This document provides an overview of individual forex trading. It discusses practical knowledge for surviving in the market initially and growing capital over time. Key points include the importance of risk management and some hints for managing risk, such as using smaller position sizes, stop losses, and becoming adept at responding quickly to market movements. Psychological factors like fear, greed, and biases can undermine risk management if not addressed. The document also outlines some common trading strategies like trend following and trading tops and bottoms, noting that the choice depends on one's character and risk tolerance.

1. Individual FOREX trading –
Practical Knowledge and Hints
Trading hints and "tricks" on:
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how to survive in the market at first
–
how to grow your capital later
The importance of risk management
Some practical knowledge
(c) Emil Emilov, CEO of Vision Capital M, 2013

2. Who Are We?
Vision Capital M – a fairly new Bulgarian financial company
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operates on the equity and FOREX markets
provides fundamental and technical analysis to FOREX and equity
markets participants
engages in providing strategies on portfolio management and optimization
http://www.linkedin.com/company/vision-capital-m
Emil Emilov – head and chief financial strategist of Vision Capital M
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13 years of experience in the financial markets
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Bachelor degree of Finance from the University of Veliko Turnovo
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CFA Level I completed
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Member of the CFA Institute and the Bulgarian CFA society
http://www.linkedin.com/pub/emil-emilov/2a/186/a41

3. What is the FOREX market?
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A worldwide market, operates 24 hours per day, 5 days per week.
Participants include banks, financial institutions, currency dealers
(market-makers). Used to be a wholesale market only. Now
electronically opened to everyone.
Currencies trade relative to each other forming currency pairs.
Currency rate of live currencies could never reach 0 (zero) but
oscillates around some fair value in a fairly wide range.
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Participants trade economic expectations in long term.
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High profit potential <=> high risk
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Majors - GBP, EUR, USD, CHF, JPY, AUD, CAD

4. Risk Sources
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Fast & volatile movements
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Unsound risk and money management
–
–
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Too big part of the account used
Increasing losing positions
Psychological reasons
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Fear & hope
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Greed & pride
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Tunnel vision
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Biases
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Not knowing ourselves enough

5. Risk Sources
"And then at the end of the day, the most important thing is how good are you
at risk control. Ninety-percent of any great trader is going to be the risk
control."
Paul Tudor Jones II
1) Fast & volatile movement => less time to react in order to protect
Possible solutions:
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smaller positions as part of capital
–
stop loss orders
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becoming a faster player

6. Risk Sources
2) Unsound risk and money management → risk management is a dynamic
process, not a static action.
Types of wrong management:
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Too big part of the account used
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Increasing loosing positions
Actions:
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Constantly evaluate the positions regarding the initial strategy.
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“Would I open the same position today?” If “No” => close it.
“Another entry is just a commission away”,
Jessy Livermore, “Reminiscences of a Stock Operator”

7. ●
Monitor the development of the position AND the market
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Treat the position as a part of your whole portfolio
EUR/USD
EUR/USD
USD/JPY
GBP/USD
USD/CAD
EUR/GBP
USD/JPY
GBP/USD
USD/CAD
EUR/GBP
EUR/JPY
EUR/CHF
AUD/USD
1.00
-0.27
0.59
-0.57
0.37
0.35
-0.09
0.43
1.00
-0.56
0.49
0.35
0.80
0.39
-0.37
1.00
-0.72
-0.53
-0.17
-0.38
0.56
1.00
0.23
0.13
0.17
-0.68
1.00
0.57
0.34
-0.19
1.00
0.32
-0.09
1.00
-0.11
EUR/JPY
EUR/CHF
AUD/USD
Table 1. Correlations between weekly changes of majors
1.00

8. Example 1. Too big part of the account used (too risky positions)
Margin: 1/100; Equity (capital) = $5000
A deal of:
Engages:
% of equity
10 pips
%Change
$1000
$10
0.2%
$1
0.02%
$10000
$100
2%
$10
0.2%
$100000
(1lot)
$1000
20%
$100
2%
$250000
$2500
50%
$250
5%
Deal of $250000, 50 pips move => account change = 25%
Bad in long term → installs a bad type of behavior!
1.3680 – 1.3670 = 10 pips
50% of the account, 50 pips move → only 4 wrong deals => little time to react.
2% of the account, 50 pips move → 100 wrong deals => much more time to react,
rethink, educate yourself, learn and find your own profitable style.
“A trader always at some point gets to stand against the market”, Dimo Dimov

9. Additions to a loosing position – depends on when a position is considered a loosing
one.
A general rule:
If the perspectives in front of a position which is in red have changed since
the open, consider it a losing one and better close it.
Not closing it promotes a BAD behavior by increasing the traders' confidence that
they could beat the market while at the end they could not.
Holding a red position – when the deal is according to a long term view (=>
temporary movements against) or near an expected swing moment.
Always with a hedge – of the position & the account! Always use a stop loss.
Hedge with:
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Negatively correlated assets or currencies
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Other profitable deals
Unsuccessful hedge → better sit back, get out of the market, relax, try to see the
bigger picture & find out why their deal are more loosing than winning.

10. Risk Sources
3) Psychological reasons
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Fear & hope
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Greed & pride
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Tunnel vision
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Biases
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Not knowing ourselves enough
“The speculator’s chief enemies are always boring from within.
It is inseparable from human nature to hope and to fear.”
Jessy Livermore
Fear → Boldness
Hope → Action

11. Come out of a losing position and close it quickly at a minimum profit due to
fear, despite the indicators.
● Leave a losing position hoping that it will recover, despite the indicators.
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Hope → Greed & Pride
Have a profitable position → keep it because you hope it will grow more. You keep it
despite that all the indicators say “Close it” => greed.
Greed → overconfidence → failure at risk management, take too big
positions for the account → the “London Whale”
pride =
humbleness → learning attitude → flexible & adaptive
“You adapt, evolve, compete or die.”
Paul Tudor Jones II
http://www.visioncapitalm.com/financial-education/humble-care-risks/

12. ●
Tunnel vision, biases – sometimes hard to notice until the loss hurts
Tunnel vision – focused on details, missing the big picture (context)
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missed signals from the higher time frames
focused on a currently working strategy and misses a major change in environment
(news or a macro economic event)
Biases → “A trader should never fall in love with a stock” (or with a currency)
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Directional biases → Euro could go down as well as go up
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Pairs biases → missed opportunities
To some extent different currencies are traded by different participants => pairs show a
bit different behavior => trading new currencies has a learning curve.
EURUSD has different volatility than EURCHF

13. ●
Not knowing ourselves enough → we trade the style of someone else. It is a
continuous process.
Know your risk tolerance, take positions that you are at ease with.
“If a position keeps you awake at night, sell it to the sleeping point.” Sometimes the
sleeping point is zero.
Our character type = our most suitable trading style.
Timid, calm, slow person – aggressive style most probably will not be the best one
Aggressive, quick person – will not feel comfortable in a conservative style
Diversity of characters => diversity of styles, diversity of trading strategies
“A man must know himself thoroughly if he is going to make a good job out
of trading in the speculative markets”
J. Livermore

14. Patterns and Trading Strategies
Trading strategies (styles)
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Trend following
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Trading tops and bottoms
The choice between them depends mostly on the trader's character.
Trend following → most market participants; profitable in a clear trend.
Longer time frames dictate the major trend. Things start from the smaller ones but
traders should not be too hasty to act.
3 sections of a trend:
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beginning
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middle
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end

15. 1) Beginning → sometimes mixed with the end; uncertainty; unsuccessful penetration
tests of the extremes => lower strength of the previous trend and a possible change
coming.
Whether a real change will come depends on the daily, weekly or even monthly graph.
Trader = orchestra conductor or a composer → multiple layers to follow.
2) Middle → more successful attempts to close higher (or lower, in a bearish trend)
than previous values.
A clearer picture.
Traders could sit on their profitable positions and enjoy the ride or get in and out
catching fluctuations.
Trend continuation patterns (triangles, rectangles) formed here.
Range trading after a successful breaking of major support or resistance.
Fibonacci levels could be successfully used.

16. 3) end → the “mania” part → everyone who missed the “middle” tries to get in,
regardless of the fundamentals. Values = extreme levels.
Most graphs could show the trend should be turning but it continues.
Double or triple divergences between indicators and price on longer time frame graphs.
Tests of the extremes → if unsuccessful => a change of trend might be ahead.
“There is no training — classroom or otherwise — that can prepare for trading
the last third of a move, whether it’s the end of a bull market or the end of a
bear market. There’s typically no logic to it; irrationality reigns supreme, and no
class can teach what to do during that brief, volatile reign. The only way to
learn how to trade during that last, exquisite third of a move is to do it, or, more
precisely, live it.”
P. T. Jones II

17. Trading tops and bottoms → contrarian strategy; suitable for the end of a previous
trend.
Trend changing formations (head & shoulders, double, triple tops/bottoms) formed.
Again the higher time frame graphs matter.
Higher capital invested with lower risk → closer stops with lower probability of being hit
→ closer to turning point, smaller the probability. Stop hit => 1)change of strategy or 2)
entered too soon. Repeat later.
Potential problem → closing the position too soon (because of fear?) => miss a bigger
move in their direction.
“I believe the very best money is made at the market turns. Everyone says you
get killed trying to pick tops and bottoms and you make all your money by playing
the trend in the middle. Well for twelve years I have been missing the meat in the
middle but I have made a lot of money at tops and bottoms.”
P. T. Jones II

18. Thank you for your attention!
Regards and have a successful trading!
(c) Emil Emilov, 2013
www.visioncapitalm.com