SniperForexTrader

Hi Folks,

This week we have another amazing lesson from Steve Nison on how to use Japanese Candlesticks, the topic for today is “Change of Polarity” or more communly known as “All Support becomes resistance and All resistace becomes support”.

Have fun!

Max Ramirez
sniper@sniperforextrader.com

Hello Traders,

Few months ago I suscribed to a site in order to receive free Forex alerts , this site called fxcutealert.com sends alerts for free by email in order for potential customers to test the alerts.

I honestly never paid attention to the alerts I received on my email inbox mainly because the alerts came in late.

Until last monday when I received an email suggesting to open a position in the EUR/USD pair (the only one I trade and know pretty well), so I decided to analyse this recomendation, here you have the text contained in that email:

From: fxcutesignal@getresponse.com on behalf of fei hongbin (support@codeidea.com)
Sent: May 10, 2010 8:27:31 AM
To: Max (sniper@sniperforextrader.com)

hongbin.fei
http://www.cutesignal.comCutesignal co., ltd.
Room 1113 Building B JinMao Square, No.251 QiLiTing Road ,
HuZhou ,ZheJiang 313000,
China

Now, let’s analyse it.

First of all, what I don’t like the most is the 10% capital risk Mr. Fei suggests, What are his bases for this?, Benett McDonnel ( a well known trader and educator) suggests
to new traders to trade no more than 2% and the 10% for seasoned and experienced ones.

Also we need to consider the amount of capital you have in your account, if you have opened an account with $500 even taking a leverage of 400:1 this level of risk is huge and makes no sense.

Now, let’s calculate the distance between the entry point and the SL point the alert suggests:

Entry @ 1.2925
SL @ 1.3142

This makes a distance of 217 pips plus the spread, if your broker charges you 3 pips it’b be 220 pips loss in case the trade doesn’t work.

Again with an account with $500, you’b be loosing almost 50% of the capital!…not very smart.

Finaly let’s see the risk/Reward ratio, we already know we are risking 220 pips , the alert suggests as first target 1.2564, this is 361 pips in profit in case the trade works as expected.

This would be a 1:1 almost 2:1 risk/reward which is not bad.

Unfortunately I don’t have the win percentage of the service to determine wether or not it provides good enough probabilities to consider entering the market with confidence.

My advice, before taking an alert service seriously is that we as traders have the obligation to analyse three factors:
-risk/reward ratio
-win/loss ratio
-based on those factors and the percentage you feel confortable risking find your own position size!

Do not attempt to trade without having that information at hand or you risk to blame the person which sent you the alert in case you loose more than your account can afford!

Study, analyse the market, do your due diligence, money doesn’t come easily, you need to work and think smart.

Cheers for now!

Max Ramirez

Hello Traders,

It is said that Trading/Investing and Gambling are the same, well they might have similar characteristics, one of them and probably the main one is that they both are based in probabilities.

And that is exactly what make them different as well, in Trading/Investing a trader might put more probabilities on his/her side by choosing carefully his/her entries and exits points based on proven methodologies or systems and not just letting things happen by chance.

Mathematicians have developed formulas to calculate the risk of a gambler or trader for this matter to get ruined, these formulas are based on statistical data such as:

- Win Ratio – The percentage number of winning trades
- Payoff Ratio – How many dollars you earn compared to one dollar lost
- Percent of capital exposed

Here you have a Risk of Ruin Table considering that the trader is exposing 10% of capital on each trade .

Note that 0.0% probability means the total loss of equity is unlikely, but not impossible.

Hope this information will help you develop a sound Money Management system that cosiderably will reduce your Risk of Ruin!

Remember, rule #1 Don’t loose money and rule #2 Don’t forget rule #1.

Cheers for now,

Max Ramirez
sniper@sniperforextrader.com