The Ability To Trade On High Leverage
In most markets where a trader has an opportunity to trade on leverage the leverage offered is often quite low. In the case of equity markets, for example, professional equity day traders will normally operate on a leverage of about ten times their capital. In the Forex market by contrast it is quite common to find that traders are permitted to trade at one hundred to two hundred times their capital.
A downside of high leverage is that it can of course lead to high losses as well as high gains. However, within the foreign currency market, risk management is extremely tightly controlled.
Limited Slippage
In currency trading trades are executed immediately using real-time prices at which firms will buy or sell the currencies quoted. In almost all cases this means that the price you see and the price you pay are the same.
This is not often the case in other markets where there can be often considerable delays between placing an order and that order being executed during which time the price will often move against you.
The Chance To Profit In Both Rising And Falling Markets
Equity markets follow rising and falling trends (cycling between Bull and Bear markets), but the Forex market does not suffer this cycling which comes from structural bias in the market.
World currency trading always involves two currencies so that if you are down on one currency then you are up on the other. There is therefore always the potential for making a profit whether the market is rising or falling.

Automated Forex Trading System

The Forex MegaDroid is an automated Forex trading robot This was specifically designed to function in all market environments. Which isexactly why its performance during testing was close to the highest we have everwitnessed. The facts are clear and un-debatable on this issue, the market canmake unexpected moves at the drop of a hat and having a weapon in your arsenalable to react instantly to those corrections and profit from them at the sametime, puts you in a very powerful position. Because of this we were forced togive it our highest rating possible, a 10 out of 10. This item is not to beunderestimated and MUST be in your final decision making process when makingyour purchasing decision.

This Forex robot uses a cool new technology known as Correlated Time and PriceAnalysis (RCTPA). What this does is helps the robot make trades in the presentby quickly calculating years of similar looking market conditions in the past.The Forex market like any other will follow specific patterns and Mega Droidwill use years of back testing to profit from those patterns.

Now the hallmark of Forex Mega Droid and why it is creating such hype is thefact that the program is the first Forex robot to have artificial intelligence(AI). What this means is instead of simply taking the same trades over and over,if one trade is a loser the robot will learn from the experience. It will then factor in why that trade was a loser and use that valuable information for latertrades. This Automated Forex Robot is incredibly valuable because the problem with mostForex robots is they stop working after a certain amount of time. ForexMegaDroid learns from it's mistakes and is constantly adapting to marketconditions. Forex MegaDroid Results Fore complete review and listed benefits visit http://www.sneakymoneysystem.com This Forex MegaDroid review would not be complete without posting some initialresults from our testing of the product. Now keep in mind this product is stillvery new, so these numbers COULD change in the future. The initial results havebeen pretty staggering. Forex MegaDroid has shown a 95-96% win percentage ontrades and tripled one of our accounts. The best part is the robot was very good at limiting losses by not riding costlydrawdowns. A high win percentage with minimal losses are the signs of anEXCELLENT automated software. Before jumping in I recommend learning a little more about the program. Butthere is an awful lot to be excited about with this one.

The Forex Trading Basics

Trading is probably as old as mankind itself. It's been there since man learned that he could trade his extra stone knife and five arrow heads for somebody else's nice warm fur blanket. These days we call it bartering, but it's the same process.

And these days we've gotten more sophisticated with our trading. Now we use something called money to stand in for the blankets and the knives, but we're still trading our ability to work and produce something useful in exchange for somebody else's goods that we want.

But now, trading is not only about goods or services, it has grown into something much more than that.

Now we're trading one region's money for another region's money because we've learned that their relative values can vary, sometimes significantly. The first enterprising souls to notice this were the world's first currency traders, taking their profits from the buying and selling of actual banknotes and coins.

But today the whole process has been formalized into what we call the Foreign Exchange (or Forex) market. And it has attracted a lot of action. Up to $3 trillion a day worth of action, in fact.

Forex trading simply involves the buying and/or selling of different foreign currencies in the global market. Many investors today don't consider it enough to have a portfolio stuffed only with bonds, mutual funds and stocks.

One of the strongest appeals of the Forex market is its 24-hour open door. On the world clock, a trading day starts in Sydney, Australia and steps from time zone to time zone around the world until it reaches New York city, the last market to open each day. And it does this five days a week, closing only on the weekend.

Almost every country has its own currency, but on the Forex market, it's mostly the so-called "major" currencies that are traded. These currencies are highly regarded because their issuing countries are politically and economically more stable than most other currencies (most of the time).

The major currencies that are traded in the FX market are the Euro, the British Pound, the Japanese Yen and the Swiss Franc, as well as the dollars of Canada, Australia and the USA.

Most people, when they first learn of Forex trading, find it all a bit strange. Typically, money is used to buy goods and services, not other types of money. However, it's not really all that hard to understand. Just think of traveling to another country. Once you arrive, you go to a currency exchange or a bank and trade your dollars or Euros to buy ringits or yen. Then when you return home, you do the same in reverse. Sometimes the value has changed between the two exchanges, and you make a small profit or lose a bit.

Well, that's exactly what a Forex trader does, but he does it much more often, and usually with much larger sums of money. Also, he's not doing it because of travel but because he believes he foresees a coming shift in the exchange rate. In other words, he sees an opportunity to make a profit and seizes it. If he knows what he's doing, the profits can be both big and consistent.

So how do you get into the Forex market?

It's surprisingly easy to enter, although it's not quite as easy to rack up steady profits.

You'll need a computer and fast Internet connection. You'll also need seed money to cover your first trades. Minimum deposit requirements vary, but considering the opportunities available, even the higher entry fees are surprisingly low.

You can choose from among many software programs available for logging in to your account and placing your trades. The software also allows you to receive alerts on market conditions, rates, and other important information. The more sophisticated software can recommend when to buy or sell.

Forex trading can be an exciting way to make money, but when done in the wrong way, it can get very expensive. Learning what you're doing before you start trading is crucial. Do your research and your due diligence. Learn what the business is about. Set up a dummy account with a broker and do lots of paper trades so that you fully understand the entire process. Stay with this long enough to become comfortable.

In addition, read comments and advice from other traders... many other traders. It's important to have a strong grasp of the strategies you'll need day-in and day-out. This is a business, and it's important that you treat it with the respect that a sophisticated, highly profitable business deserves.

This mindset of professionalism and responsibility are fundamental to any success you expect to build. Without such a mindset, you're nothing but another gambler and you'll lose more than you win.

Forex trading is more risky than stocks and bonds. But it also holds out the promise of much higher returns. Lightning can strike within seconds or minutes sometimes.

Don't ever forget, ordinary mortals can take part in Forex trading. Just because 98% of all trading is done by huge financial institutions and multinationals, don't think there won't be any "left-overs" for you. People from all walks of life are involved in that other 2% of Forex trading. Consider - just 2% of Forex's daily $3 trillion volume leaves some very large chunks of opportunity up for grabs.

When you go looking for a system or strategy to guide your trades, don't just seize the first one you find. Do your homework. Take advantage of free trial versions of software. Look for customer testimonials. And after carefully considering all the factors involved, you can choose a system for your trading.

Another important factor - check out the brokers and choose one who can effectively help you devise a trading strategy that fits your goals and your personality.

If you truly want to make it big in the Forex market, use all available resources to learn your new business well. The average newcomer to Forex trading is impatient and wants to go straight to the "good stuff." Their impatience assures they'll never get to the good stuff and instead suffer mainly losses and disappointment.

Be determined. Be disciplined. Take the long-term view always. This will instantly set you apart from the losers. Once you have a good, solid knowledge of Forex trading basics, coupled with a well-tested strategy, you have a much better than average chance of making consistent profits in currency trading. After all, isn't that exactly what you're aiming for?