this article series will provide you with crucial and elementar rules which you definetly need to comprehend and follow if you want to have a chance to trade real money successfully. my articles can also help you realising the dream of earning your living with one of the most exciting professions of the world: trading. following my basic instructions will of course also help you competing much better in the trader contest.
i will describe in detail how you can learn to make continuous profits and what is even more important, how you keep these profits in your account and grow them. this article series is a must-read, if you are seriously planning to trade real money!
learn from the score board leader and several times winner of the DUKASCOPY trader contest:
by reading and comprehending my article series you can profit from my knowledge and long time experience in real money trading. i started trading 13 years ago. later i added commodities and indices and since three years i mainly trade forex, because the forex market provides high liquidity and permanent movement - essential for a more or less predictable and therefore succesful daytrading.
every trader dreams of making real money with his trading. the bad news are that only a few manage to do this very succesfully. but there are also some good news: defeating your only enemy while trading is totally under your own control, because your only enemy is yourself!
YOU ARE THE PROBLEM, NOT THE MARKET...
...only you can also be the solution... all is in your own hands!
when you lose money, dont blame it on the market or the strategy or the analysis or any surprising market shaking news... the only permanent and most significant difficulty you WILL face while trading is yourself!
if you want to belong to the global elite of succesful traders, you must follow some simple basic rules. you dont have to be a rocket scientist or have an extraterrestrial IQ to succed in trading. you can learn all that is needed to be succesful!
but, the best schooling, analysis methods, trading strategies or systems are worth plain nothing, if the trader does not stick to some important elementar rules and shows these characteristics:
DISCIPLINE, PATIENCE AND RATIONAL THINKING
my first article series will describe the necessary basic mindset and know-how needed for continuous success at the markets. i will add up one article segment per week.
1. account protection, risk- and money management
2. winning probabilities and stop loss and take profit calculation
3. trading plan
4. emotional status and physical constitution
i hope you will enjoy the different segments of this series and manage to develop your own individual conclusions that can help you to become a succesful trader, not only in this contest but also in the world of real money trading! let us start with the most important success factor of all!
ACCOUNT PROTECTION BY USING RISK- AND MONEY MANAGEMENT!
if you search the internet for strategies and succesful trading systems, you will find a lot of NONSENSE that people try to tell or sell you. these people mainly are salesmen or marketeers. most of them are not capable of making money with trading. they dont make money with trading but by selling you the idea, that they are succesful with their trading method! in all of these 99$ to several-thousand-dollar-magic-succes-formulas these pseudo-gurus want you to buy, you will always read about performance.
a rational, experienced and professional trader knows that the performance is by far not the most important parameter to look at! much more important is the way you protect your account and the most precious ressource you have:
your money or the money of your investors, YOUR BANKROLL!
account protection is the most crucial success factor for continuous trading success. if you are not able to comprehend this, you better never ever start trading with real money, because you will just blow it away.
every single dollar you lose, is at least twice as hard to win back again! mathematical models show this in a very efficient and impressive way. i know that beginners usually like much more to look at huge performance growth graphs, but that is not the reality. in realitiy you have to manage losses and therefore it makes a lot of sense to look at a table that shows the effects of different degrees of risk!
have a close look at the table i have created for you to show you effectively how a much too high risk-per-trade-ratio can destroy your account after a series of just a few losing trades! this table also shows very obvioulsy that with the right risk management you can persist for a long time at the forex market and still have the capital that is needed to invest and profit when your big winning-trade-series comes across!
when your maximum risk per trade is only 1% of your balance even after a series of 20 losing trades you will still have 82% of your initial balance! in the case that you risk 10% per trade, which is much too high, you can effectively lose 50% of your account just after 6 losing trades!
the more money you lose, the more it gets impossible to win it back. usually most of the traders who act too aggressively or without an adequate risk- or money management tend to even increase their risk in case of losses, which usually helps effectively speeding up the process of total loss and in most cases leads to total destruction and the total blowing of the account!
when you lose 50% of your account, you need to add 100% profit to win the money back!!!
if you lose 80% of your balance, you will need 400% profit to restore your balance!!!
this is almost impossible with a reasonable risk- and money management, unless you are able to massively influence your luck on your behalf (impossible!) while you increase significantly your risk! if you dont increase your risk and stick to a relational risk-management it will take a much longer time to regain the balance than it took to lose it, because your positions will get smaller with an acocunt that has only 50% of the initial money left!
if you dont use a relational risk-/money management you are doomed to fail anyway, because with every loss and increasing of the next position the margin call will soon pop up and say hello.
you should always regard your risk per trade in relation to your account size or balance! knowing this makes it pretty clear, that staying in the trading game, being ready to win big time when you get the chance to is only possible when you manage to protect your account and your bankroll! there are always new chances to win at the forex market, but you need your balance to do so and to also have a buffer to compensate losing streaks!
THE MOST IMPORTANT BASIC RULE IN REAL MONEY TRADING IS TO AVOID LOSSES !
nevertheless it is impossbile to avoid losing trades totally! therefore it is absolutely important, that you keep that under control and lose only a fixed pre-defined portion of your account! you should define the risk category in which you want to act! for beginners in real money trading i STRICTLY recommend to only risk 1% of the balance per trade. this means, that the total loss, if your stop loss gets triggered, should not exceed that 1% of your balance. if you have an account of 10.000$, your maximum loss per trade should not exceed 100$.
experienced traders who know their strategies and the markets well can raise the maximum loss per trade to 2% or even 3% of their balance. these numbers may sound way to defensive, but believe me, they make sense. if you try it the other way with 5% or 10% i guarantee you, that the margin call will become your best friend.
if you dont have the patience to build up your bankroll with continuous, well calculated risk- and money management you will fail massively.
the definition of the maximum risk/loss per trade is the most important thing a trader must be aware of and it has to occur before all other calculations! this absolute value of the maximum loss per trade must be defined independantly of the trading strategy or the "size" of your SL or TP!
after you know how much you can afford to lose, your next step will be to calculate the adequate stop loss and take profit targets depending on the sort of trade you are planning to trade: momentum, swing, position or scalping.
in SEGMENT 2 of this article series we will have a closer look to the next step of planning a trade:
the aspects of how to correctly calculate stop loss and take profit targets.