Dear There,
As the stock markets continue to meander, I believe that the
strong trends in the forex market will continue, which means
this is one of the best times to engage the foreign currency
markets as an added investment vehicle to your portfolio.
Today I want to share with you the key reasons you should take
advantage of the potential that exists in trading foreign
currencies and going forward, I'm going to share more detailed
strategies with you.
Why Should You Trade Forex?
First, the Forex markets are highly liquid (in the major pairs)
and have a strong tendency to 'trend' regardless of what is
happening in other markets (stocks, commodities, bonds).
That liquidity also creates constant volatility -- and the
volatility is where the ability to profit from those trends
happens. The greater the volatility, the greater the profit
potential (be advised, however, the greater the risk, too).
Second, the stock markets have been beaten down, rallied,
fallen, rallied again -- and there are strong indications that
another 'fall' is coming. The uncertainty in these markets is
unnerving for buy and hold investors and traders alike.
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In the Forex markets, however, traders don't have to worry about
"bull" or "bear" markets -- the currencies are always in a trend
(whether up, down or sideways) and frequently, when one set of
pairs is trending one way, another set of pairs can be trending
the opposite way. In addition, there are no restrictions to
selling short a pair like there are for selling short stocks.
Furthermore, the financial upheaval driven by the credit crisis
and the massive government responses I believe means investing
or trading in the stock markets will never be the same - but
these same events are helping to create even greater
opportunities in the Forex markets.
As interest rates are cut or raised, economies grow or slow,
jobs are gained or lost -- each of these factors impacts the
future value of a currency pair; and as these and other economic
factors change, they affect the swings in volatility.
Forex trading is not without risk - and frankly, most people
approach the Forex markets completely wrong. I believe the
current economic and financial conditions make this one of the
best times to take on Forex trading, but only if done correctly.
How Most Traders Incorrectly Approach Forex Trading
While doing research on the current state of the Forex trading
landscape, I discovered something surprising:
Losing Forex traders appear to be enamored with 'winning
percentages' when selecting a forex trading method.
The irony in that statement should be obvious -- if the 'winning
percentage' of the forex method is so important, how can these
traders still be net losers?
Because, I believe, winning percentage is the wrong concept to
focus on. In fact, I find winning forex traders look for methods
that have winning percentages closer to 50-60%. And, they also
have one more 'secret' that losing traders DON'T have.
The difference will probably surprise you - and it's a big
difference, too. The answer should have been obvious, but it
isn't for most traders.
Ask yourself this question: How is it possible that a forex
trading system that wins 90% or more of the time can end up a
net loser?
The answer?
Losing trades. BIG losing trades. Here's what I've discovered
many of those systems (or robots) that claim 90% winning trades
aren't telling forex traders:
When their systems 'win', they are making a high number of very
small gains.
But when their systems 'lose'? They wipe out all of the gains
and a good percentage of the trader's account balance, too.
Still, traders flock to these automated systems because, after
all, something winning 'almost' 100% of the time must be good,
right? Not really, no.
See, what most traders don't get is that the reward to risk
ratio in those high win percentage systems is upside down.
Traders risk too much capital for too little profit potential.
That's poor risk management and leads to one becoming a
'losing' trader.
Let me illustrate an example, using a 'typical' Robot (or
automated) trading system, making 5 trades:
Trade 1 - gains 8 pips on 20 mini lots (+ $160)
Trade 2 - gains 8 pips on 20 mini lots (+ $160)
Trade 3 - gains 8 pips on 20 mini lots (+ $160)
Trade 4 - loses 80 pips on 20 mini lots (- $1,600)
Trade 5 - gains 8 pips on 20 mini lots (+ $160)
This is standard practice for automated systems out there that
don't employ risk management. They set stop losses that are far
too wide given the reward ratio. Here it's 10:1 (risking $10 to
win $1 - does that make sense?)
Say you had a starting account balance of $10,000 -- at the
conclusion of these 5 trades, your account balance would be
$9,040.
That's a 9.6% loss even though you 'won' 80% of your trades!
We haven't factored in lot or position size yet, either. I would
expect it to be obvious that the trader above is taking on far
too much risk. Keep in mind, too, that trading with an automated
or robot method, you are unlikely to be able to stop that 80 pip
loss unless you happen to be watching it unfold.
Of course, that robot is supposed to make you money 'while you
sleep' - isn't it? (That’s what they promise, anyway)
The bottom line is if you aren't managing risk in every single
trade, from determining the correct lot and position size to the
right points for your stop losses and your exit strategies, you
will NEVER join the elite 5% of successful Forex traders.
Good Trading,
Bill Poulos
p.s. If you're brand new to Forex or if you're looking for a
step-by-step guide to getting involved, check out my
complimentary video presentation here...
Profits Run Inc.
28339 Beck Rd, Unit F1
Wixom, MI
48393
US
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