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In all facets of business, keeping a cool head is of the utmost importance to moving ahead successfully. Having an unemotional, objective approach to the business of Futures trading is not that difficult to maintain, that is until you actually place a trade with real money. At that point, our internal psychological resolve to remain unattached emotionally starts to creak under pressure at different rates for different traders.

We as traders are not robots, mechanical facsimiles of mankind completely replete of any emotion or concern. When a trade is placed with real money on the line, it represents the potential for future finances that will indeed affect our net worth at the bottom of the ledger. Rarely is there the person that has no concern as to what their bottom line happens to be each week, month or year. Even the richest of the rich are affected by the ebb and flow of their empires, that which is depicted by their bottom line. So naturally, we all will find our emotions tugged to some degree when it comes to our money.

Trading futures generates some degree of stress. The amount of stress is directly proportional to how one thinks in terms of money, winning and losing, and what degree of reward of punishment they assign to the results of their trades. The more importance we place on the outcome of our trades, on the both the positive and negative end, the more the results will affect us.

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It is a fact that a great majority of forex traders feel that knowing all the moves in advance, or having some indicators that cross over each other giving buy and sell signals is all that is necessary to succeed in this market to trade safely. Nothing could be further from reality.

True, it is important to have a good system or tool. Also, having the right mental attitude cannot be overlooked. But another facet of trading that many new ones must come to understand is to preserve trading capital.

It has been said that to not trade may be one of the most important action you can take to be successful in trading. I believe this to reveal some very important points. A successful forex trader needs to know not only when to get in, but when not to. The forex trader must make the decision prior to putting on a trade as to what the maximum risk is going to be. If the risk is too great for the size of your account, you should let it pass by.

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Want to do it like the professionals and profit from the stock market? Here are the secrets of the world’s legendary investors.

1. Benjamin Graham – Markets always over-react

Ben Graham was the father of investment analysis. While working in Wall Street in the 1930s and 1940s he invented many of the rules of thumb which are still widely applied today, and backtested them on historical stock market data.

He was the real pioneer of value (as opposed to growth) investing, producing accurate ways of measuring when stocks are cheap and therefore worth buying. His techniques pre-dated the days of computer stock screeners, but being purely quantitative they work beautifully with them.

However, one of his most appealing ideas was imaginative rather than scientifically rigorous. It concerned a fictitious stock market partnership that every individual investor is in, with a moody but persuasive lunatic called Mr Market.

This individual would arise each day in either a crazily optimistic mood, during which he would offer to buy out all your shares, or a black depression, in which he wanted to dump his shareholdings on you. Graham’s contention was that rather than being tainted by these moods and being miserable or happy with him, you should eventually yield to his suggestions.

So that means selling your shares when the market is full of optimism, and buying when the market is miserable. Graham showed that this contrarian position is the best way of exploiting market over-reaction.

2. Warren Buffett – Don’t buy what you don’t understand

There is no investor more frequently quoted than Warren Buffett, and it would be pretty easy to fill dozens of articles with his pithy sayings. However, it is what he has done rather than said that is the most amazing.

Buffett, a down-to-earth septuagenarian from provincial Omaha, Nebraska turned an original stock market investment of $100 in 1954 into $20 billion by 2002. He has followed many of the precepts of Benjamin Graham, but developed plenty of his own. Perhaps the most astounding of these is his ability to stand aside from a booming market, forgoing considerable profits, just because he didn’t understand what was driving prices.

In 1969 he did just that, winding up his partnership after 13 years of 30% compound growth. According to John Train’s book, The Midas Touch, Buffett told his partners: “I am out of step with present conditions…I will not abandon a previous approach whose logic I understand… in order to embrace an approach which I don’t understand…”

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The challenge of forex trading is greatest when a trader has put on a position and it has moved the other way. The response to adversity is the true test of your grit and intellect. To help in such trying times, this column is dedicated to offering a few strategies for when the losses are piling up. Here are the traditional methods of limiting losses:

Stop losses:
Stop losses put in place passive controls. When you enter a position, you can put on a stop loss. One rule for stops is when buying, for example, you would put on a stop at the previous low or support point. When selling, you would put on a stop loss at the previous high or resistance point. This enables control against extreme moves. It doesn¹t guarantee precise control because, depending on your broker, most stops become market orders when touched. In an extreme move, your stops will be touched and the actual fill price can be far away. A negative feature of stops is recent support and resistance points often dictate that they are placed close to the market, causing the stops to be frequently hit. Many experience getting stopped and in minutes watch the market move in the direction they originally expected.

Stop loss and reverse:
In this variation, you place your buy or sell entry and put on your stop with an extra lot. For example, buy one euro at 86.50 and sell two euros at 85 95. This strategy keeps you in the market and reverses your position. It doesn¹t stop the possibility of the market whipsawing back the other way, of course.

No stops. Put on your position and leave it alone. This strategy lets the market work. There are two disadvantages: A) When the market moves violently, you are stuck on the wrong end. B) Your stomach lining is put to a test. Few people can look at a position long that reminds them of losses. The advantage is that currencies oscillate in time and have a wide range. If you are focused on a longer time frame, the price will tend to stay in the trend direction that is dominant.

Hedging:
Fortunately, there are alternatives to these strategies. Traders are not limited to these three choices. We call this new risk management technique Simultaneous Buying and Selling or hedging. This is possible at some e-forex firms. “There are several reasons why having a hedge position is so practical to our clients,” Plaut says. “The first is the psychological benefit of always being involved in the market. Even though the position is hedged and the client cannot lose money due to an adverse market move, he is still emotionally involved in the market and can adjust the hedge according to how the marketing is evolving. The second is the ability to stay involved in the market during a range-bound market. This tool helps the trader avoid whipsaws, which is one of the traders’ worst enemies. ”

In this strategy you enter a position and if it moves against you, you enter an opposite position. They will not cancel each other out. The buy entry position appears with the sell entry position on the account. What this does is, in effect, freezes the action and allows the trader to manage the risk slowly. Say, for example, the buy side is moving into profitable territory. You would leave the sell side alone and add to the buy side. Invariably, the market moves back and then the sell side can be traded when it becomes profitable.

The power of this approach is that it allows the trader to evaluate market conditions and not be slave to those conditions. It is up to the trader to decide how to balance each side.

A full hedge is possible where both the buy and the sell sides have the same positions. This freezes the P&L. It does not freeze the positions. If a profit on one side quickly appears, it can be closed and booked. You can add more to one side and favor one direction over the other.

One of the best applications of this technique is during a trading-range pattern. When there is no clear way to go, put on both a buy and a sell and let the market come to you. To make this work, you need a lot of intestinal fortitude!

While not foolproof, the ability to be on both sides of the market, at the same time is a tool that is rarely used, but likely can be exploited for more profits by most traders.

Want to know how to read forex charts?

It’s easier than you think once you understand the 5 things you must know about forex charts. This article provides all the tricks and tips you need to do this properly.

Learning the basic skills in forex, such as how to read forex charts is really important.

This is because once you have this vital skill under your belt, it will be a lot easier and quicker when the time comes for you to learn and practice an actual forex trading system.

By the time you finish this article, you’ll learn how to read forex charts, as well as know the pitfalls that can occur when reading them, especially if you haven’t traded forex before.

Firstly, let’s revise the basics of a forex trading as this relates directly to how to read forex charts.

Each currency pair is always quoted in the same way. For example, the EURUSD currency pair is always as EURUSD, with the EUR being the base currency, and the USD being the terms currency, not the other way round with the USD first. Therefore if the chart of the EURUSD shows that the current price is fluctuating around 1.2155, this means that 1 EURO will buy around 1.2155 US dollars.

And your trade size (face value) is the amount of base currency that you’re trading. In this example, if you want to buy 100 000 EURUSD, you’re buying 100 000 EUROs.

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