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Risk Management is one of the key components of trading and also one of the most overlooked aspects. In this video learn about general pitfalls of intraday forex trading, the risk management techniques and ideas for further scope of research.
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One of the the major risks of forex trading is the high leverage offered in forex markets. Although such high leverages look very enticing, a couple of trades gone wrong could easily wipe out your entire account. For example, if you are trading EUR/USD with a leverage of 1:100 and with an equity of $1000 in your account. Now, if had invested your entire $1000 in the EUR/USD at a rate of 1.0405, and then the price moves up by 100 pips from 1.0405 to 1.0505 then you would have made a profit of 1 cent per dollar.
So by using a leverage of 1:100, every $1 you invest is worth $100, so with your $1000 margin you can open a $100,000 deal. So in this example, your $10 profit is magnified to $1000. Conversely, had the market moved to the downside, your entire account would have been wiped out the $1000 loss.
Stop losses are set by traders to contain the amount of money that they could lose in a single trade. Stop losses could also be set on an overall portfolio basis. Setting the right stop loss is very important for every trader. Most traders prefer to set a static or fixed stop loss for every trade. This stop loss usually reflects the risk appetite of the trader, and explains how much the trader is willing to lose in a given trade. Although this strategy might sound very good, it risks triggering stops when the market is volatile. To avoid such a situation, it is advisable to have a stop loss that is proportional to the volatility of the market.
Managing a portfolio:
When you trade multiple currencies at the same time, it is hard to determine which pair should be allocated how much money. To determine this, a trader should develop his or her own portfolio ranking scheme. In other words, the trader should have a single or multiple metrics based on which, the allocation of money should be made. Let us discuss this with help of a simple example. Let us say that you are trading the three currencies: USD/GBP , GBP/EUR and EUR/USD. And overtime you have observed that those pairs that underperform the most on daily basis tend to outperform the others the next day. Based on this, you can rank the three paris and allocate the most money to the least performing pair, and least money to the highest performing pair. In our upcoming courses, we will discuss many such portfolio management techniques.
For this video, we will end here.
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What Is Momentum Trading?
Momentum trading is a strategy in which investors deal according to the strength of current price patterns. Price Momentum is similar to Momentum in physics, where mass increased by velocity determines the likelihood that an object will certainly advance its course. In monetary markets, nonetheless, Momentum is identified by other variables like trading Volume and also rate of price adjustments. Momentum investors wagered that an asset price that is relocating strongly in an offered instructions will certainly continue to relocate that instructions up until the trend loses strength.
Where Did Momentum Trading Beginning?
The method of Momentum trading has actually been around for centuries. As early as the late 1700s, famous British financial expert and also investor David Ricardo was understood to have made use of momentum-based techniques successfully in trading. He bought stocks with solid executing price patterns, and after that marketed supplies whose rates were choking up. He qualified the approach with the expression: “Cut short your losses; allow your profits run on.”.
Exactly how do you select stock Momentum Trader?
When picking Momentum Trader supplies, you require to consider supplies that are trading above the typical variety of shares. Stocks that have more than typical quantities are those that have a tendency to space greater or reduced on the open.
Complying with the development of technical evaluation in the late 19th century, notions of Momentum gained use in the 1920s and also ’30s by widely known investors and also analysts such as Jesse Livermore, HM Gartley, Robert Rhea, George Seaman and also Richard Wycoff.
The idea was first formalised in academic research studies in 1937 by financial experts Alfred Cowles and also Herbert Jones. They located that possessions that carried out well in one year often tended to continue to carry out well in the list below year.
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All products listed on our website StockTradeForex.com are traded on leverage which means they bring a high degree of risk and also you could shed greater than your deposits. These products are not appropriate for all investors. Please ensure you completely recognize the threats and also carefully consider your monetary situation and also trading experience prior to trading. Look for independent advice if required.