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Monday, September 23, 2013

How to Create a Trading Plan That Works For You

By Alwin Ng

The last two months has been amazing for me as I continue to develop myself in the areas of trading psychology as well as building new trading systems for my portfolio. The idea of continuous learning is utmost important for any trader and I definitely encourage everyone to do so if you can.

In the process of building a new trading system, I had to sit down to write a new trading plan and I had to go through various market scenarios before I could nail down a system that works. Even though I've written past articles around this subject, it still amazes me that I'm still learning and I'm able to discover new trading insights or lessons.

I would like to share this experience with you and to remind everyone the importance of creating a trading plan that works. More importantly, to creating a trading plan that works for you - yes, it must work for YOU! With that, enjoy today's article!

 1. Technical Know-how is a Must

This is probably the most laborious part when creating a trading plan yet this is also the least significant of the entire plan. When writing a plan on a new trading system, you must have the technical know-how before you even consider trading it in the market.

You will also need to take time to understand how the system works. So, ask as many questions and make use of Google as much as possible because everything you ever need to know about trading systems can be found on the internet. Of course, where possible, make sure to check that it is from a reliable source.

If Google doesn't know about it, the chances are it's either something very niche or that system may not exist. While there's nothing wrong with that, it just means that you have fewer resources to use. Either way, do your homework and find out as much as you can.

It goes without saying that you need to test it out. As you test the system, you will generate even more questions. From personal experience, DO NOT ignore those questions during testing because these are the things that you won't learn on the internet. Make sure to find those answers (through coaching or more testings) because trial and errors are the best and quickest way to learn about any thing and that applies to trading the market too.

 2. Risk/Money Management Trumps Technical

Risk and Money Management should be on the top of the priority list when writing a trading plan. Think about it, you cannot make money without learning how to manage money. Make sense?

To keep this simple, I'm going to summarise some rules that I frequently use.


  Do not trade on money that you cannot afford to lose. And I'm not just talking about financial account - this includes your emotional account as well. For example, $1,000 might be a lot of money to a middle income trader. However, sometimes you might find that $500 means even more to a high earner because he/she gets so stress that one cannot make rational trading decisions. If you can't afford to lose (financially and emotionally), then either reduce the pot or keep it to demo trading while you continue to build your confidence.

  NEVER enter the market without knowing when to exit. You make money by cashing out as well as cutting losses. You'll lose money if you don't know when to exit the market.

  As a rule of thumb, beginners should position size and keep trading risk to 1% (per trade) of your account and one should not go any more than 3-5% per trade. You might wonder, why am I being so vague? Well, to be honest, there's no fix and hard rule about this. Trading is all about your own risk appetite and whether or not you can handle the emotions when things don't go your way. Do not trade what you cannot handle.


The list can go on for awhile but I think you get the point. Again, if you need to, buy books, read or get a coach to teach you about risk/money management.

 3. Emotional Checker

Once you got Pt 1 and 2 sorted, here comes a trading secret/method that I use - I call this the Emotional Checker.

As you go through your trading plan, try to visualise a trade set up happening in the future. This can be any point in time in the future but visualise yourself actually taking this trade. As you see the trade (using your imagination), you place your orders and you let it run. Ask yourself - how do you feel? Comfortable? If yes, good. Now try the following:


  Visualise the trade going in your favour. How do you feel?

  Visualise the trade going against you. How do you feel?

  Visualise the trade going in your favour and now you following your exit plan. How do you feel?


Essentially, this is what I call scenario planning but using your emotions to check that you are fine with it. When ever you feel uncomfortable or fearful, you should consider tweaking your trading plan. Then, repeat the exercise.

Think about this, if you have done your work in Pt 1, you should have a thorough understanding of how the market works. It can work in your favour as well as go against you and you should have captured this in your trading plan. If you haven't done your homework, that's the reason to you feeling uncomfortable or fearful.

 Conclusion

In the end, it's all about trading a system that works for you. The key success factor of any trader is that their trading plan must work for them. Many amateur traders buy trading systems from trading schools and assume that it will work fine. Unfortunately, it might work for some but, chances are, it won't work for everyone.

These traders forget that, at one point in the future, you might not feel comfortable with the system. If you're not comfortable with it, that's when your emotions kick it and followed by a long list of negative actions (which I will not dwell into today).

Forex Trading - Understanding the Dangerous Schemes in Forex

By Onyebuchim C Obike

Forex Trading is one of the highest yielding financial investment in the world. According to the Bank for International Settlements, as of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007. Some firms specializing on foreign exchange market had put the average daily turnover in excess of US$4 trillion of which $1.490 trillion us being generated from spot transactions (i.e. Forex transactions)

The above fact is the key factor that entices most people to invest in Forex. The enormous returns in Forex also gave rise to fraudulent schemes, which have been on the rise since Forex began.

Fraudulent shemes in Forex is also referred to the word "scam".

What is scam?

"Scam is a fraudulent business scheme" or "to deprive off by deceit" - (TheSage's English Dictionary and Thesaurus)

Scam is synonymous with fraud. It is deception, make belief, trickery, pretense, cheating, e.t.c.

A lot of people have fallen one time or the other to scam deals knowingly and unknowingly. Some got out with partial loss, while others lost everything without a single recovery. Scam victims usually suffer unbearable psychological pain due to the level of trust built with the scammer and the loss incurred.

Unfortunately any venture with high potential for money making is always alluring to scammers and Forex is one of those ventures.

Scamming in Forex had been in existence right from when Forex began, only that it has taken a new dynamic dimension in this current era. Forex Scam is the act of fraudulently taking money from a client or customer with the intention of providing a rewarding service for the client or customer, which is not true. In some cases the services provided by the vendor could be rewarding or true, but at the long run, when a glitch occurs due to poor design then the vendor disappears after months of negotiations without making any refunds.

Examples of Forex scams include;


Fake products
Ponzi Schemes
Fake Managed Account Schemes
Pyramid Schemes


These examples are more prevalent in Forex due to the nature of the perceived returns and high rate of unsuspecting traders who patronize them.

Understanding the true perception of Forex scam is very important in detecting and protecting yourself from fraudulent schemes in Forex. A lot of traders have a wrong perception of Forex scams due to their limited knowledge about Forex. A case scenario might look similar when it's being matched with real scam cases. But when you look deeply into such complaints, you'll find wrong perceptions and false alarms.

A lot of inexperienced Forex Traders are quick to scream "I've been scammed" due to their level of knowledge in Forex. If you fail to follow the instructions of a product, and experience loss then that is not a scam.

For example when a signal service provider says "use default settings for accounts lower than $1000, and do not adjust the Money Management Settings otherwise you will get undesired results. However you'll make little pips but on the long run your account will grow steadily".

If a user of this signal service gets impatient or greedy, and ignores the warning by tweaking the settings in order to attain short term quick gain in his account, such a trader would unfortunately experience undesired results to his/her account.

Let's assume the trader gets infuriated and sends series of complaints to the vendor about the poor performance of the product and later request for a refund. When the vendor refuses based on the trader's negligence, then a scam alarm is raised. Unfortunately this does not qualify for a scam case.

Every forex product has its threshold or required standards because they cannot be 100% perfect at all times. Most vendors usually state this caution or disclaimer notice on their website in order to protect users from unprecedented loss from market uncertainties. So it is the duty of a customer to keep to the product's limits. When you go against it and face the undesirable consequences then asking for refunds would not work, and establishing a scam case would be extremely difficult.

When a trader uses a Forex product not designed for news trading or for a particular trading session or configures the settings against the design of the Forex Product and gets losses then the trader cannot claim he/she has been scammed.

One of the best ways of understanding and protecting yourself from fraudulent schemes in Forex is to get yourself updated with the Forex regulatory agencies like CFTC, NFA and your local financial regulatory agencies. These regulatory agencies regularly publish red alerts and warnings about fraudulent schemes in Forex to protect Forex traders.

Fraudulent schemes in Forex can be very enticing, cheap, alluring, and certain. Understanding the hidden traps in any alluring offer is the first step of protecting yourself from loss.

10 Differences Between MetaTrader 4 and MetaTrader 5 Forex Platform

By Onyebuchim C Obike

10 DIFFERENCES BETWEEN MT4 AND METATRADER 5

1. Installation

MT4: Installation is simple, and straightforward.

METATRADER 5: Installation is not as simple when compared to MT4. The manufacturer's demo trading server (METAQUOTE) is a default in the opening account phase of the installation. An option to add new trading server from METATRADER 5 for a demo account is also included.

2. Charts/Timeframe

MT4: There are nine (9) timeframes. There are limitations to the number of charts that can be opened at the same time.

METATRADER 5: There are 21 timeframes ranging from 1 minute to 1 month, and unlimited number of charts. One hundred charts can be opened at the same time without limitations.

3. Fundamental Analysis (news trading)

MT4: Forex Economic Calendar is not included in the news tab.

METATRADER 5: The platform has an inbuilt Forex economic calendar tab with features like news event, schedule, impact, forecast, earlier events, e.t.c.

4. Commerce/Market

MT4: The market utility tab is not integrated into the platform. You have to visit MQL4.com in order to buy any of its product in their market place.

METATRADER 5: The market utility tab is built inside the platform. You can directly buy Forex products through the market tab.

5. Indicators & Analytical Objects

MT4: There are 30 inbuilt indicators pre-installed on MT4 platform.

METATRADER 5: There are 38 inbuilt indicators pre-installed on METATRADER 5 platform. There are 22 analytical objects, and 46 graphical objects added to the platform.

6. Orders

MT4: It has only two (2) market orders, and four (4) pending orders.

METATRADER 5: More order types are included in the platform. There are two (2) market orders, six (6) pending orders, and two (2) stop orders.

7. Expert Advisor

MT4: The MQL code editor and strategy tester are the main utilities used for expert advisor design. Expert advisors are programmed with MQL programming language, and they are faster to compile. It is not possible to transfer expert advisor codes from MT4 to METATRADER 5. Therefore expert advisors designed in MT4 would not work on METATRADER 5.

METATRADER 5: It comes with more utilities for expert advisor design. The strategy tester utility has been upgraded, and a strategy tester agent manager for remote optimization of expert advisors was also added. Expert advisors are designed with C++, and they are slower to compile due to the dynamics of C++ programming language.

8. Interface

MT4: The interface is easier to navigate when compared to METATRADER 5. The one click trading feature, and the drag and drop functionality is included in build 500 version only.

METATRADER 5: There are slight differences on the platform's interface. A search box has been included on the platform as well as a details tab on the market watch window.

9. Trading (Hedging, FIFO, e.t.c.)

MT4: There are no restrictions on any trading method. However broker regulations is implemented on their proprietary MT4 platforms.

METATRADER 5: It does not support hedging of trades, and it also implements the FIFO policy by default.

10. Brokers

MT4: Most brokers deliver their services on MT4.

METATRADER 5: Fewer brokers deliver their services through METATRADER 5 when compared to brokers who deliver their services on MT4.

It is quite obvious that METATRADER 5 has more features when compared to MT4. But why do most Forex traders use MT4 in trading the Forex despite the improved features in METATRADER 5? Here are the reasons.

1. Expert advisors designed with MQL programming language cannot work on METATRADER 5. They cannot also be transferred to METATRADER 5. The only way out is to rewrite the codes in C++.

2. Hedging, and closing of orders irrespective of their positions is not allowed in METATRADER 5 platform. The platform automatically implements NFA rules

These two reasons are the main discouraging facts of METATRADER 5. This is the reason most Forex traders still prefer to trade the Forex with MT4 rather than trading with METATRADER 5.

Forex Trading has great potentials for success and at the same time high possibilities of loosing funds. Success in Forex requires the best resources and skills, which F provides. Keep in touch with our product updates page where we keep you informed of FREE Offers & New Products.

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