News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
Oil - US Crude
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • Further your forex knowledge and gain informed analyses from industry leaders with our free guides, available today. Download the Q3 guide:https://t.co/7G7pWntiyY https://t.co/w56ra8ZG9y
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Silver are long at 93.58%, while traders in Wall Street are at opposite extremes with 73.57%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/o0D0Ngucod
  • USD/JPY attempts to retrace the decline following the semi-annual testimony with Fed Chairman Jerome Powell amid a rebound in longer-dated US Treasury yields. Get your market update from @DavidJSong here:https://t.co/Uos1L1Z4wG https://t.co/pZhubVlhjs
  • Commodities Update: As of 16:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: 0.02% Gold: -0.15% Silver: -0.83% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/4gIoNck16b
  • The US Dollar is broadly stronger on the session with the latest flash PMI report from @IHSMarkit underscoring inflation pressures ahead of next week's Fed announcement. $DXY facing psychological resistance at the 93.00-handle, though. Link to Analysis - https://www.dailyfx.com/forex/market_alert/2021/07/23/us-dollar-firms-as-pmi-data-echoes-inflation-risk-cue-the-fed.html https://t.co/SzMzzxoYzN
  • Forex Update: As of 16:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.04% 🇪🇺EUR: -0.05% 🇬🇧GBP: -0.10% 🇨🇭CHF: -0.18% 🇦🇺AUD: -0.18% 🇯🇵JPY: -0.31% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/RykiRciAsZ
  • ECB's Weidmann: - New ECB goal does not mean there will be markedly higher inflation
  • ECB's Weidmann: - I expect inflation rates in Germany to rise to 5% by the end of 2021 - Governing council believes that expansive monetary policy is acceptable at the moment
  • Indices Update: As of 16:00, these are your best and worst performers based on the London trading schedule: US 500: 0.74% Wall Street: 0.51% Germany 30: -0.03% France 40: -0.08% FTSE 100: -0.12% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/iXJHlexTlA
  • USD/MXN trades directionless, oscillating between small gains and losses, near the 20.15 area. Get your $USDMXN market update from @DColmanFX here:https://t.co/FFr3rlGh6n https://t.co/7tniccl9S8
Money Management Made Easy: Part II

Money Management Made Easy: Part II

Richard Krivo, Trading Instructor

Most new traders close their winning trades too soon so they can lock in a (small) profit while staying in their losing trades too long in the hope that the losing trade will turn around. If this tactic is employed over time, a trader needs to be correct in their trades much more often than not otherwise the account will diminish in size.

Money_Management_Made_Easy_Part_II_body_ANd9GcTtYlyIb_Ce4YlqvC5H-7_Xzjq0a3oPoln7m4EPjIpldj1iWwtS.png, Money Management Made Easy: Part II

The benefit of using a positive Risk Reward Ratio in each trade is that it insures our winning trades will gain more than our losing trades.

Let’s take a closer look…

Having a 1:2 RRR in place simply means that you are risking half of what you are expecting to gain on each trade. In other words, if a trader has a 50 pip stop in place on a trade and that same trade works out, the gain should be at least 100 pips. If they are risking 125 pips they should be looking for a gain of 250 pips. In each case the trader is gaining twice as much as they are risking. This is known as a positive Risk Reward Ratio.

When employing this type of strategy a trader can be wrong on more than half of their trades while still watching the size of their account grow over time.

For example, if a trader takes 10 trades with a 50 pip stop on each of them and loses 6 of the trades, they lost a total of 300 pips. (6 x 50 = 300 pips)

On the 4 winning trades they gained 400 pips. (4 x 100 = 400)

The net result of the 10 trades is a positive 100 pips. They lost 60% of their trades and yet they showed a profit. This is the power of having a positive RRR in place. (Obviously we only want to be taking higher probability trades but that is a topic for another article.)

Let’s put a Risk Reward Ratio in place using the NZDUSD currency pair shown on the 1 hour chart below…

Money_Management_Made_Easy_Part_II_body_Part_II.png, Money Management Made Easy: Part II

We know that since this pair is in an uptrend the higher probability entries, the ones with the greater likelihood of success, will be buys. If the pair trades above .7991, the previous high, we will buy the pair.

As stated in Part I on this topic, we must decide where we will place our stop before we even enter the trade. In this case I would place the stop just below .7887. (I chose that point as it represents the low of a support “shelf” that runs between .7945 and .7887.)

If the entry is at .7991 and the stop is at .7887, the risk, the distance between the entry and the stop, is 104 pips. So if this trade does not work out, we know before we ever enter the trade that the loss will be 104 pips per lot.

Bringing the 1:2 RRR into play, since we are risking 104 pips on this trade we know that we must have a realistic opportunity for this pair to gain 208 pips.

Now let’s look at the Daily chart on this same NZDUSD pair to see if that potential exists…

Money_Management_Made_Easy_Part_II_body_Part_II_1.png, Money Management Made Easy: Part II

On the Daily chart we can see that if price action trades above .7991, it does in fact have the “room to move” up to the next level of significant resistance which is around .8236. This would be a gain of 245 pips. Since we were looking for 208 pips for our 1:2 Risk Reward Ratio, this would more than qualify. In fact, our RRR in this instance would be 1:2.35.

Keep in mind, however, that simply because a pair has the “room to move” does not mean that it will in fact move to that level. While having that room is a trading edge in this case, it is not a guarantee that price will comply.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES