Part 2
Trading in a foreign currency market is a business with its own special features. Their ignorance turns out fatal for the capital. Those who want to invest money have two ways: one is to become a professional and trade themselves; the other is to become an investor and have a professional trade for them which, in turn, offers no guaranteed protection from losses.
Just believe me that 90% of all traders are practically unable to explain clearly why they make a certain trade or for what reasons at a certain point in time they take into account factors which are later excluded from the decision making process. In some cases carefully monitoring fundamental figures, in others they totally and completely rely on technical indicators. But most alarmingly, they can also be influenced by other people's opinion.
Lack of a set of rules you use as a basis for making trading decisions makes analysis of subsequent (inevitable) mistakes impossible as such. It means generally performance is practically negligible.
A set of rules that offer a full description of conditions for opening, maintaining and closing trades is called a trading system in turn supplemented with a money management system. Of course, each investor should be aware of trading principles and rules of their trader. One should avoid intricate formulas and vague explanations. Everything should be simple and clear even to an uninterested person.
So, we have established that successful trading is only possible if there is a systemic approach. 'Under rigid supervision of his or her trading plan', the trader can distance themselves from their emotions, while the rules they have developed can be checked to find out later how successful a certain strategy was in the past. This minimizes losses in the future. There are, however, kind of unacceptable mistakes, for example, working against the trend. Dominance of such (losing) trades in trading is a serious reason to think twice about the qualification of the selected trader.
There's no need in a list of skills a true trader should possess. After all, their task is 'simple' - generate consistent revenues for their investor. The latter should, in turn, have minimum knowledge of the financial area, in particular, be able to correctly recognize the current trend and determine the force prevalent in the market. It is only this combination of skills of the trader and investor that can be the most solid foundation for meeting both parties' mutual interests.
Many events in the world are known to occur in cycles. Similarly, the trader's life has periods of victories and defeats. Having analysis of the trader's performance at hand, the investor can increase lot size when the trader is 'on the same wave' as the market and decrease it otherwise. This technique is also used by most successful traders and investors.
A systemic analysis of how a trader performs safeguards the investor from a possible drawdown of the trading account. After a look at the account history the professional investor will clearly say what risks he or she will face in the future if the trader's current strategy is used. It should be noted that any trading strategy has a chance to turn out losing in the course of time. Therefore, past performance cannot guarantee, but gives reasons to expect, repeated success in the future. ANY trading strategy involves a certain risk, and one cannot by-pass this limitation - just accept the risk as is.
Lack of adequate account management can ruin your trading account in a matter of minutes of even seconds. This is why make sure you understand your trader's concept of risk management before you sign the contract. Make a query and you are likely to enter into a separate agreement that defines and fixes the maximum risk per trade and the maximum risk per portfolio at a given point in time. This can serve as some insurance in case there is a drawdown in your account because of unsuitable risk management.
Also be especially careful with the principle of calculation of the trader's fees. There are 3 types of fees: first two are obvious - the trader charges either a base rate and/or a certain percentage of the amount of generated profits a month. The third way can turn even a good account management system into a losing one. Some traders agree to manage your assets only if you are prepared to open an account with one of the brokers that the trader prefers. This usually means your trader will act as a representative of the broker itself, getting significant profits from spreads for each trade they make. Therefore, it is obvious for the trader that the more trades they make, the more fees will be paid regardless of the outcome of the trade itself. If you opt for this kind of cooperation, we recommend carefully discussing the number and size of trades the trader makes in one calendar month. Another disadvantage such 'cooperation' involves is that you are limited in choosing a worthy broker. It might turn out that, having selected a skilled trader, you ended up with a weak broker significantly cutting down your potential profits.
After all, you are free to do anything you want with your money. You can turn each penny into thousands and thousands into a penny. It's all up to you.
Please contact us for a free consultation on asset management and trader selection.
Yevgeniy Olkhovskiy, Toronto, Canada
The Land Association of Canada, the , canada@masterforex-v.org
