Articles

Most people who are interested in learning how to become profitable traders need only spend a few minutes online before reading such phrases as "plan your trade; trade your plan" and "keep your losses to a minimum." For new traders, these tidbits of information can seem more like a distraction than any actionable advice. New traders often just want to know how to set up their charts so they can hurry up and make money. To be successful in trading, one needs to understand the importance of and adhere to a set of tried-and-true rules that have guided all types of traders, with a variety of trading account sizes. Each rule alone is important, but when they work together the effects are strong. Trading with these rules can greatly...

Risk tolerance is a topic that is often discussed, but rarely defined. It is not unusual to read a trade recommendation discussing alternatives or options based on different risk tolerances. But how does an individual investor determine his or her risk tolerance? How can understanding this concept help investors in diversifying their portfolios? Read on as we delve into this concept. Risk Tolerance by Time frame An often seen cliché is that of what we'll refer to as "age-based" risk tolerance. It is conventional wisdom that a younger investor has a long-term time horizon in terms of the need for investments and can take more risk. Following this logic, an older individual has a short investment horizon, especially once that individual...

Traders spend most of their time researching setups for trade entry, using fundamental analysis, chart patterns, signals from technical indicators, or some combination of these. Yes, no doubt about it, finding entries is vitally important, because the entry is the foundation upon which a trade is built. However, if finding good entries is the most difficult thing, finding good exits is the most emotionally challenging part of the trading process! Winning or losing, deciding on the exact time to close your trade can drive you nuts. Common exits occur when traders get stopped out at a stop loss level, close the trade into high volume spikes, or attain predefined targets. All trades should have a stop loss in place. Some traders hold a...

Paper trading is widely discussed regarding its merits, and whether it is of value to a trader as they try to make the transition to real money trader. One viewpoint is that since paper trading is not real, the profits are meaningless, and are no indication of real money profitability. An opposite viewpoint would state that paper trading is an important step in the trader's learning progression, and regardless of whether it is real, if the trader cannot "properly" paper trade, then they will not be able to real money trade. I began trading in early 1995, with the intentions of becoming an options trader; my first trading education was through an oex options teaching service. Besides options training, the service included "tape"...

Why do people trade? For most, their primary motivation is to make money. Sure, there are secondary reasons however they all stem from the undeniable urge to make money. Ironically, this would have to be the main reason why people fail. With most of our trading decisions, it is only natural that we focus on making money because this is the main reason we consider trading in the first place. Whilst I concede the idea of making money is important, it is not as important as protecting the money that you have to trade with. I think Paul Tudor Jones says it best when he said, "Don't focus on making money, focus on protecting what you have." Stephen Waugh is a former Australian cricketer and was the captain of the Australian Test...

Introduction The importance of well-placed stop orders to a FOREX trader cannot be over emphasized. The margin percentage required in a typical FOREX account is so small that a fully leveraged trader could easily lose a substantial amount of their net worth from a single position if it moves too far in the wrong direction. The name of the game is risk control and the key tool for protecting your account from substantial losses is the stop order. That being said however, I do know some traders who claim never to place stops. Usually the rationale for this is that their trades are very short term (on the order of just a few minutes) and they are watching the market during the entire trade, finger twitching on the exit trigger ready to...

Risk management isn't just about having your 'stop-loss' in place. So what else is it about? Any trader who knows his salt will tell you that Risk Management is the single most important aspect in trading, regardless of style or technical strategy. Yet, most traders are really not able to define what "Risk Management" really is. Let's pause for a moment, and think: can we define, in one brief sentence, what Risk Management is? "Loss control" would probably be the best broad definition, but to me this is a little more precise: In the business of trading the financial markets, Risk Management is the constant modulation of Risk Exposure to a constantly changing market. What is this exactly? Most participants will relegate their entire...

The rules that should be 'Utterley Simple Rules of Trading' but which we all seems to find 'Utterley Difficult!' The world of investing/treading, even at the very highest levels, where we are supposed to believe that wisdom prevails and profits abound, is littered with the wreckage of wealth that has hit the various myriad rocks that exist just beneath the tranquil surface of the global economy. It matters not what level of supposed wisdom, or education, that the money managers or individuals in question have. We can make a list of wondrously large financial failures that have come to flounder upon these rocks for the very same reasons. Let us, for a bit, have a moment of collective silence for Long Term Capital Management; for...

In order to succeed as a professional trader, it is often said that the aspirant must treat trading "like a business". As with many of the clichéd phrases that litter the metaphorical trading floor, the importance of this statement is often overlooked, or the meaning misunderstood. The following article by Tim Wilcox aims to address these problems by examining some of the ways in which a trader might go about achieving this vital goal. It is divided into two sections: a general overview of what constitutes a trading plan and why it is prudent to have one, followed by a detailed analysis of the various aspects that should be considered during its creation, for example, the importance of self-awareness, discipline and risk management...

The Basics of Trading I've had a long running thread on the T2W boards giving an introduction to the central themes of trading. This series of articles has been adapted from that thread and will take you through all the areas you need to get a start in trading, from chart reading to defining a strategy. In Part 1 I will look at: Basic chart reading Money management Exiting a losing trade Setting a price target Part 2 will then consider: The importance of discipline Paper trading The trading plan And finally, in Part 3, I will bring it all together by taking you through a simple trading strategy. Basic Chart Reading Ok let's start with the basics of chart reading and deal with Support, Resistance and Trendlines. This...