Insurance and Credit

Many forex traders start trading live too soon. They dont have any understanding and learning of good money management rules. As a forex trader, you need to develop a few good money management rules. Practice them on your demo account before starting live trading. By developing your own money management rules you are comfortable with means how much of your money you are willing to risk on one single trade. You also need to determine how many contracts per trade your risk tolerance allows?

The important question is how you can improve your investment results by making small changes to your trading strategies. Proper money management can be the difference between becoming a successful forex trader in the long run or an unsuccessful one who decimates his/her account in a few weeks.

Have you ever played poker? If you have, then rarely you will see good players put all their chips on a single bet. As a poker player, you know by risking only a small portion of your money on a single bet, you can win or lose but be still play the next hand. If you put everything on the table on a single bet, you have to be 100% sure of winning. An impossible thing, you can never be 100% right.

You must know that currency trading is far more complicated than playing poker. You will be dealing with hundreds and hundreds of unknown variables that affect the markets what to talk of only 52 cards. You must understand and implement good money management principles in order to succeed at forex trading.

There are many pitfalls that you will run across while trading. A trader is constantly under the pressure of two emotions; greed and fear. When you win a trade, you become greedy and want to risk more to win big. You want to strike it rich in a few trades. This drives you to take more and more risk.

In case you lose a trade, you will become fearful of risking your money on the next trade. Now, fear will take over and impair your decision making. Fear will make you lose confidence in your judgment and decision making. Lets see how fear and greed can impair your trading results.

Lets suppose you have a run of successful trades. You are feeling overconfident and you are not satisfied by risking only 2% of your account on a single trade. You want to risk more on the trade. The more you have in a trade, the more you will make if you are right. You increase your risk to 5%, you win. You increase it further to 10%, you once again win. You finally decide to put 25% of your equity at risk on a next trade, but misfortune strikes. Your successful run comes to an end. You lose.

Suppose you had a $100,000 trading account and you had foolishly risked 25% or $25,000 on one trade that you desperately wanted to win. Losing $25,000 means you have only $75,000 in your account now after your loss. How much you need to make to get back the original balance of $100,000; you need to make $25,000 again to go back to the original balance. It means you will have to make 25,000/75,000= 33%, so you risked 25% but now you will need to make 33% to get back your original amount.

Many investors once they lose a trade become desperate and try to risk more to recover their original loss. They end up losing more and more and very soon those investors destroy their accounts. Most of them are out of trading forever soon. There are other traders who try to reduce risk even more on making a losing trade; eventually they lose any opportunity for meaningful growth in their accounts.

Support and resistance levels are used by investors and speculators to determine how far they believe a currency pair will move between the two levels. This also tells them at what points the price action may turn around due to the buying or selling pressure and start moving in the opposite direction.

But sometimes, the markets change direction due to a fundamental factor. The market change of direction is strong enough to cause a currency pair to break through a previously established support and resistance level. When a previous support and resistance level is broken by the markets, new levels are established. However, the broken levels may still have some influence on the market in the future.

Sometimes there are attempted breakouts. This is also known as False Breakouts. It will become obvious to you that prices do not always stop at exactly the same points each time. So if you are going to set up stringent requirements for your support and resistance levels, those levels may not hold up. You would fake yourself out of a lot of valid price movements.

Even when you take all the precautions, you may fall victim to a false breakout. Now, you will ask how I can tell a false breakout from a true one and when the price has truly broken through support and resistance in a new direction.

There are primarily two methods that you can use to filter out a false breakout with a true breakout. These two methods are setting price-amplitude benchmarks and identifying role reversals.

Setting price amplitude benchmarks involves looking at a chart to determine if you can identify and know when the price action momentarily broke through the prevailing support and resistance level before pulling back and once again returning to the previous level.

The dips through the predetermined levels are usually short lived. You can draw a secondary support and resistance lines which you can then utilize as your price-amplitude benchmarks.

A price amplitude benchmark will tell you if the price has broken through the predetermined level but did not breakthrough the benchmark; you dont have to worry about a change in the trend direction. However, if the price had enough momentum behind it to breach the benchmark, it can continue in the new direction.

Identifying role reversals method involves watching the price action to see if support levels turn into resistance levels and resistance levels turn into support levels. Often, you will see the price action bounce off a level of resistance, then turn around and start heading lower and bounce off the previous resistance level.

When a resistance level is broken, that same level will turn into a support level. Conversely when a support level is broken, that same level will turn into a resistance level. You should use both the benchmark and the role reversal confirmations in your trading analysis to screen out false breakout from a true breakout.

Despite a drastic economic downturn, it seems that mutual funds are still as popular as ever, with many people buying in through their retirement accounts or getting in at low prices. Mutual funds make investing fairly easy, compared to stocks. But one reason people lost money in mutual funds is that they didn’t know the mutual fund basics they needed to keep money safe. Although mutual funds are often touted as being easy to invest in and virtually no-lose investments, we know that’s not true, and learning more can help you avoid the losses we saw in the past year.

There are thousands of mutual funds available, literally more than 10,000 are traded on the market. Together, all mutual funds have succeed in attracting $4 trillion dollars of investments! It’s still possible to profit with mutual funds, but you should understand the basics to know how safe they are for you.

Until late 2008 and into 2009, mutual funds enjoyed quite a reputation for steady returns and safety. They also gave investors an easy way to diversify their holdings. Funds also help spread the market risk among various investments. even in times of economic downturn, these qualities are worth finding in a good mutual fund.

As a mutual fund is set up, the fund raises investment cash from investors, then uses that money to invest in stocks, bonds, and other securities that are a proper fit for the objective of the fund. Within the fund there is nearly always than a single individual investment. When the value of those investments goes up, or goes down for that matter, its investors also see a gain or a loss. When a fund pays out a dividend to shareholders, the investors get their fair share too. In addition, you can find that funds are well managed by professional advisors.

Mutual funds are designed as special types of corporations, which are allowed by charter to combine funds receied form investors, and invest that pool os cash for the whole group, based on the defined objectives of the fund. To raise investment capital there is an offering of shares of the fund to be sold to the general public, just as any public company wolud seek to sell stock on the market. Then the funds take the proceeds from selling shares and use it to purchase a variety of investments, such as stocks, bonds, derivatives, or money market instruments.

When the shareholder invest by buying shares, they receive an equity share positions in the mutual fund. At this point the shareholders each own a piece of the underlying securities owned by the fund. For the most part, mutual fund shareholders are permitted to sell their fund shares on the market at any time, but the price they get will be determined by the daily changes in the share price as it is reflected in the performance of the underlying investments.

It’s also true that many investors get their investment ideas based on just a few criteria: the total performance of the fund in the recent past, or through tips from a friend or acquaintance, or by reading magazines or online publications. Even though there is a chance these efforts could result in choosing a good mutual fund, it’s still very risky to buy on this basis alone. It’s better to have some idea of fund’s characteristics, and whether it’s a good addition for that particular investor.

Note that every mutual fund has individual characteristics that are unique to it, such things as the performance, the personalities of the management, what the fund’s investment objectives are and so on. When choosing a mutual fund, it’s better to also consider your own financial plan overall, to see if the fund fits your own objectives. Start by defining your personal financial goals first, and address your financial priorities, the amount of money you have available, and the level of risk you are comfortable with. Put down also in your plan the time line you expect your strategy to bear fruit.

It’s always fun to talk about the high-flying funds and their performance returns, or then again, since the crash of 2008-2009, it’s not as exciting as it once was. Nevertheless, it is a good lesson to understand that a fund’s total return for the previous several months or years simply isn’t a very good method for rating mutual fund performance. Whatever high returns a fund may have earned in the past, it only takes one down year for performance ratings to drop dramatically. Remember the old saying, past performance is no guarantee of future returns. Instead, determine which is the right fund for you by looking at other funds in the same category of investment, such as bond funds, growth funds, equity income funds, etc.

Also review the record of a fund’s management team – whether they take steps to minimize loss of their capital, and whether they are continuing to provide solid performance. Use these mutual fund basics to analyze which investments, are a good part of your investment foundation.