Precision Entry Trading Lab

The Statistical Reality of Trade Entries

If you look at all your trade entries, or a lot of entries generated by a strategy, you will find that in most cases, the price comes back to the entry level, even after a relatively considerable period of time has elapsed. Even when a technical development has occurred that indicates that the price is not going to come back there, for example carving out a higher swing low or lower swing high, it is still likely to return and hit your newly breaking-even stop loss.
To give an example, I examined a trend trading strategy that has recently produced excellent results. The stop loss is one day’s average range, so it is adjusted for volatility. I looked at all the really good entries: the ones that produced winning reward to risk ratios of at least 5 to 1. The result was that it was only safe in about half of these cases to move the stop loss to break even once 48 hours had elapsed. Of course, this was a longer-term trading strategy. However it goes to show you that while it may be true that many of the very best trades go into profit right away, this is not usually statistically common enough to build a winning strategy upon.

The Best Time to Move Your Stop Loss to Break Even

One of the most common and expensive mistakes made by traders is moving the stop loss on a trade to break even too quickly. It is psychologically attractive to move a stop loss to break even in order to enjoy the feeling of removing risk, but it is usually not a smart thing to do as it tends to result in being kicked out of potentially profitable trade too early.
Stop losses should only be moved either after a defined period of time has elapsed, or after the trade has moved in the trader’s favor by a relatively large amount, compared to the risk of the trade. Other methods of judgement tend to produce poor results.
The question of whether you should move a stop, and if so, when you should move it, depends also upon your style of trading, i.e. your tolerance for losses and your profit targets.

One of the most important things that a trader can achieve is consistency. While consistency and returns are both good measuring sticks for a solid trading routine, the reality is that achieving consistency is more than simply racking up a certain number of wins or losses – it is having a trading routine that you follow like a machine.

Why Do You Need a Trading Routine?

The biggest advantage to having a trading routine is that you have a certain set of rules and standards by which you apply your craft. If you don’t have a defined playbook of the set ups that you are paying attention to, you could find yourself justifying all kinds of trading positions that aren’t necessarily prudent. Having a set Forex trading routine will dictate how you monitor the markets and how you ultimately place your trades. It will make sure that you don’t stray from your plan and that you remain focused.

Having a stable Forex trading routine will also give you structure to your day and to your trading life. Your trading will become more of a career and less than a hobby, which is important if you want to make real money by trading Forex. TO BE CONTINUED!!!

What Is Lot Size in Forex Trading?

As with everything you buy or sell, things are determined in measurement units, such as a dozen eggs or a pound of butter. The same applies when you’re Forex trading.
When you place an order on the Forex market, the lot size is the unit of measurement to determine what you want. The size of the Forex trade is made up of lots, so it’s crucial to understand them to be successful in the global Forex market. Let’s dive in and learn more!
What Is the Purpose of Lot Size?
Before you understand the purpose of lot size, you must ask yourself what a lot is!

A lot is the unit of measurement used to determine how many currency units were sold or bought in one transaction. When you place orders to trade a particular position, it is quoted in a lot size.

The standard lot size is roughly 100,000 units of a particular currency, but you have others, too. These include nano (100 units), micro (1,000 units), and mini (10,000 units). Look at the broker’s lot size chart, which should be shown on the website.
Every lot size available has its advantages, such as:

Nano Lots – This isn’t seen often in FX trading, but it’s highly flexible. They are great when you want to test new theories or are a beginner and need to start small.

Micro Lots – This is usually the smallest tradeable lot size. At 1,000 units, you may trade on smaller accounts; novice traders often use them to reduce the risk of loss.

Mini Lots – As you start growing and understanding Forex trading, you will get more out of switching to mini lots. Advanced traders also use them to have more control over their positions.

Standard Lots – Most retail investor traders don’t use this size. It’s tempting to do, but you must have enough capital to hedge your risks. In fact, you should have a foolproof risk management system in place to benefit from them.

Breakout.

Whether you are a new trader or an experienced trader looking to review some Forex basics, you have come to the right place
From tips for choosing the right broker to understanding basic trading principles, the best in Forex basics can be found here.

The #1 Factor to Use in Deciding Which are the Best Currencies to Trade

So, how should you decide which are the best currencies to trade? I’ll use an analogy to the world of gambling to simplify the issue: Let’s say you go into a casino to play a game where you need other players to risk money on the table to give you a chance to make profit, i.e. your winnings will come from their losses. This is a good comparison to the Forex market, which works the same way. So, which table would you go to? The busiest one, with the most players and most money on the table, or a quiet one in the corner with just a couple of players there? Obviously, it would make sense to choose the busiest table. So why should Forex trading be any different? You want to be trading the “busiest” currencies at any given time, you want to be where the action is. Are there any ways to determine that? Well, you could try reading the Forex news to spot the biggest things that are happening in the market now. There’s a place for that, but there are easier ways that can tell you where to begin to focus your search. Although Forex is “over the counter”, there are reliable statistics which tell us which currencies are traded the most, i.e. which currencies are exchanged in the largest volumes. The takeaway headline is that today, about 70% of all Forex trading is between the U.S. Dollar, the Euro, and the Japanese Yen only. The British Pound and Australian Dollar account for another 10%. The U.S. Dollar is by far the most dominant of all these currencies, so it makes sense to focus on each of the other currencies against the U.S. Dollar. You don’t need to open your trading platform and worry about 80 pairs and crosses or wonder whether the Canadian Dollar / Swiss Franc cross is what you should be trading today. It almost certainly isn’t, and if you ever hear anyone telling you about a support or resistance level in a currency cross like that, please ignore them – nobody is watching this cross or its levels!

Why Traders Don’t Consider Pair Selection Carefully

Most traders are eager to start making lots of money. The way to make lots of money quickly, so they are told, is to trade using smaller timeframes – this is at least theoretically true. Traders notice that some currency pairs have lower spreads (such as EUR/USD) and think they should pick such low-spread pairs to trade to save costs. Another common reasoning is that it makes sense to trade those currencies which are most active during the trader’s preferred hours of operation. A further argument says that each currency pair has its own “personality” and you should get a lot of experience trading a few pairs so you can get to know their personalities well, and in this way, trade them more successfully.

These considerations are both rational and truthful, at least to some extent. The problem is, that they are very far from being the most important consideration that should influence which currency pairs you trade. I learned this myself the hard way some years ago when I decided that I would day trade, the EUR/USD and GBP/USD currency pairs full time. Over several months, these two pairs barely moved, while USD/JPY took off like a rocket and provided easy money to anyone trading it. Sure, I knew the personalities of EUR/USD and GBP/USD very well, had a great strategy which had worked extremely well on these pairs for years, and their hours of greatest activity fitted the time zone of my geographical location precisely. Despite all this, my linear thinking caused me to miss out on the only real trading opportunities of 2012, which came in the JPY pairs and crosses.