Question

Hello Anna,
I must say, I am utterly and pleasantly surprised that I got a response from you. I thank you. I have heard your advice as far as not starting to invest in the FOREX market starting out. I agree, at least live anyway. I wish to continue my education and perform “paper trading” before starting small and building up.
I was wondering if you and your husband provide any coaching/mentoring program? Or, do you feel that everything you could possibly teach is already in your books?
Below are just some of things that I wish to learn;
1. Position sizing per trade as a percentage of equity.
2. Which currency pairs to trade for maximum bang of investment dollars (sorry in your case pounds)
3. Reviewing a potential trade for risk/reward ratio.
4. Trading platform (MT4, Ninjatrder)
4.1 (Do you do all your trading manually or is there some automation implemented to compliment your trading)
5. Type of brokerage to use.
6. How much leverage is acceptable.
Anyhow, I do not wish to bombard you, but if you don’t provide any training, would there be anyplace you recommend I go?
Thanks in advance, your new friend,

Answer

Hi- many thanks for your email and apologies for the delay in responding, but as you may know I have had to take some time away from work following the recent death of my mother. However, I am now back at work and busily catching up with emails.

I do strive to answer all my emails although, as you can appreciate, it can take time given the sheer number that I receive. I feel it is important to do so given that people have taken the time and trouble to write to me, in the first place.

In answer to your points these are as follows:

1. My own rule of thumb is never to risk more than 1% of my trading equity on any one position, and preferably less. Professional traders will tend to operate at much lower levels, one half or even one quarter. In simple terms if you have $1000 in your trading account then $10 is the risk per trade as this effectively means you can be wrong 100 times before you have lost all of your trading capital. The only caveat to this is when you start, ironically you have to risk more and may even have to go as high as 5% to increase return. This is much like starting a new business when the risk is always higher at the start and scaled back as you become established.

2. Setting aside the issue of the spread the best approach is to look at those pairs which have some volatility and you can do this for free online at a number of sites. The Oanda site is one I use and show in the trading room from time to time – http://www.fxtrade.oanda.co.uk/analysis/currency-volatility.  What this data shows you is the current volatility for the most popular pairs. As a general statement the Yen cross pairs are more volatile than the majors, but you will be dealing with wider spreads. What this data also reveals are pairs many traders ignore such as the EURAUD which has delivered some exceptional trades.

3. With regard to risk/reward ratio this is one of the many fallacies about trading, and I am planning a major piece to demonstrate this fact, and be posted on my site.

4. Trading platforms are very much a personal choice but those I use myself include MT4, Ninjatrader and Tradestation.

4.1 All trading is discretionary and manual. The only rules I apply are in my risk and money management. Every other decision is based on analysis and my view of the price action and volume at the time.

5. With regard to a brokerage account this will largely depend on the markets and instruments you intend to trade. For spot forex, MT4 is fine but for more complex instruments, strategies and stocks you will require a more sophisticated broker. Personally I use Interactive Brokers, but you must carry out your own investigation and due diligence. I cannot stress this too strongly.

6. Leverage is a double edged sword and treated with the greatest respect. The US authorities have reduced this to 50:1 for spot forex and will shortly be reducing this further to 10:1 which gives you some idea of the dangers associated with extreme leverage. The maximum for stock trading is 2:1 and most professional traders will operate between the two. If they have sufficient funds they will operate at 1:1.

I hope the above helps to clarify matters for you and thank you for your patience.

Kind regards – Anna