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Leverage is one of
the reasons many traders come into the forex market and the
reason many traders leave without any money left in their
account, many
brokers including my own offer up to 200-1 leverage. With
leverage of 200-1 you
have control of 200 times the money in your account. If have
$1000 in your
account you can buy $200,000 using a leverage of 200-1. We
will not be using
anything remotely like that in this course. High leverage is
a killer and can wipe
out your account in one trade. Later in the money management
section of this
manual we will be discussing how to control your risk on
each trade so that if the
worst case situation happens you can withstand a huge amount
of losses without losing your account. Again I DO NOT use
high leverage and if you want to survive and build wealth in
this business neither should you. |
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Stops & Stop hunting
Stops are orders set to close your positions if the trade
goes against you by the
amount of pips you stipulate. I want to take a minute to
talk about stops as this
is something I see many traders struggling with all the
time.
You may have heard of stop hunting, it is not a myth, it
actually happens
although usually not to the extremes many traders talk
about. Many of the retail
brokers that require only a small deposit to open an account
are often not giving
you direct access to the forex market as the positions you
are trading are too
small. Instead they take the other side of the position
themselves because it is a
fact that the majority of traders lose money overall and the
brokers are playing
this to their advantage. So you make your small mini lot
trade and the broker
takes the other side at their dealing desk, you place your
stop which the broker
can see on their platform and you go about your business.
Now it is important that I point out the broker is not
targeting your position, there will be thousands of
positions with stops in the same place and as price comes
within 5 pips or so
the broker may manipulate the data feed by 5 pips to take
out all these stops. So how do we avoid being at the mercy
of the broker? We trade longer term charts and avoid all the
stressful day trading systems out there that require small
stops.
Different traders use stops in different ways, some use
stops as protection
against a sudden market crash and some don’t use them at all
due to suspicion
that brokers try to take them out. I personally believe a
trade should have a stop
placed at a point that gives the trade room to breath and if
the trade did go
beyond that point, there would be no question that the trade
was no longer
valid. This is the approach I take with my trading and it
has served me well, I
have a max pip stop I am willing to risk and I do not allow
myself to move this
stop once it is placed.
Many traders fail to realise
that trades will not immediately go in your direction
all the time, they need breathing space. As soon as I began
giving my trades
more breathing space I saw my win percentage go through the
roof. It’s the
whipsaws that get many traders out of the market just before
price heads off in
the anticipated direction, especially if you are trying to
trade the small intraday
time frames.
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