Forex Money Management

Put two rookie traders in front of the screen, provide them with your best high-probability set-up, and for good measure, have each one take the opposite side of the trade. More than likely, both will wind up losing money. However, if you take two pros and have them trade in the opposite direction of each other, quite frequently both traders will wind up making money - despite the seeming contradiction of the premise. What's the difference? What is the most important factor separating the seasoned traders from the amateurs? The answer is money management.

Like dieting and working out, money management is something that most traders pay lip service to, but few practice in real life. The reason is simple: just like eating healthy and staying fit, money management can seem like a burdensome, unpleasant activity. It forces traders to constantly monitor their positions and to take necessary losses, and few people like to do that. However, as Figure 1 proves, loss-taking is crucial to long-term trading success.

Amount of Equity Lost	Amount of Return Necessary to Restore to Original Equity Value
25%	33%
50%	100%
75%	400%
90%	1000%

Figure 1 - This table shows just how difficult it is to recover from a debilitating loss.

Note that a trader would have to earn 100% on his or her capital - a feat accomplished by less than 1% of traders worldwide - just to break even on an account with a 50% loss. At 75% drawdown, the trader must quadruple his or her account just to bring it back to its original equity - truly a Herculean task!

The Big One

Although most traders are familiar with the figures above, they are inevitably ignored. Trading books are littered with stories of traders losing one, two, even five years' worth of profits in a single trade gone terribly wrong. Typically, the runaway loss is a result of sloppy money management, with no hard stops and lots of average downs into the longs and average ups into the shorts. Above all, the runaway loss is due simply to a loss of discipline.

Most traders begin their trading career, whether consciously or subconsciously, visualizing "The Big One" - the one trade that will make them millions and allow them to retire young and live carefree for the rest of their lives. In FX, this fantasy is further reinforced by the folklore of the markets. Who can forget the time that George Soros "broke the Bank of England" by shorting the pound and walked away with a cool $1-billion profit in a single day? But the cold hard truth for most retail traders is that, instead of experiencing the "Big Win", most traders fall victim to just one "Big Loss" that can knock them out of the game forever.

Learning Tough Lessons

Traders can avoid this fate by controlling their risks through stop losses. In Jack Schwager's famous book "Market Wizards" (1989), day trader and trend follower Larry Hite offers this practical advice: "Never risk more than 1% of total equity on any trade. By only risking 1%, I am indifferent to any individual trade." This is a very good approach. A trader can be wrong 20 times in a row and still have 80% of his or her equity left.

The reality is that very few traders have the discipline to practice this method consistently. Not unlike a child who learns not to touch a hot stove only after being burned once or twice, most traders can only absorb the lessons of risk discipline through the harsh experience of monetary loss. This is the most important reason why traders should use only their speculative capital when first entering the forex market. When novices ask how much money they should begin trading with, one seasoned trader says: "Choose a number that will not materially impact your life if you were to lose it completely. Now subdivide that number by five because your first few attempts at trading will most likely end up in blow out." This too is very sage advice, and it is well worth following for anyone considering trading FX.

Money Management Styles

Generally speaking, there are two ways to practice successful money management. A trader can take many frequent small stops and try to harvest profits from the few large winning trades, or a trader can choose to go for many small squirrel-like gains and take infrequent but large stops in the hope the many small profits will outweigh the few large losses. The first method generates many minor instances of psychological pain, but it produces a few major moments of ecstasy. On the other hand, the second strategy offers many minor instances of joy, but at the expense of experiencing a few very nasty psychological hits. With this wide-stop approach, it is not unusual to lose a week or even a month's worth of profits in one or two trades. (For further reading, see Introduction To Types Of Trading: Swing Trades.)

To a large extent, the method you choose depends on your personality; it is part of the process of discovery for each trader. One of the great benefits of the FX market is that it can accommodate both styles equally, without any additional cost to the retail trader. Since FX is a spread-based market, the cost of each transaction is the same, regardless of the size of any given trader's position.

For example, in EUR/USD, most traders would encounter a 3 pip spread equal to the cost of 3/100th of 1% of the underlying position. This cost will be uniform, in percentage terms, whether the trader wants to deal in 100-unit lots or one million-unit lots of the currency. For example, if the trader wanted to use 10,000-unit lots, the spread would amount to $3, but for the same trade using only 100-unit lots, the spread would be a mere $0.03. Contrast that with the stock market where, for example, a commission on 100 shares or 1,000 shares of a $20 stock may be fixed at $40, making the effective cost of transaction 2% in the case of 100 shares, but only 0.2% in the case of 1,000 shares. This type of variability makes it very hard for smaller traders in the equity market to scale into positions, as commissions heavily skew costs against them. However, FX traders have the benefit of uniform pricing and can practice any style of money management they choose without concern about variable transaction costs.

Four Types of Stops

Once you are ready to trade with a serious approach to money management and the proper amount of capital is allocated to your account, there are four types of stops you may consider.

1. Equity Stop

This is the simplest of all stops. The trader risks only a predetermined amount of his or her account on a single trade. A common metric is to risk 2% of the account on any given trade. On a hypothetical $10,000 trading account, a trader could risk $200, or about 200 points, on one mini lot (10,000 units) of EUR/USD, or only 20 points on a standard 100,000-unit lot. Aggressive traders may consider using 5% equity stops, but note that this amount is generally considered to be the upper limit of prudent money management because 10 consecutive wrong trades would draw down the account by 50%.

One strong criticism of the equity stop is that it places an arbitrary exit point on a trader's position. The trade is liquidated not as a result of a logical response to the price action of the marketplace, but rather to satisfy the trader's internal risk controls.

Improving Your International SEO Skills

If you're starting out on a career path in which you'll be working in international search and you need to quickly acquire search engine optimization (SEO) skills that enable you to operate globally, you'll be asking yourself some tough questions about where to start.

Let's be frank, any SEO specialist who is regarded as an expert in their field will tell you, in their bar moments, about their catastrophic past errors. Trial and error and experience count for so much in this business -- and for much more than is generally attributed to the science of information retrieval.

A well-known SEO friend of mine once said to me, "You're not really an SEO until you've been banned at least once." This particular SEO was well qualified, as he'd gone through the experience twice!

The challenge then is to acquire international experience without needing to go through lots of errors, upsetting all your clients in the process -- especially because you're no longer a beginner and not regarded as such by your clients.

In any case, you've probably allowed them to believe that you already have significant international experience when this next project will be your first! That is how most people get into this business and how the vast majority leave! (Clients and website owners beware!)

International SEO Isn't Different Anyway?

If this is your view now, you're probably a lost cause -- upload your CV to a few job boards while there's still time. You might also consider signing up for some humility training.

There isn't really the space in this article to argue this point fully -- but I would just point out that languages, keyword research, hosting issues, country redirections, payment systems, information architecture, and usability are all significantly different for multinational projects -- and that's before we've even mentioned the word "culture." Do you still want more proof?

How to Gain Your First Experience?

Ideally, you should approach getting to grips with international SEO in just the same way you began in single-market, single-language SEO. That means getting your hands dirty with an actual live project.

Because we don't want to experiment on your client's pet project, one way to do this is to create your own test project. Perhaps you already have a blog that you could set to work on. This approach will cost you or your agency some investment monies, but this is the professional way to go.

There are a couple key things you'll need to do.

1. Decide on how you're going to manage all the different languages. Buy and test local domains and, even before you have localized the site, run English versions of the site on those. Before you've even had the opportunity to set up Webmaster Central, you'll probably notice them appearing in Google's index in all the right places. The first time I ever did this, it took minutes, rather than hours, to see a result.
   
   
2. Get the languages. A good idea might be to use automated translation for one language and get a professional translation for the other.

You should see a significant difference in your traffic performance between these two approaches.

Perhaps the Client Will Hel

One other option for getting going with a test project is to get the agreement of a client with whom you have a particularly good working relationship. Perhaps you'll target their business in a market that might be of interest to them, for free, or with them only paying for actual demand generated.

Where to Go for Initial Support?

Naturally, you'll need some extra help in this venture from somewhere -- it's unrealistic to think otherwise. Going to relevant conferences and, of course, referring to sites such as this one to gain lots of valuable information are good places to start.

Specialist organizations also support agencies with international and multilingual roll-outs -- just go and do a search in our old friend Google for something similar to [multilingual search marketing agency support] and you should find a range of options.

Buying arm's length support services is one way of doing things. But if you really want someone to look directly over your shoulder and give you hands-on support, then you'll need to think somewhat differently.

I'm not aware of people who specifically offer this type of consultancy, but if someone put a case to me for this type of service, I'm sure that I could invent just as others could. It probably helps if you know your potential "mentor" first.

There are also now a few international SEO schools, which would be a good approach. These aren't particularly well publicized, so you'll need to ask around.

Dealing with Languages?

I'm guessing that you don't speak too many languages and certainly not all those that the website you'll be working on actually needs. You have a number of options here:

• Specialist multilingual agency support organizations.
  
  
• Translation agencies.
  
  
• Friendly agencies local to the target market.

I definitely wouldn't recommend translation agencies, although I know that's where most people turn first. Their business models are just not designed around search marketing.

After you've looked at the international agencies that are prepared to help, you can always turn to small local agencies based in the target country. They're tougher to coordinate because each agency has its own processes and its own culture -- so coordinating a project through multiple countries can become a little time-demanding, but they are generally helpful and friendly to get you started on your way.

Organization Improvement Turning Around Negative Attitudes

At one time or another, organizations develop an over-abundance of "negative energy" or attitudes. Sometimes they can be linked to organizational trauma, like down-sizing, budget restraints or workload increases, but sometimes they evolve over time with no apparent triggering event. The negative organization is characterized by increased complaining, a focus on reasons why things can't be done, and what seems to be a lack of hope that things will get better. It feels like the organization in stuck in treacle. And, it's contagious. Negativism can affect even the most positive employees.

What can you do? Based on an article by Arthur Beck and Ellis Hillmar, professors in organization development at University of Richmond, we suggest the following:

Model Positive Behaviour

It is obvious that if management is walking negative and talking in a negative way, staff will follow. Don't do it. More than that, take a positive approach with staff by showing confidence in their abilities. Expect a lot, support staff, hold them accountable, confront them and be clear and honest. Set standards for your own work and relations with employees, and work towards meeting them to set an example of positive behaviour.

Acknowledge Negativity

You can't ignore negativity and expect it to go away. If you do not acknowledge it, then staff will feel that you are out of touch, and will not be confident in your abilities. Acknowledge the frustration negative feelings, and do not try to convince the person or people that they shouldn't have their negative feelings. However, when acknowledging employees' negative feelings, try asking for suggestions regarding what to do about them.

Look For And Identify The Positives In All Situations

Sometimes we forget to find positives. When an employee makes an impractical solution, we are quick to dismiss the idea. We should be identifying the effort while gently discussing the idea. Look for small victories, and talk about them. Turning a negative organization into a positive one is a result of thousands of little actions.

Give Positive Recognition Often

Pretty straight-forward. Provide positive recognition as soon as you find out about good performance. Do not couple positive strokes with suggestions for improvement. Separate them. Combining them devalues the recognition for many people.

Refrain From Collusion On Negativity

It is easy to get caught in the general complaining and bitching, particularly in informal discussions. When faced with negative conversations, consider changing the subject, comment on the negative content ("Let's talk about something more pleasant"), or ask what can be done about the situation (move from negative to positive slant).

Learn Forex While Making Money

With the proper education and training anyone can learn forex and generate big profits. Beginners usually spend more time playing with a calculator figuring out how much money they can make instead of learning the skills and tools they need to actually have a chance of reaching their goals.

The main reason that over 95% of traders lose money trading forex over and over again comes down to poor trading education and training regarding how difficult trading actually is and what it takes to make money consistently and not blow their accounts out. Forex trading takes a lot of planning and hard work to be successful and it is important to understand that so you can begin approaching the markets with that mindset.

Knowing how difficult it is to be successful at trading forex it makes sense that a normal forex education is not going to be enough to be profitable. The best way you can learn forex is to find an experienced trader willing to work with you and allow you to trade along side them.

Sure if you have all the time in the world you can seek out all the free information available online needed to learn how to trade profitability. Consider the for a moment the value of a free forex trading education and compare that to the value of proven forex trading school from an experienced trader and mentor.

It is highly recommended that all beginners to forex start by studying, reading and absorbing as much information as possible. Find a profitable trading strategy from a pro trader that you can begin with by following and then later see if you can improve upon it and make your own strategy that is even a little bit better.

While it is nice there is a ton of free information available online to help you learn forex the fact of the matter is the majority of it is going to only help you to form bad habits and loss money. Make sure to be aware of traders posting in forums as their advice tends to be the worst as they prefer an audience and fan clubs more than making pips in the markets.