10 Dimes Make a Dollar

Last updated 7/27/2010 12:47 PM EST (GMT -5) 10 Comments

FX360 Technical Analyst Staff

Technical Analyst, GFT

Successful trading not just about winning and losing individual trades—it’s about sustaining profitability over time (making money and holding onto those profits in the long run). A common mistake traders make occurs when the success of a trading strategy is determined based on winning percentage alone, which can be quite misleading. Risk vs. reward must be taken into account. Most newer traders (unknowingly in most cases) are willing to risk far more than they are looking to gain (reward) just to be “right,” or win, each trade. Keep in mind that trading is all about making profits over time , not about trading ego (which is usually the result of focusing just on winning percentages).

In other words, significant returns can be achieved when you allow yourself to look at the big picture. The key is to be able to determine both entries and exits in advance so that risk vs. reward can be determined. This will significantly help to keep the decision making process as consistent and mechanical as possible, which is essential regardless of the technical/fundamental strategy that is used as it helps to eliminate emotions when making trading decisions. Only then can a truly objective decision be made as to whether or not to take the trade since this decision will be based on established/actual results, and not a “gut” feeling or reaction. Understanding the mathematical “law of averages” and “law of large numbers” reinforce this mechanical approach to trading which, again, is crucial to trading success because mixing emotions with money-based decisions is usually a recipe for disaster!

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Comments (10)

NeoFX

January 08, 2010 at 04:36 PM ET

have been doing this pretty much but this market is really merciless sometimes. Got crushed this morning on AUD/USD due to huge 160pip slippage (needless to say I was going short). Was up a good 95 pips too thank god I sold half of my position and locked in some profit....the other lot I had got pretty much wiped out.

Anyway, i'll take it as a lesson for next time and I'll stay out during these types of announcements (or I won't be as greedy and take my 95 pips instead :)

with that said:
does anyone have any input on the aussie/dollar? we're right back up to the 78% fib ret level again (due to today's bad news). (from prev daily chart high before break of longterm trend line to most recent low but does this pair still show signs of bouncing down from this point?

Technically speaking it seems like a great sell to me at this point (nice daily evening star formation as well a nice double top on 4hr chart)...but just don't know with all these news. I'm not a great fundamental guy

anyone?

thanks

alexjbrandt

January 08, 2010 at 05:18 PM ET

160 pip slippage is insane, I have never heard of someone getting that but it doesn't surprise me with the news event. I think the rest of this month we will see dollar weakness, and risk flows pick up again. Especially into higher yielding currencies such as AUD, NZD. The EUR/USD will probably test 1.45 level next week. Just my outlook/opinion.

alexjbrandt

January 08, 2010 at 05:19 PM ET

160 pip slippage is insane, I have never heard of someone getting that but it doesn't surprise me with the news event. I think the rest of this month we will see dollar weakness, and risk flows pick up again. Especially into higher yielding currencies such as AUD, NZD. The EUR/USD will probably test 1.45 level next week. Just my outlook/opinion.

CecilFX

January 09, 2010 at 04:49 AM ET

My God AUDUSD today was my most exciting and most depressing trade EVER! I was convinced taking a contrarian stance on NFP today would be the smart play. I couldn't have been more correct! Don't think I am patting myself on the back though. I lost 75 pips! Why? Cuz I am a freaking idiot! I went short on AUDUSD, why? Because I was predicting dollar weakness. Doesn't make sense does it? I just blanked out and thought I was trading a pair with USD/whatever. What an embarrassing mistake. I am trading micro lots, which is way too much for a fish like me.

Clancy

January 11, 2010 at 03:51 AM ET

Dear Roger,

Funny you wrote this. I just thought this over all weekend. Patience, and picking entry and exit positions. I took a long poslition on gold, for numerous reasons. Instead of putting a good limit order near the 1120 area with a stop below for a break above 1140 i ended up buying right near resistance and having to sell near support. Emotions are the enemy. Planning your trades with an exit stop loss and gain strategy are very important in trading. The idea was right, gold is 1155 now,...but since i had a bad entry price i missed the move.
Good luck in all your future trades.

fxpro888

January 11, 2010 at 06:21 AM ET

NeoFX,

your name is telling ...160 pips is not slippage. for the proper definition please visit http://www.investopedia.com/terms/s/slippage.asp and...its probably not a great idea to be long the dollar right now. especially, after friday's NFP and what has gone on for the past few days. the dolllar is likely gonna keep getting sold. that being said, anything can happen, and you should have an appropriate stop loss (not an insane 100+pips stop loss).

hsbc

January 11, 2010 at 07:47 AM ET

doesnt that depend on his risk apetite, trading size as well as duration of his view? outt of curiousity do u buy usd when it is falling or when it is rising?

Big A

March 15, 2010 at 07:11 PM ET

I'm holding out until .9250 to short it.

VietTrader

May 26, 2010 at 06:29 PM ET

Can someone fix the *CHARTS* . It is not updated no more ,showing date from 5/21. Thank you.

FX-721

July 29, 2010 at 08:47 PM ET

Roger, can you please elaborate on the cocept of “law of averages” and “law of large numbers”.
Thx.
Vlad

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