Economic Stimulus Plan

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 means not losing money. Forget for now all issues of making huge profits. The first rule is all about not losing money.

It should make sense that with the largest market place in the World – where in one week more money changes hands than the entire USA economy does in a whole year – that there is no such thing as a 4x robot, any super computer or an Albert Einstein of 4x trading. That’s OK, this simply means we don’t get to ride every blip and pip of movement with profits. We will miss opportunities and that’s just fine. I am allowed to sleep, I am allowed to be cautious. But I am NOT allowed to lose money!

2% of your 4x account is more than you should be risking on a trade if you have proper and effective forex money management.

Let me give you an example. Assume I have $10,000 in my account. 2% of $10,000 is $200. If I trade with full lots where 1 pip is worth $10, then I am allowed 20 pips for my stop loss. Sounds fair enough in principle, but I make most of my money in huge rebounds or retracements that happen after a break out on highly volatile days. Meaning, I often trade with 5 lot orders – so 2% of my money is now down to 4 pips for stop losses. If 20 pips is nothing, imagine only being able to to be wrong by less than 4 pips.

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.

Not even a super computer could predict to buy at 1.4111. News traders would have got on board based on the USA problems sure. But actually, I was lucky enough to be already long a few hours earlier. But with only a 4 pips stop loss? Luck or stupid?

To me, the market looked ripe for a rise in the Euro. And my trading signals were confirming this. And so that I was free to go shopping with the girlfriend, I entered 2 pending orders for 5 lots, each hedging the other. That is, 5 lots buy limit at 1.4080 was matched equally by 5 lots of pending sell short order at 1.4080. If the market dipped to pick up these orders, then whatever happened, each would balance the other trade.

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 closing out the short position at break even and with the long position in profits, then the next few hours was all about protecting that profit. I was never at risk of losing my 2%. When it profits were high enough, I set the trade to a 20 pips trailing stop and let the trade play out. $8,250 or 82.5% profit on the day. Never was the forex money management rule ever broken. By using hedging, my account was protected.

Hedging people. Learn it, get serious about the first rule of Forex Money Management. DON’T LOSE MONEY, and NEVER risk more than 2%.

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