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March 19th, 2007 @ 5:02 am by Mihai Marinescu

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We have seen in our previous posts that there are many dangers awaiting those traders who use high leverage when trading this volatile and unpredictable market.

Let’s now have a look at the other side of the coin…

If leverage is dangerous, then using a very small one – or none – should protect a trader against any danger resulting from trading large positions, right? WRONG!

This confusion is caused by a misunderstanding of the word ‘leverage’, which can have at least two different meanings.

First, leverage has a purely technical meaning and refers to the instrument offered by a broker in order to boost a trader’s power to make profit (or suffer losses). Broker X can offer a 50:1 maximum leverage for trading on its platform, while broker Y may offer a 400:1 maximum leverage.

When we are talking about leverage in its technical aspect, there is nothing wrong with using the highest leverage allowed by the broker. It is not the use of this instrument per se that places us in a risky situation, and in what follows we will explain why. Read the rest of this entry »

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March 14th, 2007 @ 10:16 am by Paul Wallace

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If you remember from my last entry I stated that there were 3 blocks to success. The first was Over – Analysis which leads onto the 2nd block:

Self-Doubt which is often experienced as Fear. Having become paralysed by over-analysis you then find yourself doubting your own analysis and your own ability. That internal voice keeps telling you:

  • Your last trade was a loser, so will this one be...”
  • You don’t know what you’re doing do you?”
  • You want to go long but the talking head on Bloomberg is saying traders should be short, surely he knows more than you?”

And a hundred other such self-defeating comments. Read the rest of this entry »

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March 13th, 2007 @ 8:36 am by Mihai Marinescu

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The first aspect of our leverage myth refers to the belief that a high leverage can work in favor of the trader, and even compensate for losses in periods when trading does not give the expected results.

A trader that is aware of what leverage can do for him may tend to increase the size of his trades as losses accumulate, hoping for a recovery in the very last moment. This approach can only work against the trader, and usually leads to margin calls and huge losses in trading accounts.

Going by the guidelines set by our our source at usgamblingsites.com, whenever a trader tries to apply a casino player mentality to trading (on purpose or not), the probability of his success is in fact much lower than if he were gambling in a casino with a 50%/50% chance. Read the rest of this entry »

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March 12th, 2007 @ 10:31 pm by Eugene Teplitsky

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You may have noticed a new addition to the site last night. Crash Courses, we call them. And they do exactly what they sound like – they break through the haze and confusion, delivering important practical lessons and strategies which can be understood and implemented by normal human beings.

Our Director of Education, Sunil Mangwani, believes, and I tend to agree, that immersion is the best way to learn. When you are down in the trenches, with an experienced instructor by your side, you can learn more in an hour than you can learn by yourself in months or even years.

The material covered is not just some textbook re-telling of the facts – we teach you actual strategies which work in the field, and we teach you by taking you down to the live market and actually implementing them. I can’t think of a better way to learn than by doing (and having someone around to show you how).

These Crash Courses are 8 hours long, taking place over 2 days, with 4 hour sessions each day. We do them twice each day – during New York hours, and during GMT hours – to accommodate students in multiple time zones (though Daylight Savings Time has been quite a pain this year!).

We are excited to be kicking off this new type of course, and I really hope you check them out.

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March 12th, 2007 @ 3:24 am by Paul Wallace

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Carrying on from my last entry – as Traders, there are, I believe, 3 blocks to a Traders success.

The first one is: Over-Analysis. The old analysis paralysis syndrome.

  • Do you find yourself looking at more and more charts trying to gain a better understanding?
  • Do you find each of your charts is littered with dozens of indicators, moving averages and trendlines as you search for the perfect trade?
  • Do you find yourself unable to pull the trigger until you have a 100% possibility of success?

Read the rest of this entry »

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March 9th, 2007 @ 6:49 am by Mihai Marinescu

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The first thing a rookie learns about leverage is: a trader cannot do without it.

It is a sort of necessary evil, a big bad wolf that keeps showing up…. The higher you set your leverage, the higher your risk – but still, unless you use it, you cannot make good profit. Tricky…

Even if everyone is talking about leverage and almost everyone believes to have understood how it works, there are still so many misconceptions about this concept that cause traders to lose money.

We will start by analyzing together two of the most common misconceptions about leverage, and point out how a half-truth can turn into a big fat lie, when our emotions and greed decide to take over. Read the rest of this entry »

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March 9th, 2007 @ 3:20 am by Mihai Marinescu

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Following yesterday’s comments (on which are the best currencies to trade), I shall now try to suggest a few brief solutions for those traders who keep changing the pairs they trade, hoping this will result in better performance.

As I said before, good trading has little to do with the pair(s) we choose to trade. If we have a clear trading strategy and the ability to respect our trading plan, then we already have a first possible answer to our question: the best pairs to trade are those which we already tested, and which – as a result of our testing – seem to yield better results in the long run. If we developed a strategy, tested it for example on EUR/USD, USD/JPY and EUR/SEK and saw that USD/JPY seems to respond better and generate more profit, then we must give this pair priority, at least for as long as we follow this strategy. It is a simple obvious fact, but one that requires discipline and patience: if we decide to trade only, say, USD/JPY signals, then our trading must reflect this decision. Never go for impulses like: “come on, let’s go crazy for once, let’s trade a new pair and see what happens”. Demo accounts may be appropriate for this kind of approach, live accounts are not… Trading is not for those looking for a thrill, but for educated and organized individuals who are ready to treat it seriously.

The coherence of our strategy (based on extensive testing on several pairs) should be the most important factor when deciding which pairs to trade. However, if we are to choose between the vast array of currency pairs available and have not developed a trading plan just yet, there are still some small but very important points we should take into account. Minor and simplistic as they may seem, in the long run they can seriously tip the scales in our favor. Read the rest of this entry »

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March 7th, 2007 @ 12:57 pm by Paul Wallace

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Fear is defined as ‘the anticipation of pain’, which is very often linked to a past outcome. As traders it can be the defining element between success and failure for an individual. We can have the most elegant and sophisticated of trading strategies but if we’re paralyzed by fear then we will amount to nothing!

  • How many times have you ‘sat on your hands’ and avoided pulling the trigger?
  • How many times have you seen a fantastic set-up in the market only to ignore the opportunity because it wasn’t perfect?
  • How many times have you convinced yourself that when you’re a better/more confident/ better capitalized trader then you’ll take those trades?

To be continued…

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