The Sharpe Ratio that is referred to in the financial world is named after William F. Sharpe, a Nobel laureate in economics. It’s simply a measure of calculation for a risk-adjusted return and is the industry standard when it comes to doing such things. That’s the average return earned in excess of what is considered to be risk free assets. In general, this normally is suggested as US Treasury bills, which is considered to be “risk free.” The Sharpe Ratio works as follows: the average rate of return for your portfolio is subtracted by the best available rate of return of a risk-free security. Then, you divide that number by a standard deviation of the portfolio’s return. Essentially, a return of “zero” is the same as a treasury bill. A number of 1.0 or above is attractive, a return of 2.0 is even better, and one of 3.0 is excellent. These numbers are used to compare one portfolio to another, in order to see whether you are getting acceptable returns for holding risky assets over risk-free assets. Essentially, it’s a way to compare 2 portfolios in an even playing field.

Paper trading, or using a demo account, is the first step in learning how to trade. After all, you have to be able to know whether or not your even capable of making money in the markets before you can risk any significant amount. By using the demo account, you have the ability to take risk without actually risking any money. This of course is a big deal, as it gives you the opportunity to trade various systems or methodologies and see how they work out. Most professional traders have paper trading accounts most of their lives. They are constantly looking to improve their returns, and as a result they are normally trying new methodologies for indicators or other such things. A demo account is the perfect place to do this because you have absolutely no real risk. Most brokerages offer demo accounts, and it’s very rare that you will find one who doesn’t. In fact, as a general rule you should probably avoid the shops, as it’s a very basic thing to ask. Quite often, traders will use a live account simultaneously to trading a demo account, as the one great thing about trading is you will never know everything. There is always something new to learn.

In this video, I talk about risk versus reward. Without a doubt, this is one of the most basic money management fundamentals that you have to follow. The one thing that you have to understand about trading is that you are not going to win all of your trades. The reality is that you are going to have losses from time to time. By using risk to reward analysis, you can help increase the odds in your favor longer-term. For example, if you’re risking 1 in order to make 5, you only need to be in order to break even. However, if you are risking 1 to make 1, you will likely lose money over the longer term as the losses will wipe out gains much quicker. Looking at a few trades, you can see that the first one is a massive hammer that formed at the bottom of the downtrend. This is typically a reversal signal, but if you use classic technical analysis and trading technique, you can see that on the hammer you would have to risk something akin to 550 pips. Now looking at the trade itself, you have to ask yourself how far can this particular pair go? In this case, you can make a real argument for the 155 level, but the problem is that you’re working against the trend. Because of this, you have to take that into account, and you can also find quite a bit noise on this chart at the 153 level, meaning that you are more than likely going to get 250 pips. This is an absolutely horrible risk to reward ratio and therefore this isn’t the type of trade that you want to take as you would almost always have to be correct on these setups.

Ultimately, the way you make money trading markets is to take profit out of them. With this being the case, taking profit from a trade is without a doubt the most important thing you can learn. There are a lot of different theories on taking profit, and sometimes you would even hear the phrase “Nobody ever went broke taking profit.” To be honest, that’s isn’t true at all. The reason of course is that you need to make as much profit as possible from each trade in order to come out ahead in the end. After all, not all trades will produce profits to you need to make sure that your winners are bigger than your losers. Obviously, if you can take 10 times the profit on a trade that you take on a typical loss, you don’t have to be correct that often in to make a decent return. While that is an extreme example, it gives you an idea of how important taking profit is, and most importantly not to do it too early.

Without a doubt, the most important thing that you will be using as a traitor is a stop loss. Simply put, a stop loss is in order that you put into your broker to close a position once it hits a certain price. This is one of the most important ways to protect your trading capital, as there can be sudden moves overnight that work against the value of your position. After all, we are operating in 24-hour markets now, and with that being the case things can happen rather rapidly while you are not aware of them. By placing a stop loss, you are protecting yourself from extraordinarily large losses. When placing your stop loss, you give your broker the right to close out a position at the best available price once that level gets hit. For example, if you see a level of support in a market that you are buying, and you recognize that if the support gets broken to the downside things could get rather ugly, that might be an excellent place to place your stop loss. This is because obviously being on the long side of the position has now become the wrong side of the position. Looking at the GBP/CAD chart, you can see that the British pound fell rapidly against the Canadian dollar. This was due to the UK vote on whether or not to stay within the European Union. Obviously, the British chose to leave, and that works against the British pound. The losses that you would have incurred overnight had you not placed a stop loss would’ve been horrific, and probably would’ve led to what is known as a margin call, when you don’t have enough money to keep the position alive. Stop loss orders should always be used when trading financial instruments.

Traders can enter the market in several different ways, and contingent orders tend to be one of the favorite. The contention order is simply in order that is triggered if certain amount of conditions is met. For example, you may send an order into your broker to buy the Euro if the EUR/USD pair reaches the 1.12 handle. This is the essence of a contingent order. There are several different types of contingent orders, but the most common are the following 6: the buy limit order, the sell limit order, the buy stop order, the sell stop order, the buy stop limit, and the sell stop limit. Because of this, the average trader has several different opportunities to enter the market in various conditions. These are the trading orders available in the Metatrader platform, the most common one out there. There are other less common contingent orders that you can run across, but these are by far the ones you will use the most. A buy limit order allows traders to specify the price that they are willing to pay for security, and the broker guarantees to honor that price or even better when it becomes available. The sell limit order simply does the same thing, but from the sell side. A buy stop order is an order that you give the broker to buy a security at a price above the current price, and is triggered when the market touches her goes through the buy stop price. Quite often this is used in order to take advantage of momentum building up. A sell stop order is often referred to as the stop loss order, it’s in order to close a position once the security reaches a specific price. This is a way to protect yourself from losses. The buy stop limit is executed when a specific price reached, as it becomes a limit order to start buying the asset at a specific price or better. The sell stop limit is a sell order that is triggered once we reach a specific price, and is guaranteed to be the price you ask or better. This is a great way to enter the marketplace while stepping away. In other words, if the move happens in the middle the night you can know how you’re going to enter the market. Obviously, stop loss orders are crucial, so you need to protect your trading accounts while you are not at your desk. At the very least, you should have a stop loss order to protect yourself from disaster. However, contingent orders to offer you an incredible amount of flexibility.

Traders can enter the market in several different ways, and contingent orders tend to be one of the favorite. The contention order is simply in order that is triggered if certain amount of conditions is met. For example, you may send an order into your broker to buy the Euro if the EUR/USD pair reaches the 1.12 handle. This is the essence of a contingent order. There are several different types of contingent orders, but the most common are the following 6: the buy limit order, the sell limit order, the buy stop order, the sell stop order, the buy stop limit, and the sell stop limit. Because of this, the average trader has several different opportunities to enter the market in various conditions. These are the trading orders available in the Metatrader platform, the most common one out there. There are other less common contingent orders that you can run across, but these are by far the ones you will use the most. A buy limit order allows traders to specify the price that they are willing to pay for security, and the broker guarantees to honor that price or even better when it becomes available. The sell limit order simply does the same thing, but from the sell side. A buy stop order is an order that you give the broker to buy a security at a price above the current price, and is triggered when the market touches her goes through the buy stop price. Quite often this is used in order to take advantage of momentum building up. A sell stop order is often referred to as the stop loss order, it’s in order to close a position once the security reaches a specific price. This is a way to protect yourself from losses. The buy stop limit is executed when a specific price reached, as it becomes a limit order to start buying the asset at a specific price or better. The sell stop limit is a sell order that is triggered once we reach a specific price, and is guaranteed to be the price you ask or better. This is a great way to enter the marketplace while stepping away. In other words, if the move happens in the middle the night you can know how you’re going to enter the market. Obviously, stop loss orders are crucial, so you need to protect your trading accounts while you are not at your desk. At the very least, you should have a stop loss order to protect yourself from disaster. However, contingent orders to offer you an incredible amount of flexibility.

There are a multitude of places to find trading robots. Not only is there the MetaTrader terminal, but there’s the mql4 page, as well as the mql5 page online. These are the “official” marketplaces, but keep in mind that these expert advisors are not written by anybody special. Quite frankly, the gist traders around the world that have the ability to code. Being a good programmer doesn’t necessarily make you a good trader. As I record this, there are over 240 pages of robots that you can choose from, varying drastically and cost. Ratings of course are all over the place as well, as some will have performed better than others at certain points in the market. But that’s the biggest problem, most algorithms can only perform in the market conditions that they are optimize for. Because of this, most automated traders will use several different strategies. Of interest is that some of the larger firms in the United States are now starting to push robots, including Ally. They are known more for retirement accounts, but they are starting to offer currencies as well, and have an entire section devoted to robots. There are also firms around the world that specialize in automated trading, such as the Forex broker RoboForex in Singapore, where automated trading seems to be a bit more popular. Quite frankly, one of the things that you should keep in mind is that large banks such as Goldman Sachs spend millions of dollars on algorithms. It is very unlikely that you are going to find one for $50 that can match that type of performance. Remember, they are trading with large and real size, meaning that it is actually crucial that their algorithms make money. While many of these robots can make money from time to time, in the end it is essentially putting your finances in the hands of someone else that you don’t even know. If you are going to do that, you will probably be better off trying to find a financial fiduciary it to trade your money for you. If you do choose to go the automated row, you can write your own script. The MQL4 programming language is rather simple, being a derivative of C++. There is a complete and thorough set of documents online, and plenty of examples. However, one of the benefits of being a retail trader is that you can simply follow the market. You’re not trying to move it, you’re not trying to outsmart it. If something is rising in value, you buy it. It’s really that simple.