Dealing with the Psychological Highs and Lows of Trading

Trading is a very psychological endeavor. Dealing with the psychological highs and lows that come with trading success and failure, respectively, has been a distinct challenge in my own trading.

 

 

In order to be successful at trading, not only do you need a profitable trading system, you also need to have great understanding and command of your own tendencies and limits as a trader. Absent either of these, trading will likely be very costly and painful for you.

 

Professional traders know that attitude is everything in trading. Successful trading can make you feel like the king of the world at times. Yet, after a big loss, or a period of drawdown, you may feel like you’re not cut out for trading at all. Professional traders have cultivated a successful attitude for dealing with the inevitable psychological highs and lows that all traders go through.

 

7 Steps for Dealing with the Psychological Highs and Lows of Trading

Are you committed to becoming a better trader? If so, how do you deal with these psychological highs and lows in your own trading?

 

Below are 7 things that professional traders do to maintain a successful trading mindset:

 

1. Manage Your Money Wisely – Good money management is critical to the success of any trading system. Professional traders know that you should only risk a small amount of your account each trade. Most professionals only risk 1-2% per trade. Very expert traders that use a trading system with a very high strike-rate might risk 3% per trade.

 

You might risk a little more in the stock market as well, but the point is that you should be risking a relatively low percentage of your capital per trade. It takes a little longer to reach your monthly goals that way, but this technique eases the pain when losses happen. And you will have losses.

 

If you’re very good, you might have perfected a trading system that wins 80% of all the trades that you take over a large sampling of trades. In that scenario, you still lose 20 trades for every 100 trades that you take. Average traders win much less. You must be prepared to protect your hard earned money. Risking a small amount of it per trade is a good start.

 

2. Do Not Overtrade – Average and losing traders tend to trade too much. They often trade for the fun. They don’t like to be out of the market. Professionals know that the only advantage that retail traders have over institutional traders is that retail traders don’t have to be in the market all the time.

 

Successful traders trade less often and consistently make more each month than the “active” traders. Successful traders have the patience to wait for good trades to come to them. They wait for “all the stars to align” before getting into the market.

 

3. Do Not Revenge Trade – Revenge trading is jumping right back into the market to recover a loss you recently took. Overtrading and revenge trading will kill your trading account faster than anything. Always take the best setups your trading system offers, and when you inevitably take losses, realize that losses are just a business expense in the business of trading.

 

Trading is hard enough to do when you don’t make any mistakes. The last thing you need to do is jump right back into the market just because you took a loss. Wait for the good ones. Don’t needlessly give your money away with costly mental mistakes.

 

4. Log your Trades in a Journal – This is so key to becoming a better trader, as well as having the right mindset to get you through the drawdown periods. Keeping an accurate trading journal isn’t going to turn everything around for you if you still haven’t found a good trading system, or you haven’t had the patience or discipline to follow the rules of that trading system. However, once you have a good system, a trading journal is a must.

 

This is true for many reasons. A detailed trading journal, when reviewed at the end or the week, month, etc… can show you what you’re doing right and what you’re doing wrong. It allows you to determine if it’s you or your trading system that is causing losses. Are you sticking to the rules or forcing trades? How many mistakes did you make (how many times did you break the rules of your trading system)? How much would you have made if you had followed the rules with discipline? What kind of trades are you losing/winning on (buy/sell, breakouts/news trades, swing trades/scalping trades, etc…)?

 

If you are trading multiple systems on one account, the way many traders do, you need to know how each system (or which setups within each system) is performing. You cannot get any of this information by just totaling your monthly profit or loss. All of this information will help you tremendously, not only in becoming a more successful trader but also in keeping the right mindset when you have a losing period.

 

5. Do Not Overcomplicate Trading – The majority of traders lose. Don’t get caught up taking random trading advice from lots of traders. There are tons of forums and websites available where there are no shortage of self-proclaimed experts telling you how you should be trading, or what’s missing from your charts. Most of these places will only lose you money, and make you feel more lost than when you first started out.

 

Trading doesn’t have to be complicated. The natural tendency is to make trading more complicated because it’s easier to blame your charts, experts, trading methods, etc… for your lack of success than to actually find out what YOU are doing wrong. The complicated part of trading is the psychological aspect. Your trading system, itself, can be as simple as a naked chart showing candlesticks (price action).

 

Find something that works for you and stick with it. Many new traders jump ship or add/subtract rules from their trading system(s), at the first sign of losses. The point is to find something that makes sense to you, prove that it works, and then let the edge that it provides you play out over time.

 

6. Demo or Paper Trade – Even if you’re already a successful trader, anytime you introduce a new technique to your methodology, you should always demo trade or paper trade the new technique for, at least, a few of months. There are several benefits to doing this.

 

In order for any trading system to work for any trader, two things have to happen: 1, your trading system must be a truly profitable system with consistent results; 2, you must truly believe in your trading system. Demo or paper trading can accomplish both of these things for you.

 

If your trading system is truly profitable, you should see consistent results over a period of, at least, a few months. If you do, you will have proven to yourself that your trading system works, and you can truly believe in your trading system. This will be invaluable to you for keeping you discipline after losses, or when long periods of drawdown in your system occur.

 

The transition from demo trading or paper trading to live trading is not as smooth for most traders as they might assume it would be. Growing up broke, like I did, only compounds the issues. Many traders get nervous or uncomfortable with real money on the line, and that can lead to poor decision making. Proving your trading system is profitable first, before risking any of your hard earn money, can help you see that money as capital in a profitable investment.

 

7. Focus on Your Trading System – If you’ve proven that your trading method is a winner, and that you have the patience and discipline to execute it correctly, then you just have to take each trade as mechanically as possible. This will help you take some of the emotions out of your trading.

 

I realize that not every aspect of every trading system can be completely mechanical, but you should strive to execute your trading system as mechanically as possible. If a trading setup occurs that meets all of the rules of your trading system, that’s a valid trade. Take that trade – even if it’s ugly. If a trading setup occurs that doesn’t meet those same requirements, that’s an invalid trade. Don’t take that trade – even if you’ve been waiting so long for a setup to occur, and even if you’re down for the month, and even if it’s the last trading day of the month. Stick to your rules. Be mechanical.

 

Realize that no system is capable of catching every move the market makes. Don’t get caught up in thinking about how many pips you left on the table by missing that breakout. Focus on what your system is providing you. Stick to it, and let your edge play out over a large sample of trades.

 

Trading can be Simple but is Always Stressful

Trading is one of the easiest – if not the easiest – ways to get started in your own business. It can be extremely simple, and yet, it can also be one of the hardest, most stressful things you’ll ever try to do. So what is the key? Why do some traders make it, while the majority of traders fail?

 

Emotion plays a huge role in trading. Not everyone can deal with the psychological highs and lows that come along with putting your hard earned money at risk. Letting your emotions dictate your trading experience will be disastrous for you. Unfortunately, there are more moving parts to successful trading than just the psychological aspect; however, if you can minimize and control these emotions, you have a much better shot at success.

 

Taking the steps I mentioned above will help to keep you trading through the hard times. These steps will help you trade more mechanically, and less emotionally. As unnatural as trading can feel from time to time, there are many reasons to stick with it. Trading can be a great business to go into if you can handle the stresses involved. Hopefully, these 7 steps will help you deal with the psychological highs and lows in your own trading as much as they have helped me in mine.


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Posted By ralphlauren : 17 October, 2020
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The Rabbit hole of thinking and raising Trading awareness with Market savvy can be explained away in a wide range of intricate FX scenarios. Luckily though and just a short hop away are some interesting Forex facts along with a short punchy story to share. Which should not go beyond the scope of reasonable thinking for some FX folk. After all, other folk can and will make life and Foreign Exchange trading as technical and or as complicated as they like.     If you consider that trading in the most simplest of terms is the art of Buying and Selling. Then its not impossible to throw some absolute clarity on and shed light over what made the price rise or what made the price actually fall.   Again, and only in the simplest of terms, lend me your eyes and ears and let us uncover what is hidden in the pitch black darkness deep inside the Rabbit Hole; disguised in the rumour and lie, shared in news and data. Standby, lets reveal the mystery right now: The price went up because there were more buyers than sellers! and the price went down because there were more sellers than buyers!   The art of successful buying and selling or Trading has to be a learnt action and is not at all instinctive. Sadly, this is mainly due to the publicity of crowd noise.   Crowd noise comes about from 95% of all traders and experts who are actually losing, are incorrect or totally lost within the financial markets. Their noise ripples like a stone cast down on calm waters and travels through the whispering mouth and ears of space and time, across the internet, through advertising, promotions, books, word of mouth, as well as trading Forums and Forex Educational courses sent from Quack Leaders and the like. However, the FX losers are not necessarily all in the markets in the same time frame.   All successful Traders, the 5 percenters, know they have to go through their very own learning curve of which there are no short cuts. Fortunately, the good news is the curve leads to eventually attaining a natural cycle of being a consistently successful Trader.   Consistently successful Forex Trading is finding the profitable way forwards with a rhythm, using a time proven strategy and trading style which is never varied, flying in an identically pattern. Almost as if following the exact same arc and line at each junction or doorway. This must always be landed identically at virtually the exact same spot. Without this approach it would be impossible for anybody to navigate their capital in the markets, ending in funds being rolled like a dice with such a consistent navigational imperfection.   So, the following navigation can also be explained in the simplest of terms, referencing it as "A Place called ForexLand".   Imagine for a moment, a place called ForexLand. Where a trader has to hop from one place to another place by hitching a ride on a currency pair. The currency pair is the vehicle and so the trader jumps in and hitches a ride, for example, hoping to go South. If the vehicle is already headed South then the trader is going the right way. However, vehicles in Forex Land never travel in a straight line and rarely in one direction. In actual fact, all vehicles drive around Forex Land in a zig zag formation. If the vehicle stops or goes no where, the trader can simply get off. If the vehicle goes in the wrong direction altogether, then again the trader can get off and this time wait for another vehicle going in the correct direction. The correct direction is the way the trader wanted to travel in and was previously mapped out on their chart. This correct direction is also derived from the art of buying and selling which is further explained in the Greater Fool Theory in Trading Forex. That's all for now and hope it helps.    Happy New Year Forex Traders and Fellow Forexmospherians and Wishing you all another prosperous Trading Year too.

Get back your lost money by following 5 advanced techniques. Forex trader want to maximize profit fast. But,     As the faster way to gain money the forex trading is always full of risks, I hope you’re aware of such risks. It’s not wondering that you already have experience of loss in forex trading. Today I’m gonna talk about how to recover the loss in forex trading. We’ll discuss which strategies and steps could help you to cover that money more or less.     How can you recover loss money in forex trading? Accept the Truth As the quote said – life is not always easy, so why forex would be easy for you? Now it’s time for both of us to confess that forex will be a harder way. Well, it doesn’t mean very hard, so don’t fall in frustration. Forex trading is a battle against big money banking system who always sets trap for us to get more foreign money and less spend local money.   This is why most of the traders usually beginner traders lose their money on these battles. So don’t give up right now if you insist to get your money and better living. Follow these 5 steps, I will guide you a step by step way to reduce losing and increasing profitable trades.   Step1 - STOP Right Now If it is your disaster day – then stop your trading fantasy right now. Don’t make it worse than worst and prevent yourself stressful in that much. It will lead you down and will make mentally exhausting. If you got yourself angry then stop being that, usually people attached by emotional behaviors’ such as insistent against an opponent.   Believe me, 99% of case you will lose more money if you don’t listen to me on your bad day. You have to understand that the market is not a place like an apple tree in its season – your job is just to grab it and pick on your basket. Often – people lose money, so bad days come up. In this case, a cool guy makes himself cool and stop giving more shits to the market. No matter which currency he’s trading and find the best way to forex trading.    Step 2 - Reset Your Mind A big loss causes stress, anger, frustration, hate comes up eventually. It can cause also doubts about foreign exchange trading system. Also maybe you’re thinking about revenge against the broker or even the market. But you gotta understand that there’s no way to recover that money without a clear brain.   In other scenarios – a series of successful days makes us comfortable and lethargic, you know. So a big shock comes up with a wake-up call.   So, what you can do is change your mindset. Exhaust your psychological self-harming and other dilemmas. Maybe it’s the time to get your key and ride alongside nature. Better if you find a jungle or green area. You can go to a park and of course, you should have your partner with you. Boyfriend or girlfriend or whatever your near ones. Just don’t remember the bad thing (loss).   You might agree with me that money is temporary. It won’t stay with forever. That is why you shouldn’t damn care about it. It’s gone, no matter; it will come again! So enjoy!!!!!   Find the Actual Reason Is it your fault? Did you lose your path while trading? I mean did you executed according to your plan? If everything is worked in the right direction then what’s the matter? Did technology stop you? Or sudden news made your trade collapsed? Have your good way to protect your trading capital?   If an announcement or market changed due to surprise news then don’t blame yourself nor your luck. Actually – I don’t believe in luck, so when something happens well I won’t credit it to luck so why when it’s bad?   You’ll get many reasons and excuses for the loss. You will find a lot of issues to blame this and some of these are definitely meaningful, I might understand so do you!   Don’t Think Too Much You can spend the time to find an alternative route. But don’t take too long, and assume something abnormal. Remember overthinking will fall you in fantasy situation – and it will waste your time! After a time, you should found yourself suitable for recovering the lost money and of course you will not regret when it comes.   Step 3 - Make Some Fixes to Get Back Your Money Stop Loss (S/L) option is very important to success in forex trading. Don’t forget to use it. Also, T/P (Take Profit) Option should be used simultaneously with stop loss.   Did you have your own money management policy? How much % of balance you want as stop loss level? How much for a reasonable trade?   But the most important thing is did you set your own trading methodology? Or you’re simply using other’s knowledge or some paid signals. Paid signals won’t work as expected – it has already proved many times, don’t be a kid. The world is not a fantasy or someone’s guess. So why, you have to rely on someone else’s idea.   Signals could be avoidable – I didn’t mean that anyways, forex signals are for expert forex traders who have a vast knowledge already and want to make sure about the decision. They know when to use some signals and when to avoid.   Did you overtrade?   If you overtrade on the losing trades, then it’s time for you to learn that overtrading is not for you. You’re not a child, come on – why you want this?   Didn’t you take breaks?   If you are trading forex for a long time since you are not losing, then a break will do the job. A typical break and relax will make a significant change in your trading life.   Are you hurry to recover?   If you’re in that mood then stop it NOW. You’ve already lost money and you’re not learning. Hey! Do you want to lose your bucks again? If not then grow up your mind and stop being hurry.   Did you keep trading records?   I hope you can take care of your money and keep your notes regularly. If not – please start it at least on next trades. Being logical is cool, you know that. So don’t follow joker’s way and use your human way of being a modern guy.   Can you control your emotions?   Listen, if you have problems with emotions then it is time to check it up with psychological parameters. If you think you should consult with a psychiatrist then it is cool. Cause a good psychiatrist can help you to change your big problems so you can trust them.   Do you deny experience?   If you think experience does not matter when you’re learning it now from lost trades. Do you know, after more experience then more makes a trader an expert. Agree with me that experts are reliable in their field.   Do you play with support resistance?   Well, I am not talking about only the support and resistance – I am talking about most common forex trading tools, in other words, basic tools.   Indicators, moving averages and other staff will help you to find short or long. So you can get rid yourself from being a common group so you can get money instead of losing.   Did you lose your confidence?   Yeah, this is the big question after your loss. If you didn’t lose the confidence then you’re really a tough guy. You can make it with no big break, surely.   But if you lost it then you need to re-prepare yourself with self-development process. First, you should understand that it’s a win or lose a game. In a game, the winner is cool but being lost is also a part of it. Sportsmanship never allows regretting defeats.   Consider Facts If you accept science, if you accept logics then don’t try to do something extra-ordinary which can’t do. In real life - when someone is trying to do an extraordinary thing, actually it ended up with a waste of time. In result what he got? Maybe he got some eye’s attention.   In fact, extraordinary guys aren’t in common, they do things and we see the outcome. Especially in forex’s flow – you have to rely on the information. Because it can screen a 360-degree view of the market image and explains how it could go. So, if you want some dependable way, you should care about reality and logic.   Step 4 -Take Actions and Prepare Again There’s always something to do in forex, definitely, it’s not a no-win situation. If you think a change can make benefits then try it.   As an example, you can change how it looks at your trading portal’s background and foreground colors. And the significant one is - If you don’t have enough trust with this broker then kick its ass.   The Break The necessary thing in this step is you have to out of trading for at least a week. A trading week is 5 days, you know about it. The time could be reduced if the disaster is a failure of your trading methodology. Yeah, the timeframe depends on your own judgment.   Get Back to Basics Before the first hit on the recovery process, get back to basic things on trading, it will give you extra energy after successful gains. After getting the basics, stat forex trading like a beginner.     Don’t Ignore Diary Again, write an important marking note on your trading diary about the incident. Don’t forget to mention, how much it costs you to relieve from the stake, what were background situations about that loss.   Do Some Draft Don’t worry, after the big loss, your normal confidence won’t work. Good preparation will help, do a few demo trade with variations, so you can see your methods are cool.   Keep your eye on your mind that you’re not aggressive in trading, also you don’t have fear of confidence. Take small lots and then your normal volume. At the time, use your cool head and don’t make yourself in an abnormal situation.   Rebuild the Confidence and Get Back on Trading If you can take care of market influencing elements and your judges do work in demo trading then you can start it on the live account again.   Step 5 - Again Live Trading If you are cool with all the steps above then it’s time for you! But don’t re-trade with a big amount. Consider a smaller volume in the first few trades. Do the researches again as you did while demo trading. You may restart your trading with a bonus, but this time you have to know how does a forex bonus work at all. Don’t afraid of anything now, because your methods, already proved in the demo.   Check the Trading Market Just double check your spread before starting. If you’re scalping and have big spread then consider for an ECN account if your broker has. If not, then find a broker who does this. Sometimes, broker houses want to profit directly from their clients so the charge has to be big. In this case, a trader like you can be influenced by the charge and SL reaches in a small difference and bounced back to your calculated price, hence the disaster comes, ruin your psychological peace and later it causes a big loss.   Must Follow Steps There are many guys who come back after a huge loss but it didn’t work for them. Do you wanna know why? They didn’t prepare for the battle, so they have to ruin their cash. So make yourself, you’re ready to recover your loss, you’ve passed all the steps told.   Don’t Start With Big If you’re thinking with a big bounce on regaining the money from the industry then stop it. Start small, because the losing streak can kick your ass again and will lose your interest in the Forex market. You will regret forex in this case, if you fall again. So be brave but not fool. Don’t hesitate for small money, it is not so long to get annoyed. The recovery process is not a claim for big profit you know, so be careful about your goal. You’re implementing your trading strategy with the process as well, keep on your mind.   Deal With Confidence Forex trading is challenging to accept the challenge and for the smallest amount of time. You will know what market condition works for your golden chances. What felt you best while the trading scope is come up and of course check it, compare it with your previous note of the technical and psychological matter.   The Final Word If your trading method worked according to the route, then you’re the winner. Well, making bucks isn’t the real destination. The goal in my consideration is building up your own method with a well-researched plan what works. If you follow my described steps above then you should be a real forex guy. My intention in this post is learning from a lost battle. Did you aware about my intention?   At last, I will ask you to encourage me by sharing this blog post with your social media and friends, who could get favor by reading this. If you think so then, it would be great. So! It’s up to you. Bye!

BUYING AND SELLING The basic idea of trading the markets is to buy low and sell high or sell high and buy low. I know that probably sounds a little weird to you because you are probably thinking “how can I sell something that I don’t own?” Well, in the Forex market when you sell a currency pair you are actually buying the quote currency (the second currency in the pair) and selling the base currency (the first currency in the pair).     In the case of a non-Forex example though, selling short seems a little confusing, like if you were to sell a stock or commodity. The basic idea here is that your broker lends you the stock or commodity to sell and then you must buy it back later to close the transaction. Essentially, since there is no physical delivery it is possible to sell a security with your broker since you will ‘give’ it back to them at a later date, hopefully at a lower price.   LONG VS. SHORT Another great thing about the Forex market is that you have more of a potential to profit in both rising and falling markets due to the fact that there is no market bias like the bullish bias of stocks. Anyone who has traded for a while knows that the fastest money is made in falling markets, so if you learn to trade both bull and bear markets you will have plenty of opportunities to profit.     LONG – When we go long it means we are buying the market and so we want the market to rise so that we can then sell back our position at a higher price than we bought for. This means we are buying the first currency in the pair and selling the second. So, if we buy the EURUSD and the euro strengthens relative to the U.S. dollar, we will be in a profitable trade.   SHORT – When we go short it means we are selling the market and so we want the market to fall so that we can then buy back our position at a lower price than we sold it for. This means we are selling the first currency in the pair and buying the second. So, if we sell the GBPUSD and the British pound weakens relative to the U.S. dollar, we will be in a profitable trade.(potential arrow image)   ORDER TYPES Now it’s time to cover order types. When you execute a trade in the Forex market it is called an ‘order’, there are different order types and they can vary between brokers. All brokers provide some basic order types, there are other ‘special’ order types that are not offered by all brokers though, and we will cover them all below:   Market order – A market order is an order that is placed ‘at the market’ and it’s executed instantly at the best available price.   Limit Entry order – A limit entry order is placed to either buy below the current market price or sell above the current market price. This is a bit tricky to understand at first so let me explain:   If the EURUSD is currently trading at 1.3200 and you want to go sell the market if it reaches 1.3250, you can place a limit sell order and then when / if the market touches 1.3250 it will fill you short. Thus, the limit sell order is placed ABOVE the current market price. If you want to buy the EURUSD at 1.3050 and the market is trading at 1.3100, you would place your limit buy order at 1.3050 and then if the market hits that level it will fill you long. Thus the limit buy order is placed BELOW the current market price.   Stop Entry order – A stop-entry order is placed to buy above the current market price or sell below it. For example, if you want to trade long but you want to enter on a breakout of a resistance area, you would place your buy stop just above the resistance and you would get filled as price moves up into your stop entry order. The opposite holds true for a sell-stop entry if you want to sell the market.   Stop Loss order – A stop-loss order is an order that is connected to a trade for the purpose of preventing further losses if the price moves beyond a level that you specify. The stop-loss is perhaps the most important order in Forex trading since it gives you the ability to control your risk and limit losses. This order remains in effect until the position is liquidated or you modify or cancel the stop-loss order.   Trailing Stop – The trailing stop-loss order is an order that is connected to trade like the standard stop-loss, but a trailing stop-loss moves or ‘trails’ the current market price as your trade moves in your favor. You can typically set your trailing stop-loss to trail at a certain distance from the current market price, it will not start moving until or unless the price moves greater than the distance you specify. For example, if you set a 50 pip trailing stop on the EURUSD, the stop will not move up until your position is in your favor by 51 pips, and then the stop will only move again if the market moves 51 pips above where your trailing stop is, so this way you can lock in profit as the market moves in your favor while still giving the trade room to grow and breath. Trailing stops are best used in strong trending markets.   Good till Cancelled order (GTC) – A good till canceled order is exactly what it says…good until you cancel it. If you place a GTC order it will not expire until you manually cancel it. Be careful with these because you don’t want to set a GTC and then forget about it only to have the market fill you a month later in a potentially unfavorable position.   Good for the Day order (GFD) – A good for day order remains active in the market until the end of the trading day, in Forex the trading day ends at 5:00 pm EST or New York time. The exact time a GFD expires might vary from broker to broker, so always check with your broker.   One Cancels the Other order (OCO) – A one cancels the other order is essentially two sets of orders; it can consist of two entry orders, two stop-loss orders, or two entry and two stop-loss orders. Essentially, when one order is executed the other is cancelled. So, if you want to buy OR sell the EURUSD because you are anticipating a breakout from consolidation but you don’t know which way the market will break, you can place a buy entry and stop-loss above the consolidation and a sell entry with stop-loss below the consolidation. If the buy entry gets filled for example, the sell entry and its connected stop loss will both be cancelled instantly. A very handy order to use when you are not sure which direction the market will move but are anticipating a large move.   One Triggers the Other order (OTO) – This order is the opposite of an OCO order, because instead of cancelling an order upon filling one, it will trigger another order upon filling one.   LOT SIZE / CONTRACT SIZE In Forex, positions are quoted in terms of ‘lots’. The common nomenclature is ‘standard lot’, ‘mini lot’, ‘micro lot’, and ‘nano lot’; we can see examples of each of these in the chart below and the number of units they each represent:   HOW TO CALCULATE PIP VALUE You probably already know that currencies are measured in pips, and one pip is the smallest increment of price movement that a currency can move. To make money from these small increments of price movement, you need to trade larger amounts of a particular currency in order to see any significant gain (or loss). This is where leverage comes into play; if you don’t understand leverage totally please go read Part 1 of the course where we discuss it.   So we need to know now how lot size affects the value of one pip. Let’s work through a couple of examples:   We will assume we are using standard lots, which control 100,000 units per lot. Let’s see how this affects pip value. 1. EUR/JPY at an exchange rate of 100.50 (.01 / 100.50) x 100,000 = $9.95 per pip 2. USD/CHF at an exchange rate of 0.9190 (.0001 / .9190) x 100,000 = $10.88 per pip   In currency pairs where the U.S. dollar is the quote currency, one standard lot will always equal $10 per pip, one mini-lot will equal $1 per pip, one micro-lost will equal .10 cents per pip, and a nano-lot is one penny per pip.   HOW TO CALCULATE PROFIT AND LOSS Now, let’s move on to calculating profit and loss:   Let’s use a pair without the U.S. dollar as the quote currency since these are the trickier ones: 1. The rate for the USD/CHF is currently quoted at 0.9191 / 0.9195. Let’s say we are looking to sell the USD/CHF, this means we will be working with the ‘bid’ price of 0.9191, or the rate at which the market is prepared to buy from you.   2. You then sell 1 standard lot (100,000 units) at 0.9191   3. A couple of days later the price moves to 0.9091 / 0.9095 and you decide to take your profit of 96 pips, but what dollar amount is that?   4. The new quote price for the USD/CHF is 0.9091 / 0.9095. Since you are now closing the trade you are working with the ‘ask’ price since you are going to buy the currency pair to offset the sell order you previously initiated. So, since the ‘ask’ price is now 0.9095, this is the price the market is willing to sell the currency pair to you, or the price that you can buy it back at (since you initially sold it).   5. The difference between the price you sold at (0.9191) and the price you want to buy back at (0.9095) is 0.0096, or 96 pips.   6. Using the formula from above, we now have (.0001 / 0.9095) x 100,000 = $10.99 per pip x 96 pips = $1055.04   For currency pairs where the U.S. dollar is the quote currency, calculating profit or loss is pretty simple really. You simply take the number of pips you gained or lost and multiple that by the dollar per pip you are trading, here’s an example:   Let’s say you trade the EURUSD and you buy it at 1.3200 but the price moves down and hits your stop at 1.3100….you just lost 100 pips.   If you are trading 1 standard lot you would have lost $1,000 because 1 standard lot of pairs with the U.S. dollars as the quote currency = $10 per pip, and $10 per pip x 100 pips = $1,000   If you had traded 1 mini-lot you would have lost $100 since 1 mini-lot of USD quote pairs is equal to $1 per pip and $1 x 100 pips = $100   You can also use this Forex Trade Position Size Calculator.   Always remember: when you enter or exit a trade you have to deal with the spread of the bid/ask price. Thus, when you buy a currency you will use the asking price and when you sell a currency you use the bid price.


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