I hope I'm not flogging a dead horse but from my post #1532 I wrote about how reducing my lot size from $10/pip to $1/pip removed my fear of losing.

It's those gremlins, demons, inside all of us that want us to make a killing to better our standard of living. By following the gremlins and demons we trade $10/pip hoping to get $1000 from a 100 pip move. Unless we have a $50,000+ account, this is way too much for our "real and logical" emotions to handle when the trade turns into a 40 or 50 pip loss.

We have to fight those gremlins and demons and not let them interfere with our logical and "real world" thinking. As others have said, drop down to a $/pip level that is comfortable for you to accept WHEN YOU LOSE. The trick is to base it on LOSING and not WINNING. Forget about thinking how much you will win and instead focus on how much you will lose. Doing this controls your losses and you will find the winners just take care of themselves.

I was told this a long time ago and rejected it - it's taken me 9 or so years (and many $thousands lost) to finally realise and accept this and put it into practice. After doing this, I was finally able to treat my trading as a business - some you win, some you lose and after a loser, just quietly move on to the next trade.

Also, with a lower $/pip, you can put on multiple trades. Bank a third after say 20 pips and move the rest to break-even. This way you make 20 pips no matter what the rest do. If all goes well, bank another third after say 50 pips and then trail the final third.

Don't be an idiot like me, Spitfire, and wait 9 or so years, DO IT NOW!

 

My stops go either at swing highs or lows or major S&R and are NEVER by pip value.

Most of my entries are breaks of highs or lows - I only want to be in a trade when the market is moving in my direction (momentum).

I use a combination of everything I know to forecast direction and only get it right about a third of the time (even less in these turbulent times).

BOJ is buying boat loads of Treasury Bonds again forcing the $ up (and the Yen down) and in sympathy, the other Yen pairs. They and China will continue to do this until they weaken their currencies to the point that their exports are attractive again.

This makes the forecasting part of technical analyis difficult and strengthens the argument for funny mentals.

At least they can't mess with Rock n Roll!

 http://www.forexfactory.com/showpost.php?p=2580385&postcount=136

Good man, Brian.

But remember, I am only posting for educational purposes not for trading purposes and equally as important, I do get a lot of them wrong. Lots of losers and a few big, biggies.

How you manage the trade is at your discretion. There is no right or wrong way. I really don't like trailing stops so don't use them. Jacko doesn't know how to do it on his laptop so he moves his manually. I don't look at anything less than Daily as it might cause the gremlins and demons and the man in the mirror to come out and play.

Before I visit the land of nod tonight around 10 -11pm PST, I will take a look at what the Asian boys are doing with regard to cycles and momentum. Today's action is weaker than yesterday with declining volume and equal momentum.

With it being "their" currency, I have a sneaky suspicion that they will take some profits off the table before going higher but let's notjump the gun.

 

Bloody hell Jeeve, I've done me 'ed in trying to answer this!

With regard to stop loss, if that is how Trader Dante did it for his method then he must know it works for him. There are as many ways to set up your Forex ATM machine as there are traders. I cannot comment on what works for one method compared to another. The way I trade, Price Action using Support and Resistance, I would be stopped out on most trades if I did what you suggest. Since I'm trading reactions to Support and Resistance, my stops have to go either above/below Support and Resistance or at swings. For me, they have to be away from the noise of all the time frames below the Daily. This is all part of the PLAN. If you have done your analysis correctly then you will set stops according to that and let the market work it out for you. There are no emotions. You either believe in yourself and your plan or you will never make it in this business. When I place my stop loss, I EXPECT the MMs to run the stops and clean everyone out BUT I believe in my plan and let it run accordingly. I also don't put in hard stops.

I only read a post about a week ago on FF about a guy that was complaining that he set his stop and the market came back and took him out only to turn around after a further 20 pips and go in the direction of his trade. It will ALWAYS do that if you put your stop in front of resistance and support. Support and Resistance are proven areas in history where buyers have bought and sellers have sold.

One more thing, if you take a piece of method A, and a piece of method B with a squirt of method C, it won't work. A method is an all embracing strategy.

Time difference. I was going to go into a long disertation of time frames but it will not serve any point. The time is set based on the data feed from your broker. Yes different brokers wherever they are in the world have different time feeds. This means that what may appear as a hammer on my data may not be a hammer on someone with a different time data feed. It is not worth worrying about because at the end of the day we are all trading PROBABILITY and things like this, always average themselves out. You should not worry about what is happenning on a different time data feed because you cannot trade that. You can only trade the data presented to you by your broker.

Only control that which you have the ability and resources to control and ignore anything you cannot control.

Damn! I've just written that and realised why the trouble and strife is always asking why I ignore her! Need a new plan for that!

Hope this helps,

 

I struggle with getting SL to break even also. It's a toss up between hanging in for a longer move or getting out with some profit. I try to look at where the next roadblock (support/resistance) is and work back from there. It also depends where you are in the trend (or not in a trend).

From the trading psycho view, it is always best to grab some profits while you can and not let a profit turn into nothing, or worse, a loser. However if you do screw up and end up with nothing or a loser just take it on the chin and move on to the next trade. The absolute worse thing you can do is mull over it and think what might have been -forget it, let it go and move forward.

 

I have finally made the time to answer this. Thank you to everyone who participated - at least you had a go - not like the lurkers and guys in the background who think they know it all - you know who you are!

Attached is a later chart so let's get into it. I wrote something like I hope everyone had their sell stop in place at 97.52 I think it was. Then I later wrote that there was a HUGE PROBLEM with it.

So let us start there.
The first thing, after identifying a trade MUST ALWAYS BE - WHAT IS MY RISK? Remember my earlier posts about millionaire and professional traders? The ONLY thing they care about is how much they can LOSE. Amateurs and all other traders think just the opposite - how much can they make.

When professionals PLAN THE TRADE, the very first thing that goes down on their sheet of paper is HOW MUCH WILL I LOSE? Their whole plan is predicated around LOSING. If they are not comfortable with the amount they WILL LOSE, they will either reduce their positions (lower $ per pip) or NOT TAKE THE TRADE. They don't concern themselves with winning because they are successful traders, know it's all about probability, and will come out winners in the end (total number of trades).

When they are comfortable with HOW MUCH THEY WILL LOSE, they go ahead and place the trade. This IMMEDIATELY takes all decisions and emotions away from you on this trade leaving you with a STRESS FREE TRADE. You then TRADE THE PLAN by letting the market either (i) take you out (stop loss hit) or (ii) put you in profit. Once in profit, your plan should tell you when to take profits, go to break even etc. It may not have hard numbers but just something like take profit at 50 pips on the first contract, bring rest to break even at 100 pips or take profits at first S&R, second S&R etc.

If you feel the need to interfere with your Plan then you have not planned it correctly. Once in a trade with a plan - just let it go and do it's thing! If you plan it correctly, those demons, goblins, voices inside your head, man in the mirror no longer have a base on which to trick you on.

So back to this trade. If you had a sell stop in place below the 97.52 support line, say 97.42, did you measure your RISK? Where did your SL go on such a move? If you did it correctly, your SL should have gone ABOVE THE SWING HIGH at say 99.23. That is a 181 pip SL! That is HUGE!

Would you have been prepared to LOSE 181 pips? That is the FIRST question you should have asked yourself. If not, then either adjust your $/pip or do not take the trade.

Now for those who are going to tell me they dropped down to H4 to identify a smaller SL, then at that point, they were no longer trading the Daily. You cannot trade a time frame with a shorter time frame's S&R. There are 6 H4 price bars within one Daily price bar and if you set a SL from H4 then it would be hit within that Daily price bar.

If we managed our trade correctly, we should have taken profit when it hit support again at around 96.20, so we did make 132 pips. For those who do the Risk to Reward ratio, this was lousy.

Now that huge down bar was not the normal range for this pair and we should expect the elastic band theory to take place after it completed. If you are not familiar with the elstic band theory, take the elastic waist band in your under pants or knickers and pull it out as far as it will go. Then let it go! This is also true for the distance price is away from the 20 - the further it is away, the more likely the elastic will pull it back.

That being the case and since we all know what to do when price hits support, it provided another magic trade PROVIDING you knew where to put your SL. If you did know where to put your SL then you are back at the beginning of this post because it is another HUGE SL

So, since no-one came even close to this, tells me you are all acting like rank amateurs.

You will NEVER make serious money at this UNTIL you turn your logic upside down, forget about profit and CONCENTRATE on HOW MUCH YOU CAN LOSE.

I promise you with 100% certainty that if you do this, you will turn your trading career around BIG TIME!

Good analysis and THINKING like a professional not a rank amateur - a good trade DISQUALIFIED by excellent Money Management DISCIPLINE

Did you consider a reduced position size or reducing your $/pip so that you could take it?

 

The more aggressive you are in trading means you accept MORE RISK - if you are comfortable with this then that's your decision.

Let's look at your trade entry "x" pips above the OPEN

The first thing to notice is that we are very near a psychological round number level (psycho 1.2500). Banks, funds, hedges, trading houses and large institutions automatically trigger orders at round number levels especially a "00" number. That being the case, there will be a lot of action around this area as there will be a mixture of buy and sell orders. There are some threads that suggest placing orders at these levels but being the rebel I am, I like to stay away from the crowd (noise) and either get in before or after but, it is a personal choice.

Now if you place your buy order above the open, that means it is within the high. If the market comes up to test the high before resuming it's prior trend (remember probability and there is a 50/50 chance that it can do this), you will be filled and in a drawdown situation. If your plan allows for this, then it is fine.

Your SL placing is that which worries me most. A price reversal bar does not care where the 50% fib is or any other levels. The CRITICAL levels which MUST be respected for the safest and lowest risk trade on price reversal bars are the high and the low.

Let's assume you got filled just above the open and price took off and then hit the sellers at 1.2500 who had more volume (orders) than the buyers. What do you think happens? Prices start to fall, triggering other sellers AND traders STILL holding shorts who missed the first opportunity to get out at the low. They will then drive the price back down to the "old" low to get their second chance to get out. This is your double bottom.

In this case, bj, you have been taken to the cleaners and wrung out to dry.

For me, my buy stop goes above the high and any round numbers (giving up pips doesn't bother me) and my SL goes below the low or below any round number or below support if there is an immediate support below the low of the bar.

This way, you don't get filled (Stop Running excepted) if prices don't reverse and you live to fight another day.

This is not just aimed at you but at the many guys here who are still thinking "PROFIT" first instead of "LOSS".

We must forget how much we are going to make, believe me, if you are trading PRICE ACTION, it will take care of itself. What we MUST control is HOW MUCH WE WILL LOSE.

PLAN your trade with whatever is your risk tolerance and then let it play itself out until the next bar. Review everything again and then, if necessary, revise your plan (maybe move SL) and let it play out again.

bj, you should know this as you are often on Jacko's thread and he is the best at planning a trade and letting it run

 

I thought it was clear but obviously not. Without a thought, my SL ALWAYS goes below the low; it's not conservative, it's just a fact of Price Action. I would NEVER, EVER ignore a nearby S & R level. If the low is slightly above support then the SL goes below the support. If there is a psycho number nearby, then it would go below that.

"'I understand that but in this particular case, with the very long tail on the reversal bar, it would seem to me that if it headed that way very far, you would realize that you had guessed wrong and would want to get out of the trade after some point before 300 pips."'
Those bastards who create these long tails, the brokers and the MMs, don't care how long the tail is, they will drive the price to wherever they want to clear everybody out. Go back and study your charts. You should be able to see many, many instances of all types of bars with long, long wicks - the exotics are notorious for long wicks. How many times do you see a tweezer bottom? That is the work of these assholes!

This goes for everyone, you have to get rid of your "little minded trader mentality" because you are the fodder that the predators (brokers, MMs, banks, funds, hedges, institutions, trading houses etc.,) feed off.

Until you think like the King of the Jungle, you will always be the FOOD for the jungle!

 

Naws - you asked about Money Management - here is something from my files:

Money Management
The focus of this page will revolve mostly around the risk/reward ratio aspect, though another important piece is the equity percent of your account you are working with. For example, a rule of thumb for equity is never bet more than 2% of your equity on a single trade. So, for example, if you have $10,000 in your account then you should not bet more than $200 or 20 pips on a single trade (or else get a a micro-account so you can wager 200 pips or $200). Too often new traders lose too much and then get increasingly desperate in their trades to attempt to “make up” the lost money.

Ok, enough about equity. As I said above this page is going to focus on the risk/reward ratio.

Risk/Reward Ratio
In short, the risk/reward ratio means the amount you are risking (i.e. your stop loss amount) against the amount you stand to gain (your profit or limit on the trade). So if you enter long on the GBP/USD at 2.0040 and you enter a stop-loss or determine you will manually close the trade at 2.0020 if it goes the wrong way then your risk is 20 pips per lot.
Pretty simple so far, right?

Okay, now if on the same deal you determine that your target, or where you will take profit and close the trade is at 2.0140 then your reward is 100 pips (2.0140-2.0040=.0100 or 100 pips). So on this particular trade your risk/reward is 100 pips/20 pips or 5:1

Risk/Reward Ratio Example
Before we get into what ratios mean to you and what ratios you should aim for, lets try another one. Take a look at the below trade signal and figure out what the risk/reward ratio is:
Short Entry: 1.5950
Stop-Loss: 1.6005
Limit: 1.5840
Take your time, figure it out…

Ok, what did you get? Was it 2:1? If it was then you are right!
Risk = 1.6005-1.5950 or 55 pips.
Reward = 1.5950-1.5840 or 110 pips. 110:55=2:1.

Got it? Ok, if you don’t then read it a few more times, because this is very important. New traders too often do not set stop-losses and as a result may get a handful of 10, 20 or 30 pip gains (maybe even more) but then they get a 100 pip loss or worse because they keep hoping it will “just turn around” and it wipes out all of their gains plus some.

Now, here is where good risk/reward ratios become important.
Why is this important to me?

If you have a risk/reward ratio of 1:1 - meaning you risk the same amount as your reward each time - then obviously you have to win 50% of your trades to break even.
If you have a risk/reward ratio of 2:1 - or your target is twice as much as your risk every time - then you only need to win 33% of your trades to break even. Got that? You can lose 2 trades for every 1 you win and you will break even.

And it only gets better from there. Below are a few risk/reward ratios and the win percentage you need to break even:
1:1 - 50%
2:1 - 33%
3:1 - 25%
4:1 - 20%
5:1 - 17%
10:1 - 10%

Conclusion
A lot of new traders make the mistake of thinking “Ok I will just capture a few pips at a time, up to 10 or so” and they don’t even bother to put in stop-losses! What ends up happening is they may go on a streak for a few hours, maybe even a few days or more. But inevitably they get a big loss that wipes out all their profit and then some. When that happens you lose your confidence, your edge and you start to trade scared - and that only makes things worse.

The best traders I know practice good money management with good risk/reward ratios. Ratios of at least 2:1, up to 4:1. If you are a new trader I recommend you start with at least 3:1. The best traders sometimes don’t win 50% of their trades. But their wins are large enough where they make profit and then some.

Hope this helps

 

Excerpts from stuff:


SUPPORT:

Support is, simply put, a price at which point traders expect to see buying. Support can be a level that we have seen previous buying activity at (perhaps the price bounced off of it last month).

The most common place for support level is an obvious spot where traders have seen a major reversal in the past.

RESISTANCE

As you might guess, resistance is the exact same as support except it is an area where we have seen traders selling the pair in the past.
First is always to identify the direction in which the pair is trending.

__________________

Well with Time On My Side (Rolling Stones 1964), I thought I would give my version of Money Management which so many have asked of me. The reason I have always avoided it is that I am the worst person to discuss Money Management as I don’t follow the rules and don’t give a toss what others say to do and not to do. I do what works for me not what works for someone else.

As you would expect, I do not conform with established procedures or even definitions of what Money Management (MM) is.

So before I get into it, for those who disagree with me and want to tell me how I “should” do it, save your energy and bite your tongue. (This is my new “polite” version of “me”).

Most people on these threads and forums think that MM is using Stops – I disagree. Stops have nothing to do with MM – they are for CAPITAL and PROFIT PRESERVATION.

MM to me is using your money to make you more money with low risk. MM is for increasing your stake as your ROI increases and reducing your stake as your risk increases.

Trading is all about LOSSES – lots of small losses and fewer big winners. The big winners are where we make our REAL money. We always want to be in the market to catch the big moves.

When we start out as new rookie traders, we always, without exception, have larger losses than winners – the exact opposite of what we “should” do. This is our inexperience and psyche controlling us.

We want to at least get to the point that our winners are bigger than our losers so that even with a 50% win/lose record, we make money.

Here are some rules I would suggest for those starting out on their Forex journey:

PLAN YOUR TRADE and TRADE YOUR PLAN

Enter each and every trade in your Trade Log/Journal

Always be IN CONTROL

Consider loss FIRST before profit.

ACCEPT your losses – you are not wrong – they are just part of doing business

ACCEPT and be prepared to make losses

Assume your worst loss has not yet happened.

Always PLAN for the worst possible case.

Limit your losses to:

2% of equity on any day
5% of equity in any week
10% of equity in any month.

STOP TRADING if you reach these levels – something is WRONG – analyse your trades and find out what you are doing wrong

NEVER, NEVER, NEVER, EVER add to a losing position.

Don’t get paranoid by watching PA during the day. Let the trade develop in accordance with your PLAN. Getting out too soon on the first “wobble” (minor retracement) before the big run will be more frustrating and psyche damaging than taking a small loss.

Do not trade unless you are 100% physically fit and mentally prepared.

If you make a mistake, get out. If in doubt – get out.

Follow your system/strategy/method – if you can’t do this – DO NOT TRADE!

Take only ACCEPTABLE risks within your risk tolerance and financial position.

Do not trade or even look at exotic or other thinly traded markets

Use multiple lots to get to “free trade” status

As your equity grows consistently over time, increase your stake within your risk tolerance. Add to winning positions within your risk tolerance.

Decrease your stake during losing “streaks”

Do NOT increase your risk by trading correlated pairs

Increase your lot size on a pair you understand rather than trading a pair you don’t understand to compound your money.

Specialise and focus on a small number of pairs maybe just the six majors.

Do not get over confident as your success grows – keep doing what you did to get you where you are at now – just do more of it. Never forget what happened to the last guy who thought he could walk on water.

Use the market’s money for your trading account. Once you have doubled your equity, take your original stake out and put it into a CD or Bank account. From this point forward you are trading with your profits and the markets money. Do not change anything at this point, just more of the same.

If you WIPE OUT (Surfaris 1964), do not add additional funds until you know what caused you to wipe out.

Understand risk and how lack of risk control can wipe you out.

Success or failure as a trader is how you react to your losses

Control your emotions – fear and greed are momentary, regret and disappointments last a lifetime.

Before you take a trade, look for reasons NOT to take the trade. We are all guilty of seeing a trade that isn’t there (much like people who see Mother Theresa in clouds or pizzas)

Eliminate negative thoughts – only think POSITIVE thoughts

Surround yourself with successful and winning people – avoid the losers

Amateurs manage money by taking RISK. Professionals manage RISK by taking MONEY.

Trading is a zero sum game – someone has to win and someone has to lose

Finally, once you get to a point in your trading where you are comfortable with your system/strategy/method and MM, then you know you have “arrived”.