Trader interesting ► Capital мanagement
Survival in the Forex market
Many novice traders question arises: how to survive in the forex market and limit your losses to a minimum? The basic rule - to respond quickly to rapidly changing situation, information of political and economic nature, using fundamental and technical analysis.
Basic principles of trade:
• risk management;
• matching your personality trade practices;
• adequate size of the trading account.
Investing - has always been a risky business. In order not to burn and
to make a profit, you need to learn how to manage money. To establish control
at risk, you need to create an optimal balance of risks when investing.
Basic errors traders:
• the ability to trade consistently with 80% accuracy.
• the myth that you can turn $ 1,000 into $ 100,000 in six months.
• the ability to predict turning points in a given market until minutes.
• the idea that there is a system that is 100% accurate.
• a widespread belief that in a few months will be able to Forex generate revenue, which will be able to fully meet the trader.
To understand how to properly operate, you can see a small example. Assume that the business system signals that the market have a favorable situation to open a position. You assess the situation and see that the ratio of profit / loss is also quite good.
However, there is a possibility that the order is triggered false. This means that the signal and your actions followed it may lead to significant losses, even considering the fact that you did everything right and tried to follow the rules of money management.
Input and output in the Forex market
Many traders who start work at Forekc, looking for the perfect entry Strategies, nadeyac that ecli they will find it, then izbavyatcya of problems. But the time to get out of trading can be much more important.
In support of this provodilic ekcperimenty when the Participating States to enter the market at the same time, and they went on cvoemu ucmotreniyu getting menyayuschiecya value prices.
We spent about Tenth rounds of the game, and the results were FOLLOWING. Neckolko okazalic traders in a large loss, some get more profits, but of Major massif okazalac poceredine. C carried out what purpose this game? To show how effective might be for timely exit.
This is true not only in the game, but in real life. The correct output can procto do chudeca, while none of even the best camaya Strategy of capital management is not at a loss of profit prinecet THE SYSTEM.
Attempts to test the inputs showed that actually goes camom tectirovanie outputs. Changing inputs can only in a small way to change the results SYSTEMj.
With a good input can only trigger direction Type in the desired direction. How to check as closely are logged correctly? To do this, you must analyze what was the percentage of profitable cdelok-out after a certain record high-bars. The higher it is, the better was the entrance. Is it possible to measure effektivnoct exit, whether to determine which output is better?
To determine this, take the data on successful record high-Type and bars from entry to exit. Then go to the entry point and otcchitayte from her bars twice a duration of Transaction.
For example, Type ecli dlilac 10 bars, then otcchitayte 20. Pocle this poctaraytec visually find the best possible way within the period. Choose the Most good and try vychiclit total gross profits at this output. A effektivnoct exit then can raccchitat The case of dividing the real return on teoreticheckuyu. This indicator ckazhet, How much profit you received from makcimalno possible in this transaction. Increase the holding period is twice worth to to find better teoreticheckuyu exit point. This fugacity c by the fact that many traders cherecchur early exit from the lucrative cdelok. And increasing the holding period, you can really assess whether it had a venue in realnocti.
Limit orders is better to use instead of the market, as they give a chance for a better performance and less slippage than the market. Usually the price makes small random variations. The idea of using limit orders is to place an order (to buy) at the lower edge of these movements instead of placing a market order. A limit order will not move the market if it is small, and will almost always move it less than the market, if the order is large. To determine the best price for a limit order it is necessary to work a certain time on the market.
Let's say you bet on the strengthening of the Euro and want to capitalize on this. This can be used as a direct or indirect quote, and the cross-rate. The difference is that the currency pair of cross-rate is not the US dollar is used, for example, EUR / GBP, EUR / CHF. Direct quote is an expression of the amount of domestic currency per unit of foreign currency. Since the dollar is the world reserve currency will be called the direct quotation, where it is in the first place: USD / JPY, USD / CAD, reverse - where the second: EUR / USD, GBP / USD.
Let's say you chose the pair EUR / USD, as the most popular among traders, that is based on the strengthening of the single European currency pair make a purchase (buy). Put on the euro - then take a long position (long). Put on depreciation - a short position (short).
To open a position, you can through the trading terminal to make a request to the broker market, ie buy on the market. The broker (a company through which you can make buying and selling on the Forex) sends a response in the form of Bid: 1.5900 / Ask:
1.5902. Where Bid (bid) - the price at which the broker buys you a couple, and Ask (ASK) - the selling price of Euro broker for US dollars. The difference between purchase and sale price - a spread (spread). Low spread is favorable for the trader, as it increases its profits at the expense of more profitable buying and selling rates. In this case, the spread is 2 points, where the point - the minimum change in the price quotation.
Most brokers provide their clients the possibility of exhibiting limit orders. It called the Limit Order to buy or sell at a predetermined price. There are several types of orders: Limit orders to buy or sell and stop orders. Limit orders allow you to open a position when the market reaches a certain price, which can be both above and below the market. Very often, limit orders are used to make a deal on more favorable terms (to buy at a lower price, or to sell at a higher), when there is no ability or desire to keep a track of quotes. For example, if the market price of the purchase of 1.5902, a pending order can be set at a lower price 1.5880. Stop orders are used to close an existing position, allowing to take profits (take-profit), or to limit losses (stop-loss). It is possible to use both of these orders simultaneously. In our example, once when opening on the EUR / USD, take-profit, you can specify at 1.6000 and stop-loss at 1.5850.
Now touch on the question of how trade can be carried out volumes. Due to the fact that the daily change rate of the most liquid currency pairs are often no more than one percent, the broker can provide its clients with leverage, ie demand transaction amount of the partial payment. Leverage - is the ratio between the collateral and the loan provided by him (borrowed capital). Thus, the leverage of 1: 100 (one in a hundred) allows the customer to carry out transactions in the amount of 100 times the collateral requirements. This margin trading -perfect trading with borrowed funds secured by a certain amount (margin). A feature of margin trading is the obligation to perform the opposite operation (close the position) after a while. That is, the client will not be able to cash out the money given to him by a broker, but the difference between buying and selling fixed on the account in its entirety, taking into account the provided shoulder.
Thus, having a score of 1 000 dollars, you can make deals with lots of up to 100 000 dollars. The standard amount of currency, which committed the sales transaction (1 lot), at a Forex broker is 100 000. However, some companies allow you to trade in smaller units - 0.1 lot. This is a mini exhibition.
The size of the collateral needed to open a position, called the initial margin (initial margin). These funds blocked in the account to maintain an open position, and already can not be used to carry out other transactions. If the course does not go your way, and began to appear losses, the broker will not take your losses themselves, and when their value exceeds a certain threshold (the minimum today of 1% -5% of the level of initial margin), he is forced to close the position . Forced closing unprofitable broker position is called margin call (margin call).
Swap (swap) - If the position is open more than one day, a certain amount will be credited or debited depending on the difference between the basic interest rates of these currencies. swap is calculated at midnight and can take several minutes, but trading activity during these hours is minimal. It is believed that all the transactions with currency pairs occur in the spot market (spot), where the actual delivery takes place on the 3rd day after conclusion of the contract. Moving the date of delivery is caused by the need to pay for the transfer of the swap value date for another night, and the fact that on the night from Wednesday to Thursday swap increases the value of three times, and for the transfer from Friday to Monday charges made in a single size.
In the case of the EUR / USD pair at current interest rates, the long position will add 0.2 points per day, or $ 2, a short position will reduce your profit margin by 0.49 points, or 4.9 dollars for each such transfer. The game with a negative expectation "In games with negative expectation have no money management scheme that will make you a winner" - Ralph Winz said.
The differences between playing at the casino and the game on the exchange material. At the stock exchange more participants, there are no restrictions on trading operations with a variety of exchange-traded instruments. Some people are lucky and others succeed gradually, using the expectation of profit / loss.
The expectation can be calculated as the sum of all the possible outcomes and the probabilities of these outcomes.
MO = Pw • Sw - Pl • Sl
Alternatively this formula can be represented as follows:
Mx = x_1 • p_1 + x_2 • p_2 + ... + x_n • p_n, where
MO - expectation;
Pw - the probability of making a profit;
Sw - the average amount of income from a profitable trade;
Pl - the possibility of losses;
Sl - the average amount of losses from losing trades.
For example, a few people are doing the same rate for all positions at the same event. As a result, after a certain period of time they stay at your money, and those who will play in the casino, or will benefit, or will come to ruin. This means that the expectation of winning in this case is negative.
There are a number of games that have a positive expectation of winning. Thus, it is possible to beat the system, adhering to a strict plan (only the system can beat the system).
Before you start playing on the stock exchange, it is necessary to understand the rules and to find the benefits that can ensure victory. This means that you need to understand whether the game exchange game with a positive expectation or not.
Limit yourself to a few rules, and then you will be able to achieve the desired result. Prudent capital management - the key to success.
On the market come people with different levels of education, understanding the specifics of the foreign exchange market and the stock exchange. Someone is trying to establish itself, someone in the market is planning to build their own business. However, not all take into account the fact that it is quite complex industry that requires specific knowledge and skills to apply mathematical findings into practice.
However, very few people use this approach. However, those few who use it just about understand the essence of these methods. For example, many people know that the use of exponential moving averages is more preferable than the simple moving averages. But why everything is just so no one thinks.
The bottom line is that the exponential moving averages much higher quality reflect the behavior of the market. However, if you ask the participants of the market, why it happens, few people will be able to answer.
Understand whether it is worth risking one position, you can use a simple example.
Suppose that you limit your probable loss of 10% of the invested funds,
which is in this case, 10 thousand. For example, you decide to take a chance on each conversion operation 1 ths., which is 1% of the total capital.
From this it follows that you will get out of the game, having made 10 consecutive "negative" transactions.
Making some simple math, you can calculate the breakeven point speculation. For example, the transaction may be considered "profitable" only if the income is greater than the possible loss of 3 times in a single investment.
That is, the break-even point will be the minimum prediction coefficient at which there will be a final loss after a fairly long period (eg as a result of 100 sales transactions). It turns out that the desired ratio is 0.25.
If you want this model to work in practice, it is necessary to replace the profit-loss ratio of 3 to 1 (3 + delta) / 1 where the delta depends on the internal structure of the system.
This simple example shows that there is no need to predict market behavior with a high degree of probability. Simply strictly follow your trading system and to understand what is meant by the prediction coefficient.
Another common mistake is to view that you can constantly increase investment volumes. Before you decide to take this step, it is necessary to determine the size of possible acceptable loss. This means that you should not rely on emotions, you just need to work on a pre-compiled schema.
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