Money Management – Protecting Your Fund at the Very Start

Thing that sit comfortably in the first list amongst the most significant errands of money management (MM) is the use of the available fund in a targeted and planned manner. This prevents traders from using their money because of emotions, which in many leads to losses. For this, traders without MM often forget the formation of reserves , which are of great importance in certain situations. If trading is just out of the feeling, Forex are more likely to be a game of chance, which they are not.

Scatter capital and use it purposefully
One of the biggest mistakes in Forex is putting all the money on an option (capital protection). MM plans to distribute bets across multiple options. If possible, this should have different terms and different underlying types. Furthermore, only a certain proportion of the existing capital should be put on a single option. Experts advise beginners to invest a maximum of between 5 and 10 percent of the credit in the purchase of an option. Even with several lossy trades there is still enough money left to trade.

Stay realistic and do not act out of boredom
To have a good MM, it also needs to be realistic. Although returns of up to 500 percent can be achieved with a single option, the rule is not. So it is much more promising to trade with smaller amounts and thus to achieve continuous profits. With this strategy, potential losses are not so high.

If there are no trends over a period of time, traders sometimes become impatient and speculate on some underlying asset. However, this only rarely succeeds. The same applies to acting out of boredom. After all, this is about the use of real money, so play, fun and excitement should not be in the foreground. In any case, the MMstrategy is one of the most important stock market strategies , which you can do for your success with a simple formula that aims to minimize the risk.

Always follow your own strategy and comply with rules
The basis for successful trading with Forex is the right strategy. This should be carefully selected and strictly adhered to. If uncertainty exists as to how well an order fits the chosen strategy, it is better to wait. As soon as there is a risk that a rule will be broken, it is advisable to take a break. Then it can then enter the market with a clearer head again.

There are many strategies when trading stocks, which can be taken into account and used. At the same time, however, it is important to ensure that your own budget is not overburdened so that you can continue to act actively. While most experienced traders are already experienced with money management, beginners who tackle a trading platform are often overwhelmed. They do not know exactly how they should proceed and what special features they have to observe. For this reason, not only are technical indicators to be considered, but at the same time, MM is an important factor to analyze in order to keep a budget permanently stable. MM has some basic rules to keep in mind. In addition, analysis methods must be combined with the MM in order to be able to benefit from the best results.

Basic 7 Tips for Dummies in Trading Currency and Cryptocurrency

Since and then, brokers have been offering us access to the foreign exchange by their trading platforms. It could be a specific platform of them or a more common platform like metatrader. They allow retail investors to trade currencies. Later, some online brokers also offer crypto-currency trading as well. Here, you will discover seven tips to successfully trade real and virtual currencies.

  1. TRAIN YOURSELF AND FIND OUT
    Be aware that trading currencies and crypto-currency requires some solid knowledge not only in financial and economic culture, but also many techniques related to trading. That consists of technical analysis and its mathematical indicators, graphical analysis and different figures and in some case the difference between the booking order and market orders.
  2. DO NOT GO AGAINST THE TREND AS IT IS YOUR FRIEND
    This means that in a bullish market you should buy while in a bearish market you need to sell rebounds.
    It is unconscious in terms of currency trading to think that the market is wrong. You need to avoid this.
    For encrypted currencies, if you expect to anticipate a trend before the introduction of an encrypted currency, you can participate in its ICO or Initial Coin Offering that will allow you to invest at a preferential price in cryptocurrency—in which you believe before its launch.
  3. LET THE PROFITS RUN AND CUT THE LOSSES QUICKLY
    If you are advised not to take your winnings too quickly on a winning trade, do not delay too much. It’s the best way to lose everything! Use target profit (TP) orders and for limiting losses, use stop orders. Better, use trailing stop orders to protect your profits or reduce a potential loss.
  4. OBEY STRICT RULES OF MONEY MANAGEMENT
    It is essential to set goals for profit and loss. And to respect them!
    Keep some distance from your trading and especially your earnings. Do not think that you are gifted because the market is always right.
  5. ALWAYS KEEP A FOOT IN THE REAL
    Although testing your strategy with a virtual account is recommended, do not consider that your performance on this account will necessarily be representative of your performance with a real account.
    Do not lose the meaning of the value of your money either. Do not take the game at the expense of your private or professional life. Do not spend 12 hours staring at your screen to follow the courses by chaining orders.
    And be careful, keep a foot in the real world, it is not necessarily obvious if the motto you trade is virtual! But it is possible. Rely on tangible elements and concrete information on which crypto-currency to invest in. Please, stay informed on crypto-currency websites review, developer training and skills, etc.
  6. PREPARE A STRATEGY BEFORE ENTERING THE MARKET AND DO NOT TREAT IMPULSIVELY
    They will prevent you from going astray and giving way to euphoria or panic. This is much more reliable in the crypto-currency market where volatility is such. Thus, that without a well-defined trading plan, you are sure to run for your loss.
    In addition, invest only money that you’re willing to lose and never ever, ever, ever, your savings precaution. Always bare in your mind why I strenghtened this part. Some of my colleagues really got bancrupt because of this bussiness.
  7. STAY SIMPLE IN YOUR STRATEGY
    Whether it is foreign currency (forex) or stock, or even trading encrypted currencies, an effective strategy remains a simple strategy, which you can explain in a few sentences, which is based on concrete, specific and factual and not on beliefs or fanciful anticipations.

Forex Basic : Develop Provitable Trading System

Almost all major investors make their transactions within a certain system. It is the first technical analysis which comes to mind in the financial markets. Principles and rules are determined and the system is developed for basic analysis. As the investments in the Forex market are generally short-term, the system is mostly developed for intra-day transactions.

Systems based on only one indicator are generally unsuccessful. Errors of systems created with a single indicator should be reduced by using other indicators. This is called filtering process.

The relationship between the formations in the charts and the indicators and even the general system should be tested.

TESTING THE SYSTEM

A system without a bunch of testing phases cannot be considered as robust. The improved system must be tested on past prices. This is called a backtesting process. It will be appropriate to cover the test period as long as possible. For example, it would be useful to test the system on an average of five years. It is useful to test the system practically in the demo account after the correct test. Because it is very common for many systems that are successful on paper to be unsuccessful in a real situation. In the demo account also test the system as long as possible. This phase is called forward-test.

The system can also be applied to the actual account if successfully tested the demo account. However, it should not be forgotten that one should not discontinue the process of back and forth testing in order to develop a successful system in the real account.

When developing the system, it should be kept in mind that not all prescriptions apply to each patient. Each pair has its own characteristic of movements. The performance of the systems might give different result in the pairs with higher volatility whilst the less volatility.

Other criteria are used for an objective testing process:

  • Total Net Earnings: The total net gain from the total gain in the test process is the total net gain. It is useful in terms of reliability.
  • Total number of transactions: The number of procedures in the testing process is also an important criterion. For the success of the system, it is beneficial that profitable positions are more than harmful positions. However, even more, risky systems that are not waiting for losses but waiting in the snow are being developed. The high number of operations means that the system is affected even by small fluctuations. Too much processing increases the expenses of the investor with commissions and spreads.
  • Percentage of Earnings / Loss: The percentage of profit or loss in the test process according to the initial capital.
  • Annual Earnings / Loss Percentage: The annual percentage of profit obtained during the testing process calculation is important in order to make a comparison with interest, inflation and return on other investment instruments. In case the test period exceeds one year, the value obtained by dividing the number of days in the test period by 365 is the year-to-date value of the profit obtained during the test period. The annual gain is calculated by dividing the total net profit by this value.
  • Drawdown: In the Forex market, the loss is a significant risk factor due to the leverage factor. Systems that can jeopardize the margin level and cause a heavy loss must be optimized.
  • Total Net Earnings / Risk Ratio: Each investment has a potential risk. The potential risk is the percentage of the maximum reduction in the balance during the testing process. The fact that the total net gain is less than 3 in terms of the gain/risk ratio divided by the potential risk ratio indicates that the system is useless.
  • Total Gain: It is the gain or loss that will be obtained if the parity is kept from the beginning of the test period until the end of the test period. When calculating this ratio, it should be taken into account whether the margin problem occurs in the test process due to the leverage factor, unlike other financial markets. At the end of the test period, the system should be questioned if a lower return than the buy-in value is achieved.
  • Percentage of Total Earnings: It is the rate obtained by dividing the total earnings by the starting capital.
  • Annual Percentage of Total Earnings: The one-year yield of total earnings is the percentage ratio of the initial capital. The system should be questioned if the percentage of return obtained during the testing process is lower than this rate.
  • Percentage of Earnings: Percentage of the number of positions closed by the gain in the test process, divided by the number of positions. The longer the duration of the test, the greater the importance of this ratio.
  • Total Earnings in Profitable Operations: It is obtained by collecting the yields obtained in the transactions which result in gains in the test process.
  • Average earnings per transaction: It is the rate obtained by dividing the total earnings by the number of transactions. The high rate is an important criterion for the success of the system.
  • Number of Losses: Number of positions closed during the test period.
  • Total Loss in Damage Resulted Processes: The sum of the losses incurred in the loss-closing positions during the testing process. Despite the small number of transactions, the high rate of loss strategy should be reviewed.
  • Average Loss in Harmful Processes: The total loss in the resulting transactions is calculated by dividing the total loss by the number of transactions.
  • Average Earnings / Average Loss Rate: Average profit in profitable transactions is calculated by dividing the average loss in harmful transactions.
  • Earnings / Loss Index: The success rate of the system can be measured by dividing the win ratios in the test phase by the loss rate. However, the profit or loss obtained during the testing process is not real. In terms of opportunity cost, it should be compared with the country’s interest rate. It is taken into account in the open positions. The index value varies between +100 and -100. Since this index expresses the gain or loss in the most accurate way, it is recommended to calculate each test period.
  • Yield-Risk Index: As we have already mentioned, the risk must also be calculated when calculating the return in the test process. Yield-risk index is used to measure the risk assumed for the gain in the test process.

 

OPTIMIZATION OF THE SYSTEM

Applied systems can be optimized to reduce the error rate and adapt to different pairs. For example, a 22-day moving average can be used in a system that produces an early receive signal as a result of the 20-day moving average. Parameters can be tried until the errors are minimized. Optimization should be implemented strictly for every system developed. However, it should be kept in mind that each system can produce false signals. Therefore, it is more useful to try to increase the success of the stop loss strategy instead of trying to optimize the system to give a 0 percent error.

Reducing the parameters applied in the system leads to an increase in the number of signals. The risk is increased in systems where the number of signals is too high. The growth of risk means the potential for growth in earnings, but in the case of such systems, if the stop loss strategy cannot be established, very serious losses may occur. Changing the parameters of all indicators while optimization is not a correct approach. Changing the parameter of a single indicator while optimizing (according to the science of economics, ceteris paribus, ie nothing else) is a more accurate approach. For the Forex trading platforms and other technical analysis software, it is possible to easily change the parameters of the indicators.

 

Forex Basic : The Trend (2) – The Shorter Trend and Trend Channel

Secondary Trend (known as Medium-term trend)

Prices for long-term trend move from time to time in the direction of the trend. These movements can often be considered as short-term fluctuations. However, these movements are characterized by a significant aspect and lasting from one month to several months are considered as the secondary trend and more commonly as the medium term trend.

In the long-term rising trend in the EUR-USD pair, there have been occasional mid-term downturns. The pair, which fell back to the main trend support after the mid-term downtrend in 2005, continued to rise again from this support . Mid-term downtimes are generally raised when the momentum of the long-term trend exceeds. Excessive prices in prices can be considered as a profit realization for many big players. However, prices resulting from the correction lead to a rise in demand and hence prices.

Short-Term Trend

The trends in one day to three weeks. The weight of short-term investment in forex markets is higher than other markets. However, short-term trends may be misleading due to the fact that they are highly affected by the instant developments. Therefore, it will be more useful for investors to determine the general direction by examining the long and medium term charts.

The short-term uptrend in the EUR / USD parity in 2001 was weakened by the 0.9390 resistance. The short-term trend line, which was tested twice by the slimming result, was broken in the third trial and the short-term rising trend movement ended.

Hourly and even shorter graphics are widely used for technical analysis in forex markets. However, it is a more convenient option to take advantage of the minimum four-hour charts as the downsizing of the charts increases the margin of error. The short-term uptrend in the hourly USD / CAD chart was the result of a third-time testing of the trend support and a subsequent break.

TREND CHANNELS
Trend lines are drawn with reference to rising peaks in rising trends and reference to higher peaks in downtrend trends. However, there is a correlation between support and resistance in trends. For example, while rising trends tend to rise, rising rates tend to rise. A similar relationship is also valid for the fall trends. Falling peaks tend to fall in the downward trend, while their downtrends tend to fall. Parities entering the trend channel provide convenience in short term transactions. Generally, the testing of the channel line is considered as an opportunity to sell, and to test the trend support as an opportunity to buy. However, the fact that this approach is too linear is a risk factor of its own. For example, trend support is expected to work in a rising trend channel. It may not work. In the event that the support starts to rise again, it may mislead investors. For this reason, it is advisable to use the formations and indicators that you can examine in the following pages of Forexturkce.com while reviewing the trend channels.

The long-term rising trend started in the EUR / USD parity, which began in 1998 and ended in 2000, following the breakdown of the lowering trend channel. The remarkable point in this graph is that prices continued to rise after breaking the trend channel, but then, in the medium term decline, the broken trend line line was still in support.

Forex Basic : The Trend (1) – The Long Trends as Main Barometer

The price movements in the markets are caused by supply and demand. However, the formation of these price movements is not coincidental. All these price movements have a distinctive direction. Charles Dow, the founder of modern technical analysis and one of the names of the Dow Jones index, introduced the concept of trend by firmly deciding that there is a significant aspect of market movements. The Dow Theory, which was compiled by Charles Dow, the founder of modern technical analysis, which was published in The Wall Street Journal between 1900-1902, forms the basis of the techniques used today. At first, the aim of the theory is to estimate the trend in the stock market and to invest in a loyal market in a way that is not to paddle against the current. Now. Dow’s theory is applied as well to other derivatives including currency trading.

As stated in the Dow theory, the types of trend are divided into three which is:

  1. Main Trend (known as Long-term trend)

One-year to several-year trends. At first, these trends are not attractive for the forex market, where short-term transactions are at the forefront. However, the main trends in the markets can be considered as the barometer of the economy. In currency graphs, long-term prosperity and crisis periods of countries are directly reflected in long-term trends.

The long-term rising trend under the chart is still evident. The increasing momentum of the graph in recent months can be interpreted as the trend can continue in the coming years. The main trend supports are also very important psychological support. Despite the fact that the main trend support was tested many times in the summer months of 2007 and even under the support of the mass psychology, the trend continued.

Long-term resistance is more important than long-term support in the technical analysis of long-term downtrend trends. Because the resistance to break and strengthening means the end of the trend. The USD / CHF pair, which moved in the downtrend from the spring of 2001 to the spring of 2005, broke the long-term decline trend resistance and entered the rising trend in the short-term. Long-term decline trends are generally shorter than rising trends. The reason for this is that mass psychology causes more hysterical behaviors in the ascents. Individuals are even more enthusiastic about earning more, but because of their fears rather than willingness to lose, their trends are shorter.

The tightness of supply and demand can lead to the direction gap and hence the horizontal trend movements. EUR / CHF maintained its long-term horizontal trend between 2001 and 2003. Horizontal trends can be compared to fault lines. The rigorous supply and demand, such as the fault lines that are broken as a result of the explosion of tight energy, find its direction after a certain point causes hard movements. Therefore, the movements that occur when the support and resistance of the horizontal trend are broken, are quite stiff and are often the precursor of a new trend.

continued

Forex Basic : The Price Chart

GRAPHICS
The principle reason for technical analysis is to assess the graphical movements of price in the previous time and to anticipate the future change whether it is upward or downward. Consequently, charts are utilized to make the information increasingly noticeable and to make measurable investigations simpler.

CHART OVERVIEW
For graphical illustration, certain periods of price fluctuation in the currency market are utilized. These consecutively means the opening price, the highest price, the lowest price and then the closing price of a specific timeframe. Considering that the forex market open 24 hours every day, the opening price (O) is normally the value level seen at 00:00 while the closing price is viewed at 23:00 in and marked as C (Close).

GRAPHIC TYPES
Line Chart: Only closing prices were depicted in the graph. Therefore, it is preferred by many analysts due to its simplicity. However, since linear graphs do not fully reflect market movements during the day, it might be insufficient for the short-term technical analysis. Another missing point of this chart type is the line (linear) logic approach to the chaotic market mechanism.

Graphical instance above : Linear GBP / USD chart. Due to its simplicity, it is possible to see the long-term movements clearly. However, it is difficult to detect fluctuations experienced during the day.

Bar Chart: It is the most broadly utilized and known type of chart in technical analysis. The most significant explanation behind this ubiquity is that it clearly demonstrates the opening, lowest, highest and closing prices in a certain period of time. The opening price is denoted short horisontal line at the left side of the bar. The top point of the vertical bar is the highest level the price in a given periods. The bottom of the bar is the lowest value that the price has come to in a same periods. Lastly, the closing price is expressed by the horisontal notch on the right side og the bar.
The extensive length of the bar indicates high volatility while the shorter length of the bar indicates that the price oscillation was low during the selected period i.e. a tight course was observed. It is possible to say that the bar graphs are more useful in terms of the formations described later in this book, compared to other types of graphs, as they clearly show market movements.

The importance of the bar graph is better understood in terms of the volatility of the GBP / JPY and therefore in the parity where the risk is high.
Candlestick Chart: The first example of modern technical analysis is the Dow Theory.
However, traders who lived in Japan in the 17th century about three hundred years before the introduction of the Dow theory had developed their own technical methods of analysis for the prices in the brass contracts. In these analysis methods, unlike the rest of the world, they took advantage of their own developed candlestick graphs, which were used in many parameters. Candlestick charts show open, highest, lowest, and close as values, such as bar graphs. However, while bar graphs only show this data, candlestick charts try to establish a logical link between these data. This analysis method is mostly used for short term. Therefore, the popularity of this chart among traders is high.

Remarks :
UP TAIL: Represents the highest price.
ANGLE OR CLOSED (Whichever is higher).
DOWN TOWER: Represents the lowest price.
ANGLE OR CLOSED (Which is the lowest value)
FILLED BODY: If the close price is higher than the open price.
EMPTY BODY: If the close price is lower than the open price.

In candlestick charts, the difference between the opening and the closing price determines the length of the body. In combination with hollow or full, short or long body candles, certain formations are formed. The pattern / candle formation as a sign of movement will be explained in the future article.