10 Best Ways to Avoid Big Losses

Expert: John S. Alesia, President and founder of Brown forex
Start: February 2, 2006 - 15:00GMT 10EST
End: approx. 16GMT 11EST

Topics that will be covered for above session are:

• Learn The Market
• Money Management
• Formulate a Strategy
• Don't Chase the Market
• Scared Money Never Wins
• Dont turn a Day Trade into a Swing Trade
• Control Your Emotions
• Manage your own expectations
• Have an explanation for why you are in trade or out of a trade
• Know when to walk away

Who is John S. Alesia?

John S. Alesia founded Brown Forex after a successful career on Wall Street. Recognizing an opportunity to capitalize on an untapped retail trading market, Mr. Alesia left an executive post with Deutsche Bank to start Brown Forex. Leveraging his years of capital markets experience with hedge funds, investment banks, and institutional money managers enables Mr. Alesia to provide sage guidance and powerful resources to the retail trader.

Speech Material:

1) Learn The Market

I know your excited to start trading and it looks real easy to do but before you start trading live learn as much as you can about why the market does what it does. Learn the fundamentals not just the technical
aspect of trading. No good trader will just use technical analysis or fundamental analysis. It takes a combination.
You may use technicals 95% of the time but you do need to understand what the economic data means.
What external factors move each currency pair like commodities, central bank interventions, central bank rates etc. Take a course, get a mentor, and or read as much as possible before you begin live.

2) Money Management

I talk a lot about money management for a reason. You can not be successful with poor money management. If you find yourself giving all your winnings back and then some on one or two trades then odds are you are not using proper money management techniques. The number one reason I
see people lose most or all of their accounts is simple money management.

Learn how to manage your account properly and you will do this for a long time. Remember the pros worry about capital preservation, the amateurs worry about how much they can make.

3) Formulate a Strategy

Before you begin trading you must establish a trading strategy. What indicators will you use? Are you going to look for breakouts or will you play ranges? Are you a daytrader or swing trader? What time of day will
I trade? What pairs will I focus on? How much can I afford to lose per trade, day, week? You must answer these questions and more before you even think about trading live. If you know someone with experience trading have them help you formulate a strategy, if not seek professional
help.

4) Don't Chase the Market

How many times have you thought about buying a pair but hesitated only to find the market take off like a rocket. Frustrated you missed a good entry and not wanting to miss the move you dive right in and throw all your strategies out the window. What was a good entry 20 pips ago now becomes a trade with limited upside and a whole lot of downside risk. If you miss a move you miss a move. Thats all it is. It was a missed opportunity. I am sure there will be times you look to go long and just before you do the market goes against you and saves you some pips.
You are not eager to jump in then? These things even themselves out.
Don't chase the market, stick to your strategy.

5) Scared Money Never Wins

From my days of playing poker in Atlantic City there was an old adage scared money never wins. What that means is if you are not confident in your trading you will not win. If you are gun shy because you lost 2 or 3 trades in a row then you are going to miss out on a good trading opportunity.
You need to understand going in that you will have losses. If you are following good money management then those losing trades should be manageable enough where 1 or 2 winners can get you back to even or in the black.

If you have formulated a strategy and are sticking to it then stay confident in what you are doing, don't change and don't play with scared money.

6) Dont turn a Day Trade into a Swing Trade

I see this so often it hurts. You are in a trade you plan on being in for a 20 or 30 pip target. It goes against you and you decide you are going to let it go because it HAS to come back. So you hold the trade overnight only to see it continue to go against you. You are now down 100 pips on a
trade you only wanted 20 or 30 from. Down 100 pips you might as well hold it longer because the pair has been ranging for 2 months. Next thing you know you are in the middle of the breakout and you are riding it from the wrong side.
This may sound familiar to you, I hope it does not, but I have seen this happen over and over again. For 1 month you are trading great you have a bad day or two, get frustrated and now you are going to
show the market who is boss and not take a loss because it just has to come back. Well it may come back but how far do you want to let it go before you have to get out of the trade? You may even be margined out.
Moral of the story is place your stops or have a mental stop. Take the small losses and don't be stubborn and hold a loser because you think it may come back.

7) Control Your Emotions

This is very easy to say but hard to do. We need to have some emotion when trading but you need to cotrol it. One way to do this is to be confident in your strategy and plan. You will then become robotic, and just trade when a trade sets up. If you have a limit set up for losses per trade and for the day then you will never go beyond that and you have established ahead of time what those levels are and what you are comfortable with. If you hit those limits you are out of the trade or done trading for the day. Some days its not working.

If you get that sense just quit before you reach a limit. Its much easier to come back and trade the next day taking a reasonable loss as opposed to taking a big hit on your account that is almost unrecoverable. You will also be less likely to try and trade to make up for a loss when the losses are
manageable.

You don't want to trade to make up for the last one or the day before. That mind set is always a loser.

8) Manage your own expectations

I get asked all the time how much money can I make. Well if you are opening an account for $1,000 then you can not expect to make $10,000 per month. You may laugh at that but some people try and do that and that is a recipe for disaster. You need to first look at the amount you can afford to lose per trade based on your account size. This will determine how much you can make.

9) Have an explanation for why you are in trade or out of a trade

I will hear from a trader "I am long eur/usd at 84". I will always ask why. If they can not give me an answer other than "because it feels like a long" or "its gone down so much it has to go up" then there is a problem. You should have a definitive reason for getting into a trade at the price you got in at. You should also know where the next support and resistance points are and know what you are going to do when those points are reached. This all goes back to having a plan. A great way to work on this is to write down all of your trades with reasons for entry and exit.

You will learn a lot by doing this.

10) Know when to walk away

This ties into emotions. There is no law that says you need to trade 8-12 hours a day. If you have a great trade in the first hour of trading and dont see anything set up again for an hour or two there is no shame in calling it a day. Conversely if you make a few bad trades in a row maybe today is not your day and you should take a break and get back into it the next day. Maybe spend the night analylizing where you went wrong and try not to repeat the mistakes again the next day.

Remember trading is a long term game. Don't let one day be the day that costs you a huge portion of your account and thus handcuffs you from trading the way you have been. One day will not make or break you if you follow these tips.