Wednesday, 31 August 2011
How to trade forex like a business...
Identify Strong trend.
A trend is a friend till it bend.
When everyone see the trend it is too late.
Focus on trend.
Identify early trend.
$10,000 per month earning from Forex Trading.
Forex trading is a business
How to make Forex a low risk investment
Can make it a recession proof business
Too good to be true?
Double your money, 10 times return, too good to be true?
Learn it in systematic way, do it and better it.
Trading income more than personal salary income.
More recession in life. Mentally prepared. Being realistic.
Take charge of financial life. People can make money despite recession, despite economic cycle.
Subprime mortgage crisis.
Market you are doing well. Be good investor.
Forex is high volume, high volatile, No one can corner it.
High risk, learn to control risk
No require of high intellectual.
Require control / discipline
Foreign currency , Buy one currency sell another currency.
There is not such thing as good market. One currency good is another currency bad.
Capture a trend.
Thoughtful systematic plan required.
Involved thoughtful systematic business plan.
Spend 2-3 hour in a day Forex Trading. internet connection, small capital.
Plan your trade. Focus on 2-3hour, Fix your routine. Trading is boring.
If trading bring you excitement, you are doing it wrongly.
10%-15% per month. 100% per month is risky. You are utilising too high leverage.
High leverage, high risk, lose money fast.
$1000 capital allow you to trade up to $100,000 trading amount , 100 times leverage.
Do not abuse leverage.
People make money in Casino. They are going back again. This is the beginning of their disaster.
Don't make forex trading casino.
Not knowing why you win or why you lose. We conclude it is all about luck.
10% per month is your goal in forex trading.
Gambler win $100,000 and lose all and more later.
Trader win $100,000 and lose small partial win later.
What drive Forex market?
Interest rate, economic data, news
Fundamental analysis.
Technical analysis. Chart pattern, technical indicator.
How people use FA , TA is important to win
Trading or investing. People become emotional.
When emotion high, logic or intellectual low.
Market's reponse to news, drive forex market up and down. No!
Crowd psychology is. It is reflected in the chart.
Financial media, breaking news. Economist, analyst, journalist, Why?
They answer the why?
Trader answer the how ? How to profit.
We should focus on the trend, not why.
Subconsciously, we get stuck with majority of psychology.
Logical, do not find the explanation. Focus on Trading opportunities, Trend.
Technical indicator, MACD, stoachastic, RSI, ociliator, lagging indicator, not right.
leading indicator, create high probability forecast, still is using historical data.
Trade Plan.
1) Entry rules
2) Stop loss, Exit rules
3) Profit Target, Exit rules
Trend, support/ resistance, signal, target,
High probability
24 hour trading in Forex, 5-10 trades done in one month.
Be selective. You don't have to trade everyday. Don't trade when the condition is not right.
Entry level is important
Stop loss level is important. You set stop loss depending on market volatility, market condition.
Profit level is important. Must be achievable and high reward than risk.
Invalid your trade.
When hit stop loss, let it rest.
Don't let ego take over you
Control risk
Risk Reward ratio.
Trading Psychology.
Work on this psychology trading.
Risk control
Capital risk 1-3%
Start small.
For 100 trades, 70% win , you are ahead of the game with risk reward ratio 1:1
Set reward 3% or more with risk 1%-3%
10% per month over 2 years is achievable. Lasting business
Market action is random
Don't watch market that is wasting your mental
Trading plan
Execute trade
and switch off your computer
Comprehensive trading plan is important.
Repeat. $10,000 to $100,000 in 2.5years
10% month is possible.
Not to fulfill a quota.
Don't overtrade
don't be greedy, or fearful
Luck matter sometimes but it is short term.
Consistent long term profit is trading skill
Risk control, by systematic calculated.
Triple your capital in one year.
10 times in 2 year.
Seem unrealistic
10% per month is realistic , but most retailer trader cannot do it as they are gambler.
Goals is 10 times return in 2years.
Average 10% per month.
Consistent and skill
Practise demo account as if real account.
Think in term of %
Follow trading rules to control risk so that in the long run your trading is profitable.
% is still not good.
The probability is how many reward vs risk hit.
Be committed
Develop a skill that last a lifetime!
Thursday, 28 July 2011
Difference in how novices and professional think
1. Professional is disciplined in following rules.
Novices need to be right.
They let looses run and cut profits short.
2.Professionals think in terms of probability. They will not be bothered by recent trades and test their system over a large number of trades across all market conditions (trending vs ranging; quiet vs volatile).
Novices are bothered by recent trades. They test their system by selective perception to fit in what they believe in.
3. Professionals think differently from the rest and get in and get out faster than the majority.
Novices seek safety in others. They buy at the top and sell at the bottom.
4. Professional think simple. They concentrate on crowd psychology and concentrate on overcoming their bias. They do not predict the future, is not affected by the past behaviour. They concentrate on the present, concentrating on what the market is telling them with a simple trading plan (order flow, demand and supply, origin of price movement) with risk management and exits (keep losses short and let profits run) and discipline to follow the plan.
Novices focus on indicators and seek sophistication.
5. Professionals do not care about news and economic indictaors
Novices seek to understand news and economic indicators.
6. Professionals focus on how the market really works, why prices move and the origin of price movement. (order flow, demand and supply, origin of price movement); who is on the other side of your trade; and have an edge.
Novices seek pattern recognition according to selective perception. Seek sophistication.
7. Greed and Hope
Novices are greedy. They wanted more profits. In the end, they turn winning trades into losers. They also hope to turn losing trades into winners. In the end, they hold on to losers for too long.
They boose their ego by trying to be right.
Professionals are interested in the long term distribution of their winners and losers. They do not care about the the outcome of any particular trade. (probability of profit).
They are interested in achieving the predetermined reward to risk ratio of 3 to 1. .
They boost their account by trading right.
8. Misplaced Optimism
Novices want every trade to work out.
Professionals are interested in the long run distribution of wins to losses (probability of profits). (BSPTR)(order flow, DD and SS, orgin of price movement, who is on the other eide of my trade, have an edge)
Professionals are interested to achieve reward to risk ratio of 3 to 1. (Cut losses short, let profits run, position sizing)
Professionals are interested in crowd psychology and overcoming trading bias. (Think in terms of probability, do not predict, stay disciplined in their rules)
9. Obsessed with Prediction
Novices love to predict the future and look at the past behaviour.
Professional stay in the present. They think in terms of probability and do not predict.They stay disciplined in following the rules.
10. Control
Novices try to control with sophiscated systems, indicators, analysis and stay glued to the trading screen.
Professionals concentrate on
1.Their edge
BSPTR, order flow, dd and ss, origin of price movement, who is on the other side of my trade, my edge.
2. Risk control
Stop Loss, profit target (3 to 1), position sizing ($100)
3. Discipline
Think in terms of probabilty (not affected by recent trades, test the system across all market conditions over a large number of trades and do not predict the future)
Focus on crowd psychology and managing my own psychology.
Disciplined in following all my rules.
Novices need to be right.
They let looses run and cut profits short.
2.Professionals think in terms of probability. They will not be bothered by recent trades and test their system over a large number of trades across all market conditions (trending vs ranging; quiet vs volatile).
Novices are bothered by recent trades. They test their system by selective perception to fit in what they believe in.
3. Professionals think differently from the rest and get in and get out faster than the majority.
Novices seek safety in others. They buy at the top and sell at the bottom.
4. Professional think simple. They concentrate on crowd psychology and concentrate on overcoming their bias. They do not predict the future, is not affected by the past behaviour. They concentrate on the present, concentrating on what the market is telling them with a simple trading plan (order flow, demand and supply, origin of price movement) with risk management and exits (keep losses short and let profits run) and discipline to follow the plan.
Novices focus on indicators and seek sophistication.
5. Professionals do not care about news and economic indictaors
Novices seek to understand news and economic indicators.
6. Professionals focus on how the market really works, why prices move and the origin of price movement. (order flow, demand and supply, origin of price movement); who is on the other side of your trade; and have an edge.
Novices seek pattern recognition according to selective perception. Seek sophistication.
7. Greed and Hope
Novices are greedy. They wanted more profits. In the end, they turn winning trades into losers. They also hope to turn losing trades into winners. In the end, they hold on to losers for too long.
They boose their ego by trying to be right.
Professionals are interested in the long term distribution of their winners and losers. They do not care about the the outcome of any particular trade. (probability of profit).
They are interested in achieving the predetermined reward to risk ratio of 3 to 1. .
They boost their account by trading right.
8. Misplaced Optimism
Novices want every trade to work out.
Professionals are interested in the long run distribution of wins to losses (probability of profits). (BSPTR)(order flow, DD and SS, orgin of price movement, who is on the other eide of my trade, have an edge)
Professionals are interested to achieve reward to risk ratio of 3 to 1. (Cut losses short, let profits run, position sizing)
Professionals are interested in crowd psychology and overcoming trading bias. (Think in terms of probability, do not predict, stay disciplined in their rules)
9. Obsessed with Prediction
Novices love to predict the future and look at the past behaviour.
Professional stay in the present. They think in terms of probability and do not predict.They stay disciplined in following the rules.
10. Control
Novices try to control with sophiscated systems, indicators, analysis and stay glued to the trading screen.
Professionals concentrate on
1.Their edge
BSPTR, order flow, dd and ss, origin of price movement, who is on the other side of my trade, my edge.
2. Risk control
Stop Loss, profit target (3 to 1), position sizing ($100)
3. Discipline
Think in terms of probabilty (not affected by recent trades, test the system across all market conditions over a large number of trades and do not predict the future)
Focus on crowd psychology and managing my own psychology.
Disciplined in following all my rules.
Friday, 10 June 2011
The Awesome Power of Compounding
Compound return is achieved when you invest a sum of money at a particular rate of return. Instead of taking out the interest earned after a year, you add it back to the principal sum and reinvest this larger sum.
So the next year, the rate of return is on a larger principal sum. This continues until the returns a year become greater and greater!
For example, say you invested $100 into a stock that gave you an annual return of 20%. At the end of one year, you would have $120. Instead of taking out the $20 profit, you leave it inside for another year at the same 20%.
At the end of the second year, your investment would grow to $144. The next year, it would grow to $172.80 and on the fourth year, it would grow to $207.36!
Albert Einstein, the greatest genius of our time once remarked that compound interest was the greatest mathematical discovery ever made!
He came up with a formula called the Rule of 72. It states that if you take 72 and divide it by the Annual Percentage return, it will give you the number of years your investment would double!
For example, in the previous case, the percentage return was 20%. So if you take 72 / 20 = 3.6 years you will see your investment of $100 double to $200 in 3.6 years.
The power of compounding was Warren Buffett's secret weapon in creating the second biggest fortune in the world, purely by investing in US stocks.
Warren achieved an average annual return of 24.7% for 49 years! This means that is money doubled every 2.9 years (72 / 24.7). He turned an investment of $100,000 in 1956 into $4,200,000,000 ($4.2 billion) today.
You may be thinking that a 12.08% annual return from the stockmarket is small. However, when allowed to compound over a period of time, it will turn small amounts into huge returns!
Again, imagine if you were to earn an average of $3,000 a month for your entire working life of forty years. If you were to just invest 10% of your in-come a month (i.e. $300) into the US stock market and allowed it to compound at 12.08%, how much would it grow to?
Using a financial calculator, you will see that $300 a month invested at 12.08% will grow to $3 million! And that's just from investing $300 a month.
If you could invest $1,000 a month at 12.08% (I am sure you can easily create this additional in-come stream), it will grow to $10.02 million!
The only question is when are you going to start investing and compounding your way to lifetime wealth.
So the next year, the rate of return is on a larger principal sum. This continues until the returns a year become greater and greater!
For example, say you invested $100 into a stock that gave you an annual return of 20%. At the end of one year, you would have $120. Instead of taking out the $20 profit, you leave it inside for another year at the same 20%.
At the end of the second year, your investment would grow to $144. The next year, it would grow to $172.80 and on the fourth year, it would grow to $207.36!
Albert Einstein, the greatest genius of our time once remarked that compound interest was the greatest mathematical discovery ever made!
He came up with a formula called the Rule of 72. It states that if you take 72 and divide it by the Annual Percentage return, it will give you the number of years your investment would double!
For example, in the previous case, the percentage return was 20%. So if you take 72 / 20 = 3.6 years you will see your investment of $100 double to $200 in 3.6 years.
The power of compounding was Warren Buffett's secret weapon in creating the second biggest fortune in the world, purely by investing in US stocks.
Warren achieved an average annual return of 24.7% for 49 years! This means that is money doubled every 2.9 years (72 / 24.7). He turned an investment of $100,000 in 1956 into $4,200,000,000 ($4.2 billion) today.
You may be thinking that a 12.08% annual return from the stockmarket is small. However, when allowed to compound over a period of time, it will turn small amounts into huge returns!
Again, imagine if you were to earn an average of $3,000 a month for your entire working life of forty years. If you were to just invest 10% of your in-come a month (i.e. $300) into the US stock market and allowed it to compound at 12.08%, how much would it grow to?
Using a financial calculator, you will see that $300 a month invested at 12.08% will grow to $3 million! And that's just from investing $300 a month.
If you could invest $1,000 a month at 12.08% (I am sure you can easily create this additional in-come stream), it will grow to $10.02 million!
The only question is when are you going to start investing and compounding your way to lifetime wealth.
Growing Your Money at Millionaire Returns
All self-made millionaires utilize the power of investing to get their money to make them even more money.
They get their money to start working for them so they can eventually stop working for money.
Unless you master this money skill of investing, you will never achieve financial freedom and abundance.
However when it comes to investing, most people share the painful experience of getting burnt in the stock market or in forex.
'If I had kept all my money in the bank, I wouldn't have lost half it.' 'After so many years of buying and selling, I find that after all the effort I have merely broken even'.
'I should have kept the money in the bank instead.' ' Every time I buy a stock, it seems to go down.'
Do you share this experience with most investors?
If so, you are one of many people who have developed a phobia of investing and have formed the belief that 'investing is risky'. As a result, you are resigned to keeping your money 'safe' in fixed deposits earning a measly 2%-3%.
This belief is compounded by the fact that we are taught by finance courses, banks and financial advisors that 'High risk leads to high return'. In order to earn high returns, you must be a risk taker!
This is totally rubbish! All of us have been brainwashed by this inaccurate generalization. In fact, the greatest investors in the world are NOT risk takers.
They are in fact, very risk averse. Warren Buffett, the world's greatest investor, who achieved 24.7% returns per year for the last 49 years is extremely risk averse.
His fundamental principle in investing is 'capital preservation.' He would rather not make any money if there is a chance of losing it.
His first rule in investing is 'Never Lose Money.' His second rule is 'don't forget rule number one.' As a result, Warren will only invest in a stock if it has very low downside and a very high probability of success of at least 90%.
To be a winning investor, you must adopt this same principle! You must be risk averse! You must always follow the principle of 'capital preservation.'
Now, you may ask me, ' If high risk does not lead to high returns, then what does?' The answer is 'financial intelligence.' High financial intelligence leads to high returns!
When you have high financial intelligence, there is little risk, because you know exactly what you doing. When you don't have strong financial intelligence to fully understand the business behind the stock and forex, then investing becomes very risky.
Risk is contextual. How risky an activity is depends on the level of competence of the person doing that activity.
So is investing risky? Again it depends. If you are like the majority of people who have not been trained and have low financial intelligence, then it is highly risky!
It's like climbing that mountain with no training at all. Indeed, to them it is high risk, high return. I would suggest that they keep their money in the fixed deposit.
However to Warren Buffett, investing is 'low risk, very high return' because he has a high level of competence in investing. So again, you can see that high risk does not lead to high return, it is high level of competence that leads to high return.
They get their money to start working for them so they can eventually stop working for money.
Unless you master this money skill of investing, you will never achieve financial freedom and abundance.
However when it comes to investing, most people share the painful experience of getting burnt in the stock market or in forex.
'If I had kept all my money in the bank, I wouldn't have lost half it.' 'After so many years of buying and selling, I find that after all the effort I have merely broken even'.
'I should have kept the money in the bank instead.' ' Every time I buy a stock, it seems to go down.'
Do you share this experience with most investors?
If so, you are one of many people who have developed a phobia of investing and have formed the belief that 'investing is risky'. As a result, you are resigned to keeping your money 'safe' in fixed deposits earning a measly 2%-3%.
This belief is compounded by the fact that we are taught by finance courses, banks and financial advisors that 'High risk leads to high return'. In order to earn high returns, you must be a risk taker!
This is totally rubbish! All of us have been brainwashed by this inaccurate generalization. In fact, the greatest investors in the world are NOT risk takers.
They are in fact, very risk averse. Warren Buffett, the world's greatest investor, who achieved 24.7% returns per year for the last 49 years is extremely risk averse.
His fundamental principle in investing is 'capital preservation.' He would rather not make any money if there is a chance of losing it.
His first rule in investing is 'Never Lose Money.' His second rule is 'don't forget rule number one.' As a result, Warren will only invest in a stock if it has very low downside and a very high probability of success of at least 90%.
To be a winning investor, you must adopt this same principle! You must be risk averse! You must always follow the principle of 'capital preservation.'
Now, you may ask me, ' If high risk does not lead to high returns, then what does?' The answer is 'financial intelligence.' High financial intelligence leads to high returns!
When you have high financial intelligence, there is little risk, because you know exactly what you doing. When you don't have strong financial intelligence to fully understand the business behind the stock and forex, then investing becomes very risky.
Risk is contextual. How risky an activity is depends on the level of competence of the person doing that activity.
So is investing risky? Again it depends. If you are like the majority of people who have not been trained and have low financial intelligence, then it is highly risky!
It's like climbing that mountain with no training at all. Indeed, to them it is high risk, high return. I would suggest that they keep their money in the fixed deposit.
However to Warren Buffett, investing is 'low risk, very high return' because he has a high level of competence in investing. So again, you can see that high risk does not lead to high return, it is high level of competence that leads to high return.
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