TRADING STRATEGy
so much money – simply because we love to trade.
Profit, however, is wonderful, - it is necessary for another important “P” – “PAYDAY”! Payday is a “P” which we mind with great pleasure. It is a marvelous feeling to write your own paycheck, knowing that you earned it the hard way – you worked for it!
We could talk all day about our trading method, but we must save a bit for later.
However, there is one additional set of Ps and Qs we would like to bring to your attention. One of the nice things about forex trading is that most companies providing forex trading accounts do not charge a commission for each
trade – instead the
trader pays the difference between the bid
and the
ask on each entry and exit. So our final “P” and “Q” set to watch is, “PIPS” and “QUOTES”.
The number of pips it will cost to enter (or exit) the trade is, of course, the difference between the bid and the ask price. The cost of a trade would be generally double that
FX
Te difference between bid and ask is called the spread. In forex the spread may be significantly different between entry and exit, complicating a precise estimate of RRR. Also, the spread can vary widely from market to market and from time to time. Generally, when the market is at its most liquid, the spread will be at its lowest – and vice versa.
A good trader will only enter the market when the number of pips they expect to make is at least twice the number pips it will cost to enter and exit the trade. You must have the potential to make at least as much as you risk – preferably double or triple your risk. A forex trader must develop the ability to estimate his spread as accurately as possible.
The forex trader must learn to quickly assess the cost of the trade by noting the difference between the bid price and the asking price for the currency pair they are trading. It is not as easy as futures trading, where the difference is usually only a tick or two.
The forex trader must learn to quickly assess the cost of a trade by noting the difference between the bid and ask price
amount - to account for entry and exit.
Good money management is crucial to making a profit in trading. Only your broker makes money when you breakeven (and yes, they make money even when you lose). It is up to the individual trader to mind the “P” for PROFIT.
PATIENCE + QUALITY + QUICKNESS = PROFIT
So while you are watching “the music of the market”, mind your Ps and Qs - it will help you to become a better trader!
Phil Elrod FX TRADER MAGAZINE April - June 2012 75
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