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Most new traders revel in leverage. They seek out brokers who provide high leverage, deposit a small amount of money and dream of the riches they will make. This is very delusional of course. But the subject of leverage seems to confuse a lot of professional traders and brokers alike.
Does Leverage Magnify Returns as Well as Losses?
It is often said that leverage can increase your potential returns and your potential losses. What is often missed if that this is not a linear relationship. While you can increase your returns with more leverage, it comes a point when this is counter-productive. In other words, past point X, for 1 unit of risk you don’t get a 1 unit of return anymore.
The Gremlins of Volatility
This asymmetric return works in three ways. First, increasing leverage always increases the volatility of your trading returns. These are our first gremlins, the gremlins of volatility. Take a look at our first picture below. This simple table showcases two hypothetical systems A in the first column and system B in the column below it.
System A makes 20 percent one year but loses 10 percent the next. System B on the other hand consistently makes 4.5 percent each year. Obvi…
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killer195175 avatar

good observations.

Beto avatar
Beto 3 Apr.

Very interesting information

ghfran avatar
ghfran 3 Apr.

nice one )

FXRabbit avatar
FXRabbit 5 Apr.

^_^ Gremlins

samymahrous avatar

great article

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What is the Number One Mistake I Did During Last Week Trades Daily analysis summary sheet My daily analysis starts with looking the charts and drawing major support and resistance lines, Fibonacci, few indicators including moving average, stochastic and linear regression. I do like to check the technical that I see with Daily Technical Analyses that publicly given on major websites. I found that just merely looking the technical does not help but working with them and picking them and comparing it with previous and next day technical points and drawing conclusion out of it is crucial. Just same as normal business requires a labor, forex requires same even more. I try to look the majors, GOLD and Indexes and its moves. I do also look the news during Asian, European and North American sessions. Even checking all this still makes mistakes. One of recent mistake, I did was just merely believed the news around EURO, which were reporting that Euro face pressure, Spain problems, UK weak industrial outputs etc. I did not know or consider that all these news were already had been taken account by big institutions and priced and when news came it had only discounting effects. In result, my…
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doctortyby avatar
doctortyby 18 Oct.

You are improving your writing style from the previous articles. I like the fact that you have put charts to better illustrate your ratios. What I strongly believe you could improve is the format of the text because right now it is kind of dificult to read. Maybe split the paragraphs into pieces.Keep writing keep improving

SpecialFX avatar
SpecialFX 26 Oct.

In order for something to be statistically valid, you need to have a high number of samples, hundreds at least. 20 trades is not enough to determine if cutting loses short is good or not, you cannot make any assumption based on so little data :) By the way, the idea of cutting loses short also assumes you are letting your winners run until the end of the trend, which means no fixed take profit orders, use trailing stops instead. Otherwise what you are doing is cutting your loses AND your winners short, so the strategy may not work as it should :)

doctortyby avatar
doctortyby 30 Oct.

I agree with Special Fx. Efficient Backtesting needs at least 300 Entries and signals to be profitable on the long term in different market conditions.

limitless avatar
limitless 31 Oct.

good luck congratulation

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Overview This article will discuss the ways in which emotions influence our trading decisions. We will also consider the mass psychology of FX market participants with a view to utilising their behaviour to improve our trading edge. Man or Machine?Do you want to replace your emotional, impressionable self with an all-encompassing black box to execute your FX trading plan?The vast majority of the most successful traders in the world possess, or have learned to develop, a state of emotional disconnectedness from their trading. The ability to doggedly stick to a plan, even through periods of drawdown, is a testament to their remarkably robotic decision making ability. In a bid to artificially recreate this trait in your trading you may have considered programming, or buying, your own automated algorithm. However, if like me, you find it difficult to calculate support/resistance levels, program recognisable chart patterns, and quantify many other seemingly arbitrary elements with any useful accuracy, you will also begin to realise the sheer number of interlinked factors that must be considered. Discretion, born out of intuition, is often something we exhibit without realising, but it …
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hedonist avatar
hedonist 12 Oct.

@OneGoodTrade: Thank you for your kind comments. In my opinion, psychology should have as equal consideration as technical and fundamental analysis. I don't think any trader can be successful if they have no regard for their emotions.

hedonist avatar
hedonist 12 Oct.

@doctortyby: I have been trying to reply to your comment since Monday, but there has been a glitch on this website. Anyway, thank you for your comment and I'm glad you liked the "psychology behind the candlesticks". With respect to "profitability ratio", it's a bit beyond the scope of this article, so maybe that's something I can address next time. Thanks buddy.

SpecialFX avatar
SpecialFX 13 Oct.

Good article, anyone who mentions Jesse Livermore and Richard Dennis (not Ron Dennis! lol) gets my vote :) I have the books you mention as well. @OneGoodTrade Unfortunately, any articles that have a lot of text to read, or are based on fundamental analysis, or psychology, or have a long term view of the market, or are too techie, get little attention. A few charts with tons of indicators, a few sentences, short time frame, that is what gets views, even if the strategy/prediction is completely flawed. There is little correlation between the quality of the articles and how popular they get :)

hedonist avatar
hedonist 13 Oct.

@SpecialFX: Ron Dennis? The old McLaren team principal, haha! I actually read your article from last month about shorting the YEN. That was really well put together and a good read. Obviously it was good, because it won, lol! I do agree with you about lengthy articles with limited pictures etc receiving low populartity ratings. I should have considered people for whom English isn't their mother tongue. Perhaps I'll make the next one slightly more readable. Oh and Jesse Livermore - Absolute legend. A shame he committed suicide. Maybe there's a lesson to be learnt there somewhere...

bmg avatar
bmg 30 Oct.


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This article is a follow up to the earlier article entitled:
10 Psychological Obstacles to Success
The aim of trading is to trade in a logical, predictable manner with the minimum of emotional conflict. In general, most traders battle with their emotions. Emotions are located in the unconscious part of the mind; to overcome emotions, people need to either use willpower, or to retrain their unconscious mind.
Willpower (or self discipline) sounds like the logical course of action and can be quite successful in the short term. It requires conscious effort though, and this can be draining. Also, if a trader trades because he thinks it is fun, then being disciplined takes away that fun. Using willpower alone is therefore an unsuccessful way of changing a trader’s behaviour.
Changing the unconscious mind so that the emotional drives change is harder but much more successful. It is a bit like changing the operating system on a computer; it is hard going but the computer works so much better afterwards.
The biggest obstacles to successful trading are desperation, the allure of “big money”, impatience, a failure to plan and a belief that the market is conspiring against you.
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RobertBric avatar

My experience with people (I have a certificate in hypnotherapy) in general is that they will NOT seek the help of a psychotherapist (apart from smoking, losing weight and similar) because this kind of implies that something is wrong with them psychologically which is not something anyone wants to admit. So people struggle with their inner world in turmoil which turns their outer world into turmoil. Traders are people therefore we can expect a similar behaviour. Your offer of help is a nice gesture. I am interested in the response of the traders. Good on you.

CASPI avatar
CASPI 16 May

A good analysis. Good luck.

Mosomoso avatar
Mosomoso 17 May

Interesting, really interesting. Do you take clients over the phone? Is it possible to "train" someone in this way to trade successfully?

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Many of beginner traders start to ask themselves either in
their own mind or even searching in google search engine or if they are keen
learning through many forex courses and forex textbooks.
I know this is not an easy task but to tackle and to answer
this, the traders themselves must know about their personality better at first
rather than looking for solutions outside their boundaries.
Most traders are often trapped by the brokers, forex courses,
forex signal service and many others similar profile to have a super duper hype
of easy cash flow in trying their system or services in a demo account.
In a way, it is true that a demo can help traders to
understand more of how the forex market works and how to start trading. But do
not think that trading forex is very easy as it happens to many novice traders.
It is very common that brokers often set a trap for novice
traders by trading on the demo first and become billionaires easily the next
month or the next year. Is this how you train yourself at the beginning? Or the
brokers help in training you by giving an over leverage feature into your
I think you know what I mean by that. Now I will bring you
deeper and you will real…
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Tinktank avatar
Tinktank 22 Jan.

True words.

Tinktank avatar
Tinktank 22 Jan.

..but you could further explain exactly how newbies can attain the right mindset for successful trading. I'll be looking forward to your next article.

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one day we are faced with a choice of investments, where we know it,
that the emotional state we are not good as we expected. Perhaps
this is a frequent cause of why we are always doing strange habits and
sometimes make us to take something that is not rational.Actually, if you include people from the rational part? may be of a question, our own sometimes less understand it, then to be able menjawabannya you can find on the description below.-OO0-Fear of Regret-0O0-Feelings
of fear of a regret is a condition in which a trader's emotional side
of being affected, a trader will realize when he had made a mistake.Example: A trader has to open a Buy position, and fixated on the price at which he did buy. When prices move far down, he unconsciously emotionally involved with the price at the time he did open a Buy position.So, he tries not to cover the trading position. Due to avoid regret trading has made a wrong decision. He was also embarrassed when a loss position known to other people.With such circumstances, actually what we should do ...?You can illustrate these conditions by asking yourself, "Am I going back to buy again in a position of this loss is my cap?"If the answer is…
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skytrader avatar
skytrader 14 Dec.

+1 . one cannot emphasize that often enough! emotions kill oyur trading! its easy to avoid them: use the correct mone ymanagement! thanx for pointing the problematic issue out! emotions kill your trading.

mielec avatar
mielec 20 Dec.

If you add any kind of avatar you will have some more views

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For any new venture to get in, be it a company launching
or forex trading , preparation is a critical factor. People who plunge into
forex trading without sufficient knowledge of the working conditions of the
market too often end up losing money. It is always never late to learn things
which you are supposed to know before putting your hands into it. For the best
approach in forex trading, build your knowledge first and acquaint yourself
with the quality information next. Time spent on learning the basics is never wasted.
Never invest money which you cannot afford to lose. You
should be well aware of the fact that trading
& investments are subject to market conditions and your trading may
well be a source of worry to you in adverse conditions. Identify your risk-profile and then invest. 
As a beginner, do not have unrealistic expectations about
the returns in forex trading. Newcomers often mistake the art of forex trading
to the wagering of money in gambling. This is not a get-rich-quick scheme where
you can turn a millionaire overnight. Just as one enters the trade, he should
be clear about the take profit & stop loss levels.
Try to exercise patience and trade within your limit.
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ritesh avatar
ritesh 10 Dec.

Nice article, a must read I'd say. keep more coming +1

numerouno avatar
numerouno 12 Dec.

informative, educative

doctortyby avatar
doctortyby 18 Dec.

emotions apear especially during the trading session. You may prepare yourself but you need to be disciplined as well +! I have a little discipline problem to stick to my analysis. check it out and tell me your opinion +!

ritesh avatar
ritesh 22 Dec.

Wishing you a very happy and prosperous New Year. +1

AdrianWS avatar
AdrianWS 26 Dec.

your emotions as a trader can take a battering with a loss, to be successful you must push through it +1 and happy xmas

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Most people who starting to engage into forex trading will start their practical journey with a demo/dummy account. There are many ways to success in forex, from reading a lot of forex trading book, learning fundamental and technical skills, discussing certain topics in forums, using custom indicators, and off course many other skills that I have not included above. This time I will cover a slightly different side of unsuccessful of forex trading. Do you ever realise why you can make a big profit in demo account but blown up your live account within month or week or even day or worst in a hour? Simple because you are not yet ready for a real live trading eventhough you might think it is a good time to go live. Newbie/beginner traders often do not realise that demo and live account has a very big difference in terms of emotions of greed & fear, anger, self pity and many other psychology related. A wise trader often once says that there is only a thin of paper barrier divided between a good trader and a bad trader which called emotions. We are human and it is normal to have a desire of winning every trades and getting a big positive number in trading forex but is there a holy gra…
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doctortyby avatar
doctortyby 23 Sep.

I say... nerver let your emotions quide You before or after you take a trade... +1 and trade well. Do you think the trading psychology is the key?

Livornese avatar
Livornese 24 Sep.

Excellent article! Study Study Study and Study before going live!

ritesh avatar
ritesh 27 Sep.

Nice article buddy +1

foewenpo avatar
foewenpo 14 Nov.

@doctortyby - Psychology is not just a key to success but a mandatory to have who want to get success. :)

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      FOREIGN EXCHANGE and the other FINANCIAL MARKETS (precious metals, commodities, bonds, stocks, options) may be the ONLY WAY to get FINNANCIAL INDEPENDENCE and FREEDOM in today's ECONOMY... (Financial Freedom means to be able to sustain your living and comfort financial and survival needs, for you and your family - from your current savings, for the rest of your life even if you don't obtain other income from that time on. Ex: if you have 500.000$ in your savings, and your monthly needs expenses are 1000$ , you have insured 500 months, or about 41 years an a half for your current living, if your savings gain at least the yearly inflation to protect them, even if you don't obtain any other income for the rest of your life)      Next to Real Estate Market (which has a long time to even start recovering) and Businesses (which are harder and harder to manage because of the law environement and the lack of support from governements for small and medium companies), the FINANCIAL DERRIVATIVES are the best way to keep track with the growing inflation of the world currencies...      However I strongly believe there is no such thing as FREE MARKETS (With the PRICE formed freely from the…
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Eclipse avatar
Eclipse 20 Sep.

Nice article +1

hedgefund101 avatar

Some good pointers here. +1

doctortyby avatar
doctortyby 27 Sep.

Guys, once you realise You sell your TIME for Money, you will know that you are not free... Preapare yourself for the type of Trading that gives You freedom, not for that Time consuming Trading that Consumes all your TIME (Full Time Trading)

SpacyTrader avatar

Good insights, but if you're not able to place your order at market when you want to that means your broker is crap not that its a general problem :)

Sharpshooter avatar


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