| Most
beginning traders believe that a good entry into the
market is the key to success. Unfortunately most are
very wrong. Money Management is by far the most important
criteria of trading, whether it’s stocks, futures
or FOREX. Every successful trader will agree that managing
your trades correctly is the #1 key to consistent profits.
Losing
a trade or several trades in a row is just part of trading,
period! PremiereTrade® AI is a very accurate entry and exit
method that enables traders to trade on the side of
probabilities most every time when traded correctly.
Unfortunately, markets move in unpredictable ways at
times and even the best programs are not always right.
In fact, most professional money managers trade with
systems that are right only 50% of the time. Now, I
can hear most of you saying to yourselves, “how
can they make the huge returns they claim if they are
only profitable 50% of the time”? It’s really
very simple, Money Management! You see if you’re
able to effectively manage your money you only need
to be right about 50% of the time. The unfortunate thing
about 90% of today’s traders is that their primary
focus tends to always be on making money and not protecting
what they currently have. You see, you have a 50 / 50
chance of the market going your way by just flipping
a coin. But let’s say you flip a coin and Heads
you BUY and Tails you SELL. Once you have made your
entry into the market you need to protect your position
in the event your flip of the coin goes against you.
Let’s assume for each $1000 we use to control
a position that we are only willing to loose $200.00.
Now we’ll also assume that for every trade you
enter you expect to make at least twice what you’re
willing to loose. In the event your position goes your
way, you would set a limit order for $400.00 and we’ll
assume you have made a total of 10 trades, 5 winners
and 5 losers. |
Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particularly trading program.
One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk. Variables such as the ability to adhere to a particular trading program in spite of trading losses as well as maintaining adequate liquidity are material points which can adversely affect actual real trading results.
Can you start to see what we are talking about? Sure you can, but most people have a real emotional tie to their money. It’s important to follow the rules associated with managing your trades. Setting
a Stop Loss to protect your account is the first primary
rule to staying in the trading game. Each time you enter
into a trade have your Stop Loss point already set in
your head and immediately set it on your trading screen.
The
7 Golden Rules of PremiereTrade® AI Money Management.
1. NEVER, EVER, EVER TRADE WITHOUT
A STOP LOSS.
2. Always trade with a Risk Reward
Ratio of 1 1/2 to 1 or better on every trade.
3. Never over leverage your account.
4. Make realistic goals that can be
achieved within reason.
5. Accept your losses, move onto the
next trade, and trust the software.
6. Protect your profits when your position
is profitable.
7. Always trade with money you can
afford to loose.
Money
management RULE #1 is
to NEVER, EVER, EVER TRADE WITHOUT A STOP LOSS.
Using a Stop Loss is only part of what your Money Management
Strategy should be, but it is also a very important
part. A Stop Loss is a form of insurance that you’ll
be able to continue to play the game in the event you’re
wrong. It’s insurance for the trader.
Money
Management Rule #2, always trade with a Risk Reward
Ratio of 1 1/2 to 1 or better on every trade.
Now placing a stop loss is of course very important
but placing a proper stop loss is very important too.
By this I mean, always be aware of what your Risk Reward
Ratio is. If you want to make $400.00 but are only willing
to risk $200.00, then your risk reward ratio is 2 to
1. Let’s say you want to be even more conservative
and trade only a 1 1/2 to 1 Risk Reward Ratio. Now on
the example above you would have only netted $500.00
but you still netted $500.00! On a $10,000 account that
is 5% of your balance. 10 trades in FOREX could simply
be 1 trade per day Monday through Friday for 2 weeks.
If you completed this for 4 weeks then you’re
looking at 10% on your money in 4 week (or 1 month).
Now I’ve been around for a long time and I’ve
never seen a Bank pay me 10% on my money for 4 weeks!
Now at 2 to 1 RRR we would be looking at 20% in 1 month
without compounding.
Money
Management Rule #3, never over leverage your account.
Leverage*is another key to making money in the FOREX.
No other market in the world allows the leverage that
this incredible market offers. 100 to 1 leverage is
the normal fee that most Brokerages allow investors
to trade with. An example, for each $1,000 that you
put up allows you to control $100,000 worth of currency!
Think about that for a moment, it’s really incredible!
That's like them lending you $99,000 dollars. This huge
leverage is what allows us to make the kind of returns
that the FOREX allows. But, it also enables us to lose
some or all of our money if we trade foolishly. Leverage
is a wonderful money making tool but when abused it
can lead to financial destruction as well. Think about
consumer credit cards for example. The bank lets you
borrow large sums of money on your word that you’ll
pay it back, but when credit is abused, it can lead
to bankruptcy for many. So just like managing your credit
debt you need to manage your trading leverage. Most
people would not go out and rack up huge debt that they
knew they could not pay because it would not be responsible,
right? Well, when trading the FOREX if you started with
a $10,000 account should you start by trading 10 lots?
No, that would be foolish. A very conservative yet very
effective method of trading is to never leverage more
than 10% of your account on any 1 trade. So, with $10,000
you realistically should only trade 1 Lot. With the
example we showed above, you could quickly grow your
account to a very large amount in a relatively short
amount of time. The compounding factor of money is a
very powerful thing yet due to most people's desire
to get rich quick and take unnecessary risks, they tend
to focus more on the dollar signs than on proper trading
principles. If you want to be more prudent about risk management, you can follow a few simple but effective Money Management rules. A good rule of thumb is to keep your leverage at 10% or less. More aggressive traders will trade with as high as 20% but be sure you have the money to play. If you’re starting with a mini account, start by trading only 1 position of a 10th of a lot. You are not able to make a huge amount of money, as the position sizes are only 1/10th of a normal account but the percentage of returns will quickly allow you to start trading larger sums of money.
*Leverage Disclosure:
Without proper risk management, a high degree of leverage can lead to large losses as well as gains.
Money
Management Rule #4, make realistic goals that can be
achieved within reason.
Emotions and money do not mix. Simply treat each trade
as a business transaction and don’t get emotionally
attached to a trade. Take your losses and move on. Learning
how to lose is probably more important than winning.
Why, because a new trader will typically take their
first loss and wonder what they did wrong, and then
sit on the side-lines and let all the profitable trades
go by. Discipline is another key factor in trading that
tends to be a learned trait that takes a bit of time
to get used too. So, accept your losses and move on.
Trust the software, as it’s usually right. It
can make many more calculations and summations much
faster and more accurately that you can.
Money
Management Rule #5, accept your losses, move onto the
next trade, and trust the software.
Making realistic goals is another key factor to trading
success. Don’t expect to make a living trading
right from the start. There is a learning process that
every trader goes through to become successful. Not
only learning to enter and exit trades correctly, but
also the process of controlling one's emotions. Many
traders make ridiculous monetary goals when they first
start trading. Make a simple goal to get started such
as making 10% a month or more on your account. Now that’s
realistic. Many traders do far better than this but
if you make a plan and stick to it your rewards will
typically surprise you.
Money
Management Rule #6, protect your profits when your position
is profitable.
Protecting your profits is another factor that helps
to insure consistent profits. If you’re a longer-term
trader such as a Swing Trader or Position Trader, it
is important to protect your profits by using a trailing
stop loss. An example; lets say your taking a long position
(Buying) in the USD/JPY and your looking for a larger
return than $400.00. Now let’s say your goal is
$800.00 rather than $400.00 and you’re currently
sitting at a $500.00 profit. Most professional traders
would take this opportunity to trail their Stop Loss
to at least an even position, or better yet, to lock
in a portion of these profits so that you now have no
chance of taking a loss. But remember your goal was
$800.00 or a loss of lets say $400, a 2 to 1 RRR. Now
lets assume that the market for whatever reason starts
making a large move against your position, well if you
would have protected at least a portion of the trade
or moved your stop to Break Even position, then you
would have avoided at least 1 loss that you where not
willing to risk in the first place. More advanced methods
of Stop Loss Trailing will be covered in your continued
training.
Money
Management Rule #7, always trade with money you can
afford to lose.
Trading with money you cannot afford to lose is a very
foolish thing to do, yet it is common among the beginning
traders. When trading, be sure to trade only with money
that will not affect your lifestyle. You're trying to
improve your lifestyle, not hamper it. When a trader
trades with money that they can afford to lose they
tend to be more focused and more disciplined. They are
not worried about any single loss. Simply, they are
looking forward to the overall return. Don’t borrow
money to trade on. Don’t use your life savings.
And, don’t use the money that you would typically
use to pay your monthly bills. This is just a road to
disaster. These types of traders have the same mentality
that gamblers have. Remember this, Traders are not Gamblers.
If you must compare trading to gambling then we could
only be compared to the casino owners, because as disciplined
traders trade with probabilities on our side. In the
end, we, like the casino owners, come out way ahead.
The
hypothetical examples made above are in no way, meant
to imply, assume or guarantee that any client of PremiereTrade® AI will attain or even profit in the FOREX Market.
These are hypothetical examples only.
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