Forex for Beginners courses : Basic Training6
Part 6
Part 6
Fundamental or Technical
Another important decision which ideally should be made prior to the start of your trading is whether
your approach will focus primarily on trading signals from technical indicators or from trading ideas
based upon fundamentals.
I distinguish here between ideas and signals because they are two distinctly different types of
approaches generated by two distinctly different understandings of the futures markets.
Later on I will provide a very thorough discussion of the two approaches, outlining their strengths,
assets, liabilities, differences and methods of implementation. For now, suffice it to say that a decision will need to be made, preferably sooner than later, about the approach you wish to employ in
your trading.
Some individuals may seek to implement a hybrid approach, incorporating what they feel are the best
aspects of each technique. I also will discuss the merits of this approach, or the lack thereof.
How Much Risk do You Want to Take on Each Trade?
A significant question, one that is perhaps best answered prior to the start of trading is, “how much do
you want to risk on each trade?” Many factors enter into this decision, and there are many different
opinions regarding the best answer.
On opposite ends of the continuum, we find the two most extreme approaches.
Those who belong to the “money management school” will tell you that the best approach to take is a
per-trade risk based strictly on money management. In other words, you decide ahead the maximum
risk you want to take, in dollars. When a trade goes against you by the predetermined amount, you
close it out.
On the other end of the spectrum is the “systems approach.” Proponents of this approach claim that
each trade is unique. Every trade has specific levels of support and resistance and, therefore, it is not
possible to determine a prior rule for dollar risk.
My approach to this aspect of futures trading is essentially similar to my approach in other areas. I
prefer not to be in the middle of the road. Rather, I would align myself with either of the extremes.
As you continue to read this course, you will understand more clearly why my preference is usually to
be found on one end of the spectrum or the other, but rarely in the middle.
It’s been said that you can walk on the left side of the road or the right side of the road, but if you walk
in the middle of the road you will get squashed. There are merits to each approach and there is no right
or wrong answer to the question. There is, however, an answer that is your answer. My job is to help
you find it.
Hopefully, by the time you have finished this course, you will have found the answer falling naturally
into place. For the time being, however, I will tell you that each approach has its strong and weak
points and you can be successful by following either of the extremes.
Summary
This section reviewed some basic principles and distinctions. You must learn them before you can
continue.
Lesson #1 Quiz (Course 1)
1. The concept of hedging is based upon the assumption that movement in cash and futures
do what with each other?
a. They move in opposite directions.
b. They lead one another.
c. They parallel each other.
d. They follow 3 points behind.
2. When you begin trading, what is the minimum amount of completely disposal, specula-
tive capital that I feel you need to being with?
a. $12,500
b. $5,000
c. $25,000
d. $2,000
3. Another name for a cash market is a spot market. Why is this?
a. Because the market is often spotty and uneven.
b. Because transactions are made on the spot.
c. Because they help you spot moves.
d. Because it makes a spot for you in the market.
4. The following is a list of four things that speculators do. Only three are true. Which one
is false?
a. They do not take delivery of the goods.
b. They often trade for short-term swings.
c. They are buyers and sellers of cash commodities.
d. They are often called traders.
5. What do producers do?
a. They produce or process the commodity that is being traded.
b. They produce the final manufacturing of the commodity.
c. They produce the contracts to be traded.
d. They oversee the production market deliveries.
6. How should you get your starting capital to begin trading?
a. Borrow it from the bank or from a member of your family.
b. Take a second mortgage on your house.
c. Borrow it from your children’s college fund.
d. Use only extra money that you have on hand and will not miss if you lose it.
7. When deciding how much you risk on each trade I told you that those who belong to the
“money management school” will tell you to take a per-trade risk based strictly on
money management while those who believe in the “systems approach” claim that each
trade is unique and that it is not possible to determine a prior rule for dollar risk. What
position did I suggest you follow?
a. The middle-of-the-road approach is usually safest.
b. Align yourself with one or the other extreme but be consistent.
c. Ask a friend or associate what they do and do the same.
d. Take a percentage of what you feel the profit potential could be and use that.
8. What is the amount of profits I feel you should remove from your account for every
winning trade that you make?
a. 50 to 75%
b. None
c. 10 to 25%
d. 2 to 3%
9. If you decide to become a day trader what kind of data should you have?
a. Information that you can glean from reading the daily papers.
b. Up-to-date, tick-by-tick, accurate and reliable data.
c. A friend or associate who trades also that you can compare notes with.
d. Only the history of past trades is needed.
10. When you use leverage, what is the typical percentage of the total value that a contract
can be bought or sold for?
a. 10 to 15%
b. 5 to 7%
c. 1 to 3%
d. 20 to 25%
Another important decision which ideally should be made prior to the start of your trading is whether
your approach will focus primarily on trading signals from technical indicators or from trading ideas
based upon fundamentals.
I distinguish here between ideas and signals because they are two distinctly different types of
approaches generated by two distinctly different understandings of the futures markets.
Later on I will provide a very thorough discussion of the two approaches, outlining their strengths,
assets, liabilities, differences and methods of implementation. For now, suffice it to say that a decision will need to be made, preferably sooner than later, about the approach you wish to employ in
your trading.
Some individuals may seek to implement a hybrid approach, incorporating what they feel are the best
aspects of each technique. I also will discuss the merits of this approach, or the lack thereof.
How Much Risk do You Want to Take on Each Trade?
A significant question, one that is perhaps best answered prior to the start of trading is, “how much do
you want to risk on each trade?” Many factors enter into this decision, and there are many different
opinions regarding the best answer.
On opposite ends of the continuum, we find the two most extreme approaches.
Those who belong to the “money management school” will tell you that the best approach to take is a
per-trade risk based strictly on money management. In other words, you decide ahead the maximum
risk you want to take, in dollars. When a trade goes against you by the predetermined amount, you
close it out.
On the other end of the spectrum is the “systems approach.” Proponents of this approach claim that
each trade is unique. Every trade has specific levels of support and resistance and, therefore, it is not
possible to determine a prior rule for dollar risk.
My approach to this aspect of futures trading is essentially similar to my approach in other areas. I
prefer not to be in the middle of the road. Rather, I would align myself with either of the extremes.
As you continue to read this course, you will understand more clearly why my preference is usually to
be found on one end of the spectrum or the other, but rarely in the middle.
It’s been said that you can walk on the left side of the road or the right side of the road, but if you walk
in the middle of the road you will get squashed. There are merits to each approach and there is no right
or wrong answer to the question. There is, however, an answer that is your answer. My job is to help
you find it.
Hopefully, by the time you have finished this course, you will have found the answer falling naturally
into place. For the time being, however, I will tell you that each approach has its strong and weak
points and you can be successful by following either of the extremes.
Summary
This section reviewed some basic principles and distinctions. You must learn them before you can
continue.
Lesson #1 Quiz (Course 1)
1. The concept of hedging is based upon the assumption that movement in cash and futures
do what with each other?
a. They move in opposite directions.
b. They lead one another.
c. They parallel each other.
d. They follow 3 points behind.
2. When you begin trading, what is the minimum amount of completely disposal, specula-
tive capital that I feel you need to being with?
a. $12,500
b. $5,000
c. $25,000
d. $2,000
3. Another name for a cash market is a spot market. Why is this?
a. Because the market is often spotty and uneven.
b. Because transactions are made on the spot.
c. Because they help you spot moves.
d. Because it makes a spot for you in the market.
4. The following is a list of four things that speculators do. Only three are true. Which one
is false?
a. They do not take delivery of the goods.
b. They often trade for short-term swings.
c. They are buyers and sellers of cash commodities.
d. They are often called traders.
5. What do producers do?
a. They produce or process the commodity that is being traded.
b. They produce the final manufacturing of the commodity.
c. They produce the contracts to be traded.
d. They oversee the production market deliveries.
6. How should you get your starting capital to begin trading?
a. Borrow it from the bank or from a member of your family.
b. Take a second mortgage on your house.
c. Borrow it from your children’s college fund.
d. Use only extra money that you have on hand and will not miss if you lose it.
7. When deciding how much you risk on each trade I told you that those who belong to the
“money management school” will tell you to take a per-trade risk based strictly on
money management while those who believe in the “systems approach” claim that each
trade is unique and that it is not possible to determine a prior rule for dollar risk. What
position did I suggest you follow?
a. The middle-of-the-road approach is usually safest.
b. Align yourself with one or the other extreme but be consistent.
c. Ask a friend or associate what they do and do the same.
d. Take a percentage of what you feel the profit potential could be and use that.
8. What is the amount of profits I feel you should remove from your account for every
winning trade that you make?
a. 50 to 75%
b. None
c. 10 to 25%
d. 2 to 3%
9. If you decide to become a day trader what kind of data should you have?
a. Information that you can glean from reading the daily papers.
b. Up-to-date, tick-by-tick, accurate and reliable data.
c. A friend or associate who trades also that you can compare notes with.
d. Only the history of past trades is needed.
10. When you use leverage, what is the typical percentage of the total value that a contract
can be bought or sold for?
a. 10 to 15%
b. 5 to 7%
c. 1 to 3%
d. 20 to 25%
The End
With My Best Wishes
With My Best Wishes
