Managing Risk, not Risky Management

Just about all of us (I’m referring to forex traders) have heard how risk management is one of the top 2 or 3 key skills to master in becoming a successful trader.  That is certainly true, but is often easier said than done. Perhaps your trading platform has some tools built in which help identify and monitor your risk, but perhaps it doesn’t.  Or, perhaps you’re actively using a number of different trading platforms across multiple brokers and accounts – how do you manage your collective risk then? This is not an uncommon situation for professional forex traders, but the challenges of managing risk are very real.

Trade on Track helps to calculate and monitor your risk in all your open trades, regardless of what trading platform(s) or broker(s) you use. This is an incredibly powerful feature and takes a lot of the mental pain away from you having to manually calculate your exposure and risk in the market.

Risk and reward are calculated upon trade entry

For instance, as you enter a trade, Trade on Track will automatically calculate your risk/reward potential, based on the stops and targets you enter. This can be enlightening in itself, because what you thought was an even risk/reward ratio when you entered the trade, may in fact not be.

You can see at the bottom of the screenshot above, that the Trade on Track system has also warned me that this particular trade places me over my preferred risk of 1% per trade (this is a level I get to set in my profile).  At this point, it’s very easy to adjust the stop loss or the number of lots traded to reduce the risk to a level that I’m comfortable with, or which meets my trading rules.

In addition to the per-trade risk calculations, Trade on Track also tracks overall risk – across all open trades.  This calculation is prominently displayed at the bottom of the screen like this :

Current Risk Summary

Current Risk Summary

So, at a glance you can see your average risk per trade (as a percentage of your account balance), your total risk, and also the risk per currency.  The risk per currency is further broken down into two sections: a total per currency, and a hedged calculation per currency. Quite often your overall risk can be reduced by hedging trades, but you still need to be careful that each trade you take conforms to your trading rules – don’t just take a trade for the sake of hedging.  And, if your hedged trades are based on different time frames – (for instance, one trade based on an hourly chart, the other on a daily chart) – it’s probably more accurate to consider your actual risk as the total figure rather than the hedged figure.  I’ll leave you to think about why that would be 😉

Good luck and trade seriously!

Trade management made easy

Ever had the situation where you’re managing 2, 3 maybe even up to 6 trades at once, and each trade has been entered for a different reason?  Your open trades might be using a range of trading methods, across a range of chart periods, and there has been special circumstances surrounding the analysis of each one.

Managing these trades can be very frustrating at best, or near impossible if you don’t have a system to help you.  And, it’s easy to make costly mistakes – for instance, you might think of exiting a trade at the wrong time because you’re  looking at it a different way now, to how you looked at it when you placed the trade.

tradingsnapshotTrade on Track makes the process of managing trades extremely easy.  Basically, in a few keystrokes you tell it exactly why you entered a trade, including the trading method you used, the chart period you were working from, and any additional notes you’d like to make. You’ll find that keeping this trading log is beneficial from the very start – for one thing, it actually makes you think twice about why you’re entering a trade, and also enforces invaluable trading practices like setting stops and targets as you enter the trade.

Then of course, you can review these trading reasons at any time during the course of the trade. So, it’s easy to see why you entered a particular trade, and what your plan was at the time of entry.  There is no confusion over what chart period you used, or which trading system you were implementing when you took the trade, so there’s no confusion over how to manage or exit the trade either.

In a perfect world, we’d probably only need one trading method, one chart period to work from, and one currency pair to do our forex trading – so managing that one trade would be easy.  But, serious traders find themselves managing several different types of trades at the one time (and it’s more fun that way 🙂 ), so we need a serious software tool to help – Trade on Track fits the bill!

Good luck and trade seriously!

Discipline Widget

Today I’d like to tell you about a widget that we have on the Trade on Track dashboard called a Weekly Discipline chart.  This chart really keeps you in line like a big stick … at a glance, it lets you know if you’re straying from your trading rules or not, and shows how you are doing from week to week.

It’s one thing to find and refine a profitable trading method, and it’s a totally different thing to actually execute that trading method properly – that’s where the Weekly Discipline chart helps.

Sample Weekly Discipline Chart

Sample Weekly Discipline Chart

The Weekly Discipline chart measures, as a percentage, how many of your trades are exiting at a pre-defined point.  Now, these pre-defined points are points that you decide on when first entering / logging the trade, and they are the stop loss and target point(s) for your trade.

You see, when we enter a trade, we may have analyzed it all properly and have the best of intentions of executing it perfectly. The way the trade plays out can end with a totally different result however – because emotion plays a huge part in whether you follow through with your plan or not.

Novice traders (and even plenty of seasoned professionals) – will see a trade going against them and decide to jump ship, well before the stop loss is hit (and often, it wouldn’t have been hit) – that’s fear at work.  Or, the trade will be going nicely and there’s plenty of runs on the board, so the trader will take profits and close the trade early – that’s fear again!  Then there’s the other side: greed, when you might decide to move your target away altogether and just let your trade run.

So, even though you’ve worked hard in finding the right trading styles and methods, backtested them and decided to use them in your trading – the whole thing goes out the window if you don’t follow through with your plan by exiting the trade early.

The Weekly Discipline chart serves as a terrific tool for monitoring your own discipline and analyzing how well you’re following through on your plans.  It’s amazing how a little chart can:

1) actually make you aware that you’re not following through with your trading strategies

2) make you want to improve your game from week to week.

Good luck and trade seriously!

Light bulb moments every day

Light bulb moments?  That’s what you get when you start using Trade on Track.  I know this because I’m living it. Yes, I designed and wrote the system with the intention of it being a useful analysis tool (among other things), but it’s even blowing my expectations out of the water with the information it’s giving me.

Just about every day I’m learning something new about my forex trading – what’s working and more importantly, what’s not working for me.  If you’re like me and you’ve been trading a few years, you may think you have a pretty good grasp on your trading systems and which ones you like best and which ones work best for you.  Well, with some proper analysis (which Trade on Track does for you with very little effort), the facts may be totally different to what you originally thought!

As an example, one of my trading methods used bollinger bands and I had done some fairly thorough backwards testing before employing it.  And, while using it, it seemed to have it’s share of winners and losers.  I firmly believed that overall it was making me money, and as it was a nice simple system to use – I really liked to use it whenever I could.  Trade on Track has now shown me a picture which is completely different – and I’m seeing just how much my bottom line is affected in a negative way by using this method.  To my horror, the bollinger method is not even performing as well as my so-called “whim” method (basically, that’s when you hastily enter a trade on gut feel … ugh). Oh well, back to the drawing board on the bollinger method.  I’m confident that with a few tweaks it can be greatly improved – so I will focus on doing just that before wasting any more real money on it.

By the way – if you have a “whim” method of your own – make sure you always trade it in a play account unless you know for sure it’s actually a “win” method.

Good luck and trade seriously!