The Engulfing Candle is one of the simplest and possibly most underrated chart patterns in trading.

In this tutorial, I'll show you how to identify the pattern, what it tells us as traders and I'll give you some trading strategies that use this pattern.

Many people over-complicate this pattern, but it's very simple.

There are basically 2 types of Engulfing Candles.

Here's how to identify them. 

Bullish Engulfing Candle

A Bullish Engulfing candlestick pattern signals a potential reversal from a downtrend to an uptrend.

Here's what to look for:

• 2-candle formation
• First candle is smaller than the second candle and the close is lower than the open
• Second candle has the largest candle body that has been seen in awhile and the close is higher than the open
• The high of the second candle is higher than the high of the first candle
• The low of the second candle is lower than the low of the first candle
• The second candle closes near the high of its range
• This pattern has to print on a support or resistance level

Examples

Here is an example of a Bullish Engulfing pattern on a Bitcoin chart. The blue arrow shows the Engulfing Candle. 

Notice how this was a dramatic turning point on the chart.

This obviously won't happen all the time, but it does happen frequently enough that you should pay attention.

Here's a second example on the USDCHF Forex pair.

This one rallied hard after the pattern printed on a previous support level.

So those are just a couple of examples of when a Bullish Engulfing Candle can signal an upward move in a market.

Now let's take a look at the opposite of this pattern.

Bearish Engulfing Candle

A Bearish Engulfing candlestick pattern signals a potential reversal from a downtrend to an uptrend.

Here's what to look for:

• 2-candle formation
• First candle is smaller than the second candle and the close is higher than the open
• Second candle has the largest candle body that has been seen in awhile and the close is lower than the open
• The high of the second candle is higher than the high of the first candle
• The low of the second candle is lower than the low of the first candle
• The second candle closes near the low of its range
• This pattern has to print on a support or resistance level

Examples

This example on the AUDNZD chart shows how fast price can move after a Bearish Engulfing candle pattern.

Notice how it prints on a previous level of resistance.

Now here's an example on the NZDCAD chart.

Again there was a sharp move after the engulfing candle prints on the resistance zone.

Take any chart and start looking for this pattern.

You'll notice that it happens more often than you might expect.

But don't stop there.

Be sure to test this pattern out before risking real money.

My Favorite Engulfing Candle Resources

Here are resources for Engulfing Candle trading strategies that I've found super useful.

You can use them to help you create, test and trade Engulfing Candle trading strategies.

• Naked Forex: High-Probability Techniques for Trading Without Indicators – This book teaches a trading strategy called The Big Shadow that uses Engulfing Candles.
• Naked-Markets Backtesting Software – This software will identify Engulfing Candles and can pause the backtest so you can manually enter a trade, or automatically enter a trade that you have an automated entry created. Saves a ton of time when backtesting.
• Engulfing Bar Alert Indicator for MT4 – Get alerts on your screen or mobile app when an Engulfing Candle prints.
• TradingView – Setup alerts for Engulfing Candles by using the built-in indicators.

How to Prove Engulfing Candles Actually Work

At this point, you're probably wondering: Does this actually work?

That's a perfectly natural question and the only one that matters, quite frankly.

So here's the truth about trading Engulfing Candles…

Just like with any other trading method, the success of the chart pattern will be determined by the specific trading plan.

There are many ways to enter and exit trades with this pattern, so you need to define these parameters in order to have a real trading strategy.

I'll provide specific trading strategy plans in the next section. 

But here's where most traders get tripped up…

Remember, there are only 2 types of trading strategies, discretionary and fully automated.

Most Engulfing Candle strategies are discretionary.

Therefore, the results can vary greatly between traders.

So it is essential that you backtest it for yourself to find out how good you are at identifying the setups in your trading strategy plan.

Practice can also improve your skills, so don't be afraid to keep running through simulations until you feel you've maxed out your potential.

Now it might be possible to automate an Engulfing Candle strategy. If so, then the results are usually reproducible between traders.

Even then, you still have to create an automated strategy and test it on every market/timeframe you trade.

Always verify, never take another person's word for it.

Remember, profitable trading strategies usually start out as very unprofitable ideas.

So start experimenting and don't be afraid to test your own ideas.

You just might discover something amazing.

Trading Strategies That Use Engulfing Candles

Here are some trading strategies that you can review and start testing for yourself.

I've also included my own backtesting results so you can compare notes and make improvements on these strategies.

• Coming soon

Final Thoughts

This super simple candlestick pattern could be the basis for your next grail trading strategy.

It is easy to identify and can be programmed into most trading platforms.

But it's up to you to test it out and find out if it will work.

Remember, the most profitable strategy in the world is the one that fits YOU best.

Now get to work. 

The post Beginner’s Guide to the Engulfing Candle Chart Pattern appeared first on Trading Heroes.

Do Holy Grail trading strategies exist?

Yes, they do.

But…

It all depends on how we define a grail strategy.

So in this article, I'll get into what a Holy Grail trading strategy is, and more importantly, how you can discover your own Holy Grail.

The Definition of Holy Grail

There's no agreed upon definition of a Holy Grail trading strategy, so I'll give you my definition.

Other people will have their own definitions and that's great.

But for the sake of what I'm going to talk about here, I need to define a Holy Grail:

A single trading strategy or portfolio of strategies that a trader feels is worth trading because it gives him the long-term return he is looking for.

That's it, super simple.

Ultimately, that's why we trade.

Therefore, I believe that there are grail strategies, but they are not what most people might think.

Holy Grail Trading Strategy Misconceptions

Many new traders think that a Holy Grail trading strategy is one specific strategy that they haven't discovered yet and it will provide them with unlimited profits forever.

That's obviously a myth.

A few trading educators have also named their trading strategy “The Holy Grail.”

Sometimes they actually believe it, sometimes they are just being sarcastic.

Whatever the case, be sure to steer clear of anyone who claims to have a trading strategy that cannot fail.

All trading strategies can fail, even if the most successful trader in the world uses it.

Here's why…

The Most Profitable Trading Strategies are the Ones That Match YOU

Now obviously there are plenty of profitable trading strategies out there.

Hedge Funds wouldn't be a thing if their strategies didn't work.

However, many retail traders get caught up in chasing the wrong Holy Grail.

This is very important, so pay attention. 

Your Holy Grail trading strategy will be different from almost every other trader in the world.

I've seen traders do well day trading just one strategy.

Other traders prefer trading a portfolio of swing trading strategies.

Some traders trade multiple markets, while others prefer just one.

You get the point.

The bottom line is that you have to trade a strategy that works well for YOU.

Most of the time, that means you'll have to tweak existing strategies to find something you like.

So the faster you can internalize this fact, the faster you'll be able to find a trading strategy that is profitable over a long period of time.

The Grail is Already Within You

Now I'm going to get a little philosophical for a moment.

Another reason that I believe that there are grail trading strategies is because I feel that the mythic “Grail” of ancient lore is actually much closer to home.

In the Indiana Jones movie, they go searching for a cup.

But what if the cup is simply a metaphor for what's already inside you?

And what if a Holy Grail trading strategy is simply another metaphor for trading based on your innate personality?

Believe what you want, but that might be something to consider.

Final Thoughts

When I first started this website, I believed that there is no Holy Grail trading strategy.

But I changed my mind.

After a lot of experience and live trading, there are undoubtedly methods that successful traders use over a long period of time.

That's a grail to me. 

Successful traders also have techniques for developing new trading strategies and that could be considered a grail system as well.

So if you want to find the best long-term trading strategy for you, stop chasing the latest trendy strategy on TradingView.

Start reviewing your trading personality, and developing strategies that make sense to you.

Backtest your strategies to find out if they have an edge or not.

That's how you find a grail strategy.

Yes, it takes work, but the rewards can be tremendous.

The post Holy Grail Trading Strategies: Fact or Fiction? appeared first on Trading Heroes.

Hedging is possibly the most misunderstood trading method in the world.

It's also technically not allowed in U.S.-based accounts, so many traders think that there's something wrong with this trading method.

But if you take a closer look, there are many benefits to Forex hedging that I'll go over in this article. 

You might just change your mind. 

Even though there are a lot of benefits to hedging, remember that there are no magic trading strategies that are guaranteed to make money.

The trading strategy you use must match your trading personality and be practiced extensively to achieve mastery.

With that said, let's get into it.

1. Less or No Margin Required

Depending on the broker you use, a fully hedged position can require half the amount of margin, or even no margin at all.

For example, let's say that you're long 1 standard lot of EURUSD, and short 1 standard lot, at the same time.

If the margin for 1 standard lot is $250, you might only have to put up $250 for BOTH positions, which would ordinarily cost you $500.

At some brokers, you don't need any margin at all if you have a fully hedged (1:1) position.

This is a big advantage because you can basically have double the opportunities to profit, at half the cost.

Of course, there is also twice the opportunity to have a loss.

But if you know what you're doing and have practiced your hedging strategy, using less margin is generally a very good thing.

It gives you more opportunity to get out of losing trades.

Unfortunately, this does not apply if you hedge in a U.S.-based account. But it's still possible to hedge in an account based in the U.S.

More on that in a bit.

2. Potential to Make Money in Both Directions

Almost all trading strategies require that you to pick the direction that you think the market will go.

It's either up or down.

But with hedging, I can potentially make money in both directions.

I've even done demonstrations where I have opened a long and a short trade at the same time and made a net profit on both trades.

In this way, it's unlike any other trading method out there.

Now in all fairness, this can lead to overtrading, so it's important to learn hedging in a demo or simulation account before ever risking real money.

However, hedging gives me more opportunities, and that makes my job easier.

If you want to learn more about hedging, be sure to read my Hedging Guide for Beginners.

3. The Ability to Wait for More Information

This is a big one.

Have you ever thought that price would move in one direction, but as you saw more candles, it was pretty obvious that you were wrong about your initial prediction?

Of course, that happens all the time in trading.

The beauty of hedging is that I can take positions in both directions and wait until the market gives me solid clues that it will go in one direction or the other.

This can be a huge advantage because many times the markets will throw a “fake out” before making a big move in the opposite direction.

Even though I might be very sure about the initial position, that picture can change quickly and hedging gives me the ability to adjust.

4. Lower Stress

Sometimes I don't feel like trading.

When that happens, I can simply hedge my positions and get back to them when I feel like it.

Sure, I'll lose a bit of money on the swap.

But the ability to take a break is priceless.

Try doing that with any other trading method out there.

On top of that, I never have the stress of worrying if I'll get stopped out of a trade…even during rollover. 

If you've been trading for any length of time, you know that sinking feeling when you go to check your charts and you've just been stopped out…again.

Not the best way to start the day.

Get stopped out multiple times in a row and that can start to mess with your confidence.

With hedging, there are no stop losses, so I never have to worry about getting stopped out.

I simply hedge the losing position and move on.

A hedge still limits my risk, while giving me the opportunity to profit in either direction.

5. Potential to Make Passive Income

There was a period of time when the Japanese Yen was a popular currency to trade because the interest rate differential between the Yen and the US dollar was so high that traders could simply profit from the interest.

Traders were making big money by just holding their positions.

It was rumored that even Japanese housewives were trading this method because it was so easy and reliable.

I know a trader who did this full time as her only strategy.

But all good things come to an end and the trade eventually stopped working.

Some traders lost their entire accounts.

However, if you use hedging to target high interest rate differential trades, it's possible to still take advantage of this method on a shorter term basis, while limiting your risk.

6. Massive Liquidity and Lower Fees

One of the reasons why I prefer Forex hedging is because the market is massive.

Forex is the largest trading market in the world.

Since there are more traders to take the other side of your trade, you are more likely to get the price on your screen and suffer less slippage.

Other markets like futures, options and crypto have much less liquidity, which means that you might not get the price you want or you may not even be able to enter a trade at all.

On top of that, Forex generally has lower transaction costs than other markets, especially at smaller trade sizes.

So it's perfect for a wide range of traders, from beginner to professional.

7. Maximum Flexibility

Pairing hedging with scaling is powerful.

Scaling is opening and closing trades in parts instead of taking the whole trade in one big chunk.

For example let's say that I want to take a full-sized trade of 3 standard lots.

Instead of opening the trade with all 3 lots at once, I might take 1 lot to start, then see what the market does.

If price doesn't do what I expected, I can just hedge the 1 lot, instead of having to hedge 3 lots.

Scaling into a trade can also help me get a better average price than entering all at once.

I can enter 1 lot to start, then see what price does. If price action is still favorable, but moves slightly against me, I can enter trades 2 and 3, but at a lower cost than the first trade.

The same thing goes for my exits.

I can set 3 profit targets to capture a small, medium and large profit.

If my last profit target doesn't get hit and it looks like price will return to my entry, I can simply close out the trade at a smaller than expected profit.

Now double this potential on both the long and short sides.

As you can see, when I use hedging and scaling together, it gives me maximum flexibility to go with the flow of the markets.

8. Can be Added to Other Trading Strategies

Hedging can be a trading strategy in itself.

However, if you couple it with other trading strategies, it can be a powerful way to get out of trades that don't work out.

This is especially useful if you have a trading strategy that has a high win rate, but you want to boost the overall return of the method.

If a trade doesn't work out according to the rules of your strategy, you can work your way out of it with a hedge.

Again, you have to master your hedging “escape” method before you ever take a trade.

But it can be a nice addition to an already profitable strategy.

9. More Consistent Returns

I have personally found that hedging creates more consistent returns than most other trading strategies.

Individual results will obviously vary, depending on skill level. 

I'm not saying that you are guaranteed have more consistent returns, but in my experience, it's certainly possible.

Couple this with lower stress and more flexibility, and that's why I enjoy hedging.

10. Can be Done in a U.S.-Based Forex Account

Contrary to popular belief, you CAN legally hedge in a U.S. Forex account. 

It's not hedging in a traditional sense, but it's effectively the same thing.

Hedging in the U.S. is not as easy and it does take more patience, but it can be done.

I DO NOT recommended it, but if you insist on using a broker in the United States, then just know that it is possible.

Final Thoughts

Just like with any other trading method, there are benefits and downsides to Forex Hedging.

It's not for everyone.

But if this list of benefits appeals to you, then read my free Forex Hedging Guide to get started with this underrated trading method further.

As always, remember to start in a demo account and use play money to perfect your skills before ever risking real money.

The post 10 Benefits of Forex Hedging Most Traders Don’t Know About appeared first on Trading Heroes.

The fantastic thing about trading is that you can do it from anywhere in the world. 

I've traded from places like London, Finland, Estonia and Hawaii.

So in this guide, I'll give you my personal picks for gear I've used in my trading travel setup.

This stuff will help you travel light, but enjoy all of the comforts of home.

I'll also provide a couple of picks that I haven't used, but many other traders really like.

Computer Gear

First up are the most important tools for a trader, a laptop and related tech.

I've tried a few different setups over the years and here's what I like best.

Trading Laptop

My travel computer is a MacBook Air.

I switched from PC to Mac in 2012 and never looked back.

In a past life, I worked in IT and had to fix a lot of PCs.

Windows has improved somewhat over the years, but it still suffers from many of the issues that it has always had.

Mainly not working properly when you need it most.

Macs on the other hand have been solid and I've had very few issues.

Platforms like TradingView have also made it much easier for traders to use a Mac.

So if you haven't looked a Mac in awhile, I would highly recommend it.

I travel with a 11″ MacBook Air. It's getting old, but it's the most portable MacBook and it still works great.

Extra Trading Screen

I don't use an extra screen when I'm on the road anymore, but here are 3 options that might appeal to you.

The solution I used in the past was an iPad attached to my MacBook Air.

There's an app called Duet Display that will turn an iPad into a second screen.

This is an excellent solution because you can use your iPad as either a backup computer or a second screen.

Here's a video of my setup at the time.

Another option of course, is to get a dedicated screen.

This doesn't appeal to me because these screens tend to be relatively bulky and only serve one purpose.

But if you really want a dedicated screen, then these options may appeal to you.

Many of them are inexpensive and the ratings are generally very good.

Something else you can consider is just carrying HDMI cables with you so you can use the TV at the hotel or Airbnb as your second screen.  

The biggest upside of this option is the cables don't take up much space in your bag.

Just be sure that you have cables for all of the HDMI types.

Backup Trading Computer

When my money is on the line, I need to have a backup in case something happens to my primary computer.

So I also carry a Windows tablet.

Yeah, I trash talked Windows earlier, but the unfortunate reality is that most trading programs still only run on Windows.

I'm looking at you MetaTrader.

Yes, there are MetaTrader mobile apps and the web version, but they do not have all of the features, like the ability to run custom indicators and EAs.

Things are slowly changing with platforms like TradingView, but it still lacks some capabilities that are only available with Windows programs.

For example, backtesting software like NakedMarkets and Forex Tester only have Windows versions.

So while a Windows tablet is not absolutely necessary while traveling, whenever possible, I do like to take one in case I need a backup or I want to do some backtesting.

Trading Phone

I used to carry a micro 4/3 camera when I travel, but phone cameras have become so good that I don't need one anymore.

And the less I can carry the better.

My phone of choice is (almost) any phone from OnePlus.

To me, they are the “iPhone” of Android.

What I mean is they have a similar build quality, but have several advantages over iPhones.

First, they take better pictures than iPhones.

Since I'll mostly be taking pictures when I'm traveling, that's the most important thing to me.

iPhones still have much better video, but that's not a big concern to me.

Next, OnePlus phones can be deGoogled.

So I can install an alternative operating system like /e/OS, which has greatly improved privacy and battery life.

This has been achieved by taking out the parts of the operating system that continually send data to the Google servers.

Studies have shown that Android can send as much as 20X more data to the Google servers than iPhones send to Apple.

A deGoogled phone actually won't send any data to Google, unless you're logged into a Google app.

Battery life in particular is important when traveling, so this has been a big improvement.

I buy unlocked OnePlus phones, so they can be used anywhere in the world.

When I'm in another country, I buy a new card, pop out my current SIM card and I'm in business.

These phones can also be used as hotspots for my laptop, so I always have internet when I'm on the road.

My phone can also be used to trade, if I have an issue with my laptop.

I've found that deGoogled phones also last longer because they don't slow down as dramatically over time.

Portable Battery Kit

A battery kit is one of the most useful things you can have, regardless if you're half way around the world, or at your local coffee shop.

It ensures that you'll always be able to charge your phone and other smaller devices.

Here's what my kit looks like.

To build this kit, you need the following:

• Backup battery
• Case
• AC adapter for USB cables
• Short USB C cable
• Short Micro USB cable
• Short Lightning cable

Buying the short cables ensures that they will easily fit in your case.

Since you have all 3 major cables, you can charge almost any device, including older phones, and even some tablets.

The case you buy will depend on the size of your battery, so buy the battery first, then look for a case.

You can just get any case off Amazon or eBay. They are relatively cheap, just be sure to check the dimensions.

I use an Anker battery pack and it works very well.

Computer Accessories

First, I would recommend getting 2 of every type of cable you'll need.

You might also want to get 2 AC adapters for your computer, if the second one fits in your luggage.

Next, you might want to travel with a mouse. This is optional, but useful.

I prefer a trackball because it stays in place and doesn't require a lot of desk space.

My favorite trackball mouse is the Elecom Deft Pro.

Another useful accessory is the Fuse Reel Side Winder cable management system for Mac.

I bought one of their earlier models and it works well.

But the newest one is much better and winds up both cables on the adapter.

Here's what it looks like.

Finally, if you're going to a foreign country, don't forget your plug adapter.

This one is similar to what I have.

It's a little bulky, but it handles all electrical plug types.

Software and Mobile Apps

There are only 3 apps that I use nowadays:

1. MetaTrader 4 desktop and mobile
2. TradingView desktop and mobile
3. NakedMarkets

If I'm not in the mood to backtest, then I don't need NakedMarkets and can get by with just MetaTrader and TradingView.

Of course, you might need other software, depending on which markets you trade, but I like to keep things simple.

Luggage and Bags

Now you need something to carry your equipment around in.

These are the products that I use.

Backpack

My all-time favorite travel backpack is the GR1 Rucksack.

This is my second one and these things are bullet proof. I've gone everywhere with this bag.

I like that the pack opens all the way, so it's easy to pack and unpack.

It can hold a ton of weight and is very comfortable.

There's a laptop compartment on the outside, making it easy to take my laptop out when going through the airport.

I also bought the water bottle carrier and chest harness separately, and they have been super useful.

So what happened to my first bag?

The zipper broke and I reached out to the company to see if I could get it repaired. I was willing to pay for the repair.

But they ended up sending me a new bag.

They really stand behind their product and I'm a big fan.

Day Pack

In addition to my primary backpack, I also bring a day pack.

This is a smaller bag that I can carry my laptop and paper notebook in.

It's lighter and less bulky than my backpack, so it's perfect for trading at a coffee shop.

For this, I've chosen the PacSafe Vibe bag.

The 10L model can hold a 13″ laptop.

These bags are designed for travelers and have many theft-deterrent features.

Kinda important if I'm carrying my laptop around.

For starters, it has a metal mesh around the exterior and metal wires through the strap.

This prevents would-be thieves from cutting through the bag or strap.

Next, I can lock the zippers so they are harder to open.

Very handy.

Finally, I can lock and unlock the strap, so I can attach it to a fixed object like a bus seat or pole.

This is perfect if I want to go to sleep on the bus, or put my bag down at a cafe or train station.

I've had this bag for years and it has held up very well.

A useful accessory for any bag (pictured above) is a Black Diamond climbing carabiner.

It allows me to hang the bag on a hook if I don't want to put it on the ground.

Carry On Luggage

I wish I had something a little more interesting here, but this one is pretty standard.

I've been using a Samsonite hardside carry on for awhile, ever since a cat peed in my previous carry on.

It's been solid and I prefer the hardsides because they protect my stuff a lot better.

You really can't go wrong with a Samsonite.

They have many different styles, so look through their collection if this interests you.

Other Stuff

Blue Light Blocking Glasses

Travel is usually tiring and that can take its toll on your eyes.

So it helps to have a pair of blue light blocking glasses.

They reduce eye strain when at the computer. Blocking blue light has been shown to help you sleep better, which really helps if you have jet lag.

I've used many different types over the years, from top of the line, to el cheapo Amazon specials.

This pair by Jim Halo is my absolute favorite.

It's not the cheapest option on Amazon, but it is significantly cheaper than something like a pair of Gunnars.

I had a pair of Gunnars and they broke pretty quickly.

What I like most about the Jim Halo glasses is the transparent frame.

It increases my field of vision so I don't feel boxed in.

One thing to figure out when buying computer glasses, also known as gaming glasses, is the level of tint you're comfortable with.

I found that I prefer a much lighter tint. The darker tint annoys me.

So if you want to pick up a pair, I would suggest buying a few cheap ones to figure out your ideal tint level.

Then go for the more expensive ones with a corresponding tint.

Watch

Being in a different timezone can be disorienting.

So I find it useful to wear a watch that has dual timezone capability.

When I can see what time it is in my home timezone, that gives me a frame of reference, especially with regard to when the markets open and close.

My favorite watches are the solar G-Shocks from Casio.

They are lightweight, look good and can take a beating.

The battery in these solar watches can last for as long as 20 years if you keep them charged, so they are very low maintenance.

The watch I currently travel with is the GWX-5600C-7JF.

It has a moon and tide function, which is particularly useful when I'm in Hawaii.

These watches are also very customizable, so I modified my watch to have a blackout look and now I can easily change the band to different colors.

I bought the black stainless steel bezel on eBay.

In order to fit the custom nylon straps, I also bought a JaysandKays metal band adapter and a Ritche 22mm military watch band.

I used to have a mechanical watch and it looked fantastic.

But it was a pain in the ass to continuously adjust time time and it required a complete maintenance every few years.

So I sold it and got a G-Shock instead.

Hydro Flask Water Bottle

You might not think about bringing a water bottle with you on a trip because it takes up space, but it can be very useful.

Proper hydration has been shown to increase cognitive ability and improve mood. 

Two must haves for traders.

There are places where water is more expensive than wine, so bringing your own can save you some money.

Using your own bottle also reduces that amount of plastic that gets thrown into landfills.

But most importantly, you don't want to be drinking the tap water in many places in the world. 

So if you have a bottle, you can fill up at a reliable water source and stay properly hydrated all day.

And if you stuff your water bottle with a shirt or some socks, it actually won't take up too much space in your luggage. 

Notebook

One thing that I never leave home without is a notebook.

I prefer it to note taking apps because physical notebooks don't require batteries and when I'm not trading, I want to be away from the screens as much as possible.

My notebook of choice is a Moleskine, hardcover, large, plain.

I also bought a leather cover from Innovative Journaling, formerly Renaissance Art.

It's durable and has a great worn look.

Notebooks get pretty beat up if you don't have a cover, so I highly suggest getting one for travel.

You can also find some really cool leather covers on Etsy.

Travel Pens

If you carry a notebook, then you also need a good pen.

I've used many different types of pens and my favorite is Pilot pens.

In particular, I love the Pilot Juice Up 04.

These pens are super reliable and don't bleed all over the place like many other pens do.

You can also use the Juice Up refills in other pen bodies, like the Smootherpro bolt action pen that's pictured above.

As a backup, I also carry a Pilot Birdie as my Every Day Carry (EDC) pen. It works well and and fits almost anywhere.

Headphones

If I'm going on a long trip, over the ear headphones are a must, especially ones with noise cancelling.

The noise cancelling feature makes it much easier to sleep on the plane.

Now you might expect that I'm going to recommend Bose headphones here, but that's not what I use.

All Bose stuff is overpriced, in my opinion.

There are much better brands for the same money.

When I went to Costa Rica for a week, I had the opportunity to compare my TaoTronics headphones to the Bose QuietComfort headphones.

Side by side, there was a clear winner…the TaoTronics.

The QuietComforts sounded tinny.

It was a little surprising, but it reinforced my existing opinion of Bose.

The sound quality with the TaoTronics was much better, even with the noise reduction on.

I prioritize sound quality, so there's no way that I'm going to buy something that sounds bad.

Now the Bose did have slightly better noise reduction, I'll give it that.

But not enough to pay 6X more.

So if you're looking for some travel headphones that have you won't worry too much about losing or getting damaged, then I highly recommend TaoTronics.

Clothing

Here are some great clothing solutions that I've found useful when traveling.

Having travel specific clothing can save a lot of space and make your life easier.

Convertible Pants

If I'm going to a destination where the weather can vary a lot, convertible pants are a space saver.

I simply convert the long pants into shorts when the weather warms up.

My personal favorite is The North Face convertible pants, but there are certainly other manufacturers to consider.

Money Belt

Having a place to stash some cash is a handy on a trip.

Sometimes you don't want to carry all of your cash in your wallet, but you still want a fair amount available, in case you need it.

There also may be other things that you want to stash in the belt like a key.

I've been using a Patagonia money belt for years, but there are cheaper, and probably just as effective solutions out there.

Underwear

OK, so underwear probably isn't the first thing you think of when packing your bags.

But it really sucks when you run out of clean underwear on a trip, so I recommend devoting a couple of minutes to sorting your underwear situation.

My favorite travel underwear is ExOfficio underwear.

What I like about this underwear is that they are durable, easy to wash and they dry quickly.

So if I cannot get to a laundry facility, I can simply hand wash them in the sink and hang them out to dry.

In a pinch, I can run them under a blow dryer in the hotel room and they are ready to wear in a couple of minutes.

That means I don't have to carry a lot of them and I don't have to worry about getting caught in the rain and wearing wet underwear all day.

They are also very comfortable and last a long time.

Final Thoughts on a Trading Travel Setup

So that is my list of essential travel gear list for trading on the road.

Traveling light can make your journey much more pleasant. 

Having the right equipment will also help you focus better on trading because you'll feel more like you're at home.

One wrong trade can make your trip a lot more expensive that you ever imagined.

To see more of my travel pictures, follow me on Instagram.

The post The Road Warrior’s Trading Travel Setup and Gear Guide appeared first on Trading Heroes.

If you want to become a successful trader, it's important to understand the two primary types of trading strategies: discretionary and mechanical. Not understanding which one you are actually using can lead to unrealistic expectations, missed opportunities, and the belief that a strategy doesn't work, when it actually does.

I failed to understand how important this concept is when I started in 2007, so I want to save you a lot of time and frustration by helping you understand it right now.

Key Takeaways

• There are two main categories of trading strategies: discretionary and mechanical.
• Both types of strategies work, but it's important to find the one that works best for you.
• Misunderstanding your trading strategy can lead to inaccurate expectations and underperformance.

The Importance of Understanding the 2 Primary Types of Trading Strategies

Knowing which type of trading strategy you are using is crucial for 4 simple reasons.

First, you could be expecting results that are simply not possible with the type of strategy you're using.

For example, discretionary strategies cannot be traded 24/7, like mechanical ones can.

So they will have fewer opportunities to make money.

A discretionary strategy might look fantastic in backtesting, but those results might not be possible in live trading.

Second, you could be limiting your returns by hanging on to a false understanding of the type of strategy you're using.

If you're trading a discretionary strategy and you treat it like a mechanical strategy, you might be limiting your creativity and blocking out your intuition, both of which could take your performance to the next level.

On the other side of the coin, you might be introducing discretion into your mechanical strategy by turning the strategy on and off too often, thereby limiting the return.

Third, you may think that a strategy doesn't work when it does work if you adjusted your mindset.

You could backtest a mechanical strategy in one market and not be happy with the results.

However, if you traded that strategy across multiple markets and timeframes, which is very possible with mechanical strategies, the return could be significant.

That's just one example of how a small shift in your thinking can lead to big returns.

Finally, understanding the differences between the 2 types of strategies will prevent you from endlessly jumping to new strategies without properly evaluating the current strategy. 

When you know how each type works, you'll have a better idea of when to give up on a strategy and when to keep going.

Giving up too early on a good strategy, and hanging on too long to a bad strategy, are both detrimental to your success.

But many traders do it.

I've done it before and it's something I want to help you avoid. 

Now that you understand the benefits of this knowledge, let's jump into the definition of each type of strategy, and the pros and cons.

Discretionary Trading Strategies

A discretionary strategy, also known as a subjective strategy, cannot be programmed into a computer and requires the trader to use their own judgment or skill to enter and exit trades.

This type of strategy involves the use of inputs like support and resistance, chart patterns, candlestick patterns, fundamental analysis, news, or any method that requires the trader to make a relative value comparison between two or more markets.

With a discretionary strategy, you cannot expect the exact same results as someone else, as it requires input from the trader.

Your skill needs to be improved through practice and experience.

Benefits of Discretionary Strategies

There are a lot of benefits to learning and developing discretionary strategies.

Here are the best reasons to go this route.

More Flexible

Since discretionary strategies don't have rules that are set in stone, this allows more leeway in terms of how the guidelines of the strategy are applied.

You can automatically adjust for different market conditions, based on your experience.

Trading in this way can lead to more profit opportunities.

More Available Trading Strategies

There is a relatively small number of trading strategies that can be fully programmed into a computer.

So by going the discretionary route, you have more trading strategies available to you. 

You might find that exciting or overwhelming.

I personally like to have more options.

Can Take Advantage of Unique Market Opportunties

There may be world events or regulatory changes that have no president, and therefore cannot be backtested or incorporated into a mechanical strategy.

However, if you're aware, you can use your logic and previous experience to profit from the situation.

This would not be possible with a mechanical strategy that has hard and fast rules.

Downsides of Discretionary Strategies

Like with everything else, this path does have its downsides.

Here's what you need to know before you jump in.

Results Can Vary Widely Between Traders

Since there is so much trader input with discretionary strategies, backtesting and live results can vary a lot.

Some traders may say that a strategy doesn't work, while others have fantastic success with it.

The key here is to find out what the successful traders are doing and emulate that.

So if someone says that a discretionary strategy doesn't work (or does work), be sure to test it for yourself and come to your own conclusion.

Backtesting Takes Longer

Every single discretionary trade requires trader input, so backtesting usually takes significantly longer than with mechanical strategies.

This can be a benefit however, because you're able to see price action in more detail and can start to see patterns that you might otherwise not see with an automated backtest.

You can also speed up the backtesting process by using partial automation.

Harder to Optimize

Since there are more variables with a discretionary strategy, they can be harder to optimize.

You'll have to isolate each input individually and track its effect on your performance, which can be tricky.

When optimizing a strategy, it helps to track your psychological state and stick to one set of rules.

It can be easy to change the rules in the middle of a backtest or during live trading, but don't do it.

That will only make it harder to isolate and improve your rules.

More Emotions Involved

Discretionary trading requires more inputs from the trader.

So if you're having a bad day, or you aren't fully focused, then your results could be less than ideal.

There are many ways to improve your trading mindset, but it requires a lot of awareness and practice.

Mechanical Trading Strategies

A mechanical strategy, also known as a fully automated strategy, is a strategy that can be 100% programmed into a computer.

It involves a defined set of rules, and there almost no input from the trader after the development phase.

Most trading strategies cannot be made mechanical, which can be frustrating.

Additionally, mechanical trading strategies are not flexible and usually cannot change with evolving market conditions, unless there is a built-in learning capability.

Benefits of Mechanical Strategies

Mechanical strategies provide more structure to traders who like having a well defined set of rules.

It's not for everyone, but here are the benefits.

Fast Backtesting

Mechanical strategies can be programmed into a computer, making it easier to backtest and optimize them.

With just a few clicks, a strategy can be backtested over many markets and timeframes.

Many trading strategies and markets can be verified in just a couple of days.

Reproducible Results

Mechanical strategies can be reproduced between traders, unlike discretionary strategies which rely on an individual trader's skill and judgment.

Therefore, traders can work together to develop strategies, which speeds up development.

When groups of traders backtest discretionary strategies, the results can vary greatly, which can lead to a lot of doubt as to if the strategy works or not.

Easier Optimization

Since mechanical strategies are a well defined set of rules, they can be easily tweaked and tested for optimal performance.

Many backtesting platforms like MetaTrader, Forex Tester and Naked-Markets allow you to iteratively test settings like indicator values and position sizing, to find the best combination.

Testing this manually would take a long time, but you can get results from an automated backtest in as little as a few minutes.

Automation Potential

Once a mechanical strategy is developed, it can be coded into a fully automated strategy for any trading platform that allows automated trading.

All you need are the rules for the strategy and you can hire a programmer to do the rest.

Having an automated trading strategy will free up your time to develop new strategies, or do just go surfing.

Minimal Emotional Input

Mechanical strategies require minimal decision-making, reducing the impact of emotions on trading decisions.

Usually the only decision that could involve emotions is the decision to turn the strategy off or on.

This eliminates many trading decisions that can be impacted by the mood or psychology of the trader.

Downsides of Mechanical Strategies

Mechanical trading strategies have their advantages, but they also come with some downsides.

Here are the downsides that you should be aware of.

Most Trading Strategies Cannot be Made Mechanical

It's important to understand that not all trading strategies can be programmed into a computer.

In fact, most trading strategies cannot be made mechanical.

This means that it can be frustrating to find those few strategies that do work, and it can take longer to find them.

Mechanical Trading Strategies are Not Flexible

Mechanical trading strategies cannot change with evolving market conditions.

This means that if the market changes, your mechanical trading strategy may stop working, and you'll need to update the strategy or find a new one.

There can be ways to create “AI” strategies that continually learn from new data, but that is a complex process to set up and monitor.

Emotions are Still Involved

While mechanical trading strategies are often touted as a way to eliminate emotions from trading, this is not entirely true.

There are still emotions involved with mechanical trading strategies, especially when your strategy is losing.

You may feel fear and be tempted to turn the strategy off, which can lead to missed opportunities.

In my experience, the moment you turn an automated strategy off is usually when it starts to win again.

That's not always the case obviously, but it sure feels that way.

Which Type of Trading Strategy is Better?

Both discretionary and mechanical trading strategies work, but the key to success is finding the one that works best for YOU.

Some people can do both, but most people will gravitate to one or the other.

With a discretionary trading strategy, you cannot expect the exact same results as someone else.

You have to practice and improve your skills, and this will not happen just by learning a few rules.

With a mechanical trading strategy, there are minimal emotions involved, but most trading strategies cannot be made mechanical.

So there is no one best type for everyone.

The key to success to figure out which one works best with your trading personality and avoid the following common misconceptions about trading strategies.

Common Misunderstandings With Trading Strategies

Now that you understand the 2 types of strategies, this is the most important part.

Don't mix them up! 

Here are some common misunderstandings that you should avoid.

Thinking a Discretionary Strategy is Mechanical

Many traders believe that their strategy is “rules-based” and therefore mechanical, when in fact, it requires their own judgment and skill to enter and exit trades.

If you're trading a discretionary strategy and you think it's actually a mechanical one, you may give up too early on the strategy because you think the rules “don't work.”

So take some time to figure out if your strategy really is mechanical or if it's discretionary.

You'll have to backtest a discretionary strategy multiple times to get the hang of it, so don't get discouraged. You may also have to consult with successful traders using the strategy to get some pointers.

It usually takes longer to learn a discretionary strategy, so don't give up too early.

Expecting the Same Results as Someone Else With a Discretionary Strategy

With a discretionary strategy, it's important to understand that you cannot expect the exact same results as someone else.

This is because it requires the input of the trader and their own judgment and skill, which will vary from person to person.

So always test a discretionary strategy yourself, never take anyone's word that it works or doesn't work. 

Hopping to New Strategies Without Proper Evaluation

Understanding the differences between discretionary and mechanical strategies can prevent you from continually hopping to new strategies without properly evaluating each strategy.

I call this the Trading Silodrome, the perpetual cycle of jumping from strategy to strategy.

When you know how each type of strategy works, you'll evaluate your strategies accordingly:

• With a discretionary strategy you'll give yourself a little more time to figure out the nuances of the strategy and if they can be optimized.
• With a mechanical strategy you'll test as many markets, timeframes and settings as possible, before you give up on it.

If you do that, you'll know when to hold 'em and when to fold 'em.

Conclusion

On the surface, you may not think that understanding the difference between the 2 primary types of trading strategies is important.

But upon closer inspection, it's one of the most important things that you need to know about trading. 

Other trading strategy types like: trend following, price action and candlestick patterns are secondary types and are covered in deeper detail in other articles.

If you want to learn more about secondary trading strategy types, check out the related articles below.

The post Most Traders Don’t Realize There are Only TWO Types of Strategies appeared first on Trading Heroes.

Funded trader programs are a fantastic way to leverage your trading skills by getting more money to trade. But many traders pay the money to take a challenge, not knowing that they actually have a very low probability of success.

So in this tutorial, I'll show you exactly what you can do to dramatically increase your odds of passing a funded trader challenge on the first try.

The first step to passing a funded trader challenge is to know the specific criteria that needs to be met to pass the challenge. Next, traders must be able to meet or exceed that criteria in demo or simulation trading multiple times, before attempting a challenge.

If you found that video helpful, be sure to subscribe to my YouTube channel.

To get more details, keep reading.

How Funded Trader Programs Work

If you're new to proprietary (prop) trading firms, then I'll give you a quick summary of how they work.

These firms have money that they want to invest. Their money could come from the founding team, or other investors.

They invest in independent traders like you and me, and take a cut of the profits that the traders make.

Independent traders benefit by getting more money to trade, thereby increasing the amount of money they can make every month.

So if a trader makes 8% per month consistently, that really doesn't help if she only has a $5,000 account.

She will only make $400 per month. Not enough to pay more than a couple of bills.

However, if the trader has a $100,000 account, then $8,000 per month is usually enough to live on…at least in most places in the world.

Again, the prop firm takes a cut of the trader's monthly profits and benefits from a fairly passive income stream.

Win-win.

Now that you understand the basics, here's how to find the best funded trader program for you.

Pick ONE Trading Market

Most prop firms provide funded trader programs in one market. So the first step to becoming a funded trader is to figure out which market you want to trade.

This almost goes without saying, but you should already have a proven trading strategy in the market you want to get funded in.

Too many new traders expect to develop their strategy while taking the challenge. That's like trying to learn brain surgery while operating on a live person for the first time.

That will always, always, always end badly.

So have a proven strategy before you even consider paying for a challenge.

If you don't have a proven strategy yet, be sure to start with the backtesting process.

But if you're profitable in a few different markets, sit down and carefully consider which market you want to focus your time on…at least for the foreseeable future.

Also consider which market you have the best results in.

Are you a better Forex trader? Or maybe you get the best results in Futures.

If you jump between markets and funded trader challenges, you won't have the focus required to succeed.

So pick ONE market before moving on to the next step.

Research Different Funded Trader Programs

Once you pick a target market, now it's time to look at all of the available funded trader programs out there for that market.

Prop firms come and go.

So any prop firms I attempt to list here may not represent the best ones that are currently available. That's why it's important to take some time and do your own research.

There are a few things that you can do to find the ideal program for you.

First, start off with a few simple Google searches. For example, if you want to trade Forex, you can use search terms like:

• “Forex funded trader program”
• “Forex prop firm”
• “get funded as a Forex trader”

Simply replace “Forex” with the market you want to trade.

But don't limit yourself to just the search terms above. Research forums and other online groups that can help you find the best programs available for your target market.

The added benefit of online communities is that you can get some feedback from people who are actually in these funded trader programs.

You can also take a look at some of the programs I've researched.

Keep a spreadsheet record of potential programs so you can compare all of the elements listed below.

Understand the Qualification Details

Now that you have a few programs on your list, it's time to dig into the details of each program.

Part of the process of choosing the right program is understanding what it takes to pass a challenge and stay in the program.

The qualification criteria can vary widely by prop firm, so be sure to understand all of the details before getting involved.

Here are the things to look out for.

Profit and Loss Parameters

The most important thing to look at is the required performance metrics for the funded trader program.

Pay attention to:

• How much profit do you have to make to pass the challenge?
• What is the maximum realized drawdown?
• What is the maximum unrealized drawdown?
• Maximum daily loss?

Make sure your current trading strategy fits into these parameters. If it doesn't, then you may still be able to use that strategy.

You can possibly take less risk per trade or change your entry parameters.

If you cannot get your strategy to fit those metrics, then consider looking for another program or creating a new trading strategy.

Holding Positions Over the Weekend

Does the program allow you to hold trading positions over the weekend?

One of the biggest problems I used to have with funded trader programs was that all of them required you to close out your positions on Friday.

This is fine for day traders, but if you're not a day trader, there's no way that you can get funded.

But more and more programs are allowing traders to hold positions over the weekend. So if you do hold your positions over the weekend, there are options for you.

In some cases, you may have to pay a slightly higher fee for the challenge, but it's usually worthwhile.

Do your research and figure out if it makes sense to you.

Holding Positions During News Announcements

Same thing goes for news announcements.

If I had to close all of my positions every time there was a major news announcement, that would seriously mess up my trading strategies.

Luckily most prop firms don't require this anymore, but be sure to double check.

Qualification Period

A lot of prop firms used to require that you pass a challenge in 1 month. If you didn't pass the challenge in that time period, then you failed.

I didn't think that was fair.

But I've recently seen more prop firms offering unlimited qualification periods, or very long ones, as long as the trader actively trades.

This makes a lot more sense and is more fair to the trader.

Lot Size Limits

A prop firm might limit the maximum trade size that you can trade.

In Forex, it might be 1 standard lot.

In the stock market it might be 500 shares.

Other prop firms may not have a maximum trade size limit.

Be sure to know if there is a limit and how it will impact your trading strategy.

Trader/Prop Firm Split

Another thing to consider is how much of your trading profits you get to keep after you pass the initial challenge.

Do you get to keep 60% of the profits every month?

70%?

This is an important thing to know, so do your research on this.

Qualification Rounds

Some funded trader programs have more than 1 round of qualification. They do this to make sure that your first round wasn't just lucky and you really do know how to trade.

I'm not a fan of this, but I understand where the prop firms are coming from. They want to minimize their risk.

So I would look for a challenge that only has one qualification round. But if the benefits are worthwhile, you may want to try out for a challenge that has 2 rounds.

You'll have to make the call, depending on your situation.

Leverage

The amount of leverage that you're allowed to use in your prop account can have a big impact on how you trade and how much money you can make with your trading strategy.

If you have a strategy that needs high leverage, then you should find a prop firm that allows it.

Otherwise, you may have to scale back your trading to make your strategy fit the prop firm's parameters.

Be sure to test any changes to your strategy before you take the challenge. If you tweak some of the settings, your strategy might not work as well as you expect.

Restrictions on Using Robots, Markets, Hedging and Scalping

Some prop firms may not allow you to trade with a robot/EA, hedge or scalp in their funded accounts.

So if you're planning to use these methods, be sure to check that they allow them before signing up.

There's nothing inherently wrong with these trading methods, but some prop firms may have their own reasons for not allowing them.

Also check to see if there are restrictions on the markets you trade. A Forex firm may not allow trading in exotic pairs. A stock trading firm may not allow you to trade penny stocks.

These markets are usually super risky and it makes sense that prop firms would have restrictions on them.

One Thing ALL Programs Don't Allow

Prop firms won't allow you to open 2 accounts and trade opposite positions in the 2 accounts.

If a trader did this, they could simply take a long trade in one account and a short trade in the other and wait for one of the accounts to hit the profit target.

This is obviously cheating and a waste of everyone's time.

So don't do it.

Relying on a trick like this will help you pass the qualification, but you cannot achieve any lasting success with this method.

You'll also probably be banned for life from that funded trader program.

Do Research on the Company and Founders

Also be sure to do some research on the founders of the prop firm or the company that owns it.

Find out how they get their funding, how long they have been around and what traders are saying about them.

Watch YouTube interviews and read blog posts.

You want to make sure that the company is reputable and has a good chance of being in business for a long time.

Because if the company goes out of business, you'll be out of business too.

Pass BEFORE You Pass

This is the most important step, so do not skip it.

Now that you've selected a funded trader program that you want to try out for, it's time to pass the challenge before you take the challenge.

That's right.

You know the criteria that's needed to pass your chosen challenge, so practice passing the challenge in a demo and/or trading simulator account before you pay to take the challenge.

After you've been able to pass the challenge a few times, only then should you pull out your credit card and pay to take the challenge.

If you've followed the steps above, you'll have the best chance of passing the challenge and you'll have supreme confidence to take trades.

Conclusion

Meeting the challenge criteria before you even take the challenge will give you a lot of confidence and greatly increase your chance of success.

There are no guarantees that you'll pass a challenge on the first try.

But if you have prepared correctly, failing will likely be a matter of bad luck than a lack of skill. If you have followed the steps above and end up failing on your first try, simply try again.

Chances are very good that you'll pass the second time around.

Traders who take a challenge without a proven trading strategy and a deep understanding of the challenge criteria are just wasting their money.

The post How to Pass a Funded Trader Challenge on the First Try appeared first on Trading Heroes.

Hedging can seem very easy in the beginning because it's easy to enter a lot of trades and take small profits. But eventually, you'll hit a point where you have a few trades that are losing, and you might not know what to do with them.

I teach 8 different ways that you can get out of a hedged trade. But that's in my paid course.

In this tutorial video, I want to show you 1 of the 8 ways that I get out of a hedged trade that didn't work out as I expected…for free.

The Split Exit in Action

This video will show you what I call the Split Exit.

The text version is provided below the video if you don't want to watch the video.

This won't work for all hedged trades, but it works well for trades that have certain characteristics…which I'll get into later in this tutorial.

One way that traders can profit from a hedging trade that has gone against them is to be patient and wait for the next major support or resistance level. They can take a trade in the same direction as their original trade at the next support or resistance level, then wait for price to move past the breakeven point between the two trades, and close them both out at a net profit. 

This entry may seem a little counterintuitive at first. But it works if price action gives you clear support or resistance levels.

Alright, that's the main idea, now let's get into the details.

The Split Exit Explained

This exit depends on there being 2 well-defined support or resistance levels.

For example, the 2 lines above current price action would be 2 resistance areas that I would target.

Now I would take a short trade once price hits the first resistance zone.

Like this…

But if this trade idea fails, I'm going to be ready to take another short trade at the resistance zone above.

This is not going to be a hedge yet, but based on current price action, I'm fairly certain that price will bounce down at one of these 2 levels.

Price then taps the next resistance level, so I take another short that's the same size as my first trade. 

There's a nice Pin Bar at this level, so it looks like this trade has a good chance of working out.

At this point, I'm going to set a take profit on both trades that is slightly below the center line between these 2 trades.

If I'm right about the bounce, then the second trade will make more money than the first trade loses, and I can Roll-Off both positions at a net profit.

Now I'm going to have to keep an eye on this trade because it is not hedged.

But price hits the profit target quickly and I could have even exited the first trade at a profit, if I held on for a little longer.

If you didn't know, you can set your take profit on the first trade at a price that's going to lose money. That will get you out at a net profit, if the take profit on the second trade is set to the same price.

That's a complete trade example. Obviously, it would be the opposite on the long side.

Conclusion

So that's one way that you can get out of a Forex hedging trade that didn't go as you expected.

Many people think that they have to hedge if they are wrong about a trade.

Not true.

You can also take another trade in the same direction, if you feel that price will bounce at 1 of the 2 support or resistance levels. 

It helps to take a smaller position on these trades, effectively treating both trades like 1 position. So you might want to take half your normal lot size on the first trade, and the other half on the second trade.

If you want to learn more about hedging, download my free hedging beginner's guide.

To get all of my advanced hedging methods, including the full version of this tutorial, sign up for my course here.

The post How to Profit Even if You’re Wrong About a Hedging Trade appeared first on Trading Heroes.

That's the question that I will answer in this article.

I'm going to take a realistic look at trading strategies that claim to win 100% of the time.

First I'll define no-loss, then I'll share the strategies, and I'll finally review them based on my backtesting.

Are There Really No-Loss Strategies?

Let's get one thing out of the way, there's no such thing as a trading strategy that has 100% wins. 

That's simply not possible.

However, the following trading strategies claim that they can put on a series of trades that will be closed at a net profit, 100% of the time.

That's a big difference.

For example let's say that a hedging strategy puts on a series of trades that have the following results:

• +$112
• -$39
• +$453
• -$99

These trades net out at a profit of +$427, but there was a 50% win rate.

The overall result was profitable, although there were losing trades within this set of trades. 

Even if a strategy doesn't win 100% of the time, it can be very useful if it's net profitable for a long period of time.

Now let's find out what these strategies are like, and I'll give you my opinion of their claims, based on my experience.

No-Loss Hedging Strategies

I've been researching hedging strategies for years and I've found that there are 2 strategies that claim to be “no-loss” and seem to have merit.

Remember, I'm not saying that these strategies actually work.

My intent is simply to see if they have any potential and if they could be tradable for the average person.

But if I'm going to examine these strategies properly, I have to define them first.

The Zone Recovery Method

Once of the most popular “no-loss” hedging methods on the internet is called the Zone Recovery Method.

There have been a ton of copycat YouTube videos made about this method.

As far as I can tell, the guy in this video has popularized this hedging strategy.

The idea behind this method is that price will eventually break out, so he adds positions within a range, until price does break out.

Yes, this could be dangerous if the market consolidates for a long period of time.

However, if the volatility is high enough, price should eventually break out.

At least that's the theory.

The Grid Method

Another hedging strategy that claims to be no-loss is the grid hedging method.

There are different flavors of grid hedging but this video claims a no-loss result.

The basic idea behind this strategy is that the market will turn around at some point in the near future, so you just have to keep placing trades until the market turns and takes you out at a profit or breakeven.

There are several people who teach this type of a method and have a similar formula.

With this concept in mind, the strategy sets up a grid at set intervals on a chart. For example, it might setup a grid that has levels that are 25 pips apart.

Whenever price hits a grid level, you would take a fully hedged trade.

At first glance, that doesn't make sense because you don't make any money with a 100% hedge.

But the key is to take profit on winning trades, then wait for price to retrace and exit all of the previous trades at a profit.

Watch the video above for details.

Review of the Hedging Strategies

Now that you know the trading strategies and what they claim they can do, I'm going to analyze the strategies and give you my opinion of them, based on my testing.

The Grid Method

I'm starting with the grid method because I believe that this strategy doesn't work.

It probably works over a short period of time, but my testing has shown that it won't work over the long run.

Maybe I'm missing something, but that has been my experience.

The success of this method relies on the fact that the market is likely to turn around at some point and cash out the open trades at a net profit.

However, there will be times when price trends and does not pull back enough. That is when the strategy will get caught with a big loss.

In fact, he even says at 14:14 in the video above, that there are going to be some losses.

If a trader is good at identifying trending/consolidating markets, and uses good risk management, then that could improve the results dramatically.

Now in all fairness, I have not tried out his EA. Even if the EA does not have a 100% win rate, it could still be net profitable.

But based on my own manual testing results, it's very unlikely that this method could be profitable over the long run, especially since strong trends are not predictable. 

Another reason that I feel this strategy won't work is because of the dynamic nature of the markets.

Even if you optimize the method for a particular Forex pair, volatility in the market will change periodically and the grid sizes would have to be adjusted.

Once you adjust the grid, volatility could change again. It's like trying to hit a moving target.

On top of that, spreads change throughout the trading day and that would dramatically affect the performance of the strategy.

There just seems to be too much discretion involved, there are too many variables to account for, and it's not something you could run all the time.

You would probably have to know when to turn it on and off…if it works at all.

That's why it's important to learn how to backtest for yourself. You need to know how to test out ideas and find out if they are as good as they claim.

Learn how to backtest properly here.

So in summary, this is not something that I'm going to pursue.

The Zone Recovery Method

This strategy does have potential.

I did manually backtest it, but it takes a lot of time because of all the logic involved in entering and exiting trades.

The presenter in the video also says that he uses automation to trade this strategy.

That makes sense.

It's probably the only way that it could be traded successfully.

Since I haven't been able to code up a EA yet, I'm going to provide some observations that I had in my limited manual testing.

I could see this working if the following conditions are met:

• Completely automated with an EA
• Only open trades during high volume times. The London and NY opens would probably be best.
• Wait for high volatility periods before turning the EA on
• The account has to be large enough to carry the necessary number of open trades

My biggest concern is the martingale-ish nature of the strategy.

It's not full-on martingale, but does increase position sizes as new trades are taken.

There would have to be enough money in the account and only a few trades could be taken at once.

That might not be a huge deal. But again, more automated testing would have to be done.

I did some research on this guy and tried to find his automated program so I could test it. Unfortunately, it seems that he has moved on from offering his automated platform publicly and is working on another project in politics.

As I was looking around for a substitute “Zone Recovery EA” to possibly test out this method, I wasn't able to find anything that follows this exact formula.

Well, at least at a price that I was willing to risk. There are some EAs that cost $1,000 or more.

But risking that much on a random MetaTrader Marketplace EA is just dumb.

I did purchase one EA for about $100, that claimed to be a Zone Recovery EA. But after I started using it, I found out that it wasn't following the rules of the original strategy.

Unfortunately, that's pretty common with a lot of EAs out there.

So this method would require more automated testing, but I'm also cautiously optimistic that it could have an edge, and might even live up to the no-loss claim.

Conclusion

So that's the reality of no-loss hedging strategies.

There are no free lunches in trading and any trading strategy that claims to be “no-loss” has to be evaluated closely because it has the odds stacked greatly against it.

In my opinion, it is FAR easier to hedge manually and not rely on an automated trading program. 

If you want to learn the hedging method that works for me, check out my Zen8 Forex Hedging Program.

It's NOT a no-loss strategy, but it works for me and it might work for you too.

The post No-Loss Hedging Strategies (Hype vs Reality) appeared first on Trading Heroes.

If you don't follow this process, you have almost no chance of success…and that's why about 90% of new traders ultimately fail.

So if you're willing to put in the work, but aren't sure how to proceed, then here's the roadmap.

This is the time-tested method that has worked for countless successful traders throughout history.

Follow these steps to become a successful trader:

1. Learn the basics of your market.
2. Pick a strategy that appeals to you.
3. Create a trading plan.
4. Backtest your trading plan.
5. Forward test your trading plan.
6. Journal your trades and improve.
7. Start trading live.

Now that you know the basic steps, let's dive into the details.

Learn the Basics of Your Market

The first step is to learn the basics of the market you're going to trade.

This means learning things like:

• What is being traded (currency, shares of stock, etc.)
• How to place a trade
• Transaction costs
• Loss/gain per minimum price movement
• If you can place both long and short

If you're interested in trading Forex, take this beginner's course.

I'm working on guides for other markets, but the concepts are similar in other markets.

Do some Googling and check out the fantastic videos on YouTube. There is a lot of great information out there.

Once you know the basics of the market you want to trade, it's time to learn some trading strategies.

Trading strategies are methods of trading a market that can include: technical analysis, fundamental analysis, or a combination of both. There is no single best trading strategy, all that matters is what works best for you.

So take some time to examine a few different trading strategies.

When I first started, it wasn't easy to find information on trading strategies.

I had to buy some fairly expensive books if I wanted to learn.

Now there are tons of great strategies on the internet for free. 

Again, do your own research and find resources for trading strategies.

Pick a Strategy That Appeals to You

The next step is to pick a trading strategy that appeals to you.

Many new traders want to find the perfect or most profitable trading strategy.

If you insist on trying to find such a strategy, then you're in for a long and painful trading journey.

This is a ticket to ride on the trading silodrome.

In reality, the best strategy will be the one that you understand the best, and matches your strengths/beliefs.

Yes, your trading strategy has to match your beliefs about the markets. If you believe that you'll make the most money in trends, then you'll have a difficult time trading a non-trend strategy.

Likewise, your strategy also has to match your strengths.

Some people are good at reading charts. Other people are better at analyzing fundamentals like earnings reports and balance sheets.

Pick a method that you like and makes sense to you.

If you want to learn more about which trading strategies match specific personality types, then read this.

Create a Trading Plan

Once you find a trading strategy, it's time to create a written trading plan.

Most of the trading strategies on the internet are NOT trading plans. 

A trading plan has specific rules for entering, managing and exiting trades.

In other words, you need a complete plan that will give you everything you need to place trades.

If you take a trade and you have any doubt as to how to enter the trade, manage the trade or exit the trade, then you DO NOT have a trading plan.

So before you can become a successful trader, you need to have a written plan.

Learn how to create a complete trading plan in this article.

Backtest Your Trading Plan

Congratulations!

You now have a trading plan.

This is further than most traders get, so take a minute to give yourself a pat on the back for a job well done.

But don't get too comfortable yet. This is where the hard work really begins.

Now take your trading plan and backtest it completely. When I say completely, test it on as much historical data as possible.

There's a common myth on the internet that backtesting a trading strategy 100 times proves that it works.

This is not necessarily true.

Watch this video to figure out how many backtesting trades makes sense for your situation.

Now that you understand about how many trades you need to feel comfortable with the results of your strategy, let's get into more details about the backtesting process.

You can learn how to do your first backtest here.

One final word before I leave the backtesting process…

A common backtesting mistake is to change your trading plan in the middle of the test.

Do not do this, otherwise you won't get reliable data on your trading strategy. 

It's like a doctor mixing blood samples from 2 different patients together and doing a test on the mixture. He won't be able to tell which patient has the problems that he sees in his test.

So the best thing to do is to complete your current test. Then if you want to change the rules, create a NEW trading plan, then do an entirely new test. 

Doing this will help you find a profitable trading strategy faster. 

Forward Test Your Trading Plan

Once you have a trading strategy that is profitable in backtesting, you're not done yet…

You still need to figure out how well your strategy works in real-time.

Many traders skip this step and this is another reason why so many traders fail.

So once you have a trading strategy that is profitable in backtesting, it's time to test your trading strategy in a demo account.

This is very important, so I'll repeat that. You want to do this in a DEMO account.

Backtesting is great, but it's sped up a lot.

You'll need to have some patience when you're demo trading in real-time.

By demo trading, you're getting closer to real world trading conditions and this allows you to see how well you execute your trading plan.

Learn more about how to Forward Test here.

Get Into the Habit of Journaling

While you're Forward Testing, the most important thing to do is to journal your trades.

Again, if you don't journal your trades, you'll have very little chance of success. This is because you need to figure out what you're doing wrong and what you're doing right.

Only journaling can show you these things.

Your journal doesn't have to be fancy.

Some traders geek out about having the perfect trading journal.

My advice is to start simple.

Just use a simple marble notebook, like you used in elementary school.

…or whatever works for you.

You can also use the following tools:

• Trello/Loom
• Video journal
• Evernote
• More options

Now what are you going to be writing in your journal?

Here is some valuable information that you should put in your journal:

• Open and close prices of each trade
• Edits or trade management to did while the trade was open
• Reasons for taking the trade, editing the trade and exiting
• Trade open/close screenshots
• Intuition on how the trade will work out before you open the trade
• Trading strategy you're using
• Post-trade analysis

Again, don't make it too complex. Keep it simple and you're more likely to do it.

Finally, it can also help to journal trades that you missed.

Find out why here.

Start Trading Live

Many traders jump into live trading right away and they wonder why they lose money.

Once you've honestly gone through all the steps above, it will give you maximum confidence to trade your strategy.

Only jump into live trading when you're confident that your strategy has a high probability of working in the real world.

Also make sure that you're able to execute your strategy consistently and you have addressed all of your issues related to trading psychology.

Going through the above process will also give you the historical data to understand if your strategy ever stops working.

Again, do NOT jump into live trading until you've done the previous steps and you're confident in your skills and your trading strategy.

There is a strong temptation to jump straight into live trading.

DON'T DO IT.

Follow the entire process and you'll have a much, much higher probability of success.

Final Thoughts on Becoming a Successful Trader

Many new traders think that they can learn a trading strategy in a weekend and they will become a consistently profitable trader for the rest of their life.

Nothing is further than the truth.

Just like with any other skill, there is a learning process that needs to be followed in order to become successful.

You have to practice for hours to become a good basketball player and you have to go to school for years to become a doctor.

Trading is no different. It might not take as long to become a successful trader, but you have to be willing to put in the work.

That's the roadmap.

Now get to work.

The post How to Become a Successful Trader (Step-By-Step) appeared first on Trading Heroes.

That's a good question. In reality, both methods work. It just depends on your personality and which one you like more.

However, if you've been using stop losses, and it hasn't been working for you, then maybe it's time to try something new.

Hedging can make losses psychologically easier to handle and put you in control of when you take a loss. It can be a more consistently profitable way to trade, and it usually gives you more trading opportunities, compared with strategies that use stop losses. 

Now that you understand the overall benefits, let's dive into the details.

The Biggest Psychological Benefit of Hedging

If you use a stop loss to exit losing trades, the market basically decides when you take a loss.

With hedging however, YOU decide when you take a loss.

In principle, taking a loss now and taking a loss later are basically the same thing.

From a psychological perspective however, it can be a huge benefit to be able to take your losses only after you have banked a profit.

This means you don't have to wonder how long your losing streak will be, before you get another win.

You have more control over the process.

Provides Opportunties to Take Smaller Losses

Would you rather take a $2,000 loss…or 3 losses of $800, $600 and $600?

Again, they are basically the same thing. But the difference is in the psychological impact.

I personally like the idea of taking smaller losses, instead of one big loss.

Even after I thoroughly backtest a strategy and know what to expect in terms of losses, it can still be tough to take several full losses in a row.

The great thing about hedging is that you can break up your losses into smaller pieces and roll them off at a time that's convenient for you. 

That can make your losses easier to handle.

More Consistent Returns

I've heard of traders who claim that they are net profitable every day, using hedging.

Although I haven't verified that claim personally, I believe that it's certainly possible.

I do know however, that hedging can be profitable every month, and possibly even every week.

It just depends on how you implement hedging and how much time you have to trade.

Contrast this to other trading methods where it can be easy to have a down month and very easy to have a losing week.

Obviously, hedging is not a holy grail trading method that will guarantee profits.

You will have to put in the time and effort to get good at it, just like with any other trading method.

But in my personal experience, it can be a very consistent trading strategy, when you know what you're doing.

Scalable Across All Time Frames

Hedging is a method that can legitimately be used on all time frames.

I've bought trading education courses where the instructor says that their strategy works on all time frames.

But when you actually backtest it, you realize that most of the time, that's not true.

There are a few stop loss strategies that do work across several timeframes, but in my experience, they are very rare.

In reality, most trading strategies work best on one or two timeframes. 

With hedging however, it can truly be used on all timeframes because it's a framework and not a strict set of trading rules.

No Stop Loss to Trigger

Many traders complain about their stop loss getting triggered prematurely.

This is a legitimate concern when you use stop losses.

That's why many professional traders don't use stop losses.

A legitimate broker isn't going to trigger your stops intentionally. To find out who does, read this.

But even if you put your stop loss in the exact right spot, you can still get stopped out unnecessarily.

Here's how…

Variable Spreads

The spread can differ greatly between brokers.

So if you follow a trading strategy that says to use a 30 pip stop loss, you'll get stopped out a lot more at a broker that has wide spreads.

But if you don't use a stop loss and hedge instead, you cannot get stopped out, no matter how wide the spread at your broker is.

Interbank Market

After the New York session closes, the Forex market goes through a period called the interbank market where the majority of foreign exchange trading transfers from New York to smaller markets like Sydney.

Spreads get really wide during this period and can take out your stop loss. Here's an example of how dramatic the difference can be.

So if you're using a stop loss, you could easily get stopped out if your stop is too close, or you're trading a pair where the spread gets really wide.

However, if you don't have a stop loss and you're using a hedge instead, then you simply cannot get stopped out.

Market Volatility

The final way that you can get stopped out before you expected, is high market volatility.

If you've been trading for any amount of time, you've probably seen something like this.

You went long and thought your stop loss (red line) was safe, but a temporary price spike takes it out. Then it goes in the direction that you expected.

The reality is that these spikes do happen often and the only way to manage your risk without getting stopped out is to use a hedge. 

Adjustable Risk

When you use a stop loss, you have a fixed amount of risk on a trade.

Don't get me wrong, that's generally a good thing.

But hedging can provide more fine-tuning, in terms of how much risk you want to take on a trade. 

For example, let's say that you want to go long here. If you're wrong about the trade, you're going to consider hedging at the red line.

Now if price gets down to the level where you think you're wrong about the trade, you have the following options:

• 0% hedge (e.g. 1 lot long, 0 lot short): You are very sure that price will move up and you can sit around and watch the chart.
• 25% hedge (e.g. 1 lot long, 0.25 lot short): You are pretty sure that price will move up, but you want to have a little downside protection.
• 50% hedge (e.g. 1 lot long, 0.50 lot short): You think price will probably go up eventually, but you aren't sure.
• 100% hedge (e.g. 1 lot long, 1 lot short): You don't know where price is going to go, so you want to “pause” the loss until the price action becomes clearer.
• Or anything in between!

Having a partial hedge gives the market room to move, while limiting your loss. If you are partially hedged and price ultimately moves in the direction you expected, you still make money.

When you use a stop loss, there can only be 2 results…gain or profit.

With hedging, there are many shades of gray.

More Flexibility

I would say that hedging is probably the most flexible trading method around.

It's also one of the purest forms of price action trading, if you don't use indicators.

However, the great news is that you can still hedge, even if you use an indicator based entry strategy.

Some traders have told me that they trade a standard trading strategy with indicators, but they use hedging to exit the trade, instead of a stop loss.

Hedging also allows you to make money in both directions at the same time. You don't only have to be long or short, then wait for a setup in the opposite direction.

You can make money when the price goes up and down.

So if you don't like being confined to a specific set of rules all the time, Forex hedging might be the alternative that you've been looking for.

Earn Positive Interest

There can be times when you can actually make positive interest every week by holding a hedge.

This will depend on the interest rate environment between the central banks, but it's possible to hold a partial hedge and earn interest.

For example, the swap on the USDJPY is currently 11.55 on the long side and -19.38 on the short side.

So if you held 1.0 standard lot long and 0.25 short, you would be partially protected if price drops.

But the great news is that you would be earning net positive interest on the hedge. 

In fact, you could be 50% hedged and still be making a small amount on the swap interest.

To me, this is the closest thing that you'll get to passive income in Forex trading.

Now you should obviously do this in an area on the chart that looks like a good place to go long. If you get a good entry and price stays above your entry price for a long time, you simply accumulate profits.

Just be sure to track the swap rates of the currencies you trade because they can change suddenly. 

Be Unpredictable

This might sound like a bad thing, but it's actually a very good thing.

In a world where AI and algo trading is becoming increasingly popular, it's becoming easier to figure out the mechanical trading systems that successful traders are using.

If enough traders start making money with a particular trading strategy, someone somewhere in the world will figure out how to reverse engineer it and turn it into an algorithm.

If enough money starts getting traded with these algorithms, the systems will start to lose their profitability.

I know that those are a couple of big “ifs,” but it can happen, especially with the power of computers nowadays.

However, since hedging does not rely on a mechanical set of rules, it cannot be reverse engineered and is more likely to work in the future. 

Hedging will also allow you to adapt to changing market conditions, so you won't get stuck with a trading strategy that stops working.

More Fun

I feel that hedging is also more fun than other trading strategies because it's like figuring out a puzzle.

You have to figure out how to get out of a hedge and get to flat as soon as possible. There are many ways to do this, and working through the options is a fun exercise.

Contrast that to following a set strategy every day.

You follow the same rules and there is no variety.

Nothing wrong with that obviously. It's great when you can rely on a trading system to make money.

But some people might get a little bored.

So if you have trouble motivating yourself to trade, even if you're consistently profitable, then hedging might be a great way to keep your brain engaged in the process.

Final Thoughts

Hedging can be a great way to trade Forex.

It's not for everyone, but if you resonated with the reasons above, then it could be a great method for you.

They key is to give it a try in a demo account and see how you like it.

Also be sure to download my free guide to Forex hedging here.

The post Advantages of Forex Hedging vs Stop Loss appeared first on Trading Heroes.

In this tutorial, I'll go over what a stop loss order is, how to implement it, and I'll answer some frequently asked questions at the end.

After you read this tutorial, you'll know everything there is to know about entering a stop loss.

What is a Stop Loss Order?

All trading platforms that I've seen have a stop loss feature.

Some are easier to use than others, but the basic function is the same.

A stop loss order is a type of order that traders use to limit their loss on a losing trade or lock in profits on a winning trade.  

To be more specific, a stop loss is a pending order that only gets executed if price hits your stop loss level.

A pending order is an order that sits on the broker's server until the conditions of the order are fulfilled. In the case of a stop loss, that condition is price hitting the stop loss price.

Once price hits your stop loss price, it turns into a market order, which means that it will execute the trade at the next available opportunity.

That means that there has to be someone in the market who is willing to take the other side of your trade.

In very large (liquid) markets, the trade usually gets filled very quickly and at the price you set. Some examples of markets are large cap stocks, Forex and large cap cryptos like Bitcoin.

However, in small (illiquid) markets, the price that your trade finally executes at might be different from the price that you set your stop loss at. This is called slippage. Some commonly illiquid markets are options, micro cap stocks and altcoins.

If you're trading in an illiquid market, find out if you can enter a stop loss that turns into a limit order instead of a market order.

A stop-limit allows you to set a limit price so you won't lose money if the only available trade is at a price that worse than your limit price.

Not all trading platforms offer stop-limit orders, so be aware of potential slippage before place your stop loss orders.

Traders usually enter a stop loss at the same time that they open a trade.

How to Place a Stop Loss to Limit Losses

The most common use of a stop loss order is to do as its name suggests.

It will limit the loss that you have on a trade.

In the chart above, the red line at the bottom of the chart represents a good place to enter a stop loss order for a long trade.

The trade would be entered at 0.63264 and the stop loss would be at 0.61617.

If price goes lower than 0.61617, then the long trade will be closed.

A stop loss order allows a trader to automatically exit a trade at a predetermined amount of loss, thereby protecting the rest of their trading capital.

Many traders use a percentage loss stop loss which risks only X% per trade. A common amount to risk per trade is 1%.

If you risk 1% per trade, you would have to be wrong 100 times in a row to lose all your money.

Even if you were just guessing, I don't think that you could be wrong 100 times in a row.

Therefore, using a stop loss protects your capital when you're wrong, so you'll be able to take advantage of the times when you're right.

How to Use Stop Losses to Protect Profits

You can also use a stop loss to protect profits.

Let's take a look at the same trade above, but this time, price has moved into profit.

The blue line is the trade entry price and the red line is the new stop loss level.

To protect your profits, you could move your stop loss up to 0.63634, locking in 37.4 pips of profit on the trade.

Moving your stop loss to lock in profit is a great way to ensure that you'll make money on the trade, but also gives you the opportunity to make even more money if the market locks into a strong trend.

Regardless of what happens though, you'll have peace of mind knowing that you've locked in a guaranteed profit.

How to Place a Stop Loss Order on Popular Trading Platforms

Stop loss orders are usually easy to place.

All trading platforms allow you to place a stop loss when you enter a trade. After you enter a trade, you can also edit your stop loss, or enter one if you forgot.

I'll give you a few examples from different trading platforms, so you can see the process in action.

How to Place a Stop Loss in MetaTrader

The MetaTrader order entry screen has a stop loss field just below the volume field.

An easy way to enter a stop loss price is to first click either the up or down arrow next to the stop loss price.

This will automatically enter a price that's close to the current price. Then you can manually edit the price to set your stop loss.

Using this method will save you time and is particularly useful for day traders who need to enter orders quickly.

The process is almost exactly the same in MetaTrader 5. If you want to learn how to set a stop loss and take profit in MT5, read this tutorial.

How to Place a Stop Loss in TradingView

TradingView has the best stop loss screen that I've ever seen.

It allows you to set a stop loss in pips/dollars, at a certain price, or by percentage risk.

To enter an order, right-click on any chart and click on:

Trade > Create new order…

Then the order entry box will appear. Check the box next to Stop Loss and enter your stop loss in your preferred format.

Finally, click on the Buy or Sell button and your order is placed.

How to Place a Stop Loss in thinkorswim

TD Ameritrade has a couple of different trading platforms that you can use, but I'll show you the thinkorswim example because it's the simplest.

Entering a stop loss is pretty complex on this platform, but it's easy once you know how to do it.

While you're entering your entry order, click on Advanced Orders > 1st trgrs OCO.

This will enter a stop loss order once your trade gets filled.

To get a complete tutorial on how the platform works, watch this video.

It shows an older version of the software, but the core principles are the same.

Yeah, I don't know why they make it so complicated.

But now you know how to do it.

How to Place a Stop Loss in Binance

The process of setting a stop loss order in cryptocurrency can vary greatly by exchange.

In this example, I'll show you how to use Binance because it's one of the most popular exchanges.

On Binance, you'll be using the Stop-limit function.

Although this example will be shown on Binance, check with your specific exchange on how to set a stop loss on your trading platform or exchange.

Here's a complete tutorial on how to set a stop loss on the Binance trading platform.

Where Should You Place Your Stop Loss?

Now that you know how to place a stop loss, this is the next question that new traders ask.

Knowing where to place your stop loss comes with practice.

You want to put it in a place where it won't be triggered by normal market fluctuations.

But you also want to set it as tight as possible to make maximum return on your trade.

It's a balancing act.

To learn where to place your stop loss, read this tutorial.

Should You Move Your Stop Loss?

Moving your stop loss to increase your risk means that you'll have a bigger loss than you originally planned for.

That's a recipe for disaster.

There is only one situation when you should move your stop loss…when you want to lock in profits.

How you do this is beyond the scope of this tutorial, but you can learn how to trail you stop loss here.

When you trail your stop loss, you might make way more profit than you would have expected because you are letting your winners run and cutting your losses short.

Do Brokers Hunt Your Stop Loss?

Legitimate, regulated brokers will not hunt your stop losses. 

Who knows what dodgy, unregulated brokers do.

That's why it's important to trade with a reputable broker. 

But if you're trading with a reputable broker and you feel like your stop losses are getting picked off, then this is probably the reason.

Final Thoughts

Once you understand how to set a stop loss order in one market, you'll know how to figure out how to do it in other markets, even if the process isn't exactly the same.

Using a stop loss on your trades is the best way to limit your risk and lock in your profits. If you haven't been using stop losses, then you should really consider using them.

In all fairness, not all professional traders use stop losses.

There are also some trading strategies that perform better when you don't use a stop loss.

But the vast majority of traders and trading strategies perform better with stop losses.

So get to backtesting and figure out the best method for placing your stop loss orders.

The post How to Place a Stop Loss Order appeared first on Trading Heroes.

It limits your risk if you're wrong, and it preserves your capital so you can take advantage of the next opportunity.

This complete tutorial will show you how to calculate your risk and position size, based on your maximum risk. 

Calculate Your Stop Loss

The first step to calculating a stop loss is to measure your stop loss in pips or dollars, or whatever your chart is quoted in.

To calculate your exact stop loss, use this formula:

ABS(Entry – Stop Loss) = Risk

It doesn't matter if the risk number comes out positive or negative. Take the absolute value (ABS) of the entry price minus the stop loss price.

Let's take a look at a few examples from different markets. In each example, the line represents the stop loss.

Stock Trading Example

When you trade US stocks, the risk will be calculated in dollars.

In this example, the stop loss is at 67.50 and the entry price is 59.60.

This is a short trade, so the trade makes money when the price goes down.

So the risk is: 67.50 – 59.60 = 7.90.

Forex Trading Example

In Forex, risk is calculated in pips or pipettes, depending on how the broker quotes prices.

The price is quoted in the second currency in the pair, or the quote currency.

For example, in the EURCHF chart below, the chart is quoted in Swiss Francs since CHF is the second currency.

The stop loss is at 0.97068 and the entry price is at 0.98609.

So the risk is: 0.98609 – 0.97068 = 0.01541.

This translates into 154.1 pips of risk.

Crypto Trading Example

Crypto can be a little tricky because trading pairs are quoted in different formats, depending on which crypto is the quote currency in the pair.

This is the Monero/US Dollar pair, which is quoted in US Dollars.

The risk on this long trade is: 134.23 – 115.332 = 18.898.

Now that you have a good idea of how this works, let's take a look at how to calculate your percentage risk per trade based on your calculated stop loss.

How to Calculate Stop Loss Percentage

Once you've calculated the stop loss in quote value, now it's time to figure out your position size based on your percent risk.

This is very important because you want to keep your risk per trade constant.

If you don't keep your risk constant, you might lose too much on one trade and not make enough on the next trade to make up for the loss.

For example, let's say that you risked 3% on your first trade and it was a losing trade. Then you risked 1% on your next trade and it made a profit of 1%.

You would still be down 2%, even though you had one win and one loss.

If you risked 1% per trade and targeted 1% profit on each trade, you would have been at breakeven.

When you keep your risk per trade constant, that eliminates one variable from your trading and allows you to focus on more important things like your win rate and your return per trade.

In these examples, I'm going to assume that you have a $10,000 account and you're risking 1% per trade.

One percent of $10,000 is:

10,000 x 0.01 = $100

So all of the trades below will only take $100 of risk.

Now I'll show you how to figure out the amount of shares, units or cryptocurrency to buy or sell.

I'm going to use the same risk amounts in dollars and pips from the examples in the previous section.

Stock Trading Example

In the example above, there was 7.90 of risk per share on that stock trade.

So to get the number of shares that you should trade, simply divide the total risk you want to take ($100) by the risk per share ($7.90).

$100 / $7.90 = 12.6

Therefore, you should sell short 12 shares of stock in this example.

Forex Trading Example

It can be a little tricky to calculate your total trade size in Forex because there are different lot sizes and the risk per pip varies between currency pairs.

If you don't know anything about Forex lot sizes, you can learn about them here.

To make things easier, you can use a position size calculator like this one.

But I'll show you the calculation so you know now to do it yourself.

In the example above, the long trade has 154.1 pips of risk.

Let's just say that you want to trade micro lots. These lots have a risk of about $0.10 per pip, depending on the currency pair.

But I'll use $0.10 just for demonstration purposes.

First, multiply the pips of risk times the cost per pip.

154.1 x 0.10 = 15.4

That gives you $15.40 of risk per micro lot.

Then divide the total risk by the risk per micro lot.

$100 / $15.40 = 6.49

So in this example, you can trade 6 micro lots to only have 1% risk in your account.

Crypto Trading Example

Since this crypto chart is quoted in US dollars, the calculation is similar to the stock trading example.

$100 (total risk) / $18.898 (risk per coin) = 5.2915652

Cryptocurrency can be divided beyond 2 decimal points, so in this example, you would be able to buy 5.2915652 Monero coins.

If the coin/token you're trading is quoted in another cryptocurrency, then:

1. Calculate the risk in the quote currency
2. Convert the quote currency to US Dollars (or whatever your trading account is denominated in)
3. Divide your total risk ($100 in this example) by the risk per coin/token in US Dollars to get the number of coins/tokens to trade

That's it!

Easy.

Frequently Asked Questions

What's a Trailing Stop Order and Should You Use One?

There are several different ways that a trailing stop loss can be implemented.

They can help you lock in profits as your trade moves into profit.

You can learn about the most used types of trailing stops here.

In that article, I also show you which one to avoid.

Where Should You Set Your Stop Loss

The next question is obviously, where should you place your stop loss.

That will depend on your trading system.

If you want to see different trading strategies, then take a look at the strategies I've written about and tested.

But the basic idea is that you want to put your stop loss in a place that's not easy for the normal fluctuations of the market to get to.

At the same time, you want to put the stop loss in a place that will show you that you're wrong about the trade. 

Brokers don't hunt your stop losses.

Many new traders believe this because they get stopped out so often.

In reality, most new traders put their stop loss to close to their entry and simply get stopped out by normal volatility.

Here are 2 examples of stop loss levels that 2 traders might choose.

A newer trader will usually choose a stop that's too close to price action…

While a more experienced trader will usually select a stop loss level that's further away, as shown above.

So the bottom line is that you want to select a stop loss price that proves you're wrong, but also isn't so close to your entry that it can get stopped out easily.

Final Thoughts

A stop loss is the best way for traders to manage risk.

…especially new traders.

When you have a trading plan that includes a stop loss, you know exactly how much you'll lose if you're wrong about the trade.

If you don't have a trading plan, then learn how to create one here.

There are some trading methods that do not use stop losses, but they should only be used once you have a little experience.

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