Risk, Money Management, Conflict of Interest...etc

I often see websites and posts writing about trading systems as in where to enter and exit.

However, I rarely see anything about risk and money management.
I read how some traders have three figure % returns, but what about the risk? Do you have one year of huge returns and one year of huge negative returns?
Basicly, the whole thing sounds "too good to be true".

What about conflict of interest with Market Makers. I am paper trading with Alpari (UK), they have introduced a fifth decimal place. (I paper trade AUDUSD and GBPUSD) I checked 2 major banks, they are still quoting to four decimal places, along with Yahoo and Google Finance.

Does anyone trade in an actual market? Derivatives or underlying, not with a Market Maker? (bucket shop?)

u trade the support and resistance lines u will be safe

look for those false breaks and trade the reversals, i guarantee u success

Hi,

read up about money management, position sizing and risk management overall - hugely important [more important than any entry/exit strategy]

For trading small to average size [up to $100K +/-] its fine to use retail brokers - no need to worry.

If your're big, I'd opt for ECN's in connection with reputable clearing firms.

regards
daytrading

how does this have ANYTHING to do with risk management? LOL

anyways, i think that calculating risk and good money management are the MOST important parts of a good strategy. like you alluded to above, if you make three hundred percent a year with crazy risk, you can just as easily lose one hundred percent in a third of a year. personally, i believe that you should risk only 1-2% per trade, maybe a max of 3% if you are feeling good. note: this is still considered EXTREMELY risky by institutional/professional standards. some people think even risking 0.3% is crazy.

also, you should have a limit per day that you can lose, say maybe five percent. that way, you cant have a ton of one percent losses and blow your account. this way, you have maybe 5 to 10 trades a day, and if you lose all of em, you are done. you have to limit your losses. this should apply to profits too, say you make three percent one day, you should still only be able to lose five percent, so in reality, you can only lose two percent from your original balance now. (100% + 3% = 103% - 5% = 98% = 2% lost, see?) if my examples are confusing its because I'm tired.

anyways, you are absolutely right. moving averages and breakouts, technicals and fundamentals, entries and exits are all worthless if you don't have a good risk system.


as for the decimal place thing, it is really a matter of preference. if you are putting in massive amounts of money, a fifth decimal place can help get tighter spreads or better entries, and at those amounts of money it can definitely help. but if you are a normal retail trader (which i am assuming you are) it isnt going to make a huge difference to you.

and yes, i trade with deustche bank. there arent really any conflicts of interest. it might seem like there are sometimes, but if you really understand what's going on, you realize that they arent conflicts of interest, but more like miscommunications. for example, if you trade with them as your broker, they dont literally trade against you. however, their trading floor might take a position opposite of yours. it might seem like DBFX is trading against you, but it's not the broker, it's the trading floor. i personally don't have a problem with it, seeing as everyone needs to make money somehow. also, you arent going to get all this "hunting stops" or "widening spreads to take me out" crap. if your stop gets hit, thats because you put it in a crappy spot. someone with billions of dollars in the market isnt going to care about your 1000 dollar position. as for the widening of spreads, this is a typical market function. the retail bid and ask price are basically based on the average institutional bids and asks. sometimes there wont be a spread of two pips, maybe it'll go to six and seven, because maybe not everyone wants the prices specified in the spread. this isnt the broker trying to take your trade.

so yeah, i have no problems with them other than the typical online broker problems. but again, to me, it's all about preference.

A good place for you to start might be ..... Forex Articles, it's a sticky at the top of the rookies page. which is obviously where you need to be spending some time.

Thanks everyone, especially Blacksun1.
Daytrader, what is an ECN?

from fxstreet.com:

ECN: Electronic Communications Network. Directs the client straight through the interbank market, usually resulting in tighter spreads. Most ECN’s have a fixed commission per round/turn lot.

from Morgan Stanley:

Electronic communications network (ECN)
An ECN is an alternative securities trading system that collects, displays, and executes orders electronically without a middleman (such as a specialist or market maker). Trading on an ECN allows institutional and individual investors to buy and sell anonymously. Further, ECNs facilitate extended, or after-hours, trading.


these are people like Interbank, FXDD, FXCM, Hotspot, Interactive Brokers etc; basically, most online brokers. these are more retail oriented brokers

the opposite is a market maker, for example, large banks or large institutional firms such as Deustche Bank, Citi Bank, Gain Capital, etc. a market maker is someone who actually provides their own bid/ask prices at which you would buy or sell from. these are more institutional oriented brokers.

hope this helps you out bro.