When doing trading, every trader knows that to be a success one must make all the stops to make sure he or she is prepared. And the best way to prepare is by drawing up trading plans. But what if you shifted from trading stock to forex? Should you still use your old trading plans? Of course not, what you need to do is design a specific forex trading system to make sure everything is perfect. To do otherwise would be akin to financial suicide. Forex and stocks are similar but very different, much like a mini cooper and a mack truck. Get the picture?
A Forex Trading System For Forex? Makes Sense
January 4, 2011 — 9:04 am
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Why You Need An Options Trading System
December 27, 2010 — 7:53 pmWhen it comes to trading, having the right system is very important. Which is why, when you start trading options, you have the proper system for it. Think about it for awhile, if your system for trading forex works like a charm, would it work well with options? Both are similar yes, but radically different. To use a system that’s designed for another is like putting an engine from a Volkswagen inside a Mack truck. It will work, but not as effectively as you thought it would. So when you trading options, what you need is a proper options trading system to work with. It just makes sense.
Manage Trading Psychology and Reap the Benefits
October 22, 2010 — 11:58 pmBefore delving into the challenging world of trading systems, it is well worth your time to pay some attention to trading psychology. Although this may have nothing to do with the all important technical terms and skills necessary in investing, your mental processes and behavior when you trade often determine success or failure.
Your psychological processes are worth looking into mainly because they shouldn’t be allowed to become part of trading. Trading stocks, currencies or commodities should only be done with the use of logic. This is something you cannot compromise because the lack of logical thinking can increase your chances of losing in every single trade that you enter.
There are many ways in which emotions can come in the way of making profits. In the psychology of trading however, the two most common scenarios that play out are holding on too long or letting go too late because of the fear of losing. A trader can hold on for an extended period of time to a losing position because of the idea that things will turn around and letting go may mean losing out on a possible future improvement. On the flip side, bad traders can also let go too early as soon as they see small gains because they are afraid that when they hold on longer, the value of their assets will fall and lead to loss.
There are some explanations to why a trader may follow a fearful trading psychology. In a lot of cases though, the main culprit for emotional trading is the lack of a good trading system to follow. The only way you can break free of fear is to create a system, test it and use it in executing
trades.
A stock, Forex or options trading system that fits you perfectly can help you decide logically. This is because it takes into consideration specific rules that determine exactly when to enter or exit trades. Moreover, a concrete system can address the problem of the fear of losing by setting risk levels that you are at ease with. A plan takes charge of negative trading psychology by never letting you lose more than you are willing to let go at any given instance.
A system is therefore clearly, the best key to keep your emotions from interfering with trades. There are however some individuals who still fail to succeed despite having one in place. The reason for this is the lack of commitment or discipline to follow through on what has been set. The only reason for the lack of respect for an existing plan is poor trader confidence. Again, there may be a fear of losing because there is some doubt as to the effectiveness and profitability of the rules being followed.
One way to dispel your doubts over the effectiveness of your system is to
back test it. This is a technical method of testing how well a particular system will work when it is used in trading historical data. This method is one sure way for you to manage the psychology of trading.
Your feelings and thoughts can and will make or break you depending on the level of control you have over them. You can manage them by making sure that you commit to a trade system that has been tried and tested.
The Real Value of an Options Trading System
October 21, 2010 — 11:08 pmAn options trade system has a lot of similar characteristics to systems used for trading various asset types. You should however make a special effort to learn the deeper value of a system based on the specific asset it will be used for. If you therefore choose to trade options, you need to understand what it involves first.
The other common term for options trading is derivative trading. This term is based on the fact that an option is really just a contract between two parties. All contracts give buyers the right but not the obligation to purchase an underlying asset for a fixed figure at an appointed date. In some locations, the underlying assets may be secured before contract expiration. The value in all this therefore lies in the underlying asset.
The two types of options are call and put. When you are in a call position, you have the right to buy. If you are in the put position, you have the opportunity to sell. What makes the contract possible is the fee paid for it. Hence, a buyer initially spends cash on the option to purchase at some future point. Fees cannot be refunded in case a buyer withdraws.
It is clear why many individuals decide to build their wealth in this manner. It is simply a very lucrative and safe move to do so. A buyer obviously stands to benefit from options investing because most of the time, he can make decisions in his favor. He can sit back and observe how asset values move. If the underlying item turns out to be a real gem that can churn out hundreds in profits, then executing the right to obtain it will make sense. If however, movement does not bode well, a withdrawal is acceptable.
Options trading is highly speculative and offers great hedging opportunities. This is why it’s tempting to give in to the chance to get into it. It’s important not to forget though that risks are still very much a big part of this investment type. It therefore pays to make sure that you are prepared to deal with these risks.
This is what makes an options trading system special. This is basically a plan that traders use to identify the appropriate risk levels before entering into an agreement. Risk management can have a couple of different components but the bottom line is that it is supposed to set the maximum amount and number of losses that a trader can endure. Hence, you are never in danger of losing more than you are willing to let go of.
There are preexisting plans that successful traders use and that you can choose to use yourself. It is better though to make a system that is specifically customized for you. There is nothing wrong though with getting a few insights from experts that you can tweak to your specifications.
You can’t lose with an options trading system. Since options trading is riskier than other trade types, having a solid plan is more important than ever.
Can You Make More Money with Diverse Investment Trading?
September 21, 2010 — 1:52 amOne common advice from expert investors is to diversify one’s investment trading options. This is easier said than done though. Diversification can have a couple of strong implications on your trade system. Depending on how it works out for you, you can either end up with sky high profits or with utterly abysmal losses. This is why it is important to find out first if diversification is the right step for you to take.
It doesn’t take a lot to comprehend the basic principle of the idea. What it means to diversify is to distribute your capital among different investment types, assets or markets. The simplest example is a stock trader who opts to also invest in Forex, futures and real estate. The end result is an investment portfolio that is rich in items that belong to different categories.
The bottom line of a diverse investment trade portfolio is that it is intended to draw more profits. This should be obvious because the more varying investments you have, the more chances of earning from different sources. This is not enough of a reason though to distribute capital. The deeper purpose of diversification is profit protection. You will be able to understand this concept once you observe that investment markets have low periods. If you put cash in more than just one market, you are ensuring that you will always have profits to enjoy even if the stock market takes a blow. This is therefore another way of saying that you shouldn’t put all your eggs in one basket.
At first glance, diversification seems every bit a good piece of investment trading advice. Be careful though. Not every trader will succeed with this option. Even if varied market participation can secure profits, severe across the board losses are not impossible. This is especially true for new investors. One main cause of losing a lot in multiple markets is the lack of mastery. It is already quite a chore to have to get your head around just one market. Attempting to master the ins and outs of multiple markets all at one time will almost always lead to disastrous consequences.
Initial specialization makes sense in the business of trading. This is a good way to protect you from losing a lot when you are still at the stage of learning what to do in a specific market. Find out what market you prefer to trade in initially by researching on the available options. It is often a good idea though to begin with a stock trading system first. Stocks are not leveraged and therefore do not present the possibility of overwhelming losses which you can expect from leverage assets such as currencies.
This doesn’t mean that diversification is wholly inadvisable. The benefits of diverse investment profitable trading are real. You can earn more than you can ever imagine with diverse investments. The only point that you have to be extremely clear with is that you should take time to master one market first before you decide to enter another one. It’s always better to have conservative gains that nothing at all.
Currency Trading Market- Why it Pays to Invest
August 17, 2010 — 8:00 amSome investors shy away from the currency trading market. They may feel safer with a stock trade system simply because they know the stock market better than any other market. It is not however often very profitable to stick only to what you are comfortable with. If you have mastered trading stocks inside and out, it may be time for you to discover Forex. Here are some concrete reasons to trade currencies.
#1- There are fantastic leverage opportunities.
Here, leverage is the name of the game. This is a technical term that simply means you can earn a huge amount of cash even if you only put in a small initial investment. Not all trading firms have the same conditions but it’s possible to shell out a thousand bucks and trade for millions. This is the main reason why this form of investment trading is attractive.
#2- Assets are quite liquid.
The entire system is highly liquid. This means you can always find someone to trade with or apply your Forex trading system on and you will always have access to your earnings. The secret behind this astounding liquidity is the size of the market. Every day, billions of dollars are traded. This means Forex is bigger and more imposing than both stocks and commodities combined. The best part is that currencies remain unaffected by falling stocks. Moreover, even during difficult economic times, you can always adjust the pairs that you trade with so that you don’t stand to lose too much.
#3- Volatility is always a present quality.
The currency trading market is highly volatile. This means assets rarely stay put for long periods of time. The rise and fall of values can be quick but not too fast to prevent you from making profits. Volatility is a good quality when one considers that stagnant periods, such as those that may affect stocks, never offer any chance to either lose or win. In other words, the lack of volatility will lead you nowhere. It’s better to have a momentary downward movement because there is always a possibility that it will move back up.
#4- The market is always open.
Unlike other trading venues, the business of trading Forex never takes a break. That means you can execute trades even when your part of the world is asleep. Moreover, with the advent of the internet, it is now possible to perform online Forex currency trading. As long as you have access to a reliable internet connection, there is always an opportunity to make money.
#5- You can start with demo accounts or small accounts.
You don’t have to lose thousands of dollars learning to trade. Some online Forex sites will let beginners trade using demo accounts. You will be given access to actual trading data but you will not be required to put in cash. After trying a demo account, you can move on to opening a real account. If you don’t have a lot of investment cash to begin with, you can always sign up for a small trading account. Some sites permit trading for as little as a hundred dollars.
There is no question that the currency trading market can make you wealthy. You do have to make sure though that you follow a good system that will keep you from losing a lot.
There is no question that the currency trading market can make you wealthy. You do have to make sure though that you follow a good system that will keep you from losing a lot.
The Crucial Role of an Options Trading System
August 9, 2010 — 5:38 amAn options trade system is nearly the same as any other trading plan used for stocks, currencies and futures. You should however, attempt to comprehend your plan based on the specific market that you are moving around in. To do this for options trading, you need to understand the basic concept of this market type.
Another term for options trading is derivative trading. This suggests what options are really all about. Instead of being real tradable assets, options are really contracts between two entities. The buyer is the one who has the right to pay for an asset in the future. He is not however, obligated to actually make the purchase if he chooses not to. The price is fixed regardless of the duration of the contract. Depending on where you are, an options trade can sometimes be acted upon even before a contract ends.
The two types of options are call and put. When you are in a call position, you have the right to buy. If you are in the put position, you have the opportunity to sell. What makes the contract possible is the fee paid for it. Hence, a buyer initially spends cash on the option to purchase at some future point. Fees cannot be refunded in case a buyer withdraws.
It is only natural that many experienced traders choose this as a second investment form. Traders who know the market well obtain the potential to earn much in the safest way possible. Buyers are at the winning end of an options trade. This is because they have the chance to make decisions that are favorable for them. A buyer can wait and see what will happen before jumping in on an asset. Only when an asset shows signs of profitability can a trader decide to actually purchase it.
Options trading is highly speculative and offers great hedging opportunities. This is why it’s tempting to give in to the chance to get into it. It’s important not to forget though that risks are still very much a big part of this investment type. It therefore pays to make sure that you are prepared to deal with these risks.
To make sure that your risks are reasonable and within your capacity to endure, you need an options trading system. This is the general plan that will tell you when it is best to enter and exit agreements. Moreover, it also defines the kinds of risks that you can live with. Risk management as a whole involves making sure that your maximum loss amounts are bearable. Because you know what you might lose, you never have to lose too much sleep in case you do lose some.
There are preexisting plans that successful traders use and that you can choose to use yourself. It is better though to make a system that is specifically customized for you. There is nothing wrong though with getting a few insights from experts that you can tweak to your specifications.
You can’t lose with an options trading system. Since options trading is riskier than other trade types, having a solid plan is more important than ever.
Analyze Your Trading System Using 7 Metrics
July 20, 2010 — 2:58 am1.When you are taking a look at the performance of a particular system, first off you need to take a look at the win-to-loss ratio, as this is a good indicator of it’s tradability. Essentially this is the how many times on average the trade wins in contrasts to it’s losses. If you are winning more than you are losing, then your trade system might just be sound.
However, do not become reliant or caught up in statistics, because statistics do not tell you everything that is happening. It definitely does not take into account how large your winnings are in contrast to your losses.
2.With that win to loss ration, try to make sure that your winning value is overshadowing your losing value. One thing that you could think about, is if you have 200 trades and 150 losses, then your percentage is 25:75. It looks bad, but is it?
Something that you need to have a look at is the size of your wins. For instance if you have a winning of $2000 and a loss of $5000, you’re still not doing too bad.
3. Expectancy A trading system’s expectancy is perhaps one of the most powerful statistics you can have because it is a way of quantifying the performance of a system that is independent of the size of the trading float.
In short, it produces the expected dollar return for each dollar risked by the trading system. This is different to the reward-to-risk ratio and average wins to losses that we described above, in that it defines a return in dollar terms for every dollar that you risk. If your system has an expectancy of +0.75, on average, you would expect to make 0.75 times the amount you risked in the trade. If you risk $1, then you would expect to make, on average, $0.75 for every trade you take.
As a guide, if you can achieve expectancy of $0.60, you’re heading in the right direction.
4. Maximum consecutive losses Look back through your testing results to see, statistically, how many losses in a row your system sustained while still being profitable. This is important to know upfront, since this statistic will give you confidence during those low times when it feels like you should throw in the towel.
For example, imagine you have been hit with five or six losses in a row. Without knowing your maximum consecutive losses, you might think your system isn’t working. This is where most naive traders go wrong. The truth be known, based on the historical data, your system may have actually sustained 10 losses and still been profitable.
5. Then you have the maximum drawdown, which is basically the worst performance of your system. It doesn’t matter whether or not the drawdown consists of consecutive negatives.
You will find that the statistic is calculated automatically, therefore all you need to do is determine whether or not you are actually comfortable with the size of the losses. If you are not comfortable, then you will need to change up the system in such a way that you are comfortable with it.
Once again, this all has to do with that risk-to-reward ratio. The greater the risk, the more reward you are going to reap in the end. There was a time that I traded a system which returned with 140% p.a. It’s great in theory, however it also had a max drawdown of 80%. Whether or not you can handle losing that kind of capital is really up to you.
Make sure that you are comfortable with the system you choose to trade with.
6. Number of trades Then there’s the number of trades a system gives over the course of a year. I find this an invaluable, yet rarely talked about, statistic.
Your trading system should not give too many or too few trades. The number of trades that a trading system gives should be approximately the same as that which can realistically be taken.
The two sides of the coin are equally dangerous. If a system gives too many trades, you will be forced to choose between signals, therefore adding ambiguity to the system. With ambiguity comes human discretion and this often has a detrimental effect on the performance of the trading system.
On the other hand, if a system gives too few trades, your trading capital will not be fully utilised and you may not be taking full advantage of the available trading opportunities.
So how do you calculate the optimal number of trades for a trading system?
This is done with the calculation called ‘opportunity’. Opportunity helps determine your optimal opportunity for a trading system.
7.Then you have Profitability, which is the number of returns on an annual basis.
Let’s not beat around the bush. This is all about making money, and the one important thing here is profitability. While you’re trying to make money, just make sure that you maintain a balance. The previous six items in this article will help you immensely with any questions about your stock trading system. Watch below for more trading information
Reap the Rewards of Controlling Trading Psychology
July 7, 2010 — 6:44 amBefore delving into the challenging world of trading systems, it is well worth your time to pay some attention to trading psychology. Although this may have nothing to do with the all important technical terms and skills necessary in investing, your mental processes and behavior when you trade often determine success or failure.
Your emotions, feelings and subjective thoughts are important because they hardly have a place in trading. It should go without saying that the various investment markets should be approached with cold, calculating logic. You can hardly afford to do otherwise because using your feelings to determine your decisions while dealing with assets can lead to severe losses.
There are a lot of ways in which feelings can interfere with trading gains. In the psychology of trading though, there are only two popular situations that come up when emotions take a part in trading. A trader can either hold on too long to a losing position because of the fear of losing out on possible future gains or he can let go too early of a winning position because of the fear of losing when the values dip. One common element in both scenarios is the fear of losing. The emotion is what triggers the trading decisions.
There are different reasons why an individual may maintain a fearful trading psychology. Most likely though, a bad frame of mind and an emotional approach can be pinned on the possible lack of a solid plan or system. This is why it is crucial to make your own before you attempt to invest your cash in any of the markets.
A Forex, stock or options trading system that is reliable can get your head in the game. Logic is its main contribution to your trading style. With a good plan, you can follow consistent rules on when to enter and exit trades. Furthermore, a good system can help you deal effectively with fear by identifying the risk levels that are suitable for you. Your system can give you the right trading psychology because it will protect you from losses that are unacceptable for you.
A trading plan is what every trader needs to keep feelings in check. It is a wonder then why some traders who do have systems still fail. One possible explanation for their failure is the lack of commitment. A trader may not have personally promised to follow his system regardless of what happens. This action may be the direct result of insecurity which in turn is the result of doubt.
You can manage the psychology of trading by ensuring that your plan is set to work to your advantage most of the time. One way to find out if a plan will most likely work is to back test it. This is a method of seeing if a system can perform well when traded with historical data.
Your feelings and thoughts can and will make or break you depending on the level of control you have over them. You can manage them by making sure that you commit to a trade system that has been tried and tested.
Can You Make More Money with Diverse Investment Trading?
July 2, 2010 — 7:08 pmYou may have already heard of the advice to go into diverse investment trading. This can be a good choice for you to make but you should be aware that there are serious implications to diversification. If you apply the concept to your trade system, you might truly earn fantastic profits. It is possible however to also end up at the other end of the spectrum. Before you follow this piece of advice, you have to make sure it is the best decision for you to make.
Diversification is actually a very simple concept that can significantly increase your profits. It simply means that as an investor, you should choose to put your money in not just one kind of market but in many. If for example, you already have a strong stock portfolio, you should take your capital and spread it across other assets such as real estate, commodities and assets.
It’s fairly clear what investors intend to achieve when they diversify. They want to earn more and they can reasonably expect to do so because they have their capital on a lot of different assets. The truth though is that there is a deeper and more convincing reason to opt to diversify. When you decide to invest in many assets, you choose to take a safe stand against profit stagnation and absolute loss. Having a diverse portfolio means you don’t have to entirely go under in case one market crashes or experiences a lull. Your other investments can help prevent your boat from sinking. A market like the foreign exchange can keep you secure because it works independently of the stock market and remains unaffected by stock market problems.
Investment trading that is diverse clearly has its advantages. Take not though that it may not always work well for all traders. In theory, it does seem extremely sensible to maintain several investment options. Many new traders and investors however still end up on the losing end. One reason for this is because they do not have the right level of mastery that can push them on top of every market. Common sense dictates that to make it big in a single market, one must invest considerable learning time in it. That means, you will hardly have enough time and energy to pour into studying other investment types. When you don’t know what you are doing, you are likely to lose a lot.
In the business of trading, it sometimes makes better sense to specialize first. This is to ensure that you don’t lose too much too soon. You can determine where and what you want to trade by researching on the different investment types. Take note though that although your preference matters, it is often advisable to start with assets that are not leveraged. Stocks are examples of such assets so starting off with a stock trading system can be a good choice. Stocks can sometimes have conservative profit potentials but you often lose less with them than with leveraged assets like currencies.
This doesn’t mean that diversification is wholly inadvisable. The benefits of diverse investment profitable trading are real. You can earn more than you can ever imagine with diverse investments. The only point that you have to be extremely clear with is that you should take time to master one market first before you decide to enter another one. It’s always better to have conservative gains that nothing at all.