Triple Your Trading Profits Q&A – Can You Learn to Trade Forex?
Who Else Wants To Build Their Trading Profits?
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Stuart McPhee and David Jenyns, renowned traders, discuss how difficult it is to learn to trade forex and then go on to discuss indicators.
David: Some people have unrealistic expectations about how much money they are going to make from trading. They may start out with $20,000.The only way people can come to the market and trade full time with $20,000 is by trading the forex because of the massive leverage. What they don’t understand is the risks that come involved with that.
If you come to the market with $20,000 and forex enables you to multiply that by one hundred you have to think what sort of drawdown your system has. If your drawdown is five percent, you need to work out your drawdown of your leveraged amount of your trading float and with your $20,000 you leveraged that out to $2,000,000. If your trading system has a five percent drawdown, you’re going to more than remove your entire trading float if you were to reach your drawdown.
These are the things you need to think about before you start trading, and this is why we try to steer people away from trading the forex especially while they are starting. If you’re starting, I think a good place is to look at between twenty and forty percent return.
First find out what are your objectives, because this will really dictate what sort of trading system you’re going to trade and that’s going to determine what market you’re looking to trade. You need to decide, am I looking to get income, capital growth, what sort of return am I looking for and then look at the markets you’re going to trade. Is it reasonable to expect that kind of return in that type of market? If people did that, they’d come to the market with more realistic expectations and increase their odds of success.
People don’t continue trading, because they have a few losing trades and their confidence is shot.
Stuart: That’s probably why people ditch stocks early on and go for the more leveraged product. With $10,000 and twenty percent, you’re only going to get $2,000 and that’s not earning a full income. So forget stocks, and try a high leveraged product, for example, try to learn to trade forex and lose a lot of money very fast.
David: The next question is: I have put options on XLF and XHB financial and housing. Are there any reliable indicators when these sectors have bottomed out?
Stuart: No. There’ll be some people who do have an indicator they use to identify when certain conditions have happened. I can’t place any great value on any of these indicators to tell us when certain sectors or even stocks have bottomed out or topped out. To me, it all comes down to the price and what is the price telling you.
We know if something has experienced a very extended downtrend, it’s not going to suddenly go back up again. It’s probably going to go sideways and through a period of consolidation for some time. When you see a sector go through a period of consolidation for a period of two, three, six, twelve months I think you’d look back and say I think it has bottomed out.
I don’t know of any indicator that’s going to tell you that it has bottomed out or oversold. So for a beginner, it is not wise to trust indicators or to try to learn to trade forex.
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