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.

1. Trading Mindset
Simon Coulter
Head of Development and Risk Management
MahiFX

2. About MahiFX
MahiFX is an online retail trading platform offering
clients exceptionally competitive spreads and great
customisable charting functionality.
Simon Coulter, is the Head of Development and
Risk Management at MahiFX and will be
discussing how one of the key factors to success
in Forex Trading is getting into the right mindset.
This webinar, will explain how to achieve this and
how it can make all the difference between
success and failure.

3. What Approach and Attributes Do I
Need To Adopt To Succeed?
What should I leave behind?
1. Unrealistic expectations – insufficient capital
2. Unwarranted arrogance
3. Poor discipline
4. Attention deficit problems/impatience
5. Inability to regulate your emotions
6. Are you in it for the right reasons?
7. Stubborness and lack of flexibility
8. Adversity to risk

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. Key Areas of Money Managment
• Position sizing
• Exit and stop-loss strategies
• Execution methods

6. Key Areas of Money Management
Position Sizing
Geometric vs. arithmetic mean
The first goal of money management is to
ensure survival
• The key to this is not losing too much on one
trade
• Losers violate this rule especially during
losing streaks

7. Key Areas of Money Management
Position Sizing
• Losing 50% of your original investmentrequires
a 100% win to get back to where youstarted
Exit at the first sign of trouble

8. Position Sizing
Theory of runs
Assume two systems; system (1) with a losing % of
45% 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. Position Sizing
Theory 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. Position Sizing
Theory of runs
Conclusion: By avoiding large losses and knowing
runs of losses are infrequent in winning systems,
we give the market every opportunity to work in
our favour

11. Position Sizing
Theory 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. Position Sizing
Theory 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. Position Sizing
Theory 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. Position Sizing
Optimal % 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. Position Sizing
Avoid the temptation of betting large on single
trades!

16. Position Sizing
Martingale System
System developed for gambling whereby larger
amounts 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. Position Sizing
As long as the gambler keeps doubling up, his
very first win will cover all thelosses and return a
profit equal to his original bet

18. Position Sizing
Martingale 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. Position Management
– Order Placing
Position 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. Chart 1

21. Position Management
– Order Placing
Execution
• Tradable rates
• Integrity and platform usability
• Competitive pricing
Consider cost of spread and rolls in relation to your
deposit

22. Position Management
Pyramiding 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. Chart 2

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. Chart 3

26. Chart 4

27. Position Management
Pyramid 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. Position Management
– Stop Losses
Technical 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. Chart 5

30. Position Management
– Stop Losses
Breakeven 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 technical's (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. Chart 6

32. Position Management
– Stop Losses
Close 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 market
Volatility 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. Position Management
– Technical Signal Stop Losses
Support/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. Position Management
– Technical Signal Stop Losses
Strength of support and resistance lines
The strength of every support and resistance zone
depends 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. Chart 7

36. Chart 8

37. Position Management
– Technical Signal Stop Losses
Trading rules using support and resistance
1. Tighten protective stop losses as you approach
support and resistance. Trends will reveal their
health by how they react around support and
resistance zones
2. Support and Resistance are more important on
longer term charts than shorter term ones
3. 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. 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 range
5. Breakouts accompanied by higher volume have
a significantly higher chance of success
6. 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. Chart 9

40. Position Management
– Technical Signal Stop Losses
Indicator 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. Questions?
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