With the growth in popularity of mechanical trading systems and algorithmic or “black box” trading, there have also been one too many instances of forex scams offered by firms claiming to give signal services. Of course this is not to assume that forex signal services are automatically scams, but proper caution must be exercised in […]

The post 12 – Avoiding Forex Scams appeared first on Action Forex.

For some traders, the idea of having to think about risk management for every single trade can be tedious. This is why some traders opt to incorporate risk management rules in mechanical trading systems, which can automatically calculate stop losses and position sizes.

The post 11 – Incorporating Risk Management in Mechanical Systems appeared first on Action Forex.

Another tricky component to risk management is the ability to control exposure with correlated trades. It's not uncommon to see similar technical setups among pairs with the same base or counter currency, so there may be instances when you'd wind up taking correlated trades.

The post 10 – Managing Exposure with Correlated Trades appeared first on Action Forex.

A more complex aspect of risk management is keeping track of several entries across different currency pairs. After all, it can be overwhelming when you are watching various setups with multiple entry points.

The post 09 – Scaling-in and Scaling-out appeared first on Action Forex.

As discussed in the previous section, the use of an equity stop and a chart stop can be combined to calculate position sizes for each trade. Many beginner traders make the mistake of setting the position size first before determining the stop loss in pips, which can lead them to neglect price action.

The post 08 – Proper Position Sizing appeared first on Action Forex.

While stop losses can help a trader prevent larger losses on his trading account, common usage mistakes might lead to a worse performance. Here are some of the ones that must be avoided. One of the most common mistakes beginners make in setting stop losses is placing them too tight. Of course the fear of losing is still very much present among beginner traders or those who are just transitioning from demo to live trading, and it's no surprise when some are guilty of putting their stop losses too close to their entry levels.

The post 07 – Common Mistakes in Setting Stops appeared first on Action Forex.

Using stop losses is a recommended risk management practice, as this will allow you to set a point where you think your trade idea might be invalidated. From there, you can be able to calculate your position size based on how much you're willing to risk on the trade.

The post 06 – Different Kinds of Stop Losses appeared first on Action Forex.

As discussed in the previous section, leverage can get tricky and may lead to margin calls when you don’t know how to manage it properly. This section illustrates more examples on the common mistakes beginners make when handling leverage and how to avoid margin calls. Let’s say you have a balance of $10,000, which is […]

The post 05 – Leverage and Margin Calls appeared first on Action Forex.

One of the biggest advantages to trading in the foreign exchange market is the ability to take advantage of leverage. This enables a trader to use a small deposit to control much larger contract volumes, allowing one to keep risk capital at a minimum while maximizing potential returns. A forex broker that offers 50-to-1 leverage […]

The post 04 – What is Leverage All About? appeared first on Action Forex.

As mentioned in the earlier sections, reward-to-risk, win ratio, and expectancy comprise an important aspect of risk management. Reward-to-risk or return-or-risk refers to the ratio of the potential win on one’s trade compared to the predetermined maximum loss. This is typically calculated based on the number of pips for one’s profit target divided by the […]

The post 03 – Reward-to-risk, Win Ratio, and Expectancy appeared first on Action Forex.

Drawdown is defined as a considerable reduction in your account due to a series of losing trades. This can be calculated by getting the difference between the highest level of one’s account and its lowest point. For instance, when you’re initial capital of $10,000 has grown to $10,500 then you undergo a losing streak that […]

The post 02 – Understanding Drawdown appeared first on Action Forex.

Perhaps one of the first few questions asked by beginner traders is how much capital they would need to open a forex trading account. Thanks to the introduction of online forex trading and the proliferation of several brokers, the barriers to entry in this market have been significantly lowered that you can open a trading […]

The post 01 – Does Capitalization Really Matter? appeared first on Action Forex.

In forex trading, there are several factors that you can’t really control. While you can be able to make predictions based on fundamental analysis or a review of past price action, the element of uncertainty is always present and you can never fully eliminate the possibility of losing a trade. Risk management separates successful traders […]

The post 00 – Risk Management 101 appeared first on Action Forex.