4x Currency Trading: Forex Money Management Basics

By Phil Jarvie

Gambling with 4x trading, God complexes of chasing losses, emotional investing - all the hallmarks of forex losers. The fact is that 4x trading is neither easy or hard. It is simply different to what we find in other parts of life. Most novices and experienced players came from share trading. This has barely any resemblance to 4x trading at all. So, to bring clarity to this different market, rule number 1 of 4x trading is:

Forex Money Management 101. Do not look for a holy grail of trading. Just don't lose money!

There is no such thing as a forex robot, super computer or the Albert Einstein of 4x trading. We cannot catch every market high to sell, nor every market low to buy. We WILL miss 4x trading opportunities. Get over it! But opportunity cost is not the same as money cost. If I miss a trade through caution or being asleep in bed, that is not the same as getting on a 4x trade and losing on it.

Forex money management is essential to protecting us from our emotions and it quite simply means we never risk more than 2% of our trading account.

But let's get creative with our highly leveraged 4x trading and our forex money management rule. I have a $10,000 trading account. That means I am only allowed to risk $200 of my account on any trade. If I am trading full lots, that means I must set my stop losses at 20 pips. But on extra wildly fluctuating days, I like to trade 5 lots. That means I must set my stops at 4 pips to follow the forex money management rules. How to give the trade room to breath?

I'm sure you think I am crazy, but hear me out. Open up your forex platform software of choice - metatrader is fine. You want H1 hourly chart for EURUSD on the 19th of August, 2009. Note the huge rise of the Euro from 1.4111 to 1.4265 in 3 hours - all of which happened after bad USA economic data and a billion dollar trader from the Middle East put his weight behind the Euro at the same time.

To get on board a long position by following the news is what would have happened for many smart 4x traders. But I was lucky enough to already be on long from a few hours earlier when I picked up the trade on a dip at 1.4080. It was a wild day. Was I lucky or stupid to be ridding 5 lots with a 4 pip stop loss while I went shopping?

When I entered my buy limit trade at 1.4080 I did it as a pending order. Actually, when I placed that pending order, I was going shopping with my girlfriend and wasn't going to be back home for hours. SO, at the same time I placed a 5 lot sell stop order at the same price as my 5 lot pending buy order. IF the market dipped to pick up my buy order, it would also hit my sell stop. The market can then do what ever it likes after that. Each trade 100% cancels the other out. It's called hedging. I had hedged my position with opposite orders.

As it turned out, the market did dip down to 1.4069 and I was in for both buy and sell orders cancelling themselves out. When I got home the sell stop order was in profit, and my buy was at a loss. But the net effect to my account was only the 0.9 pips spread. I waited for an hour, the Euro rebounded, I closed my sell trade at break even and let the buy trade continue. Joy oh joy it then went seriously into the money a few hours later on the USA's bad news.

After an exciting few hours at the screen I watched that long position go crazy into profits, and so I switched it to a 20 pips trailing stop, which it did do at 1.4245. That was a tidy, ultra low risk, $8,250 profit on the day. 82.5% profit on a $10,000 trading account while I went shopping. The first rule about forex money management was never broken. I was never at risk of losing 2% of my account.

First rule of Forex money Management: Don't Lose Money. Never risk more than 2% of your capital. Hedging. - 23226

About the Author:

Phil Jarvie is a professional forex trader expert in 4x trading, 4 software and using 4x hedging for forex money management and may wish to visit his website to consider his reviews on how to make money trading currencies

Intro to Covered Calls

By Maclin Vestor

Covered call strategies have advantages and disadvantages. A covered call is essentially giving up a stocks potential for capital gains and exchanging it for income... As you probably can imagine, value investors and contrarian investors, or those who bet on a stock that they believe has underappreciated in value and is on the way down or moving sideways will generally be able to see some value in this. Income investors will love the extra yield.

Merrill Lynch quantitative strategist Richard Bernstein in his book Style Investing: Unique Insight Into Equity Management offers a very useful conceptual framework for understanding the role of earnings and earnings expectations in stocks price growth. The cycle starts from the low where contrarian investors thrive, to the top where the growth investors thrive. Although it is possible to sell deep in the money calls which may allow you to profit on anything from torpedo stocks that have peaked and are plummeting, to contrarians. Or even using higher strike price calls that can allow you to profit from contrarian to growth, generally you would probably want to target any strategy from Dogs to estimate revision. In other words, you want to target stocks that have already been in declined and have surpassed the 2nd half of their decline, to stocks that have began climbing and are less than half way through their moves. To understand this more, check out Richard Bernsteins book Style Investing: Unique Insight Into Equity Management .

Any type of investor could hypothetically use covered calls to his or her advantage. However the stronger move the strategy expects to make with the stock, the quicker you must cut your losses, and the higher strike price you must sell calls. Of course there's also someone that might operate more like Buffett and find companies that are so well managed and so undervalued and have such a good business model that the time frame you own the stock is forever. In this case, you may wish to own a stock through all of the cycles and continue to sell calls and just vary your strategies according to the cycles.

If you wish to execute a covered call you would buy 100 shares of the stock, for every call you sell. If you are using an option spread strategy, your call is still covered if you own another call at a different strike price and/or a different expiration date, but we will not get into this right now.

The thing about covered calls is that it has a few advantages 1) Most stocks will never produce an infinite return which allows you to sell high strike calls to eternal optimists when you think the stock may go up, but won't go up forever. Provided that the premium is more than the fees, you collect income. 2) One thing is certain, that time will continue - a) A stock has value based on it's value of executing the option and selling it immediately.. If a stock option has a strike price of $50 and the stock is priced at $55, this value (known as intrinsic value) is $5. b) A stock option has value based potential. That same option with $5 in intrinsic value is worth more if the stock is expected to make large moves (known as implied volatility). The reason is of course, if someone bought that option, they are more likely to pay more if they believe there is going to be a large move. The supply and demand would of course dictate that a stock expected to move higher would have a high implied volatility. c) A stock option has value based on it's time remaining. That same option with $5 intrinsic value with 6 month until expiration, obviously isn't going to be worth as much as an option with 1 month until expiration. An interesting thing results though. People aren't going to want to lock up cash to own a long term option if they could buy month by month. So time value decays very slowly early on in it's contract, and it accelerates the closer you get until expiration. So someone who buys a long term option will find that this time value does not decay very fast at first, while someone who buys an option that expires in 6 days would find that time value quickly evaporates. As such, in terms of time value alone, it is more expensive to buy 6 1 month options month at a time for 6 months than it is to buy a single 6 month option. The future is less certain to most people, so the way the LEAP(long term option) market works is it is given a high implied volatility 3) Protection against downside - Options can offer value in hedging downside risk. If you buy a put, you are insuring a loss from the current price all the way to 0. If you sell a call, you are protecting your loss to only what you paid for your option. Lets say for example you owned a 100 shares of a $50 stock. If you sold a $50 strike price with 1 month, you might receive $2 a share or $200 for it. You would be protected if the stock went from $50 to $48. However if the stock went to $46, you would still lose $200 rather than $400, but still a loss on paper. The deeper in the money the strike price is, generally the lower the Time and potential value (known as theta). However, the further out of money the option gets, the less probability the stock has of reaching it, so the theta is lower there as well. Generally at the money options will have the most theta. If you purely will be an income collector, you want stocks that stay neutral, and continue to collect the theta through covered calls. A strategy that seeks to take advantage of the cycle will sell deep in the money calls as the person expects the stock to go lower, then sell closer to in the money calls as the cycle begins to cause the stock to flatten out, and then to take advantage of appreciation sell out of the money calls just slightly, and as the stock moves stronger upwards further out of the money calls can be sold. - 23226

About the Author:

Maclin Vestor teaches about varioustrading systems and teaches you how to buy stock online.

Evolutionary Investing

By Michele Perdue

Our hard wiring through evolution has resulted in a short circuit that makes us more apt to risk losing money if we start worrying about not earning it. The majority of investors are busy worrying about their missed opportunities.

Reflection is important but attention should be focused on the purchases that were mistakes rather than the non-purchases that we regret. Mistakes are costly and the missed opportunities do not affect us but to be there as a reminder that we chose the wrong investments.

A useful analogy might be found in a book (more than a decade old) called Unweaving the Rainbow by Richard Dawkins. This science writer, evolutionary biologist and provocateur talks about strategies that are available to the animals with high metabolisms, such as small birds, that has the need to find food often in order to stay alive. Imagine that the bird is flying around seeking its prey and is surrounded by twigs that may hold some cleverly camouflaged caterpillars. If the bird got close and examined the twig a moment it may be able to distinguish between twig and caterpillar quite readily.

But, this is problematic for the bird as it cannot examine each of the numerous twigs lest it starve while looking for its first meal. It needs to take a faster approach, scan rapidly at a more cursory level even if it means missing out on many caterpillars. Finding the right balance between a deep scan and one that is more cursory but still effective is important. Too cursory will mean that the bird never finds anything and starves; to detailed and the bird may find too few and starve.

This is the same thing we must do as investors. If we waste time on a twig, we?ll never find a caterpillar; and we really can't afford to think about all those missed caterpillars. An optimal investment strategy will be profitable while leaving a number of the good opportunities untouched. Birds don?t fret over their missed caterpillars and neither should you.

Investing is a tricky thing to master. Get some great advice and investment tips from a leading expert and hedge fund manager, Andrew Baxter. - 23226

About the Author:

If you wish to learn the best information on investing today you need to check out this free video right now!

How To Invest In The Australian Stock Market

By Michele Perdue

The heart of the stock market system in Australia is the Sydney Stock Exchange. The exchange lets investors both foreign and domestic supply the regional companies with the funds that are needed in order to expand the economy of Australia. You can be among the investors that deal with the yop-performing companies in the Australian market in just a few simple steps.

Your first step is to hire a broker that is registered with the Australian Stock Exchange; this stockbroker will be able to help you fill out the agreement forms, set up your international account for the trades and give you valuable advice on the changes and trends before you begin to invest.

Investment clubs are popular because they let the investors share the learning experience of how the stock exchanges work; you should gather some friends and fellow investors in an investment club to follow the Australian stock market together. When your club meets you should discuss your individual portfolios as well as observe the rising stocks.

In order to counteract the riskier investments it is advisable to purchase some futures in the Australian stock exchange. The people who invest in the futures will sell their shares back at a predetermined time with the price established before any transactions are made. Using this investment too you can have longer range stocks mixed in with the day trading.

One of the rapidly expanding industries in which to invest is the biotechnology industry. Take advantage of the rapid expansion of the biotechnology industry by investing in some of the hundreds of publicly owned and traded biotech firms that are accessible to the foreign investors. These are the ideal stocks if your intent is to invest over a long term in an industry that is gradually growing.

There are other things to consider and more investing options, Andrew Baxter who is an expert investor and hedge fund manager can offer you some great insights about investing in the Australian Share Market. - 23226

About the Author:

If you wish to learn the best information on investing today you need to check out this free video right now!

What Can Your Penny Stock Broker Do For You?

By Malcolm Torren

Penny stocks are very fragile investments. They are less liquid. The stocks are prone to fraudulent activities both online and offline. Stock prices are difficult to price accurately thus lure in scheming opportunists. Also, there is lack of information in companies that sell their penny shares. With all these potential risks mentioned, you need a best friend in the business. The penny stock broker can help you with your investments.

Firms and brokerage companies are the middle ground between a stock seller and a stock buyer. If a company sells the stocks, someone has to buy it. The penny stock broker will facilitate and the transaction is completed. But in practice, this is not as easy as it is described here. It's much more complex and requires special stock market intelligence. This is like an advanced buy-and-sell procedure where investors win and lose everyday.

- What can these brokerage firms do for you? Movies about big corporations usually have scenes of a major stock exchange. It would seem like everything in the trading floor is messed up. On the contrary, it is very well in order. If a small cap company sells shares at a low start and someone buys them, the brokerage is behind the dealings. The penny stock broker is like the gatekeeper of your stocks. They guard your investment safely from market manipulations.

- What about leverage? The greatest advantage of working with a penny stock broker is that they are the most exposed entities in the business. They understand the loops inside and out. They can give you sound advice on what stocks to buy, when to buy them, and how. Of course they would also advice you what stocks to sell, when, and how to sell them. Whether you win of you lose, they will always be your ally.

- Will they lose if you lose? No. A penny stock broker is not the investor. They are the middle men and technically speaking, they don't have any interest that contradicts yours. Therefore they don't have anything to lose or profit. What they are providing is service. They do you a favor of facilitating your investments hoping that you will profit and they will get a commission.

- So can they make money if you lost your investment? If your stocks fell and you didn't make any money, they get the commission elsewhere. The penny stock broker survives and sustains their service by handling many clients. So they're basically a service oriented firm with a list of clientele. You are one of them.

- Will it be fair if you lose while they still earn? Honestly, yes it is. But most of these brokerage firms advice you to spread your investments to as many share to many companies as long as you can still afford it. So that way, if you lose from one investment, you might gain from the other. That's another way to make a good bargain. And you may have another broker to assist you with your other investments.

However, here's a tip for you. Many ambiguous claims of cheap stocks pretend that he or she is a legit penny stock broker. Shares are lowered to the most affordable rate because of the fact that penny stocks are priced inaccurately. If this happens, check on their track record if there's any document available. Report any activities of this kind to the SEC. - 23226

About the Author:

Beware of penny stock pick scams. Find an online penny stock broker today.