Trading Mindset            Simon CoulterHead of Development and Risk Management                MahiFX
About MahiFXMahiFX is an online retail trading platform offeringclients exceptionally competitive spreads and greatcustomi...
What Approach and Attributes Do I  Need To Adopt To Succeed?What should I leave behind?1. Unrealistic expectations – insuf...
Money Management• What is money management?• How does an individual trader who is unlikely to  be exposed to the benefits ...
Key Areas of Money Managment• Position sizing• Exit and stop-loss strategies• Execution methods
Key Areas of Money ManagementPosition SizingGeometric vs. arithmetic meanThe first goal of money management is toensure su...
Key Areas of Money ManagementPosition Sizing• Losing 50% of your original investmentrequires  a 100% win to get back to wh...
Position SizingTheory of runsAssume two systems; system (1) with a losing % of45% and system (2) witha losing % of 49%• P ...
Position SizingTheory of runs• System with lower loss rate has lower probability  of a run of consecutive losses• Even mar...
Position SizingTheory of runsConclusion: By avoiding large losses and knowingruns of losses are infrequent in winning syst...
Position SizingTheory of ruin• P(infinite wealth) = 1-(1-probability of  winning)/(probability of winning)^ number of unit...
Position SizingTheory of ruin• Assume margin = payoff (i.e. margin = 1 unit)• P(infinite wealth) = 18.18%• Increasing the ...
Position SizingTheory of ruin• Larger capital base relative to our loss  dramatically increases chances of success• Increa...
Position SizingOptimal % of capital to allocate to trades• Optimal % = ([(A+1)*p]-1)/A, where A is the  average payoff rat...
Position SizingAvoid the temptation of betting large on singletrades!
Position SizingMartingale SystemSystem developed for gambling whereby largeramounts are betted after a loss• Player in a c...
Position SizingAs long as the gambler keeps doubling up, hisvery first win will cover all thelosses and return aprofit equ...
Position SizingMartingale System• System has great emotional appeal to a loser as it  appears like a no lose proposition, ...
Position Management           – Order PlacingPosition Scaling• Concept where a trader places many orders  around the area ...
Chart 1
Position Management            – Order PlacingExecution• Tradable rates• Integrity and platform usability• Competitive pri...
Position ManagementPyramiding trades• Method where traders increase their position  size to gain leverage when theprice mo...
Chart 2
Position Management• Match position size with risk through  understanding of the trend and changing nature  of risk as the...
Chart 3
Chart 4
Position ManagementPyramid position management conclusions• Never add to a position until in profit• Place stops at break-...
Position Management            – Stop LossesTechnical versus money point stop loss• Stop losses should not be set around a...
Chart 5
Position Management              – Stop LossesBreakeven stop losses• Method which ensures no erosion of capital, is  where...
Chart 6
Position Management              – Stop LossesClose to market stop losses• Typically employed by scalpers to exploit short...
Position Management   – Technical Signal Stop LossesSupport/Resistance and trend line stop losses• Are amongst the most hi...
Position Management   – Technical Signal Stop LossesStrength of support and resistance linesThe strength of every support ...
Chart 7
Chart 8
Position Management   – Technical Signal Stop LossesTrading rules using support and resistance1. Tighten protective stop l...
Position Management– Technical Signal Stop Losses (cont.)4. Breakouts will generally favour a move in the   direction of t...
Chart 9
Position Management– Technical Signal Stop LossesIndicator stop losses• Stop losses which are based on a trigger  signal t...
Questions?• Follow us on Twitter - @MahiForex• Visit our Facebook page -  http://www.facebook.com/• Website – www.mahifx.com
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Setting the Right Trading Mindset for Success with Forex Trading

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One of the key factors to success in Forex Trading is getting into the right mindset. Cultivating this is key to long-term profitability and crucial in developing skills as a successful forex trader. In his webinar, Simon Coulter, Head of Development and Risk Management at MahiFX, outlines how to achieve this and how it can make all the difference between success and failure.

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Setting the Right Trading Mindset for Success with Forex Trading

  1. 1. Trading Mindset Simon CoulterHead of Development and Risk Management MahiFX
  2. 2. About MahiFXMahiFX is an online retail trading platform offeringclients exceptionally competitive spreads and greatcustomisable charting functionality.Simon Coulter, is the Head of Development andRisk Management at MahiFX and will bediscussing how one of the key factors to successin Forex Trading is getting into the right mindset.This webinar, will explain how to achieve this andhow it can make all the difference betweensuccess and failure.
  3. 3. What Approach and Attributes Do I Need To Adopt To Succeed?What should I leave behind?1. Unrealistic expectations – insufficient capital2. Unwarranted arrogance3. Poor discipline4. Attention deficit problems/impatience5. Inability to regulate your emotions6. Are you in it for the right reasons?7. Stubborness and lack of flexibility8. Adversity to risk
  4. 4. Money Management• What is money management?• How does an individual trader who is unlikely to be exposed to the benefits of a broadly diversified currency portfolio put it into practise in their world?
  5. 5. Key Areas of Money Managment• Position sizing• Exit and stop-loss strategies• Execution methods
  6. 6. Key Areas of Money ManagementPosition SizingGeometric vs. arithmetic meanThe first goal of money management is toensure survival• The key to this is not losing too much on one trade• Losers violate this rule especially during losing streaks
  7. 7. Key Areas of Money ManagementPosition Sizing• Losing 50% of your original investmentrequires a 100% win to get back to where youstarted Exit at the first sign of trouble
  8. 8. Position SizingTheory of runsAssume two systems; system (1) with a losing % of45% and system (2) witha losing % of 49%• P (1, five losses in a row) = (0.45)^5 = 1.8%• P (2, five losses in a row) = (0.49)^5 = 2.8%
  9. 9. Position SizingTheory of runs• System with lower loss rate has lower probability of a run of consecutive losses• Even marginal systems such as system (2) have a low probability of a large run of consecutive losses
  10. 10. Position SizingTheory of runsConclusion: By avoiding large losses and knowingruns of losses are infrequent in winning systems,we give the market every opportunity to work inour favour
  11. 11. Position SizingTheory of ruin• P(infinite wealth) = 1-(1-probability of winning)/(probability of winning)^ number of unit of initial margin• Assume losing % of 45%, and loss payoff = win payoff (1:1 payoff ratio)
  12. 12. Position SizingTheory of ruin• Assume margin = payoff (i.e. margin = 1 unit)• P(infinite wealth) = 18.18%• Increasing the margin to 10 units, P (infinite wealth) = 86.56%• Increasing the margin to 50 units, P (infinite wealth) = 99.996%
  13. 13. Position SizingTheory of ruin• Larger capital base relative to our loss dramatically increases chances of success• Increasing bet size relative to margin will decrease the probability of success. Increasing the bet size from 1/50th of our margin to equal our margin in this scenario would reduce the chance of success from 99.996% back to 18.18%
  14. 14. Position SizingOptimal % of capital to allocate to trades• Optimal % = ([(A+1)*p]-1)/A, where A is the average payoff ratio, and p the win %• Lets look at the prior system which had a 51% winning %, and 1:1 payoff ratio• Optimal % = ([(1+1)*0.51]-1)/1 = 2%• Equals % to risk on a single trade as suggested by extensive testing and the number offered by many practitioners in the industry
  15. 15. Position SizingAvoid the temptation of betting large on singletrades!
  16. 16. Position SizingMartingale SystemSystem developed for gambling whereby largeramounts are betted after a loss• Player in a casino bets $1 as long as he wins, if a loss is incurred the player doubles up betting $2• If he wins a $1 profit is gained (-$1+$2) and the player reverts to betting $1• If he loses he doubles up again and bets $4, if he wins he gets a $1 profit (-$1,-$2,+$4)• If he loses he doubles up again and bets $8
  17. 17. Position SizingAs long as the gambler keeps doubling up, hisvery first win will cover all thelosses and return aprofit equal to his original bet
  18. 18. Position SizingMartingale System• System has great emotional appeal to a loser as it appears like a no lose proposition, unfortunately a run of bad trades will wipe out every gambler• A gambler starting with a $1 bet that has 46 losses in a row has to bet$70 trillion on his 47thbet Never take on the market Avoid continually averaging your position to recoup losses
  19. 19. Position Management – Order PlacingPosition Scaling• Concept where a trader places many orders around the area of interest to avoidmissing the trade• Do not kid yourself into believing you are scaling into a position when anobjective person knowing your original plan would say you are not!
  20. 20. Chart 1
  21. 21. Position Management – Order PlacingExecution• Tradable rates• Integrity and platform usability• Competitive pricingConsider cost of spread and rolls in relation to yourdeposit
  22. 22. Position ManagementPyramiding trades• Method where traders increase their position size to gain leverage when theprice moves favourably after the initial entry trade• Necessitates a sound understanding of ‘trend risk’
  23. 23. Chart 2
  24. 24. Position Management• Match position size with risk through understanding of the trend and changing nature of risk as the trend evolves• Avoid adding risk when the trend is weak and instable, this period is typically during the start and end of a trend
  25. 25. Chart 3
  26. 26. Chart 4
  27. 27. Position ManagementPyramid position management conclusions• Never add to a position until in profit• Place stops at break-even as size increases (ideally adhere to technical levels)• Ensure position risk is within maximum acceptable limits• Position addition should be cognizant of trend maturity
  28. 28. Position Management – Stop LossesTechnical versus money point stop loss• Stop losses should not be set around arbitrary levels, but based around levels based on the technicals and your loss limit
  29. 29. Chart 5
  30. 30. Position Management – Stop LossesBreakeven stop losses• Method which ensures no erosion of capital, is where a trader moves their stop to protect profits; should only been done when their is protection in the market from technicals (or an order) or if a large time interval has elapsed (see below)Time based stop losses• Recognises the multidimensional aspect of time and reward versus risk, longer time horizons expose the trader to higher risk
  31. 31. Chart 6
  32. 32. Position Management – Stop LossesClose to market stop losses• Typically employed by scalpers to exploit short term moves , during tight ranges and support/resistance breakouts. Must have the utmost confidence in our liquidity provider to ensure fills are fair and not executed out of marketVolatility stop losses• Stop losses which account for the intrinsic volatility of the currency in question, widening when volatility increases and tightening when volatility decreases, i.e. Chandelier Exits, ATR stops
  33. 33. Position Management – Technical Signal Stop LossesSupport/Resistance and trend line stop losses• Are amongst the most highly used by market traders. It is essential to familiarizeyourself with how to apply the principles behind them to your trading
  34. 34. Position Management – Technical Signal Stop LossesStrength of support and resistance linesThe strength of every support and resistance zonedepends on three factors• The length and number of hits, the longer the support and resistance zone is the stronger it is (same applies to trend-lines)• Taller support and resistance zones are stronger, larger zones can provide stern resistance to intermediate and longer term trends• Higher volumes of trading confer stronger support and resistance due to the higher player participation
  35. 35. Chart 7
  36. 36. Chart 8
  37. 37. Position Management – Technical Signal Stop LossesTrading rules using support and resistance1. Tighten protective stop losses as you approach support and resistance. Trends will reveal their health by how they react around support and resistance zones2. Support and Resistance are more important on longer term charts than shorter term ones3. Cautious traders can place stops in the middle of congestion zones after breakouts. True breakouts should not be followed by pullbacks well into the range
  38. 38. Position Management– Technical Signal Stop Losses (cont.)4. Breakouts will generally favour a move in the direction of the trend that preceded prior to entering the trading range5. Breakouts accompanied by higher volume have a significantly higher chance of success6. False breakouts often occur counter to the prevailing trend and often occur on light volume. Be very wary of breakouts during the Asian time zone
  39. 39. Chart 9
  40. 40. Position Management– Technical Signal Stop LossesIndicator stop losses• Stop losses which are based on a trigger signal to trade from technicalIndicators, i.e. Moving average crossovers , MACD signal line crossovers,Directional Movement Index line crossovers, PSAR signals amongst many others
  41. 41. Questions?• Follow us on Twitter - @MahiForex• Visit our Facebook page - http://www.facebook.com/• Website – www.mahifx.com

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