An idea, I call it the “Dynamic Hedge”

As some of you know i mainly trade the majors on an intraday basis. I am trying to set up a holistic trading approach to my entire trading setup and i plan on using a method i devised called the dynamic hedge. The schematics will require the system to be in the market 24*7. It should be able to withstand minimum drawdowns of 500pips. It follows the trend of a bi-weekly moving average. Its purpose is there not for major profits but essentially used as complementary to my intraday methods.

Why Your Trading is Doomed

An interesting article, introduced to me by a fellow forumer in FF. This is why setups and stop management are so annoyingly important.

Author: Jordan Knight
@ 1888 Articles.com

The single most important aspect in trading forex is to stay in the game, which means not to blow up
your account. Whatever method of trading that you employ will not earn you
profits if you keep on blowing off your hard earned profits or your account on a
few losing trades.

The single most important aspect in trading forex is to stay in the game,
which means not to blow up your account. Whatever method of trading that you
employ will not earn you profits if you keep on blowing off your hard earned
profits or your account on a few losing trades. There are many traders out there that boast high returns but almost all of them
will be followed by similar magnitude of losses that will bring them to break
even or even total loss.

Even the best trader in the world can only make up to 30% average return
per year and yet you are fooled to believe that you can make better than that.
Many profitable trades are offset by losses brought about by potential wins went
wrong. If only one can know before hand which trades will be profitable, the
losing trades can be avoided. However in reality, this is impossible and this is
why we have to assume that all trades will be profitable and hope that the
winning trades offsets the losses.

A common mindset of new traders is, risk is acceptable to a larger degree
while profits must be locked as soon as possible. This is evident in many forums
that highlights the use of trailing stops as small as 10 pips. If you have
traded long enough, you will realize that even 60 to 100 pips can be considered
as market noises and they are virtually unpredictable. So any small trailing
stops are bound to be hit. Given the small capital that most new traders have,
they are left with no choice but to employ such ridiculously small stops. When a
trader has a small profit, the greed and fear kicks in that even before the
target is reached, the trade is closed with a small profit. This may seem like a
safe option, but in the long run, it is the system that matters. What guarantees
success is a system that is religiously followed. Emotion and greed have no
settings or parameters to be fiddled with, and they are truly subjective. So how
one can determine which ’settings’of greed and fear that work best? This is
where a system comes into play. A good system takes away the emotion and greed.
A good system has parameters and settings that can be fine tuned unlike emotions
and greed. And when the best settings are found, the system can be used with
huge success no doubt it will never be perfect.

In real world, the successful and wealthy traders made their fortune slowly
and steadily through careful risk management and very wise leverage use. However as a small
trader, low leverage may be too slow. There are ways to make profit like the
hedge fund managers using high leverages, but these methods are often
overshadowed by the false promises of so called forex gurus and brokers that
entice newcomers with ridiculously high profit potentials.

Every method that you employ will fail to work if these methods of trading
management are not employed. After scouring numerous sites and forums, I have
never seen any traders utilizing these trade management ideas. Now this sheds
some light on the saying that 90% of traders often fail!

So can this be the holy grail everyone is searching for? For me, the answer
is yes, the holy grail in forex trading lies in trade management. However, to
attain this skill it needs years of experience and the sound knowledge of your
own self!

Using R Multiples…

What is R?
R is simply the dollar risk per trade. It’s nothing but a reward-to-risk ratio. I first heard it called “R” in Van Tharp’s book “Trade Your Way to Financial Freedom”. In another of his books, “Financial Freedom Through Electronic Day Trading”, Dr. Tharp reveals the great secret of trading:

The golden rule of trading is to keep losses at a level of 1 R as often as possible and to make profits that are high-R multiples.

You often hear (read) that traders should only look for trades with a reward/risk ratio of at least 2 or 3 to 1. Expressing your results in terms of how many times your risk allows you to easily see how well your trades measure up to such a standard. So when I look at my results in terms of multiples of R I can easily tell how good or bad the trades were. I like to think of R-Multiples as telling you the efficiency of your system.

So how do I calculate R-multiple?
Simple,

Assuming your equity is $10,000
Risk averse per trade is 2%
So Risk in dollars is $200
For every $200 i lose = -1R loss

More on ‘R’ multiples explained by clicking here.