How Figure Out Exactly Much to Risk Per Trade

If you are wondering how much to risk per trade, then this post will show you exactly how to figure it out.

…and it probably isn’t what you think.

First, let’s get some conventional wisdom out of the way.

I’m sure that you have read all of the articles and books (like Market Wizards) that say that you shouldn't risk more than 2% per trade.

Some call it the 2% Rule.

As a general rule of thumb, it’s actually great advice. It will keep most traders out of serious trouble and help them hang around long enough to learn how to trade profitably.

But is the 2% rule optimized?

Not by a long shot.

SEE ALSO: My Favorite Trading Books


If you don’t risk enough per trade, you aren’t maximizing the earning potential of your trading system. Risk too much and you can hit a drawdown that will have irreparable negative long-term effects on your trading psychology.

As traders, we want to avoid both of these scenarios. This is why you need to optimize your risk per trade.

Let’s start by taking a look at why 2% risk is far from optimized.

By the way, I learned this from Walter’s Naked Forex Now course and we talk about it on our Truth About FX podcast. I highly recommend both 🙂

how much to risk per trade in forex

Why the 2% Risk Rule is Not Optimal
Again, the 2% Rule it is a good guideline that will keep most traders out of serious trouble. But it’s probably not ideal for you and your trading strategy.

These statistics need to be taken into account when figuring out how much to risk on each trade.

Your win rate
The percentage drawdown that you want to avoid (AKA your Freakout Point)
Your average win/loss ratio
Without these stats, you are shooting in the dark.

The most important one to have is the drawdown that you want to avoid. Most new traders dream of the millions of dollars that they can make in trading.

But as most professional traders will tell you, focusing on the amount that you can lose is much more important.

If you hit a drawdown that screws with your head, you will go on tilt and possibly lose your entire account. At the very least, you will not trade well until you get over the loss.

So your long-term success absolutely depends on knowing your “breaking point” and that comes from knowing your vital statistics.

How to Figure Out Your Vital Statistics
Luckily, it is easy to figure out these numbers. Here is how to get each of your vital statistics.

Maximum Tolerable Drawdown
The best place to start is the maximum amount of your account that you want to avoid losing.

How do you do that?

It’s pretty simple…

First, imagine a trading account that would represent “a lot of money” to you. This will be different for everyone, so use a number that works for you.

For example, let’s say that $10K is a lot of money to you. Since that is a fairly big account balance for most people, we will use that number in the following exercises.

Now ask yourself how much of that account you would be willing to lose before you start freaking out.

Freaking out

In a $10K account, you might want to stop trading when you lose $2K, or 20%.

That is your maximum drawdown number.

I would actually suggest shaving little off that number, so you have a cushion. This is in case you are hit with some slippage or you fat-finger a trade.

So in this example, you might want to use 18% as the maximum drawdown that you want to avoid.

Once you have this number, it’s time to figure out the other two stats that you need.

Win Rate
Next, you need to know the win rate for your trading strategy. If you have been trading in a live or demo account for awhile, then you can use your current win rate. You should have at least 20 trades or so, to have a valid win rate.

But what if you are not consistently profitable yet?

No problem, simply put your trading system into Forex Tester and backtest it. That will give you a very good idea of how your strategy will perform.

Of course, your live trading performance will not be exactly the same as your backtesting. But having a number that is pretty close is much better than guessing.

For this example, let’s say that your system has a 62% win rate.

Your Average Win/Loss Ratio
Finally, take your average winning trade and divide it by your average losing trade.

To make things simple, let’s say that your average winner is $56 and your average loser is $28. That would give you a ratio of 2.

Again, if you don’t have live trading results, backtest in Forex Tester to get these numbers.

Now that you have the three vital statistics, you can plug them into the drawdown calculator to figure out how much to risk per trade.

How to Use the Drawdown Calculator to Figure Out How Much to Risk Per Trade
Here’s the moment of truth…

Head on over to the drawdown calculator, located on this page. If you want to use the example stats mentioned above, here is what the calculator would look like.

forex drawdown calculator

In this example, you would have a 8.4% chance of hitting a 18% drawdown over 1,000 trades, when risking the recommended 2% per trade. That’s not terrible.

…but it is still very possible.

Keep in mind that your exact result will probably be a little different from my answer because the calculator runs a new simulation each time you click the Calculate button. If you click the button a few times, you can see the range of probabilities to expect.

But let's see if we can get that 8.4% to absolutely zero.

Start playing with your risk per trade until you find a point where your chance of hitting your drawdown is absolutely zero. Click the Calculate button a few times, just to be sure. I would suggest using up to two decimal places for your risk per trade.

With the numbers mentioned above, you would need to risk 1.22% per trade to have a zero percent chance of hitting an 18% drawdown. Now you have the exact amount that you need to risk per trade, to avoid your most feared drawdown, while maximizing the return of the trading system.

But only 1.22% per trade?

Is that really enough?

What if the Risk Per Trade is Too Small?
Chances are pretty good that you will come up with a risk per trade number that you think is too small to grow your trading account significantly.

This is a common mistake that traders make.

They either throw out a perfectly excellent trading system because they think the risk is too small, or they disregard what the calculator says and risk way too much per trade.

Both of these actions usually lead to frustration and a ticket to ride on the Trading Silodrome.

So what can you do to build your trading account faster?

Remember that our friend compounding can help us increase our gains much faster than we might realize.

To see a perfect example, read this post.

When you are able to find a system that is consistently profitable, then you can simply trade it on more currency pairs. Of course, this is provided that your testing shows that it will work on the other pairs too.

You can also test other trading systems and if the results of your testing are good, you can start trading those systems too.

Lather, rinse and repeat until you reach your trading goals.

By layering trading systems and currency pairs, you multiply your trading edge. This can make a seemingly insignificant advantage pay out very well.

Conclusion
If you are just starting out, then risking no more than 2% per trade is a good place to start. In fact, keeping your risk down to 1% is even better.

However, if you have a technical trading strategy that can be backtested or you have a good amount of live or demo trading results, then using the Drawdown Calculator to optimize your position sizing will be a huge help in keeping you out of a heart-crushing drawdown.

Success in trading is all about sticking around long enough to take advantage of excellent trading opportunities. You cannot do that if you lose your account…or your mind.

Figure out your ideal risk per trade beforehand and your trading will be much less stressful.



Disclaimer: Some links on this page are affiliate links. We do make a commission if you purchase through these links, but it does not cost you anything extra and we only promote products and services that we personally use
https://www.tradingheroes.com/how-much-to-risk-per-trade/

Is Your Stop Loss Too Tight? Here’s How to Find Out

I personally believe that having a great entry is best way to improve your trading results. Others argue that the exit is the only thing that really matters and a monkey could throw darts at a board to pick stocks, and with the right exit, that strategy could still be profitable.

Monkey picking trades

That might be mathematically true. But I've found that most traders need to enter at a point where they can place a stop loss that makes sense and have a good shot at making a reasonable profit.

In reality, the are both important, but a good entry makes your job much easier.

But how do you know where to set your stop loss?

Is Your Stop Loss Too Tight? The Arguments for Both
On one hand, it's exciting to set a very tight stop and potentially get a 9R+ trade. After all, the smaller your risk, the higher your chances of having a payout that is multiple times what you have at stake. But that also means that you will probably get stopped out more often.

High risk reward trade

On the other hand, the idea of giving your trade room to breathe is enticing too. The markets ebb and flow like the ocean and sometimes there is a large ebb, before the next flow. However, if you give your trade too much room, your returns can suffer because your winners won't pay for your losers.

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So which one is better?

The Right Way to Choose the Best Stop Loss For You
The bottom line is that your stop loss should be set at a level where your assumptions about the trade will be proven wrong.

Some traders will tell you that a tight stop loss of 8 to 12 pips is best. Others will tell you that a wide stop of 200 pips or more, is best. Many will tell you to use an indicator like the ATR.

Who should you believe?

Well, they are probably all right…in their own way. As long as they are actually trading what they teach, and not just talking out of their asses, then their method is the best for them.

However, therein lies the secret to your failure.

If their method does not match with your trading personality, then there's a very high probability that you will not be able to trade that method successfully.

It's like dating someone who snores like a horse…and you are a light sleeper.

Eventually something has to give, if you want to get a good night's sleep.

Get some sleep

So just like dating is a way to try out a relationship before you make any long term commitments, testing a trading system is away to try out a system before you risk any real money.

Here's how to do it…

First, start with the system, as it is taught. It doesn't matter where you get the trading system from. The trading method might work as-is, without any tweaks.

To learn some trading systems go here.

Do a complete round of backtesting on the currency pair and timeframe of your choice. It's important to do a complete test so you get an idea of what you can expect. I recommend using Forex Tester, but there is other software out there.

Stop loss too tight?

Then change the stop loss and do a complete round of testing again.

Compare your results.

This will tell you which stop loss should work better.

But don't stop there. Test as many different stop loss levels as you need to.

Feel free to experiment at this point. It's only testing.

Once you have one that works in backtesting it's time to move to forward testing. This is the step before going live, so use a demo account or a very small real money account.

Forward testing will allow you to iron out any quirks that are going on between your backtesting and forward testing.

When you have something that works in both rounds of testing, then you are ready to go live.

Going through this process will help you understand the best place to put your stops.

How to Fix Artificially Tight Stops
Before I end this post, there is one more issue that I must address. Some traders purposely set very tight stops because the correct stop loss is “too far away” and they will lose too much money.

If this is you, then you are simply trading with the wrong broker.

Trading mini lots (1,000 units) with a $1,000 account is a recipe for disaster. No wonder you want to keep your stops uber tight.

However, trading that same account with nano lots will allow you to take the correct amount of risk, usually 1% or less. When you are able to take exactly the same amount of risk on each trade, you will make a lot more money.

Conclusion
I hope that this guide has helped you understand what it takes to figure out if your stops are too tight, or not. There's no fancy indicator or formula.

Many people will be too lazy to do the testing to figure this out.

But not you, right?!

If you follow this process, you will know once and for all, if your stops are too tight, or if they are just right.

Let me know how it went in the comments below…


Disclaimer: Some links on this page are affiliate links. We do make a commission if you purchase through these links, but it does not cost you anything extra and we only promote products and services that we personally use and wholeheartedly believe in. A portion of the proceeds are donated to my charity partners.
https://www.tradingheroes.com/stop-loss-too-tight/

Forex Side-Testing Account: How to Leverage Fantasy Sports Dynamics

Do you play fantasy sports? Maybe you have participated in an office pool or played with some friends. I play fantasy (American) football every year with some friends and I came in second in my league this past season.

Fantasy league results

It is a fun diversion and it makes watching the games even more interesting.

Of course, trading players led me to think of the correlations between Forex trading and fantasy sports.

Although they are not directly related, I believe that there is an element to fantasy sports that can give you huge leverage in helping you achieve your full potential as a currency trader.

Here’s what I mean…

How Fantasy Sports Can Help Traders
You will never get Lionel Messi, Christiano Ronoldo, Gareth Bale and Neymar Jr. on the same team in real life. No team has that much money.

But what if?

SEE ALSO: The Yoga Teacher Who Became a Successful Forex Trader

Soccer stadium

This is what makes fantasy sports so much fun.

We have the opportunity to manage a team of players that we think would win the championship, without annoying restrictions like salary caps, owners, complex contracts or player egos.

Now what would happen if we did something similar in trading? But instead of trading fantasy players, we traded Forex with the same disregard for many of the constraints of your normal trading.

At this point, you are probably thinking that this sounds a lot like the free demo account that you can get from any Forex broker.

It’s not.

I call it a Side Testing trading account.

Who a Side Testing (ST) Account is For
A Side Testing account is an account that you open to answer these two questions:

What would my performance look like if I took the trades I decided to pass on?
What would my performance look like if I took the trades I missed?
So a ST account is for traders who:

Feel that they are being too indecisive.
Feel that they are missing out on a lot of profitable trades.
If you fall into one, or both of these categories, keep reading because here's how a Side Testing account can help you.

Benefits of a Side Testing Account
The bottom line is that a ST account will allow you to see:

If you are talking yourself out of good trades.
If you are missing good trades and more importantly, how to fix that.
Let's break these down individually….

Talking Yourself Out of Good Trades
No matter how much you test a trading system, trading it with real money can be a totally different ballgame. You might second guess your entry every time you see a potential setup. This is especially true if your setup is more on the discretionary end of the spectrum.

So a ST account gives you the freedom to take a trade that looks good, even if you would have passed on it in your primary account. When you add the results from your ST account to the results in your live account, you can track if the trades you are passing on would have improved your profitability.

We often beat ourselves up about the trades that we didn't take and worked out, but we tend to forget about the trades that we passed on that ended up being losers. Keeping these trades in a separate account allows you to get a totally objective look at your results.

…without putting your primary account at risk.

Missing Profitable Trades
Side testing account trade

Another thing that a ST account will help you figure out is what your trading results would look like if you were able to take all of the trade setups that you missed.

You might miss trades because:

You were sleeping
You didn't check the charts that day because you were too tired from work
You had technical difficulties like a bad internet connection or a computer malfunction
You had to work
Obviously, you cannot avoid some of these scenarios. However, tracking your missed trades will allow you possibly figure out ways around them. For example, maybe you can automate part of your trading or you can put backups in place so you are prepared for unforeseen events.

Another realization that you may come to is that you have to find another trading strategy or change your trading timeframe because your current strategy doesn't work with your lifestyle.

You might also be beating yourself up over your current trading results, when in reality, you are simply missing a few trades that would make you much more profitable. This realization can be a huge psychological boost and give you the confidence to keep trading.

Now that you know how a ST account can help improve your trading, let's get into how to actually setup an account.

Side Testing Account Requirements
There is really just one requirement that needs to be fulfilled before opening a ST account.

You will only open a ST account if you have a trading method that has been tested and has passed a backtest and/or forward test. If you do not have a strategy that has positive expectancy in testing, then a ST account is useless.

Go back to testing and find a strategy that works. Once you have that, you can now move on to opening your Fantasy account.

Choosing a Broker
I personally believe that your ST account should be a live account with real money. You need to simulate some of the the psychology of trading real money and a demo account will not do that. Ultimately, this is your call, but this is what I recommend.

However, it does not have to be a normal sized account. You can use a small account at a broker that allows nano lots.

Obviously, small is relative to your current situation. It could be as little as $100 or as big as $1,000. Using nano lots allows you to take the optimal amount of risk on each trade, even with such a small account.

Your account should also be at your current broker, if possible. Then you won't have to flip back and forth between different brokers. The less friction there is in the process, the more likely you are to do it.

Many brokers allow you to open a sub-account without submitting additional paperwork.

Take advantage of this.

Trading in Your Side Testing Account
Since there are are both real-time and hindsight elements to a ST account, placing trades will take a little more work than with a regular live account, but it's worth it. Here's what you have to do to make it work.

Position Sizing in Your Account
One thing that you should not change in your ST account is the amount of risk on each trade. For example, if you have figured out your optimal risk with this guide, then take that same amount of risk in your account.

For example, I risk 0.7% per trade on a trending outside bar setup. So I would take the same amount of risk in my ST account.

Journaling Your Trades
The key to an effective ST account is your trading journal. In this case, a simple spreadsheet is the best way that I have found to keep track of your trades. Log both your real-time and hindsight trades on the spreadsheet.

It doesn't have to be fancy, it can simply have the following:

Open date
Currency pair
Open price
Stop loss
Take profit
Percentage risk
Close date
Close price
Percentage profit/loss
Analyzing the Results
Then add up your results at the end of the month and see how much better or worse your results would have been if you had taken those trades in your primary account.

Remember to calculate everything in your ST account in terms of percentage profit or loss. This way you can roughly tell how much your ST trades would add or subtract to your trading.

Keep it simple and you can get all of the benefits, without much additional work.

Other Benefits of a Side Testing Account
But that's not all!

There are a couple more potential side-benefits of a ST account.

When you are taking every single trade that you see and you even get to “trade” the trades that you missed, it acts like a “release valve” that can reduce the pressure to take every single trade in your primary account.

A second benefit is that you might start to see further optimizations that could increase your returns. You have to be very selective when trading your primary account.

…and for good reason. To give yourself the best shot at being profitable at the end of the month, you need to only take premium setups.

But using a ST account gets you involved in more trades. When you look at more trades, you will get more practice, which will ultimately make you a better trader.

Conclusion
A Side Testing account is not for everyone. However, it you are struggling with indecision and/or missing trades, this technique can help you gain more confidence in your decisions and figure out how to stop missing profitable opportunities. This just one of the ways that you can address your trading weaknesses.

This is just one of the many strategies that we teach inside TraderEvo, our complete program for taking you from zero to hero in Forex trading.

To learn more, click here.
https://www.tradingheroes.com/side-testing-account-trading/

Fastest Ways to Calculate Forex Tester Lot Size with Percent Risk

I get this question a lot:

“How do you calculate the correct lot size in Forex Tester, based on percentage risk?”

Forex Tester is a great piece of software that has helped many traders become consistently profitable. But it kills me that you cannot enter a trade based on percentage risk.

TradingView has this feature for live trading, which I use all the time.

Tradingview percent risk

Without a way to accurately calculate the correct lot size, you may make mistakes, which will lead to inaccurate testing results or lost time, when you have to go back and retest the trade.

SEE ALSO: The Best Trading Books of All-Time

So if you are having the same frustration, here are two ways that you can easy calculate your lot size in Forex Tester, by using percentage risk. One method is free and takes some time, while the other is paid and instant.

Either way there is something for everyone.

If you prefer the text version, it is provided below the video.

…and yes, this works for both Forex Tester 2 and Forex Tester 3 🙂

How to Calculate Forex Tester Lot Size Based on Percentage Risk Video Tutorial


Roll Your Own Spreadsheet
Traders ask me how to setup a spreadsheet for testing and it's actually quite easy.

Here's how you do it…

First, open your favorite spreadsheet program. If you don't have one, you can sign up for Google Drive for free and you can create your spreadsheet there. It doesn't matter which program you use because the calculations are pretty simple.

Next, create these row titles:

Account Balance (entered)
% Risk (entered)
$ Risk (calculated)
$ Per Pip (entered)
Pips Risk (entered)
Lots (calculated)
Here's the formula for the $ Risk row:

$ risk calculator

This is more of a double check to see that the calculation is working correctly and to double check your losses against this risk number.

Here is the lot size calculation:

Lot size calculator

Spreadsheet Benefits
Easy to implement
Free
Spreadsheet Downsides
Takes time to change settings at the beginning of each test
You have to flip back and forth between your Forex Tester screen and the spreadsheet
So if you don't want to spend any money, then the spreadsheet is the way to go. However, if you do a lot of testing and you want the most efficient way of calculating your lot size, then you need to have a Forex Tester script.

Use the Snapdragon Forex Tester Lot Size Calculator Script
Using a spreadsheet to calculate lot size is obviously not instant. So it will slow you down.

But this method gives you an instant calculation.

Once you setup this script, you can simply use hotkeys to enter your trades, which speeds things up considerably.

I have setup Control + 1 and Control + 2 as my keyboard shortcuts for short and long trades, respectively.

Long Short ScriptsHere is the settings window for one of the scripts:

Forex Tester script settings

The settings can be changed individually, so you can have different settings for both, if you so choose.

Most of the settings are pretty straightforward, but here are the ones that really make this script worth using:

Entry Method: You can select Bracket bar (brackets current bar with stop loss and pending entry order) or Use pending order levels (enter a pending order and the script will automatically calculate lot size).
Risk Definition: You can either risk fixed percent of equity balance or fixed dollar amount per trade.
Take Profit Type: Set the R multiple of your profit target. For example, if you want to test a 5R profit target, the script will target 5 times your risk as the take profit.
Script Benefits
Instant lot size calculation and trade execution
Different settings available, based on your trading method
Less mental calculations means less decision fatigue and you can usually test longer and more accurately
Script Downsides
It may not work for all trading strategies, so be sure to learn the details of how it works
You do have to pay a few bucks to get it
If you value your time and want the fastest possible lot size calculator available, then this script is for you.

Click here to download it.

Conclusion
So there you have it, the two fastest methods that I know of to calculate the correct lot size on your backtesting trades, based on percent risk. Either way, these solutions will speed up your backtesting and allow you to see results faster than having to manually calculate risk on each trade and possibly making a mistake.

If you don't have Forex Tester yet, I would highly recommend it. I have negotiated a discount for Trading Heroes readers, so you can go to this page to get that discount.

Do you know of any other methods to calculate the exact lot size in Forex Tester, based on percentage risk?



Disclaimer: Some links on this page are affiliate links. We do make a commission if you purchase through these links, but it does not cost you anything extra and we only promote products and services that we personally use and wholeheartedly believe in. A portion of the proceeds are donated to my charity partners.
https://www.tradingheroes.com/forex-tester-lot-size-calculator/

How to Use TradingView Bar Replay

TradingView Bar Replay is a feature that you should take advantage of, especially if you don't have backtesting software like Forex Tester. In this post, I'll show you how it works and what it is good for.

If you prefer the text version, it is provided below the video.

TradingView Bar Replay Tutorial Video

To start using TradingView Bar Replay for free, click here.

How to Get Started With Bar Replay
Turn Bar Replay On
To turn on Bar Replay, click on the icon in the toolbar at the top of the screen.

Bar replay start button

Adjust the Settings
After you turn it on, you will see a new toolbar appear on your active chart. You will also see a vertical red line appear where your cursor is.

SEE ALSO: The Best Trading Books of All-Time

New toolbar

The red line marks where the replay will begin, so do not click until you have scrolled back to where you want the playback to begin.

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You can use the scroll control on your mouse the move the chart back or click and drag the chart to move it. Clicking and dragging will not set the start point.

Start the Replay
Once you have scrolled back to where you want to begin the replay, click once on the chart and you will be in Replay mode. Now click on the Play button to start the replay.

This is what it looks like:

TradingView replay

That's it, simple right? Now let's take a look at how you can use this to improve your trading.

How it Can Improve Your Trading
There are a few different ways that this feature can help you improve your trading. If you can think of any other use cases, feel free to leave them in the comments at the end of this post.

Reviewing Your Old Trades
You can use the playback feature to analyze what a chart looked like before you entered a trade.

When you look at a trade a few days later, you will usually be able to see it from a more objective standpoint. This is because the emotion surrounding the trade has dissipated.

So a follow-up analysis of your trades could reveal what you do well and what you need to fix.

Backtesting
You could use this as a free backtesting platform. Of course, the currency pairs that you test would need to have enough historical data available. But if there is enough data to do a solid test, then you would just need a simple spreadsheet to track your trades and you are good to go.

Since TradingView makes it easy to do screenshots, it's also easy create flash cards of good setups, for later.

Practice
Another helpful use of this feature is to replay premium setups, so they get engrained in your brain. You can keep a spreadsheet of dates when good setups for your trading system happened and you can use this replay feature to play them forward a few times to get some practice, without going through the entire process of backtesting.

But There are Some Limitations
In reading the blog post about this feature and trying it out for myself, I found that there are currently a few limitations to Bar Replay.

Some charts only have limited historical data
Some charts like continuous futures do not work with TradingView Bar Replay
You cannot create demo orders in Replay mode, only live trades with real-time data
You cannot use Japanese charts
Some indicators don't work
You cannot use indicators that have a security function in playback
I consider these relatively minor though and I hope that they will remove some of these limitations in the future.

Final Thoughts on TradingView Bar Replay
It seems like TradingView might be building up to creating a manual backtesting product to rival software like Forex Tester.

That's just my guess, but it would be a logical progression from this Bar Replay feature. If that happens, it would be freaking fantastic!

As I mentioned here, it's about time that we get away from the antiquated Metatrader paradigm and start embracing progressive technology in Forex trading.

To learn more about all of the great features of TradingView, follow their blog.


Disclaimer: Some links on this page are affiliate links. We do make a commission if you purchase through these links, but it does not cost you anything extra and we only promote products and services that we personally use and wholeheartedly believe in. A portion of the proceeds are donated to my charity partners.
https://www.tradingheroes.com/tradingview-bar-replay/

How to Get an Alert When Your MT4 Trading VPS Goes Offline

Back in the day, I created a tutorial on how to create a cheap MT4 VPS (Virtual Private Server) that you can run at home. That article is still popular and it's a great way to get started with 24/7 alert indicators or running Metatrader 4 Expert Advisors (EAs) on demo or small live accounts.

But when you have serious money on the line, you want to step up to something that is much more robust.

That's where MT4 and a VPS are essential.

If you have been reading this blog for awhile, you know that I'm totally against off-the-shelf EAs that promise the world. They are curve-fitted crap that prey on lazy people who don't want to do the work to learn to trade.

However, I am a huge fan of using EAs for Incremental Automation, or automating parts of a trading strategy. I also wholeheartedly believe in using alert indicators to notify you of potential trading setups.

SEE ALSO: The Best Trading Books of All-Time

Don't get me wrong, fully automated EAs can work. However, you really have to know the inner workings of the system to understand when it needs to be tweaked.

But in order to take advantage of all this automation goodness, you need to be able to make sure that these systems are running properly.

The first step is to monitor your MT4 server, so you know when it is offline.

In this blog post, I'll show you what to be aware of when searching for a trading VPS outage alert service and I'll share with you what I've been using for over a year.

What About the Alerts a Host Provides?
Many VPS hosts provide an alert service that tells you when your VPS server is down. That may sound like a good idea at first.

But when you think about it, that's like having an alert beacon that sends the location of a plane that has crashed.

If the plane is totaled, it won't be able to send out a signal.

Duh.

Sure, a built-in VPS alert will work when your individual server goes offline. But if the VPS host experiences a major outage, none of their systems will work…including their alert service.

So while it can be useful to use the host's alert service, it won't give you the coverage you need for automated MT4 trading. You need a third party solution.

Website Uptime Monitors
Another popular solution that people suggest in trading forums is to use a site like Uptime Robot. This is a free service that pings your Windows VPS at regular intervals to check that it is running.

Uptime Robot

I use this service to monitor the uptime of this website and it works great. It sends me an email when Trading Heroes is down and when it's back online.

However, services like Uptime Robot will only let you know when your Windows server is offline. You will NOT get an alert if MT4 is shut down, if MT4 has lost the broker connection or if your EAs are not turned on.

What you really need is a MT4 EA that will let you know when Metatrader is not working properly.

The Best Way to Monitor a MT4 Trading VPS
After some research, I realized that it's hard to find a good solution to this problem. Most serious traders “roll their own” alert.

So when my friend Micah approached me with his solution, I was a little skeptical. I thought that it would probably be like the other services out there.

But then he invited me to be part of the beta testers group for free, in exchange for helping optimize the service. So I had nothing to lose by trying it out.

That was about 14 months ago and I'm finally ready to talk about it.

I'm still using the service and I consider it essential, if you are running any type of MT4 EA or alert indicator.

Here's where I feel this service is really stands out…

Multiple Alert Servers
Other services out there monitor the uptime of your VPS with an EA. But most of them only use one server to monitor the EA.

If that server ever goes down, you won't get an alert.

The Lost Fox Alarm Service uses 3 separate servers to monitor the MT4 EA on your VPS. If any of them detect that your MT4 server is not working properly, it will immediately send you a simple email or mobile app push notification.

Here's what the email looks like:

Trading VPS alert email exmaple

Easy Installation
The service is surprisingly easy to setup.

It just takes 3 simple steps:

Login to your account on the Lost Fox website and download the EA.
Install the MT4 EA and give your MT4 server a name (identifier) in the EA settings.
Add the name of your MT4 server to your Lost Fox profile to start monitoring it.
Lost Fox account setup

That's it!

Monitor Multiple MT4 Servers
At the moment, the service allows you to monitor up to 20 MT4 VPS servers. That may change at some point, but that should be more than enough for any trader.

Mobile Apps Available
Finally, they also have native Android and iOS apps that you can install on your mobile device. This way, you don't have to ghetto-rig a solution to get an alert on your phone.

Conclusion
The reality is that if you have serious money riding on your trading VPS server, you should use more than one monitoring service.

But I believe that the Lost Fox service should be your primary alert system.

This service does cost a few bucks every month, so it's only for profitable traders.

But if you have a significant amount of money riding on your MT4 VPS server, it's a small price to pay, to potentially prevent yourself from losing thousands of dollars.

Sleep easier knowing that your MT4 VPS is being monitored.

Micah offers a free trial, take advantage of it here.


Disclaimer: Some links on this page are affiliate links. We do make a commission if you purchase through these links, but it does not cost you anything extra and we only promote products and services that we personally use and wholeheartedly believe in. A portion of the proceeds are donated to my charity partners.
https://www.tradingheroes.com/trading-vps-offline-alert/

The Best Take Profit Levels for Price Action Trading

Where are the best places to set a price action take profit? Well, that really depends on your trading strategy and what your testing has shown you.

But if your take profit is frequently being missed, or you feel like are leaving money on the table after a lot of trades, then you should consider testing these two take profit levels.

They are the most reliable take profit levels that I know of.

Trading profit target tutorial

Like a lot of things in trading, the simpler your method, the greater your chances of success.

…and these are very simple.

Just Before the High or Low
The first target level to look for is just below the high, or just above the low. If there are only two candles at the support/resistance level, then putting your level through both candle bodies is your best bet.

For example, if your trading method is signaling a long trade at this point, this would be a a good profit target.

SEE ALSO: The Best Trading Books of All-Time

Ideal take profit level

This is also a good potential target level because there aren't many major price action levels between the current level and the target level.

Here's another example of where a profit target just above the low would have been a perfect take profit for a short trade. The target was hit at the blue arrow and once price hit that level, it went up and never looked back.

Price low on chart

A common beginner's mistake is to set the take profit at the highest/lowest point, like this…

Wrong take profit level

This is a low probability take profit level and is not likely to be hit, unless there is unusually strong bullish price action. This is what commonly leads do missed profit targets and losing trades.

It may be tempting to try to milk every pip out of the trade. But remember what they say about hogs and pigs…

Inside the Elbow
The other high-probability zone is in what I call “the elbow.” It is the area inside where price turns. This is especially true if price action is choppy in that area.

Here is an example of a chart where the elbow was hit. The elbow is marked by the blue arrow.

Elbow trading take profit example

This chart shows an elbow that not super obvious, but would act as a good profit target, IF your trading strategy has signaled a long trade. At the time this post was first written, this is a live chart, so I don't know for sure if that level will be hit.

But if you are reading this later, you can see if that level acted as resistance. It may not get to that level, but if it does get there, you can see how it reacted.

Chart elbow

Here's one more example where the elbow was hit and acted as heavy resistance. Again, it was an ideal profit target.

Another elbow example

Final Thoughts on Trading Take Profit Levels
The bottom line is that these two areas are heavy support and resistance levels. That is why they work so well as take profit levels.

But don't take my word for it, test it for yourself. This guide will show you how to backtest it. There is so much random information on taking profits out there. Find out for sure!

Remember that you will need to have a good reason to go long or short, in the first place. You cannot target any elbow or extreme and expect to make money.

This is simply a way to potentially optimize your exits.

Happy trading!
https://www.tradingheroes.com/trading-take-profit/

3 Stages of a Profitable Trading Strategy

Once in awhile, I get emails asking me to review a trading strategy (and tell the trader what's “wrong” with it).

Most of the time, the trader is trading an Idea, not a Strategy. If you aren't familiar with the difference, then this post will show you how to tell.

There are actually two stages that come before you have a proven trading Strategy. You need to go through all three stages, in order to have a trading method that works and that you are confident in.

If you choose to ignore these steps, you can end up spinning your wheels for years. I would like to help you avoid that fate.

Here's how…

Stage 1: Idea
Profitable trading idea

An Idea is a very general concept. It could be something like:

“I notice that the Asian Drift usually goes in the opposite direction of the actual trend for the day.”
“Looking for a strong trend on the daily chart, then waiting for a pullback on the one hour chart looks like it would be profitable.”
“Price tends to reverse at daily pivot points.”
However, some traders mistake these generalizations for a trading Strategy and start trading it in their live account.

SEE ALSO: How this Trader Was Able to Quit His Dream Job to Trade for a Living

That obviously never ends well.

Don't get me wrong, the overall concept behind a lot of trading Ideas are sound. But if you don't test and apply them in a uniformed manner, you have zero chance of becoming consistently profitable.

These simple Ideas could be traded in so many ways.

That's why you need a Sketch…

Stage 2: Sketch
sketching out a profitable trading strategy

Here's where things get interesting.

An Idea is a general hypothesis on how to profitably enter the market. But a sketch takes it one step further and defines specific trade entry, management, exit parameters and more.

Also consider:

Will you scale in to the trade or only have one entry?
Will you scale out of the trade?
Will you add to a winning trade (pyramid)?
Are there certain days that you should not be trading?
How do you know if you should bail early?
And more!
To create a complete sketch from any trading idea, download this free worksheet. It will give you all the parameters you need to create your own Sketch.

But you still are not ready to trade live yet…

Stage 3: Strategy
Once the Sketch has been proven in backtesting and forward testing, then it is time to take it into live trading, with real money. If the Sketch holds up under live conditions, only then is it considered a proven Strategy.

Anything else is just an Idea, opinion, rumor or untested Sketch.

Final Thoughts on Developing a Profitable Trading Strategy
So if you are losing consistently, ask yourself if you really have a Strategy, or if you are actually trading an Idea or a Sketch.

There is a huge difference between the three of them.

Once you understand where you are in the process, it's easy to move forward to the next step.

But what if your Sketch doesn't test well? Keep testing different things or find a course that can give you proven strategies.

Just be sure that they match your trading personality
https://www.tradingheroes.com/3-stages-profitable-trading-strategy/

How to Figure Out Your TH Trader Personality Profile

This is one of the most important elements that I feel most aspiring traders and trading educators miss.

In this post, I'll show you why knowing your Trading Heroes (TH) Trader Personality Profile is so important to your success and how you can figure out your profile. Once you have defined your profile, I'll also show you where to go from there.

Why Your TH Trader Personality Profile (THTPP) is Vital to Your Success
Before we get started, you need to understand why figuring out your THTPP is important, primarily when you are still learning to trade consistently.

The power of knowing your THTPP lies its ability to focus your attention on learning strategies that have the highest probability of working out for you.

Learning to trade is hard enough.

SEE ALSO: The Best Trading Books of All-Time

Don't make it harder by trying to learn strategies that will never work for your personality or lifestyle.

Once you have mastered at least one trading strategy, then your THTPP becomes less useful because you already understand the process and mindset of mastering a strategy and can apply it to strategies that you might necessarily be a perfect fit for.

Alright, here we go…

The TH Trader Personality Profile Breakdown
The THTPP is broken down into four core areas, with three subcategories in each:

Trading Timeframe
Position (P)
Swing (S)
Day (D)
Chart Type
Breakout (B)
Countertrend (C)
Trend (T)
Strategy Type
Technical (T)
Fundamental (F)
Balanced (B)
Risk Level
High (H)
Medium (M)
Low (L)
Let's take a closer look at each of these areas…

Trading Timeframe
Trading Timeframe

The first step is to understand what timeframe works for you.

I prefer swing trading.

…but that's just me.

A big reason that most traders fail is that they don't match their trading timeframe to their personality and lifestyle.

They take a course and the instructor says that swing trading is the best, so they follow that advice until they get a margin call.

So don't do that.

Think for yourself.

You can make money on any timeframe.

Yes, longer timeframes will give you fewer trades, but you can compensate by trading more pairs or adding more strategies to your arsenal.

If you aren't familiar with the timeframes, here's an explanation of each one.

Position trading: You stay in trades anywhere from a few weeks to a few years.
Swing trading: You stay in trades anywhere from a couple of days to a few weeks.
Day trading: You stay in trades anywhere from a few seconds to a day.
I think you are starting to see why defining your timeframe is important.

If you are a busy parent, then day trading probably won't work for you. If open trades make you nervous, then day trading might be for you because you will close out your trades at the end of every day.

Also consider what you want your life to look like as a successful trader.

If you really want to hang out on the beach and travel the world, then you should probably work on swing or position trading strategies. However, if you like the excitement of facing a new trading day with a clean slate and trading for a few hours, then day trading might be for you.

Of course, there are exceptions. But that's the general rule of thumb.

So stop thinking about trading systems in terms of how much money the educator makes in their trading account and start thinking in terms of how well the timeframe suits you.

Strategy Type
Next, you should consider what type of trading strategy makes sense to you. Do you primarily rely on fundamental or technical analysis to make trading decisions?

Most people use a little bit of both, but pick the one that you will primarily use.

In very, very rare cases, some traders will use an equal balance of both technical and fundamental analysis. If that is you, then select the balanced option.

Chart Type
The next thing you should consider is type of chart pattern you are looking for to enter trades. Even fundamental traders will usually favor one chart type over another.

Here's a breakdown of the classifications:

Breakout: You are looking for a breakout from a consolidation pattern. You enter as soon as the breakout happens.
Countertrend: You are looking for a point on the chart where price changes direction.
Trend:  You are looking to trade with the trend.
Yes, there are strategies that can be classified in more than one category. But do your best to define these terms in a way that makes sense to you and classify yourself accordingly.

Here's an example of each of the categories:

Trade entry types

Risk Level
This one is pretty straightforward, but it is also relative.

To make things simple, here's how I define the levels:

Low: Risking less than 1% one each trade
Medium: Risking between 1% and 2%
High: Risking more than 2%
From what I've seen, most traders should be trading with low to medium risk.

…at least in the beginning.

But if your testing shows that you can trade a high risk system and you can handle the drawdowns, then forward test it in a small live account.

Do what works for you.

If you have a lot of backtesting data, remember that you can plug it into the calculator to figure out how much you should be risking per trade, to avoid your “freakout' drawdown.

To learn more about how to figure out your optimal risk, read this post.

Putting it All Together
Alright, now simply take the first letter of each classification and put them together to form your TH Trader Personality Profile.

For example, I'm primarily a:

STTL

Again, this should not make you feel like this is the only way that you should trade.

But it is the best starting point to help you focus your attention on what has the best possible chance of working for you.

Where to Go From Here
Trading journey

Give your THTPP mindful consideration and don't just fill in what you want to be. Sometimes, what we want to become is different from what actually works best for us.

For example, John thinks that that day trading is sexy and exciting, so he wants to be a day trader. But in reality, he has a demanding job and two young kids, so swing trading is probably a better fit for his lifestyle.

If you aren't sure about what works best for you, do this…

Open a demo account and take trades from all of the categories, at the same time.

For example, if you don't know what chart type works best for you, then pick three different trading strategies. One breakout, one trending, one countertrend.

It doesn't matter if the strategies are profitable or not. You are trading in a demo account, so you aren't risking real money anyway.

The important thing is to understand what feels best to you.

Do this for about a month. At the end of the month, note which one you like best or makes the most sense to you.

Go with that.

It's not important to be perfect and pick exactly the right one.

The more important thing is to make a decision on where you will focus your time and energy.

You can make a change later, if it's obvious that you should be doing something else. But you will reach your goals faster by failing quickly, than trying to be perfect from the start.

Once you have your profile set, then go out and find trading strategies that will fit this mold. It might surprise you how much easier it is to find courses and backtest, once you narrow down your focus to what fits into your THTPP.

You can also alter existing trading strategies to fit your profile. For example, if a trader teaches a strategy on the daily chart, but you are a day trader, then test it on the 5 minute chart.

Never risk real money until you test it!

Alright, that's how you figure out and use your TH Trader Personality Profile.

Now get to work!

…and I haven't checked this yet, but hopefully there aren't any Personality Profiles with weird acronyms. For example, if I ordered the classifications in a different order, my profile would be a SLTT 🙂
https://www.tradingheroes.com/trader-personality-profile/

Trading Flash Cards: How to Speed Up Chart Pattern Recognition

This is a concept that I've been experimenting with for awhile and I finally have a workflow that works well and that I'm confident in sharing. It has helped me tremendously.

I haven't seen anyone teach this, so I hope that this technique helps you improve your trading too.

I've heard a few successful traders use this technique (or something similar) to become consistently profitable and that is what led me to explore it. But oddly enough, they don't teach it in their courses. Or they don't have a course, which is unfortunate because nobody will learn strategies like this.

Speed up chart pattern recognition

Now, full disclosure up front…this is NOT sexy. It's hard, embrace the suck, work.

But if you are at a point in your trading where you need to figure out why you aren't getting the results that you are looking for, then trading Flash Cards could be one of the missing links that pushes you into consistently profitable trading.

Note: This is for traders who primarily trade technical chart patterns. It's one of the many techniques that we teach inside our TraderEvo training program.

How Traders Learn to Spot Profitable Patterns
First, I'll give you a quick background on how profitable trading is typically learned. You probably already know this, so I'll be very brief. I only mention these concepts to show you how Flash Cards can speed up what already works.

SEE ALSO: How this Trader Was Able to Quit His Dream Job to Trade for a Living

1. Watch a Live Market
Retail traders who log a lot of live screen time and only focus on one or two strategies will usually do much better than traders who do not put in the screen time. But the learning process will be slow, especially if you are a swing or position trader.

This is because you are not getting feedback fast enough. The more high quality feedback you can get right now, the faster you will progress.

2. Do Trading Simulations
Using a trading simulator like Forex Tester can speed up your learning time dramatically. If you have never backtested before, read this guide to get started. As you can see, you can learn so much more in the same amount of time.



When you want to practice your trading strategy, you can simply fire up Forex Tester and run through some trades. This is a great activity to do when you don't have any potential trades in play, or the markets are closed.

How Flash Cards Can Speed Up the Process
Now, what if you could put your trading simulator on steroids?

That would be Flash Cards.

First of all, there is no substitute for live chart time and doing backtesting in a trading simulator. You need to figure out if your strategy works in backtesting. If your method doesn't have positive expectancy, then Flash Cards won't help you. Also, you obviously have to get used to executing in live market conditions.

But once you have a trading strategy that meets your goals in backtesting, then it's time to become an expert at it. That's where trading Flash Cards can help.

Here's where it fits into the Trading Heroes Roadmap:

Learn a trading strategy from a website or course.
Create a Trading Sketch using this worksheet.
Backtest your Sketch on as many pairs that you will trade live.
If you like the results, begin forward testing it in a demo account.
Now it's time to create Flash Cards…
How to Setup Your First Flash Card Deck
Once you have a trading strategy that backtests well, Flash Cards will help you etch a good setup into your brain. It can also help you improve your strategy because you might start to see optimizers that you may not have noticed before.

Here's how to do it…

Step 1: Put All of Your Backtesting Trades Into One Spreadsheet
If you are using Forex Tester, then simply export all of your trades and paste them into one spreadsheet. I suggest using Google Sheets so you don't have to worry about your hard drive crashing and so you can access your spreadsheets on any computer or mobile device.

Export Forex Tester data

The same goes for any other backtesting method out there. You can even use TradingView Bar Replay for backtesting and put your trades into a spreadsheet.



Using a spreadsheet may seem a little old school, but trust me, it's the most reliable and flexible solution out there. It allows you to test most “what if” scenarios later, without doing any custom programming or being restricted by the limitations of an analytics platform.

Step 2: Create a New Google Doc
Now create a new Google Doc. This is where you will store your Flash Cards for each trading strategy and version. I believe in versioning your backtesting, so you know exactly how one change affects your results.

Again, a Google Doc is not sexy, but it's easy to use and reliable. You can also use something like Mac Pages.

Step 3: Screenshot Winning Trades Only
Here's the thing…

You could screenshot every trade, both winners and losers. But that could take a really long time (especially if you have a low win rate) and I feel that it's unnecessary to review losing trades.

Here's why…

Only reviewing winning trades does three things:

Shows you what a winning setup looks like.
Saves you time by not having to document losing trades.
Helps you overcome the innate negativity bias that most people have. I learned this concept from Chris Capre and it helps a lot. The “wolf” you feed is the one that survives…

For each trade, you need three screenshots:

When the trades sets up. Having this chart helps you avoid hindsight bias.
When the profit target is hit or when you decided to exit.
How much additional profit was available after you closed the trade. This can be very important for optimization later. I express this in multiples of initial risk. I usually wait for the initial stop loss to be hit to determine total potential profit.
When creating a screenshot, mark four things:

A vertical arrow where the trade set up. This allows you to easily see the entry point in subsequent screenshots.
The stop loss level (red line).
The entry level (blue line).
The take profit level, if applicable (green line).
Trading flash cards example

Now go through your backtesting spreadsheet and create a screenshot for every winning trade. You can set Forex Tester on the fastest setting because you already know the date that you want to get to.

Full speed

Be sure to include as much history on the chart as possible, so you have some context on previous price action. This helps a lot with optimization and practice later. Add screenshots from multiple timeframes, for better context, if needed.

Add the date to each screenshot study, so you can easily go back later and insert other trades that you missed.

A key to creating useful cards, is to use the same screenshot format for every single trade. This allows your brain to focus only on seeing the setup and not be distracted by different screenshot formats.

When to Review Your Flash Cards
Here's when I use my Flash Cards:

When I want to practice a trading strategy –  I review my cards at least three times a week, to keep my setups fresh in my mind. This is much faster than manually running through Forex Tester to practice. Kobe Bryant used to come to his games four hours early, to warm up. The best become the best because of continuous and mindful practice. We need to establish similar routines.
When I have doubts about an entry signal – There can be days when I'm feeling a little off and going back and forth on if I should take an entry signal or not. That is when I look through my cards really quick to see if my current trade looks like previous successful setups.
When I want to optimize a trading strategy – If I want to do things like tighten my stop loss to improve my entry, or figure out how to get more return out of my trades, I turn to my trading Flash Cards. When you look at trades in quick succession, it quickly helps you spot patterns.
You may choose to use Flash Cards in other ways. But this is what works for me. Here's an example of it in action…


Final Thoughts on Trading Flash Cards
Yes, this can be a lot of work. However, investing a little time now, actually saves you a lot of time later.

Having a spreadsheet also allows you to add the potential risk multiples (R value) available on every trade and do some quick and dirty statistical analysis. For example, maybe you target only 1R on your current trades, but you see that your average R available was 8R. That gives you a clue that maybe you can increase your profit target to improve your profits, without having to test different intermediate profit targets individually.

This is just one of the many techniques that we teach inside the TraderEvo trader training program.

What do you think? I would love to hear your thoughts in the comments below…


Disclaimer: Some links on this page are affiliate links. We do make a commission if you purchase through these links, but it does not cost you anything extra and we only promote products and services that we personally use and wholeheartedly believe in. A portion of the proceeds are donated to my charity partners.
https://www.tradingheroes.com/trading-flash-cards/

5 Reasons to Journal Your Missed Trades Too

Let's face it…

If you are trading a manual trading strategy, you will miss some trades. That's just how the game works.

However, what if those missed trades also contained some valuable information that could help you make more money? A treasure chest, hiding in plain sight, if you will.

Well, then I'd say that it's probably a good idea to pay attention to them.

Journaling my missed trades is an exercise that I have found helpful when learning a trading strategy, so I wanted to share it with you. Keep in mind that once you have mastered a trading strategy, you probably won't need this exercise anymore.

But I have found that it's a great way to speed up the process of learning and optimizing a trading strategy.

In this post, I'll give you the video guide on exactly how journal your missed trades and give you the top 5 ways that journaling your missed trades can improve your trading.

UPCOMING EVENT (Sep 2018): The Online Trading Summit with Rolf Schlotmann, Yvan Byeajee and...

You might be thinking that his exercise is a waste of time and I totally understand why you might feel that way.

I would have said the same thing a few years ago.

All that I ask is that you keep an open mind and this post might just change your mind. I'll also talk about why hindsight bias doesn't matter, if you are doing this exercise correctly.

Before I dive into the guide, let's take a look at the top 5 ways that a missed trades journal can improve your trading.

1. Figure Out How to Stop Missing Trades
This is the big one.

If you are missing out on profitable trades that fit your trading plan, then you need to figure out why.

Your trading career depends on it.

Yes, there might not be any way to take those trades.

But then again, there might be. So you owe it to yourself to explore if it's possible.

Here are some ways that you can reduce the number of high quality setups you miss:

Create alerts on your trading platform to signal you of a possible trade entry. If you don't know how to do this, find a programmer to help you.
Maybe you need to be trading at different times. Your best setups may be occurring during the New York session, when you are currently trading the London session.
Use automation to take the trades for you. Remember, you don't have to go fully automated. You can use Incremental Automation to automate parts of the process. To find a programmer to help you with this, see our directory.
2. Practice Your Setups
Learning to trade well is all about practice.

Period.

That's why backtesting is so effective. You get in a ton of reps, without having to wait for the live markets.

Keeping track of your missed trades is yet another opportunity to practice your trading strategy.

If you want to get all the practice possible, journaling missed trades is a great way to do that.

3. Discover New Optimizations
Improving trades

When you log your missed trades, you grow your library of reference material on a particular trading strategy, for you to go back and review later. This has several potential benefits when optimizing your strategy.

Here are a few questions that you can possibly answer with your library of trade setups:

How long does it typically take for price to move into profit after I take a trade? Understanding this can help you cut a losing trade sooner.
How much profit do I leave on the table? Find out if you are missing out on a ton of profit after you close your trades and work on a way to take advantage of these moves. You might consider extending your profit target, using a stop trailing method, or using an 80/20 split exit.
Does price frequently retrace after I typically take a trade, possibly giving me a better entry? I believe that fine-tuning your entry is more important than having a good exit. If you can tighten up your stop loss, that's the easiest way to increase your R-multiple.
What do my losing trades have in common? When you journal missed trades, you also need to journal losing missed trades. This can help you spot patterns in your losing trades and correct them.
Are there certain times of the day that are better for taking trades? Do you lose more during the Asian session than in the London session? Well, then that's a really easy fix.
And more! What other questions could you ask about your trading strategy to improve the returns?
If you want to create an even larger library, consider creating Flash Cards of your backtesting trades.

4. You Might be a Much Better Trader Than You Think
Trader

Getting down on yourself for losing trades is one of the deadliest things that can happen to your trading account balance. This can lead to overtrading, mismanagement of trades, quitting and a Pandora's Box of not-so-fun ways to lose money.

So learn to forgive yourself.

It's your secret weapon.

Aside from that, journaling missed trades can boost your confidence by showing you that you might be just one or two tweaks away from consistently profitable trading.

For example, let's say that you lost 2% last week.

Bummer.

But when you go back to your missed trades, you find that you missed 3 winning trades that you would have taken for sure.

This would have made you 3% profitable on the week.

Now you can go back and figure out why you missed those trades and possibly figure out how to prevent yourself from missing more trades in the future. Even if you find that it was impossible to take those trades (because you were sleeping, on vacation, etc.), reviewing your missed trades can give you the confidence that you are on the right track.

You might just need to keep taking trades and letting your edge work for you.

5. Find Out if You are Getting Lucky
In all fairness, you might also be a worse trader than you are currently getting credit for.

You could be benefiting from the luck of the draw over the short term, and could be headed for a big drawdown later.

Journaling your missed trades can help you identify if you have been lucky, or if you really do have a legit trading strategy.

If your live or beta trading results are profitable, but you find that your missed trades would have led to a lot of losses, then ask yourself why that is. There might be a perfectly good reason why you are skipping these losing trades.

But if you cannot find a good reason, then your trading strategy that could be a ticking time bomb that is waiting to take a big chunk of your trading account with it.

Best to find that out before it happens.

What About Hindsight Bias?
The first objection that usually comes up when it comes to missed trade journaling is that hindsight bias will cloud your judgement. Therefore you would not be able to make objective calls on which trades you would have taken and which ones you would have passed on.

Yup, that's a fair statement and there isn't a way to completely counteract hindsight bias because you already know what happened. However, try to remain as objective as possible and use these two techniques to shield yourself from hindsight bias when journaling missed trades.

Scroll Back
Scrolled back chart

Before you tag a trade as a missed trade, scroll your chart back to the point of the setup. When you hide the information after the setup, you are now at the “hard right edge” or the point where you need to make a trading decision.

Go or no go?

If the setup doesn't look so good at that point, then you probably wouldn't have taken the trade.

Have a Specific Trading Plan
But what if you still have difficulty deciding if you should take the trade or not, even when you scroll your chart back?

Then your issue is probably that your trading plan isn't specific enough. Go back to your plan and see if you can make your entry more specific, so there is no doubt if you should take a trade or not.

Yes, that's not always possible, especially with highly discretionary strategies. But give it your best shot, it could be the step that takes your trading to the next level.

How to Journal Missed Trades
Make this process as easy and pain free as possible.

Serious.

This is yet another thing that you will have to do each week, so make it simple and dare I say it…even fun. This video will show you exactly how to get started. I use Evernote, but feel free to use what works best for you.


Conclusion
So that is why it's helpful to journal your missed trades and the simplest way that I have found to do it.

Does this sound like too much work?

Well, I hate to break it to you, but learning to trade well is just like any other profession. You have to put in the work to get the results. Just ask any successful trader.

Now get to work 🙂
https://www.tradingheroes.com/journal-missed-trades/

How to Choose the Best Computer for Trading Forex

A lot of new traders ask me:

“What is the best computer for trading Forex?”

That can be a tough question to answer because technology is constantly changing and any specific recommendations that I make today are probably going to be outdated by the end of the year.

The best computer for you will also depend on your individual needs.

So in this post, I'll give you the top 4 things to focus on when purchasing a trading computer. These characteristics will apply to all computers for the foreseeable future, so this guide will not go out of date any time soon.

SEE ALSO: The Best Trading Books of All-Time

I was in Information Technology (IT) for many years and I have worked on hundreds of desktop computers, laptops, mobile devices and servers from many different manufacturers.

Some of the companies that I worked for were very budget conscious, so I understand how to get the most value for every dollar spent on a computer.

What Will You Use Your Trading Computer For?
This is the first question that you have to ask yourself. When it comes to choosing the best computer for trading, there are two basic categories of trader.

Normal trader
Hardcore algorithmic trader
“Normal trader” refers to anyone who takes their trades manually or uses very simple trading robots. Most traders will fall into this category.

If you want to get into 100% automated trading, then you are in the second category. In my experience, only a very small proportion of traders (probably less than 1%) will be doing this type of trading.

Just dabbling in algo trading?

Then you should start in the normal trader category and take it from there because there's a very good chance that you won't continue with algo trading.

I'm not saying that you aren't smart enough to do it, you probably are. It's just that algo trading takes a much different mindset and most traders aren't comfortable with that type of trading.

The Short Answer
If you don't want to get into all of the specifics, then here's what to look for in a trading computer.

Algorithmic traders need a ton of horsepower because they need to backtest their trading strategies and they also need to be sure that their trades execute quickly.

So if you are absolutely sure that you will be doing 100% automated trading, then you should buy the most powerful computer you can afford.

Companies like Falcon make trading optimized computers for brokerages and hedge funds. If you are a little more adventurous, you can also build your own to save some money and get everything you want.

For the rest of us, this is all we really need:

A computer made within the last 5 years
At least 8GB of RAM
Screen size is big enough to fit your charts, or the ability to attach a large external monitor(s)
A hard drive that is large enough for your needs, 500GB is a good start. Get a SSD whenever possible.
This includes desktops, laptops and tablets.

If you need specifics, keep reading. The rest of this post is for normal traders, not hardcore algo traders. Here are the specs that you should look for, in order of importance.

1. Memory (RAM)
Computer RAM

Assuming that you have a computer that was made in the last 5 years or so, the best way to speed up your computer is to max out the memory.

This upgrade is fairly inexpensive, so you should also consider doing it on your existing computer, instead of buying a new one.

When buying a new computer, look for at least 8GB of memory, but anything over 16GB is overkill.

Many manufacturers give you a ton of options that you can choose from and that's great. But if you are on a budget, then prioritize memory over everything else.

2. Storage (Hard Drive) Size and Type
Next, make sure that your hard drive is going to be large enough for your needs. If you are going to use your next computer only for trading and you are on a budget, then you can probably get away with a 250GB hard drive, as a bare minimum.

Of course, this depends on the trading programs that you run. Check the requirements of the software that you use.

However, if this will also be your primary personal computer or you don't want to stress about running out of hard drive space, then you will want to look for at least 500GB…the more, the better. You want to be sure that you have enough room to store your music, pictures and files.

More and more computers are coming with Solid State Drive (SSD) hard drives standard and all computers will eventually have them as the only option. But if you are faced with the choice between a SSD or a regular hard drive, choose the SDD.

It will probably be more expensive, but it's worth the extra cost. This is because old school hard drives have a lot of mechanical parts, which are naturally much slower. SSDs basically store information in chips and therefore it takes much less time to access your data.

The difference is quite noticeable. Everything from startup to your normal programs will be much snappier.

3. Screen Size
Computer monitors

After considering your hard drive space and type, I would consider screen size.

Is it going to be big enough for your needs? If you only look at one chart at a time, then a 10″ screen or a tablet might be good enough for you.

You can also consider adding additional monitors, if you will be mostly trading at home. Just be sure that your graphics card can handle the extra monitors, or get an external graphics card to handle the extra load.

But if you only want to use one screen, then you should consider getting at least a 13″ screen on a laptop and a 24″ screen on a desktop. If you can, I would suggest at least a 32″ screen on your desktop.

The best way to figure out what is best for you is to go to the store and look at the different options. If possible, pull up Metatrader Web or TradingView to get an idea of how your charts will look on that monitor size and resolution.

Also make sure that the screen is bright enough and looks sharp. There is probably nothing more irritating than a blurry screen.

Here's my monitor setup.

4. Processor Power
Some people put this at the top of the list when choosing a computer, but in reality, it doesn't make that much of a difference. Computers with processors made in the last 5 years are going to be fast enough for almost all trading applications.

You don't need to get a top of the line processor, but get something that is near the top, for the device you are looking at. This will be different for desktops/laptops and mobile devices, so get familiar with the options.

The Gigahertz or GHz is essentially the speed of the processor. Higher is better, so get the larger GHz chip, if possible.

Same goes for the number of cores on a chip. The more cores, the better.

But again, if you are on a budget, prioritize memory, hard drive and screen size over processor power.

You can see the current list of Intel Core processors here.

Mac or PC?
This is a personal preference. However, as I have mentioned before, Macs are superior computers.

It all comes down to the Mac operating system, that is what makes Macs lower maintenance and easier to use. Microsoft is one of the only companies still in existence, that makes new software that is actually worse than the previous version.

I have saved countless hours in troubleshooting, since moving from Windows to Mac.

Some argue that Windows computers are cheaper and therefore a better value.

I would strongly disagree.

Yes, you might save quite a bit of money on the initial purchase of a PC versus a Mac. However, in the long run, you will waste a ton of time and possibly money, on repairs, virus issues, WiFi connectivity issues, finding drivers and other dumb stuff that comes standard with Windows ownership and hasn't really changed much since 2001.

So it's becomes a matter of how much your time (and sanity) is worth to you.

See my favorite trading computer here.

That being said, many trading software developers are slow to move away from Windows based software. So if you do want to go the Mac route, you will need to be aware that you may have to install some workarounds to run these Windows only programs.

You can read this blog post to learn how to run your favorite Windows-based trading software on a Mac.

What are Good PC Brands to Buy?
If you still want to go with a Windows computer, even after reading what I said above, then I would recommend buying a Dell.

In my opinion, they are the best value for the money.

There will be a few faulty models here and there, but that happens to any company. Overall, I've been very satisfied with the performance of Dell computers.

At one of my IT jobs, we used to buy used Dells by the dozens and they were great.

I currently own a Dell Venue 11 as my backup Windows computer.

Of all the major PC brands out there, I would suggest staying away from HP. Their hardware designs aren't as practical and they tend to break down more often than other brands. This may change at some point, but that has been my experience.

Android or iOS?
Trading tablet

Here's where there's much less difference, at least in my opinion.

If you want to use a tablet as your primary trading computer, then I don't think that you can go wrong with either Android or iOS.

I personally like the simplicity of iOS, but Android is much more customizable, so I can certainly see the appeal in that. Try out both and see which one works best for you.

New or Used?
Another question that comes up is:

“Should I buy new or used?”

Well, that really depends on your budget. I prefer to buy my primary computers new. However, I buy all of my secondary computers used.

You can get some really good deals on used computers, if you take some time to look around. Sites like Craigslist or eBay are excellent places to find computers that are way under market value.

I once bought a used MacBook Pro 15 at a garage sale for $1.

Yeah, serious.

It needed a new hard drive and was a little banged up on the outside, but it still worked and could have been a great primary computer. I just want to show you that the deals are out there, even if you are on a very tight budget.

My only issue with used computers is you never know what is broken until you actually start using it. This is fine if it's my secondary computer, but it really slows me down if a major issue comes up on my primary computer.

So again, it's just a personal preference.

If you can afford it, I would recommend buying a new computer because you get a warranty if there are any defects. But if you can't afford it, then buying a used computer for trading can be a great way to get a kick-ass computer at a bargain price.

Final Thoughts on Choosing the Best Computer for Trading Forex
The latest advances in trading technology have made it very easy for people to trade from home, with off-the-shelf computers. You don't need a fancy top-of-the-line computer to be a successful trader.

It's better to buy something that is super affordable and spend the rest of your budget on your education. I find that the people who geek out about trading computers are usually the people who aren't working on their trading.

When in doubt, just pick something and go with it. You can always buy that fancy computer after you are makin' chedda.

It's a fun goal to work towards.

I hope that this guide has helped you pick the best computer for trading. If you have any questions, leave them in the comments below.


Disclaimer: Some links on this page are affiliate links. We do make a commission if you purchase through these links, but it does not cost you anything extra and we only promote products and services that we personally use and wholeheartedly believe in. A portion of the proceeds are donated to my charity partners.
https://www.tradingheroes.com/best-computer-for-trading/

My Best Forex Hedging Strategy for FX Trading

I stumbled down the hedging path in around 2011.

(Yes, you can do this in a US account, I'll show you how later in this post.)

A couple of months after I started experimenting with hedging, my friend asked me to teach him how to trade Forex.

But there was one condition…

He wanted to learn a strategy that was super conservative. Something about making it easier to explain to his wife.

Fair enough.

I saw the potential in hedging, but it still needed more forward testing.

So I told him that I have a method that could fit his criteria, but it still needs some testing.

I welcomed him to test it with me…

Even if it didn't work, he would learn the basic concepts of Forex trading, get practice executing trades and gain a better understanding of what type of strategy would suit him best.

He was game, so over the next 3 months, I went over to his house 2-3 times a week and we traded the London open. He traded a demo account and I traded a small live account.

…and guess what?

We both made money at the end of…every…single…month.

At that point, I was confident that it worked and my friend had a firm grasp of the concept, so we stopped meeting up.

I traded it for another 3 months and I was profitable during those months too.

Then I stopped trading it…cold turkey.

Later in this post, I'll share with you why I stopped.

I'll also share why I started trading it again. But before that, I'll show you the method and help you figure out if it is for you or not.

Table Of Contents

Is Hedging For You?

The Biggest Benefit and Drawback of Hedging in Forex Trading

What is Hedging a Position?

Why Hedge?

How to Hedge in a US Account

The Core of My Forex Hedging Strategy

Roll-Off Example

Benefits of Zen8 Over Other Hedging Methods

How to Get an Exact 50% Roll-Off

How to Get Started with Zen8 Forex Hedging

Which Pairs to Trade?

Where to Enter the Market?

Position Sizing

The Worst Thing That Can Happen in Zen8 Hedging

Download the Zen8 Forex Hedging Strategy PDF

Why I Stopped Hedging (and Why I Started Up Again)

It's Too Stressful

It's Not a “Real” Trading Strategy

The Gains Aren't Worth It

Why I Started Up Again

Conclusion

Is Hedging For You?
But enough about me, is hedging for you?

It depends on your personality.

Unlike other traders on the internet, I will never blindly tell you that any one trading strategy is the only one you need, because that is simply not true.

The key is to figure out your Trading Personality first, then learn strategies that are a good fit for your personality.

It's like driving a Ferrari…not for everyone.

Ferrari

It's a small shift in where you focus your attention, but it can have a huge impact on how quickly you progress as a trader.

You can spend years spinning your wheels and chasing shiny new trading systems or you can become more aware of what you are good at in the beginning and focus only on those types of strategies.

So if hedging is something that resonates with you, then keep reading.

However, if you still think that hedging is dumb, then stop reading now and go find another strategy. I won't be offended.

Also remember that this is the way I trade it. There are many other different hedging methods out there.

So if you see a way to improve on this idea, go for it!

The Biggest Benefit and Drawback of Hedging in Forex Trading
If you are considering using my Forex hedging strategy in your trading arsenal, then you need to understand what you are getting into.

Regardless of what you have read before, there is no such thing as a “sure-fire” way to profit with hedging.

There are no free lunches in trading.

Every benefit of a trading strategy has a corresponding drawback.

Biggest benefit of hedging: Consistent returns (when done correctly).

Biggest downside of hedging: Low returns per month, so you need a fairly big account or trade for investors if you want to trade it full-time.

Alright, if you are still reading, then you are probably into this kind of thing.

…or at least you are curious.

Before I show you my hedging method, let's get a few definitions out of the way. If you already understand these concepts, then skip down to the section on The Core of My Forex Hedging Strategy.

What is Hedging a Position?
Hedging is when you hold a long and short position in the same currency pair, at the same time.

This may not make sense at first because you don't make any money if you do this. But hedging can be a great way to limit your risk, while the market figures out which direction to go. Once the market “shows its hand” and starts trending you can start to profit from your winning trades and minimize the losses from your losing trades. Partial hedging can also be used to reduce your loss if you are wrong about a directional trade.

Why Hedge?
The bottom line is that nobody knows, with 100% accuracy, what the market will do next. Therefore, holding long and short positions at the same time can allow you to profit from price movements in both directions.

If you use my method, you can also profit while you reduce your exposure to your losing trades.

How to Hedge in a US Account
This video is a little old, so bear with me. The concepts are exactly the same, just the platform is different.

Instead of using the Java platform, I now use TradingView.

The result is the same…you can get around the hedging and FIFO rules.

So if you live in the US, you can do this too.



The Core of My Forex Hedging Strategy
I call my Forex hedging strategy Zen8.

It is super flexible and there are a ton of nuances to this method. I will share these details with you in later blog posts.

But in this introductory post, the most important thing that you can learn is the simple concept of the Roll-Off.

This is the core of my Forex hedging strategy and this one idea alone is very powerful.

Here's how it works:

When you close a winning trade, you will Roll-Off 50% of your gain from your losing trades.

So you still take a loss from your losing trades, but you do it at a net profit.

Roll-Off Example
For example, if you closed a long trade for a +$500 profit, you will close, or Roll-Off, a -$250 loss on your short position immediately after you close your long trade.

This way, you will still have a net profit of $250, but you will also reduce the lot size of your losing position.

From there, you can put on another long position to hedge your existing short position. Since your short position is now smaller than it was originally, you have successfully reduced your risk to further adverse moves.

Then you keep working back and forth between hedging and doing Roll-Offs until you are able to close all trades.

Your goal in Zen8 is to get completely flat or have no open positions. This allows you to take a break and find a good spot to get back into the market again.

Benefits of Zen8 Over Other Hedging Methods
Other hedging methods will take more trades (or even double down) to offset losing positions. In my opinion, that is the worst thing that you can do because you will eventually get stuck with a huge losing position on one side of your books (buy or sell side).

I've seen a couple of high-profile hedgers go down this way.

But if you are diligent about doing your Roll-Offs and continually reduce your position sizes (even if the profits are small), you will be able to keep your risk low and your returns consistent.

How to Get an Exact 50% Roll-Off
Undercapitalized trader

At this point, you may be wondering how to Roll-Off exactly $127.32.

The answer is nano lots. They allow you to custom tailor your hedges and Roll-Offs, even with a tiny account.

If you start trading a large account, then you don't have to use nano lots. But until then, I would highly suggest that you use them because they give beginning traders a huge edge and makes this hedging method possible in a small account.

How to Get Started with Zen8 Forex Hedging
This trading method can be backtested. But this is one case where I believe that it's actually more beneficial to open a demo account and start beta trading it as soon as possible.

To get maximum benefit, you should do both at the same time.

Backtesting works very well when you have a defined set of rules for entry, exit and trade management. However, given the highly discretionary nature of this trading method, I believe that it's far better to just dive into it.

How will you know when you are ready to stop trading in a demo account?

That's entirely up to you. But I believe that a good rule of thumb is if you are able to get yourself out of a bad situation at least twice, then you are probably ready to go live with a very small live account.

I would define a bad situation as having a position that is down 500 pips or more. You learn a lot about how to be a good hedging trader when you are stuck in this position.

You might even consider putting yourself into this situation on purpose, so you understand why should should avoid getting too far in the hole.

Which Pairs to Trade?
It can be tempting to trade several pairs at the same time.

I've found that sticking with one pair is the best way to trade Zen8…at least in the beginning. This gives you enough margin to safely work your way out of trouble.

You can trade whichever pair you are most comfortable with. However, I would suggest staying away from pairs that have a large spread or are highly volatile.

Where to Enter the Market?
In reality, it doesn't matter. That's the beauty of hedging.

Seriously.

Hire a monkey to pick your entry point. Have your kids pick an entry. Use Tarot cards.

Forex picking monkey

I will probably get some blowback from that statement.

But if you think I'm nuts, then you don't truly understood what I have written above.

Go back and read the Roll-Off section, then try it in a demo account.

That being said, you will make your life easier if you choose a high-probability countertrend turning point. Again, just pick one…support and resistance or RSI are good places to start.

Position Sizing
Start waaaay smaller than you think is safe. A good rule of thumb is to calculate what would happen if your position was down 1,500 pips.

This could happen, so be prepared. Again, you will need to demo trade for some time so you can learn how to get out of these situations.

That said, I believe in having a 2:1 hedge, at most. If you are unsure about the direction of the market or you want to walk away from your trades for awhile, then it's better to have a 1:1 hedge.

Again, this is a personal preference, so do what works best for you.

Start with 1:1 and go from here.

The Worst Thing That Can Happen in Zen8 Hedging
Without a doubt, the worst thing that can happen to you in Zen8 hedging is being stuck with a large position that is down 500 pips, or more, on one side of your books.

I've been there and it SUCKS.

For example, if you have a large long position that is down 500 pips and you are flat on the short side, it will take much longer to Roll-Off enough profits on the short side to close out that 500 pip deficit.

You might think that the worst thing that can happen is the market moves violently, like it did during Francogeddon. That is certainly a risk, but if you are properly hedged, that shouldn't affect you.

The losing position will be offset by the winning position.

Download the Zen8 Forex Hedging Strategy PDF
To get more details on my Zen8 hedging method, click the button below to download my free Forex Hedging Strategy PDF. In this PDF, you will learn the only currency pair that I trade with Zen8, my favorite method for entering my first trade and how to take advantage of interest rollover.

Download PDF


Why I Stopped Hedging (and Why I Started Up Again)
The reason that I stopped hedging, and started up again, can be summed up in one word: mindset.

Our minds are funny things.

They can cause us to do things that move us away from things that we want and towards things that bring us pain.

Someone in my mastermind group pointed out that some people have a subconscious need to solve problems. Once they solve a problem, they get bored and look for another problem to tackle.

I immediately identified with that statement and realized what I was doing.

So if you have some success with this hedging method, but you start to have some doubts, then ask yourself why you are going to quit something that's working.

Here are the reasons I told myself that I should stop trading Zen8:

It's Too Stressful
My stress was self-imposed. I was micro-managing my positions and was always anxious about them. Once I adopted more of a swing trading mindset, hedging became easier and more fun.

It's Not a “Real” Trading Strategy
No stop losses, are you crazy?

Conventional trading wisdom says that you always need a stop loss. That is true for the most part, but I've learned that there are exceptions to every rule.

This is one of those exceptions. If you are properly hedged, then stop losses actually aren't necessary.

The Gains Aren't Worth It
Another reason that I stopped trading Zen8 is because it's a low return trading strategy. I was stuck between trying to learn how to build a small account and how to build a track record to attract investors.

Depending on what day of the week it was, I would lean one way or the other. That was a poverty mindset.

Why not do both?! That's an abundance mindset.

Why I Started Up Again
Fast forward to 2017 and I went to the Truth About FX Conference in London. One of the speakers was Gonçalo Moreira, the head trader at FXStreet.

You can watch his trades in real-time here.

His shared his Coastline Trading Strategy in his presentation and it was very similar to the way that I had been hedging.

He started trading this way because he noticed that a lot traders who won online trading contests were hedgers. That's when everything clicked for me.

Gonçalo's track record and research finally gave me the validation that I needed to continue trading my Zen8 method. It's weird…even if we see a method working, sometimes we need validation from someone else to start trading it.

Anyway, I'm grateful to Gonçalo for sharing his method. I also encourage you to keep learning new things and attend trading events.

Here are my results since I started trading it again.

Zen8 hedging track record

Remember that with my hedging style, I'll never have a huge winning month. But I'm going for consistent profits of 0.5% to 2% per month.

Conclusion
A word of warning about this method…

It can be very easy to start seeing profits right away. This can lead to Acute Cranium Enlargement (ACE) and taking oversized positions.

If that happens, then you are in for an education in digging yourself out of a deep hole. It's possible, but it's also very painful.

Trade conservatively and Zen8 can be a lot of fun.

Get cocky and it can become a total grind and you might feel like poking your eyes out with a rusty nail.

So start small in a demo account and figure out what works best for you.

Happy Hedging!

If you want to learn more about how to trade Zen8, it is one of the trading strategies that is taught in the TraderEvo Program.
https://www.tradingheroes.com/best-forex-hedging-strategy/