Friday, November 27, 2020

Forex Orders You Need To Know To Trade & Make Money Efficiently

In the Forex market, there are many different types of orders that traders use to manage their trades. Among them, there are several common order types that all brokers accept.

In this article, we will learn about the main Forex trading orders and how to use them in the market.

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What is a market order?

A market order is perhaps the most basic one. Often traders will learn this type of order first. As implied by the name, market orders are traded on the market. This means that if you want to enter the Forex market immediately, you can open a market order at the current price.

Usually, daily investors and traders rely on market orders to enter and exit the market quickly according to the strategy.

For example, The GBP/USD transaction table below shows the live prices for buying and selling. A market order to buy at 1.30125 will be executed immediately at the current price. The same applies to a sell order.

What is a market order?
What is a market order?

Types of pending orders in Forex trading

The next most popular type of FX order is a pending order. These types of orders help you to place pending orders away from the current market price. If the market price reaches the price you set earlier, pending orders are automatically opened on the market. There are many benefits to trading pending orders, including not having to sit in front of a computer to execute your trades!

Typically, pending orders in Forex can be used for breakout points or with other strategies that require execution when the price crosses a certain point.

Limit orders

  • Buy limit: pending buy orders below the current price.

For example, First, place a limit order to get a better price. If the XAU/USD is at 1911, but you think the price will drop to 1900 before going up, you will place a limit order to buy at 1900 aka a Buy limit order.

Buy limit orders
Buy limit orders
  • Sell limit: pending sell orders above the current price.

For example, If the XAU/USD is at 1911, but you think the price will rise up to 1920 before going down, you will place a limit order to sell at 1920 aka a Sell limit order.

Sell limit orders

Stop orders

  • Buy stop: pending buy orders above the current price.

For example, The XAU/USD is at 1911. You think that if the price rises above 1915, it will continue to rise sharply. So now, you place a pending order to buy at the price of 1915 aka a Buy stop order.

Buy stop orders
  • Sell stop: pending buy orders below the current price.

For example, The XAU/USD is at 1911. You think that if the price drops down to 1900, it will continue to plummet. Then, you will place a pending order to sell at the price of 1900 aka a Sell stop order.

Sell stop orders
Sell stop orders

Stop-loss and take-profit orders

You can set the Stop-loss and Take-profit orders for all buy/sell orders in the market.

Stop-loss orders

This is an order that automatically exits when the price reaches a certain level of loss that has been set before.

Setting a stop-loss helps you to manage the risk amount of each trade. As a result, you will avoid heavy losses to your account.

This is a very important order which is indispensable in trading

Stop-loss orders
Stop-loss orders

Take-profit orders

This is an order that automatically exits when the price reaches a certain level of profit that has been set before.

Setting a take-profit helps you to manage the percentage of money to earn and the amount to lose (stop-loss). From there, you may have a trading strategy to allocate the volume accordingly.

Take-profit orders
Take-profit orders

The last line

The meaning and usage of the order types in the market sound simple. However, you need a lot of practice to use it well. This is because of psychological pressure during trading which can cause you to confuse among orders.

Prepare yourself with the most solid knowledge and skills before starting to trade.

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Wednesday, November 25, 2020

Terms You Must Know When Trading Forex (Part 2)

After part 1, today, we will continue to learn about common and must-known terms in Forex trading such as Bid, Ask, Spread, Equity, Margin, etc.

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What are the terms “Bid”, “Ask”, “Spread” in Forex?

What is the Bid price?

The BID price is the price that the platform accepts to BUY from you, aka the price you will SELL to the market. That’s the best selling price at which you can sell.

In the quote, this price is the price that precedes.

For example, If the quote for GBP/USD is 1.2892/93, the BID price will be 1.2892. This means if you sell this currency pair, you will execute the order at 1.2892.

What is the Bid price? - Forex trading terms
What is the Bid price?

What is the Ask price?

The ASK price is the price that the platform accepts to SELL to you, aka the price you will BUY from the market. That’s the best buying price at which you can buy.

This price is the second one in the quote.

For example, If the quote for USD/JPY is 105.25/26, the ASK price will be 105.26. This means if you buy this currency pair, you will execute the order at 105.26.

What is the Ask price? - Forex trading terms
What is the Ask price?

What is Spread?

SPREAD is the difference between the BID and ASK.

SPREAD = ASK – BID

What is Spread? - Forex trading terms
What is Spread?

Some characteristics of SPREAD:

+ SPREAD is calculated by pips, decided by the platform and market.

+ The higher the SPREAD is, the more disadvantage the investor will suffer. Platforms charge via the SPREAD.

+ To attract investors, some platforms will adjust the SPREAD very low, or even to 0. At this time, platforms will collect fees from the Commission (commission per trading order).

  • Therefore, you need to be alert to choose a reputable platform with a low spread and commission.

What are Balance, Equity, Margin, Free Margin, Margin level terms in Forex?

Balance

Balance is the initial balance in your account. Or it can be simply understood that this is the CASH amount in your account.

For example, If you deposit $1000 into a new account, your balance will be $1000. If you open a new order, your balance will not be affected until the order is CLOSED.

Your balance will only change in the 3 following ways: 

  1. When you deposit money into your account.
  2. The time when you close an order.
  3. When you hold the order overnight. At this time, you will normally receive/pay the swap.

Since we have just mentioned swaps, what is the “swap”?

Swap is the fee you will receive or pay at the end of the day if you keep a transaction overnight.

If you get a swap, then that amount will be added to your balance.

If you have to pay a swap, that amount will be deducted from your balance.

Whether you do not open high-volume orders, these swaps are usually not much but can increase over time.

What is Balance? - Forex trading terms
What is Balance?

Equity

The term “Equity” represents the current value of your trading account and the fluctuations in your Forex account. It is the total account balance and all profits/losses from open orders.

When your current transactions increase or decrease in value, it is your equity.

Equity calculations:

+ If you don’t open any orders then Equity = Balance.

+ If you are opening an order:

 Equity = Balance + Profit / Loss of orders.

For example, Your balance is 1000 USD. The total profit of your open orders is 50 USD.

Then, Equity = 1000 + 50 = 1050 USD.

What is Equity? - Forex trading terms
What is Equity?

Margin

Margin is collateral money.

When trading Forex, you only need to place a small amount of capital to open and maintain new orders. This capital is considered margin. Margin can be viewed as collateral or deposit that you need to have to open a position or keep it open.

The amount of margin depends on the leverage you use.

For example, If you buy 1 lot of GBP/USD and use the 1:500 leverage, then you must have a margin of 100,000/500 = 200 USD.

Remember that margin can be a double-edged sword because it helps to make big profits while, at the same time, it can create big losses. This is because the order is based on the full value of the transaction, not just the amount needed to open it.

What is Margin?
What is Margin?

Free Margin

Free Margin is the amount of money in a trading account that has not been used as collateral. This amount can be used to execute any transaction such as withdrawals or opening new orders.

Formula for calculation: Free Margin = Equity – Margin.

What is Free margin?
What is Free margin?

Margin level

Margin level nghĩa là mức ký quỹ. It is the percentage (%) based on the amount of equity compared to the amount of the margin used. The lower the margin level is, the less unused margin will be. This could lead to something very bad like a Margin call or a Stop out.

The formula for calculating Margin level:

Margin level = (Equity/Margin) x 100% = Percentage (%)

For example, Your account has equity of 10,000 USD. You place a position with a margin of 2500 USD. 

Now, Margin level = (10,000/2500) x 100 = 400%

Paying attention to the margin level is of utmost importance. It allows traders to see if there is enough money in the account to open new trading positions.

What is Margin Level?
What is Margin Level?

In conclusion

We have covered the most common and necessary terms in Forex trading.

In the next article, I will introduce and explain to you the types of Forex orders and how to use them.

Wishing everyone a good and successful transaction.

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Tuesday, November 24, 2020

Terms You Must Know When Trading Forex (Part 1)

All traders who start to learn about Forex will surely hear the terms such as pip, lot, leverage, etc.

So what are these Forex terms? Are they important? How do they affect the trading process?

This article will answer all of those questions.

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What are the terms “Pip” and “Pipette” in Forex?

What is Pip?

A pip is a measure of the movement in value between two currencies. 

For example, When GBP/USD increases from 1.2941 to 1.2942, a rise of 0.0001 is called 1 pip.

For different currency pairs, the value of 1 pip can vary. Such as:

+ For currency pairs that do not include JPY (EUR/USD, GBP/USD, etc.), 1 pip is located at the fourth decimal digit in the rate. 

For example, when the GBP/USD rate is 1.3002, the number “2” will represent the pip.

+ Regarding currency pairs that include JPY (USD/JPY, EUR/JPY, etc.), 1 pip is located at the second decimal digit in the rate.

For example, when the USD/JPY rate is 105.27, the number “7” will represent the pip.

What is Pip?
What is Pip?

What is Pipette?

There are platforms that quote currency pairs other than the standard “the 4th or the 2nd”. They take “the 5th or the 3rd” digit after the decimal point. It means that these brokers also quote odd pips. And this odd pip is called a pipette. 

For example, When the GBP/USD rate increases from 1.29815 to 1.29816, the rise of 0.00001 is called 1 pipette.

What is Pipette? - Forex terms
What is Pipette?

What is Lot? How to calculate the value of 1 pip per 1 unit of a currency pair

What is Lot?

Forex transactions are executed via a unit called “lot”. 1 standard lot is equal to 100,000 base currency units.

For example, 

+ Buying 1 lot of GBP/USD means buying 100,000 GBP and selling 100,000 USD.

+ Selling 0.5 lot of USD/JPY means selling 50,000 USD and receiving 50,000 JPY.

What is Lot? - Forex terms
What is Lot?

How to calculate the value of 1 pip per 1 unit of a currency pair

Example 1: EUR/USD = 1.1131 => 1 EUR = 1.1131 USD.

If you buy 1 EUR, when the price goes up by 1 pip (1.1132), you will make a profit of 0.0001 USD.

Therefore, if you buy 1 lot (100,000 EUR) => Gain 0.0001 x 100,000 = 10 USD per 1 pip.

Example 2: USD/JPY = 108.50.

If you buy 1 USD, when the price goes up by 1 pip (108.51), you will make a profit of 0.01 JPY = 0.01/108.50 = 0.000092 USD.

Therefore, if you buy 1 lot (100,000 USD) => Gain 0.000092 x 100,000 = 9.92 USD per 1 pip.

The Pip alone only shows the change in the currency pair rate.

It is only valid when accompanied by the number of units for the currency pair you are trading.

How to calculate the value of 1 pip
How to calculate the value of 1 pip

How to calculate profits in Forex

Profit / Loss = Unit of volume x 100,000 x the changed decimal part.

Example 1: Buy 0.5 lot of GBP/USD at 1.3002 => Sell at 1.3022. Price rising by 20 pip is equivalent to a move of 0.0020 USD.

  • Profit = 0.5 x 100,000 x 0.0020 = 100 USD.

Example 2: Buy 0.2 lot of EUR/JPY at 120.25 => Sell at 120.40. Price rising by 15 pip is equivalent to a move of 0.15 JPY.

  • Profit = 0.2 x 100,000 x 0.15 = 3000 JPY = 3000/108.69 (USD/JPY rate) = 27.6 USD.
How to calculate profits in Forex
How to calculate profits in Forex

What is Leverage? Why do we need to use leverage?

What is Leverage?

Leverage is a loan which the platform offers you. It allows you to execute a transaction with a value many times greater than your trading account. The aim is to gain significant profits from small price movements.

What is Leverage? - Forex terms
What is Leverage?

Why do we need to use leverage?

Thanks to leverage, you can trade BIG with A SMALL CAPITAL.

In Forex, the platform will allow you to use many different leverage levels, which can be 1:100, 1:200, 1:500, etc. These levels have different values depending on the regulation of each platform.

So what are 1: 100, 1: 200, 1: 500, etc.?

For example, If you want to place a buy order of 1 lot of GBP/USD, your account balance must have enough 100,000 USD for margin to open the order. However, when you use the 1:1000 leverage, the amount you need to deposit is only 100,000/1000 = 100 USD.

It can be said that leverage is a double-edged sword in Forex. It can help your account grow quickly. On the contrary, it also burns your account instantly if you do not have an effective method of trading and capital management.

Why do we need to use leverage?
Why do we need to use leverage?

In conclusion

In Part 1, there are just a few of the many terms that you need to know when participating in Forex.

Hopefully, the article has provided you with useful information.

Leverage is a powerful “weapon” if you know how to use it. Choose for yourself an effective trading strategy so that your account can grow steadily and stably.

To be continued…

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Saturday, November 21, 2020

How Do Forex Market Sessions Work?

As shared in the previous article, the Forex trading market will be active 24 hours a day. However, the market’s amplitude is not the same for every session of the day. 

There are times when the market will move in extremely large amplitudes (increase or decrease a lot). However, there are times when the market almost moves “sleepily”. 

So why?

To understand the reasons as well as be able to choose the appropriate trading time, we will learn through today’s article.

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Market time frames

The Forex market operates 24 hours a day and is divided into different trading sessions. In which, there are 4 main sessions including Sydney, Tokyo, London, and New York. The opening and closing hours of these sessions differ between winter and summer. Below is a detailed picture.

Summer:

REGION EST
Opening time of the Sydney session

Closing time of the Sydney session

8:00 PM

12:00 AM

Opening time of the Tokyo session

Closing time of the Tokyo session

7:00 PM

4:00 AM

Opening time of the London session

Closing time of the London session

2:00 AM

11:00 AM

Opening time of the New York session

Closing time of the New York session

7:00 AM

4:00 PM

Winter:

REGION EST
Opening time of the Sydney session

Closing time of the Sydney session

7:00 PM

11:00 AM

Opening time of the Tokyo session

Closing time of the Tokyo session

7:00 PM

4:00 AM

Opening time of the London session

Closing time of the London session

3:00 AM

12:00 AM

Opening time of the New York session

Closing time of the New York session

8:00 AM

5:00 PM

The excitement in every session

Asian session

The Tokyo session is sometimes referred to as the Asian session because of the highest number of transactions usually performed here. However, the transaction volume is still quite small. 

Japan is the third-largest foreign exchange market in the world. Therefore, it is not surprising that the Yen is the 3rd most traded currency.

Some characteristics that you should know about the Tokyo session:

+ Liquidity is sometimes very poor. Trading in this session, sometimes you have to wait a long time before getting results.

+ Usually, you will see strong movements within Asian currency pairs such as AUD/USD, NZD/USD, or USD/JPY.

+ Most trading happens at the beginning of the session when the economic news is released.

Market time frames
Market time frames

London session

London is the largest and most important trading center in the world. Most of the major commercial banks are located in London. The reason is for the high liquidity and efficiency of the market. The large number of investors participating and the large volume of transactions make the London session the most volatile one among all trading sessions.

Some characteristics to know about the London session:

+ High liquidity and lower transaction fees, e.g lower spreads.

Most price trends start in the London session. They will last until the start of the New York session.

+ Because of the large volume of transactions and high liquidity during the European session, we can trade most currency pairs. However, it is best to trade the main pairs (EUR/USD, GBP/USD, USD/JPY, USD/CHF) whose spreads are usually the lowest.

The excitement in every session
The excitement in every session

New York session

New York is the second-largest market, accounting for more than 19% of the total Forex market revenue.

Some information to know about the New York session:

+ The time that coincides with the European session is when the market is active and with high liquidity.

+ Most economic reports are released during the opening of the New York session. Please note that 85% of transactions involve the USD. Therefore, whenever economic news is released during the New York session, the market is capable of strong volatility.

The amplitude of fluctuations of major currency pairs in each trading session

Amplitude of fluctuations of currency pairs
Amplitude of fluctuations of currency pairs

We can see that the market moves most strongly during the London session.

Overlapping of sessions

A good liquid Forex market means more and more people enter the market. 

Therefore, the time when the sessions overlap is when the liquidity is highest.

Let’s learn about the overlap of sessions.

Joint session of Tokyo and London

Liquidity will usually be quite poor during this period. It is for a number of reasons as follows:

+ Normally, there are not many fluctuations in the Asian session. Therefore, when entering the end of the session, there is almost no change.

+ For European traders, this is just the start of the day. Therefore, they limit transactions when the market lacks liquidity.

This creates an ideal period for you to relax while waiting for trading opportunities in the joint session of London and New York.

Overlapping of the Tokyo and London sessions
Overlapping of the Tokyo and London sessions

Joint session of London and New York

The “fun party” has just started now. This is the busiest time when transactions are executed constantly. The market will move within an extremely large amplitude. It is especially when news, financial reports, etc. from the US and Canada are released. The market may also be affected by “late” news from Europe. 

Most trends begin during the European session and will continue until the end of the New York session. However, it is still possible that the trend will reverse at the end of the European session when traders decide to take profits.

Overlapping of the London and New York sessions
Overlapping of the London and New York sessions

In one word

The Forex market operates continuously 24/5. However, you can’t sit in front of a computer screen all day. Hopefully, this article will help you choose the right time for your trading strategy.

You should join Forex as an investor, not a gambler. Make yourself the wisest trader. I wish you successful transactions.

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Friday, November 20, 2020

What Is Forex? Is This An Effective Financial Investment Channel For Everyone?

The foreign exchange (Forex) market attracts millions of investors around the world engaging in foreign exchange trading through brokerage companies (Forex platforms). In Vietnam, the trading of gold and foreign currencies in the Forex market across the borders though not yet allowed has been very exciting. If you are curious to find out what Forex is, this article will help you better understand this form of finance.

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What is the definition of Forex?

What is Forex?
What is Forex?

Forex (also known as FX) stands for Foreign Exchange. It means exchanging foreign currencies. This is the largest financial market in the world aka the pinnacle of capitalism.

According to a statistic in 2006, the amount of money traded per day in Forex reached 1.95 THOUSAND BILLION USD. In 2010, it was 3.98 THOUSAND BILLION USD. We can partly imagine the giant of this market.

Forex is a global decentralized market for the exchange of currencies. The main participants in this market are the major international banks. Financial centers around the world function as anchors of exchange between a range of different types of buyers and sellers around the clock, except on weekends. The foreign exchange market determines the relative value of different currencies.

Up to here, you may have gradually shaped what Forex is. Join us to learn more about it.

When was Forex created?

When was Forex created?
When was Forex created?

Business and currency exchange first happened in ancient times. People who exchange money, or help others exchange money, collect a commission. They usually charged a certain fee in their era. In the Talmud (Biblical times) writings, this was clearly recorded.

The modern foreign exchange market began forming during the 1970s. It was after three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial relations among the world’s major industrial states after World War II). That was when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

President Nixon was the one who ended the Bretton Woods Accord and the fixed exchange rate. This decision provided a free-floating monetary system.

During 1970-1973, the number of exchanges taking place in the market tripled. Reuters introduced the computer screen in June 1973. It is used instead of telephone and telex used for previous transaction quotes.

What is Forex trading?

Forex trading involves retail traders (like you and me). These are predictions of the price of one currency against another.

What is Forex trading?
What is Forex trading?

For example, If you think the British Pound will appreciate against the US Dollar, you can buy the GBP/USD currency pair low and then (hopefully) sell it at a higher price to make a profit.

Of course, if you buy British Pound against USD (GBP/USD), when the US dollar strengthens, then you will be in a losing position. Therefore, it is important to be aware of the risks associated with forex trading. Do not focus on profits. First, know the fear of losses/risks.

The unique advantages that Forex offers

The foreign exchange market is unique because of the following characteristics:

– Its huge trading volume represents the largest asset class in the world resulting in high liquidity.

The advantages of Forex
The advantages of Forex

– The geographical dispersion.

– Its continuous operation: 24 hours a day, except on weekends. That is, you can trade from 20:15 GMT on Sunday until 22:00 GMT on Friday.

– The variety of factors that affect the exchange rates.

– Margins of profit are relatively low compared to other fixed income markets.

– You can make a profit in both long and short markets.

– There are many powerful but simple to use I.T tools that can help you in trading.

– Use high leverage to increase profit margins and minimize losses to small margin account size.

– You can immediately trade for a very small amount, like $200 with a few clicks.

– You will not be confused with hundreds or thousands of stock codes. Because ou just need to focus on a few main currency pairs and make money out of them.

– Or you can freely trade anywhere and anytime you want. You can enter or exit orders whenever you want. Just a laptop with an internet connection is enough.

Who participates in this market?

Participants in Forex
Participants in Forex

Trading companies: a significant part of this market comes from the financial activities of companies seeking forex to pay for goods and services. Trading companies often conduct relatively small transactions compared to banks or speculators. Their transaction usually has a very little short-term impact on the market interest rate.

Central Banks: national central banks play an important role in the foreign exchange market. They try to control the money supply, inflation, or interest rates. Central banks often have official or unofficial target rates for their currencies. They can use their substantial foreign exchange reserves to stabilize the market.

Hedge funds: about 70% to 90% of foreign exchange transactions are speculative. Hedge funds have gained a reputation for positive monetary speculation since 1996.

Investment management companies: investment management companies use the foreign exchange market to facilitate foreign securities transactions.

Individual traders: individual traders also form a growing segment of the market. Currently, they participate indirectly through brokers, platforms, or banks.

What is the rate of Forex currency pairs? How is it determined

How are the rates of currency pairs determined?
How are the rates of currency pairs determined?

Economic factors – economic policies are implemented by government agencies, central banks. Economic conditions are described and adopted by economic reports.

Political conditions – international, national, and regional political conditions and events can have a major impact on the Forex currency market.

Market psychology – The psychology of market participants can affect the forex market in a variety of ways. Economic variables are expressed through transactions based on the crowd sentiment.

Trading algorithms – Trading Forex based on electronic algorithms (or computers/trading robots) is becoming more and more popular. As a result, the algorithm trading results begin to have a great influence on the Forex currency rates.

All of these determinants are reflected in the price action on the price chart. This is why price action is the best trading strategy. By learning to understand and feel it, you can also calculate the probability of all the variables/possibilities that the market can follow, in the simplest and clearest possible way.

To conclude

In short, Forex trading is an extremely interesting and attractive money-making channel. However, it is risky. You can lose all your money in your account in just a few minutes.

Finally, through this article, we hope to satisfactorily solve the question of what Forex is. This is an article for investors who are wondering.

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Thursday, November 19, 2020

Choose The Right Capital Management Method In Olymp Trade

In the previous article, I have introduced to you a complete trading system in Olymp Trade. Along with that is a way to create an effective trading strategy in Olymp Trade. You can read again here if you do not know:

+ How To Make Sustainable Money In Olymp Trade

Building such a system is the safest and most effective way for you to make money on the platform. Once you have an effective Olymp Trade trading strategy, what you need to do next is to use a capital management method that suits this strategy. 

Today, I will show you how to use a capital management method in your trading system. This is the factor that will help keep your account safe. It even helps you optimize your profits when trading.

The important role of capital management in Olymp Trade trading

If someone tells you that a trading strategy is the most important factor to help you profit in Olymp Trade, then that guy is just bragging. Or they may know nothing about the importance of capital management in trading.

I will give you a specific example so that you know managing capital in trading is a must if you do not want to continuously “tribute” money to the market.

Let’s say you are trading in Olymp Trade with a win rate of 80%. This means that you win 8 orders out of 10. The payout rate here is 82%. If you win 8 orders with $100 each and lose 2 orders with $10 each, so you have a profit of (8 × 82) – (2 × 10) = $636

But what about the opposite? It means that you win 8 orders with $10 each and lose 2 orders with $100 each. You will lose (8 × 8.2) – (2 × 100) = -134.4. This is not pleasant at all.

What about a win rate of 30%?

Now, considering the 30% win rate, you have 3 winning orders with $100 each and 7 losing orders with $10 each. You will win (3 × 82) – (7 × 10) = $176. And if the opposite happens, it is, of course, a disaster.

In the two examples above, we can see that with a payout rate of 82%, you can still lose $134. However, the win rate of 30% with proper capital management gives a profit of $170.

Capital management is vital to your account in Olymp Trade
Capital management is vital to your account in Olymp Trade

Therefore, managing capital in trading is a must. Proper capital management will help you at least not lose money in Olymp Trade even though the trading strategy is inefficient. And when the strategy has a high win rate, you will definitely make money in Olymp Trade.

How to choose a capital management method that suits your trading strategy in Olymp Trade

There are many capital management methods you can use for your strategy. Each capital management method has its own advantages and disadvantages. If your choice is not suitable for your trading strategy, you will lose or even burn your account.

Which popular capital management methods in Olymp Trade do you know? If not, you can review this article:  Capital management in Olymp Trade: The key to making money.

In that article, you will know about the management methods commonly used by traders in Olymp Trade. Each method of capital management will have its disadvantages. Please read it carefully before continuing with this article.

Ok, if you have read this far, we are going to get started. Below, I will guide you on how to find the right capital management method for your trading strategy.

Classic capital management method

The key to this method of capital management is stability. That means you will trade with a constant amount of capital. If you want to use it, your trading strategy must have a big and consistent win rate.

Along with that, the strategy must allow you to open enough orders within a certain amount of time. Because the Classic capital management method helps you to profit when and only when you trade enough. To be able to know this, you need to thoroughly test your trading strategy long enough. Coming with that is accurate statistics. I will give you an example for better understanding.

For example, I use the Classic capital management method when trading in Olymp Trade following the price trend and retest. After verifying, I realized that when the price creates a trend, there would definitely be a retest. 8 times out of 10 retests, the price will continue to follow the trend. Therefore, if I trade all 10 of these retests, I will have about 7-8 winning transactions. This condition is enough for me to apply the Classic capital management method.

Classic capital management method in Olymp Trade
Classic capital management method in Olymp Trade

Open orders with the Martingale method

This is the capital management method for traders with risk trading. Martingale’s principles are: If you lose, double the bet on the next trade. With just one win, you will get back both capital and profit.

It may sound easy, but the truth is that you can completely burn out your account with this way of capital management. See the following article to learn more about Martingale: How To Trade In Olymp Trade Using Martingale: A Waste Of Money If You Don’t Know How To Use It.

In this section, I will show you the prerequisites of your strategy for using Martingale.

Conditions for using Martingale in Olymp Trade trading

You can only use Martingale if your trading style ensures the following:

+ Your strategy cannot yield a big losing streak. Usually, a Martingale cycle will last about 4-6 orders. If you have a strategy in which you can lose 6 consecutive orders, using Martingale will only lead to burning out your account.

+ The strategy must not have too many transactions within a certain time. For example, in 1 day, your trading strategy should only allow opening 1-2 Martingale cycles. If you open more, the chance of losing money is very high. Because if you lose 2 cycles, you will need 10 winning cycles to regain the capital.

For example, the trading strategy in Olymp Trade using the Out Bollinger Bands candlestick combined with the resistance & support can use Martingale. Only 5% of candlesticks are Out Band candlesticks. And within one day, they are less likely to appear in the resistance & support zones. Therefore, you can only have at most 1 or 2 Martingale cycles with this strategy.

One Martingale cycle in Olymp Trade trading
One Martingale cycle in Olymp Trade trading

Capital management by gradually reducing the amount of capital for each order

The nature of this method is: The capital of the next trade is from the profit of the previous trade. With this capital management method, your account will be more secure. Because, if you win, your profits will increase. If you lose, you break even and you have to stop. With this capital management method, the more orders you open, the better it is for you.

Its downside, however, is that the first trade will weigh on your mentality. This capital management method is suitable for trend trading. In which, the winning probabilities of transactions decrease gradually.

For example, When trading following the trend combined with the SMA 30, I will open an order when the price touches the SMA and bounces back. Usually, the longer a trend is formed, the higher the chance of it getting broken and crossing the SMA to reverse. Therefore, if you trade with decreasing capital, you will make the most of your profits with this trading strategy.

Capital management by gradually reducing the amount of capital for each order in Olymp Trade
Capital management by gradually reducing the amount of capital for each order in Olymp Trade

Capital management with compound interest

That means after 1 winning order, you will combine both capital and profit for the next order. In trading, it is called all-in. And this is the fastest way for you to make money. But if you lose, you only lose a small amount of your initial capital. It may sound easy, but this capital management method is difficult for you to apply because of the following:

+ You will need to have a strategy with a very high win rate to be profitable.

+ Psychology weighs more on the last orders of the cycle because the capital for these orders will be extremely large.

For example, you start at $100. If you win 4 orders in a row, you will get $490. If you lose, you only lose $100. Therefore, you are allowed to be wrong 4 times. And with only 1 win, you will get back all your capital.

Capital management with compound interest in Olymp Trade
Capital management with compound interest in Olymp Trade

See the following article to see how difficult it is to use this capital management method. The Fastest Way To Earn Money In Olymp Trade: Compound Interest And 1 Minute

Opening orders with capital based on the hunch towards each transaction

With this capital management method, you really have to be a pro-trader to use it effectively. The key to this capital management is that you need to “feel” the orders with a high probability of winning. From there, you will adjust the amount of capital for that transaction more or less.

For example, when trading with reversal candlestick patterns, I will base on the accuracy of the candlestick patterns to adjust the capital. For example, when the Bearish Harami pattern appears in an uptrend, I only invest $20. But with the Pin Bar candlestick appearing at the price retest, I can consider opening an order with a capital of $100.

Open orders with capital based on the trader's judgment
Open orders with capital based on the trader’s judgment

With this capital management method, your judgment must be really good for you to apply. If not, you can lose heavily with just a few trades.

Conclusion

By reading here, you have partly understood and grasped how to manage capital in Olymp Trade. Please check your trading strategy. What is the right capital management for your strategy? Fulfilling this means you have taken 2 out of 3 steps to reach your goal: Making money steadily in Olymp Trade.

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The post Choose The Right Capital Management Method In Olymp Trade appeared first on How To Trade Blog.



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