Category Archives: Equity & Risk Management

Forex Equity Management Exposed – How to Create a Winning Trading Plan

I am going to keep this post short and sweet, because the video pretty much says it all. But the #1 reason why Forex traders fail is due to a poor, or actually, NO trading plan. So, in this video I am going to get detailed into how and why to create your own Forex trading plan and then under the video there are some documents you can download in order to create a simple trading plan. This video is just one module in my Complete FX Trading Course which you can get…for FREE here,

Watch the video, create your trading plan 🙂 If you have any questions leave a comment below the video and I will respond back.

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How to Trade Forex in 3 Easy Steps

This article will be the first of many that I am going to write on the subject…How to trade Forex in 3 Easy Steps…Though I will not get deeply detailed in this first article on how to trade forex I will be adding additional Forex training videos that will teach you more in-depth how to trade Forex.

Now, I am not saying that trading Forex is easy. Because it is not. But I am saying that there are 3 major areas of Forex trading, that if you can master these 3 areas, and really invest the time into learning how to trade Forex, you will start seeing the gains in your Forex account. This article is short because I have 3 detailed videos that show you the entire simple 3-step process that you need in order to learn how to trade Forex.

The steps you need to master if you want to learn how to trade Forex are:

  1. Have strict equity management and risk management guidelines
  2. How to find optimal trade entries and exits
  3. How to manage your Forex trade once you are in it

STEP 1: Develop an Equity and Risk Management Plan

Now I am not going to get too detailed on this one. I actually wrote a more detailed article on how to develop your equity and risk management plan. You can read that article here. But here are the basics. You need to know your risk tolerance, plan ahead the maximum you will risk per trade, and do not break away from your plan. Video 1 will show you how.

STEP 2: Learn how to find Optimal Trade Entries and Exits

Once you have your plan in place on how you are going to manage your account you need to learn how to trade Forex. This is where you are going to spend most of your time. We do not chase the market. We patiently wait for the market to come to us. And by doing so we sit like a hunter, rifle in arm, waiting patiently and attack only when the timing is right. Video 2 will show you more on how to find optimal trade entries and exits. But you will notice that I teach how to trade Forex without indicators on your charts. Simple support and resistance.

STEP 3: How to Manage Your Trade

Step 3 is actually the easiest step in the process. But here are some of the rules I follow:

  1. Lock in your profits early and move your stop into break even or “in the money” as soon as you can to eliminate your risk from the trade.
  2. Never let a winning trade become a losing trade
  3. Know the key levels of support and resistance to know where you are going to have to pull out profits before a potential reversal or bounce.

Video 3 will give you a little more detail on this.

If you want to learn how to trade Forex I would follow the 3 videos below and begin to learn the process. As always, we are here to help. Add comments or post your questions below. I answer EVERY question on these posts.

 

How to Trade Forex – Watch These Videos

Developing Your Risk Management Plan

New Equity Management Plan Video and Article you need to read here

I get emailed daily from traders who pour their hearts out to me about their struggles with Forex trading. And they always ask me the same thing. “Teach me how to trade Forex…Teach me where to buy and sell.” And yes, you absolutely need to understand the basics of support and resistance, price action, candlestick formations and understanding trends. And it is vitally important to know how to choose your entry and exit points. But the #1 reason why 90% of all traders fail in Forex is because they do not have a solid equity and risk management plan.

I recently received one of these emails for help from a gentleman with an attached screenshot of his MetaTrader 4 account. He had an account balance of $1,500 and had just bought the EUR/USD. He bought about 12 positions over a 1 hour period and their account was hovering a loss of $450. THAT…is bad equity and risk management.

So let’s talk about what I feel is the most critical step in your Forex trading….Developing an equity and risk management plan.

The first step is to make sure your mindset is right. I often see traders with a $200 account risk 50% or more of their account balance on 1 trade and wonder why keep blowing their Forex accounts. That is gambling. And if you come to the Forex market, where 90% of traders are losing and the other top 10% are taking all of the money from the  90%, you are going to have your butt handed to you.

So the first step is to STOP GAMLBING. To be successful in Forex you need to think like a professional Forex hedge fund manager. You have to think long-term about what returns you would like to see at the end of the year. 5% to 12% a month is very achievable in Forex. But if you expect to take your $500 account and turn it into $20,000 by the end of the year, it is not going to happen.

The second step is for you to understand your risk tolerance. How much could you lose on a trade without it affecting you emotionally? Based on your current strategy can you lose 10 trades in a row and still be in business? I would suggest that you trade no more than 2% of your account balance on any given trade and never risk more than 5% of your account on all of your trades at one time. I personally never risk more than 1%. Because when you risk too much on 1 trade and that trade loses, the emotional response that you have is usually one of revenge and  thoughts of “I have to make this back.” And when you have that mindset you are geared to lose. You MUST be able to trade without your emotions taking over. You will lose trades. But it is a part of business and if you have the right risk management protocol in place it will not bother you when you lose a trade.

So let’s get into developing your equity management plan.

Let’s say you decided that if you lose a trade and lost 2% of your total account balance on a trade that you would be very comfortable and non-emotional about the loss. You have already done your top down analysis and you feel you have found a potential trade. Before you enter the trade you need to know where you will place your stops and where you will pull your profits.You already have a picture either on your charts on in your mind exactly how you are going to trade this trade.

The example below shows a screenshot of the AUD/JPY 1 hour chart. We are only using this for the purpose of laying out your stops and profit targets in advance. But you will notice that we had a swing high, a swing low and then price came up to the 61.2% Fibonacci retracement (our entry level) where we are selling this pair. In this trade example you are going to need a 50 pip stop. And let’s say you have a $5,000 trading account. You first need to determine your maximum risk. 2% of $5,000 is $100. Now you have to divide that $100 between those 50 pips. And the number is 2 which means you are willing to risk $2 per pip for 50 pips. If you take this trade and you get stopped out, you are only out $100 which is 2% of your account balance. Are you with me?

 

So looking at the example above it also looks like the profit target, which is where we want to close our profit is also 50 pips. which means if price move in your favor that you will make $100 or 2% return on your account. Do you understand how to calculate this?

Now, the question is “Josh, would you take this trade?” And my answer? No. Why? Because the Risk/Reward ratio is too low. In this example I am risking 2% to make 2%. This is s 1:1 Risk/Reward ratio. Now, if you are scalping the market 1:1 is about all you are going to get. But other than that, I never like to take a trade unless the Risk/Reward is at least 1:2. Which means, using this example, that if I am risking 50 pips and 2% that I need to feel that the trade will give me 100 pips and 4%. If you trade this way you can actually lose 50% of your trades and still be profitable.

So tighten up your equity and risk management protocol, commit in advance that your maximum risk exposure per trade and the minimum acceptable Risk/Reward and you have the beginnings of your very own equity and risk management plan. In the near future I will put together more info on this. In the mean time watch the videos below on equity and risk management…Happy Trading.