One of the most amazing thing I have found out is that, most amateur Forex traders believe that the results of the Forex trading is not random, yet they can’t seems to produce consistent profits. Shouldn’t a random market produce inconsistent results and a nonrandom market produce consistent results?

What those new Forex traders fail to understand in Forex trading is; Events with probable outcomes can produce consistent results. Experience traders treat trading like a game of probability, which is similar to the way casinos and professional gamblers approach gambling.

To give you an example, let’s take a look at the game of poker. In poker, the casinos have approximately a 4.5% edge over the player. This means that, over a large sample size, the casinos will generate net profits of $0.45 on every dollar wagered on the game.

You may find that 4.5% might not sound like a lot, but if suppose a total of $100million dollars is wagered collectively in the casino over the course of a year. The casino will net 4.5million profit!

Every professional Forex traders understand that every individual trade is an unique event, where the outcome is random relative to the last trade or the next trade. New Forex traders must know that in each individual trade, there will be a random, unpredictable distribution between winning and losing. But on a collective basis just the opposite is true. If a large number of trades are executed, patterns will emerge that produce a consistent, predictable, and reliable outcome in Forex trading.

Now, let us get into deeper psychology into how new Forex traders can succeed in producing consistent results by applying the following simple Forex trading beliefs. Firstly, they need to know that it requires 2 levels of beliefs to be aligned in order to produce consistent results in a random situation.

At the first level, they must believe in the uncertainty and unpredictability of the outcome of each individual trade. On the next level, they must believe that the outcome over a series of trades executed is relatively certain and predictable. The degree of certainty is a function of how good their edge is.

It is the ability to believe in the unpredictability of the Forex market and simultaneously believe in the certainty of the outcome when a series of trades are executed that makes an individual Forex trader successful.

The belief in the uniqueness of each trade prevents experience traders from engaging in the pointless endeavor of trying to predict the outcome of each individual trade. Experience traders have learned and completely understand the fact that they don’t know what is going to happen next. Most importantly, they don’t need to know in order to make money consistently in Forex trading.

When you don’t have to know what’s going to happen next in Forex trading, you don’t place and special emotions on each trades. In other words, your egos involved will not get in your way of trading Forex effectively.

This article on Creating Consistent Profits in Forex Trading is brought to you by www.onlinetradingfx.com

For those looking to learn the basic foundation in Forex trading and other financial instruments, i would strongly recommend the course; Habits of Success conducted by world class trader, Ray Barros. 

Let me give you some brief intro about Ray Barros;

Originally a lawyer by profession, Ray has given up his lucrative practise in 1980s to pursue his passion and love for trading. His early attempts at trading failed miserably and he suffered heavy losses. Finally, Ray hit on a trading approach that gives him the market edge, allowing him to trade profitably and consistently.

Thereafter, he was highly sought after by major banks to manage their funds, and as a trainer to train other instituational traders.

In the early 1990s, he became as outsourced Forex Trader and it gives him the flexibility to focus on his passion on teaching.

A more detailed information on Ray Barros.

I have personally attended the Habits of Success conducted by Ray Barros, i can firmly say that it is a MUST for those who are keen on starting to learn any form of trading. It builts the basic trading psychology in you and lay out the true facts of trading without any hype. It is definately value for money.

Detailed Course Information

In the situation of economic recession, AIG has used part of their bailout money and given out as bonuses to their employees, and this has caused public unrest and the wrath of US President Barack Obama. From here, we can see that Money Management is really something important in managing wealth as well as in Forex Trading.

So today i would like to share on the importance of Money Management in Forex trading. Successful Forex traders have a larger edge and better money management than unsuccessful Forex traders.

After observing hundreds of amateur Forex traders, I began to discover that their failures can be explained almost exclusively by their poor money management practices.

When Forex trading, the importance of Money Management is underestimated by a lot of Forex traders. It is of much more importance than entry and exit decisions (=timing decisions) will ever be.

Very few indicators are better than a coin toss, and if they are, the edge is eaten up by slippage and commission.

Money Management in Forex trading is also called asset allocation, position sizing, portfolio heat, portfolio allocation, cash flow management, trade management, capital management and position management, size management, bet size selection, lot size selection, or even risk control, equity control, and damage control.

Money Management is managing the position size while Risk Management is about managing losses and open profits (unrealized trading returns).

Actually I don’t like the term ‘Money Management’ in Forex trading as it also has a very general meaning (it’s also used to describe the “process” of saving, those “learn valuable skills” pages talking about piggy banks and how to teach kids about pay checks).
But ‘Money Management’ tells a Forex trader that he should concentrate his research on how to optimize capital usage and to view his/her portfolio as a whole.

Actually there are (at least) 2 steps to implement proper Money Management:

1) Position sizing is the determination of what (fixed or non-fixed) fraction of a portfolio’s total (or again fixed or non-fixed fraction) equity to risk on each trade expressed in Dollar-, Euro-, Yen-, or Swiss Franc-denominated currency values.

2) Position sizing, on the other hand, is the calculation of how many contracts I should hold in my position once a trade entry is signaled, which basically is a function of the Big Point Value (the number of dollars that a 1-point price move represents) and a rounding algorithm as the number of contracts/stocks can’t be traded in fractions and must be cut down to a whole integer.

Let me show you a clearer picture of money management.

Suppose you and I bet $0.20 on a coin flip: Heads, you win, Tails, you lose. Suppose you have $10 of risk capital and I have $1. Even though I have less money, I have little to fear, because it would take a string of 5 losses to wipe me out, unless two brokers get between us and drain our capital by commissions and slippage.

The odds will dramatically change if you and I raise our bet to $0.50. If I have only $1, then I can only afford to lose 2 times. If you have $10, you can afford to lose 20 times.

Many amateur Forex traders take wild risks with a poor money management system. When they lose on their trade, they increases their lot size or position, hope that they can recover their losses made previously and make some profits. This action has caused their capital to be more exposed to risks.

This lesson won’t automatically build wealth, but will bring a wealth of experience and knowledge, which will prove invaluable to you if both understood and applied properly. It will steer the course for your success in the Forex trading arena.

If you are too lazy to dig deep and understand this lesson, I would advise to refrain from Forex trading.

This article on Money Management in Forex Trading is brought to you by www.onlinetradingfx.com