Understanding Leverage and Risk!

  The difference in performance due to use of excessive leverage happens in two ways:
  a) When we are trading using the Money Manager to calculate the size of our trades, we have the lots sizes assigned as a percentage of the Free Margin in the account. If the leverage is too high, the size of lots would go up too.
  When we figured out the best amounts to trade in our default settings, we used 100:1. We made sure that even if you have orders opened for all pairs, you would never get into an over-trading situation that could trigger a margin call.
  We have tested this percentages and found that they work fine, never a margin call.
  But if you push up the leverage, the lots will be increased with the extra available margin, and you could find yourself over-trading to dangerous levels.

  b) When we have losses, our capital is decreased. If you trade with small leverage, your losses will be small. But watch what happens with increased leverage:
  Let's say that you have an account of $1000, for example, and you are using the recommended 50:1 leverage (maximum legally allowed in the US, and for good reason).
  Let's also assume for this example that 1 pip= $1 in the size lots you are trading on the $1000 account (keep the figures simple).
  Imagine that on a bad week you lose 100 pips. Given your lot sizes you would have lost $50 using 50:1 leverage (5% drawdown is normal for us).
  But if you had been trading at 500:1, you would have lost $500 because your lots would have been that much larger. Now instead of a 5% drawdown, you now have a 50% drawdown on the account!
  To get back to your starting point you now have to make $500 profit instead of just $50.
  Now let's say that the next week is a really good week. BUT, your account is now only $500, which means that your trade sizes are going to be half the size of the trades you took in the losing week, (because the MM will always calculate on available margin).
  To get back to your starting point you now have to make twice the number of pips to make up the loss, because each pip at half-size lots will only pay you $0.50 (whereas your losing pips cost you $1.00).
  To recap, in one losing week you lost 100 pips and the next week you won 100 pips. If your leverage is 50:1, you are pretty much even because the size of your trades is more or less the same, since you only have a 5% drawdown. If you are trading 500:1, your lots will be half-size and with 100 pips you will only make up about $250, to keep figures simple, because the size of your wins were much smaller than the size of your losses. You lost 100 pips, then you recovered the 100 pips, but you still have a $250 loss to make up! You still have a 25% drawdown, even though you made up the pips!
  That is the difference.

  Basically, in Forex the main concern in not how fast you make your profits, but rather how much you can control your drawdown, so the size of your trades remains more or less the same, or hopefully grow at an even pace

Trading Strategy - Masterscalper - Breakout Hunter

One of the problem with EA trading is narrowing down the possible market conditions to the most predictable patterns. If you trade the news, for example, you will find all kinds of market responses, from NFP wild volatility, to complete apathy in some cases where the news were anticipated. If you are anticipating either one of the two examples, and get the opposite one, you are in a bit of trouble, and that is the main problem with news trading for an EA.

We try to "standarize" the kinds of markets that we wish to participate, by filtering volatile times, news time, etc. 

In our Breakout strategy, we avoid news spikes and wait for the trend to confirm itself as a viable move 15 minutes after an important report. We also avoid those typical times of "back and forth" action, such as the London morning, Dow opening, etc. 
In this manner, when we enter a trend, we have some degree of certainty that it is not just a news spike, or a false breakout. It does not always work, of course, but the probabilities are on our side, and also the long term profitability.

When it comes to scalping, the situation is even better, since we only scalp when most of the markets are asleep. That is a sure way of making market conditions similar. After London closes and before Australia and Japan open, we have a good degree of certainty about the number of participants in the market, the anticipated news announcements or general political gossip that might upset the market, etc. 
Furthermore, each scalping pair has its very own schedule: 
EurAud and EurChf, start at 16:00 just as soon as Europe closes, assuming other scalping conditions and volatility requirements are met. 
EurCad, however, waits until the oil market closes in NY (18:30 gmt), since the Cad is highly affected by oil prices. UsdJpy also enters at 18:30. 
Finally EurGbp enters at 19:00, because with this pair we scalp a very narrow channel, and want it to be very quiet to perform best - entering sooner will find you "off channel" for long periods of time, should there be the slightest trend leftover after Europe closes, which would waste the whole day waiting for it to "come back", instead of scalping away once the dust has settled into a narrow "scalping" channel.
Granted any trading strategy, and therefore any trading EA, has markets conditions which would cause losses. But the more homogeneous the market conditions, the easier, more controlled action we can expect.
Long live scalping!

How to recognize the Best FOREX EA

First off I know there are many people out there who say that a "best forex robot" is like a contradiction in terms. Their opinion is that all Forex Robots are garbage. They are of course entitled to that opinon but I would question their wisdom, being a long term trader myself, if they truly believe there is safety in manual trading.
A Forex EA or Forex Robot - the terms are interchangeable - is nothing more than a software program based on a Forex trading strategy. Now, of course the program will only be as good as the strategy behind it, and there are a lot of questionable EAs out there.

How can you tell a great forex robot from a bad one? Here are a couple of pointers:

1. Is the software creator confident enough to offer you a money back guarantee? - a profit guarantee of course is even better.
   Whereas it is a general good business practice to offer a money back guarantee - in Forex trading this is particularly important.
   You want to make sure the company stands behind their robots and will not only offer you great customer service but also help you in set-up and can knowledgeably answer any questions you have. Of course if the company offers a profit guarantee - that really would be awesome.
2. The EA is customized to no more than two or three currencies.
   Each forex currency pair has its own distinct personalities. That has to be accounted for to create a good Forex strategy. I dare you to show me an EA that can trade the GBP/JPY and the EUR/CHF with the same presets! It is simply impossible! Doesn't exist. So, you can group some currencies as scalping currencies together and trade them in a similar fashion - but if the robot promises to work on ALL currencies in all market conditions run for the hills.
3. The software company offers different robots for different strategies - and they have created more than one robot.
   This goes hand in hand with the previous point. Each type of currency and each market - London, New York, Asia - requires careful tweaking in strategy. A do-all approach will lead only to losses. Your EA creator no doubt has to have different solutions for different markets. Also, be aware of EA creators who seem to offer too many robots. If they have found a strategy that works, why would they go on creating so many different robots? You are looking for a software company that created a handful of EAs and took years to develop them with real-time testing on live accounts and back testing over several years as well.
4. Your EA developer can answer questions - and offers customer support.
   In case you need assistance you need to be able to get in touch with your EA developer. Especially if you are a FOREX beginner - questions will come up and should be answered with real trading knowledge.  You want "real" traders with real experience behind the development of your product - not just some software geeks, who churned out a quasi system they have never traded on a live account.
5. Price is not a indication of quality.
   Unfortunately that is very true in the Forex world. Just because a Forex Robot is expensive is does NOT mean that it will trade better. I have seen some real hack-jobs in my time. Be very careful if the software company tells you outright that there are no returns. Like I said in my first point: a real company stands behind their product.  I for one believe it is important to offer a robot at a decent price and leave enough money in your pocket so that you can actually set up an account and trade well.
6. Be careful with exaggerated promises of "1000% returns", "Doubles your money in one month" "Never a losing trade"and other stupid quotes.
    A real Forex trader - who should be the person behind developing your Forex robot and therefore your Forex strategy - should know that the growth of your account is relatively slow and steady. I said "relatively" slow because compared to other forms of investment it is actually at breakneck speed - but it should not involve risking too much of your margin and put you at the constant danger of wiping out your entire account. Let's get real here - 1000% profit IS ridiculous and CANNOT be guaranteed - however 200% over a year is more than any other investment can offer you and sounds a lot more reasonable and therefore interesting. Look for robots that offer a believable return and do not promise things that seem too good to be true - because they usually ARE!

Happy Trading!

Stanley

Man Versus Machine: The Advantages of Automatic Trading

As a long time trader I was skeptical regarding the idea of Automatic Trading when it was first implemented in a large scale in the 90ies. After all did it not in some way threaten the very existence of my profession?
What a long way we have come!
Automatic Trading is not only here to stay, but it has really revolutionized the way we trade.
The advantages of trading robots are of course obvious.

• No Emotions
• Fast execution - no hesitations
• No "variations" on the strategy
• flexibility

Whereas the first three points are clear to all who have ever witnessed a "Forex Robot" or "Expert Advisor" trade a live account the last point seems some what arbitrary.

All decent Forex automatic trading systems employ filters to choose entries and exits - they are after all what differentiates one system from the other.

In a sophisticated robot you can control these filters and adjust them to what is going on this year, month or the last 24 hours - with as much involvement as you see fit.

The trader of today spends most of his day tweaking and expanding strategy - not really having to worry about execution of trades.

We have all become statisticians and been able to develop the most sophisticated strategies yet.

What we gave up was a sort of renegade cowboy feel that came with so much stress it certainly shortened our lives.

I think it was an excellent trade!

Fx Trading made easy

Making a living trading Forex can be:

-Stressful or relaxed?

-Frustrating or profitable?

-Manual or Automated Forex Trading?

Trading Forex can be a rewarding full time activity, particularly if you are fond of heartburn, sleepless nights and overall stress and frustration.

Or it can be easy, relaxed and profitable.

Here is what we mean: 

Manual Forex trading is an absorbing endeavor if you are a market lover. We enjoy studying it and making sense of its ways.

Guessing trades, just the adrenaline rush is enough to keep you coming. But look at me, I’m talking like an addict, a gambling addict. Unless you are very, very good at guessing the ways of the market, the only reason to keep coming back is the gambling, because making a regular income at it is difficult at best.

Trading Forex for a living is a tough sell if you consider the difficult Forex market hours and the unpredictable behavior that often rewards hard study with massive losses. You must love it to endure it. Otherwise you won’t survive it.

Or you can let computers do the job for you: trade Forex the easy way.

Sure, there is no adrenaline rush in Forex automated trading. But if what you are looking for is long term profits, not gambling kicks, it’s the best alternative.

No more waking up for the London Session, no more Stress, no more guilt in all those times where your emotions took over and you went against your strategy just to take a gamble that set you back weeks.

Robots can do a much better job at following a Forex trading strategy than any trader in Wall Street. 

They execute all trades precisely according to plan, always cool headed, no exceptions. That’s why they work!

Automated Trading is the way of the future: Computers trade much better than humans. Every bank and hedge fund manager knows that.

And while you might enjoy watching the action at a distance, why not let your Forex trading robot do the hard work. 

In Forex, the easy way is the smart and most profitable way. Nothing wrong with working smart, is there?