I'm back from a short road trip..hope the Forecasts served you well...

I have been running a little demo for the last couple of weeks to illustrate my philosophy on the dreaded "stop loss". I know I beat this point to death, but I strongly believe it is the key to success using the Forecasts.

Before I describe my demo, lets re-cap my philosophy on stops.

I can not stress enough that each individual has to work within their own comfort level. It is a given that a Forex trader is a risk taker. But do not equate risk with gamble. I hate when anyone compares Forex trading to gambling. That is not to say that many Forex traders are not of the gambling mindset. Many just blindly throwing money at a trade hoping with fingers crossed that they roll their number. If you trade like this, for your own safety, just trade in a demo account until you formulate a calculated strategy on trading in the Forex.

I understand though that many traders feel they really are just throwing luck at trades hoping for a positive outcome. There are so many factors out of your control that influence the price of a currency. And I understand that many of you have looked for the Forecasts to hedge your bets. And it is with this faith and trust that I try to help you through this blog.

There are many reasons why I offered up the Forecasts. And one main one, in a selfish way, is through your success I can be successful also. I have laid my trading strategy out there for anyone to see, and if they like it can emulate or meld into their own style.

But there are limitations that you must understand. My wife hates when I use this expression, (maybe I use it alot)... "You don't have to be a chicken to sell chicken soup" And this is so true when trading Forex. So many people try and become the chicken! Try and think like a banker, act like a mathematician, have the resolve of an economist. How do you do all this and go to work everyday, have time for family etc.
So I am trying to get you to trade with a belief system. Not a system that has you re-inventing the wheel and saying what, how, why, why not etc. But using the wheel (the Forecasts) to simplify your trading. And through this approach, over time, everything will fall into place.
The Forecasts are open to interpretation, and with this inherent flaw, I constantly demonstrate different strategies to try and simplify the process. And the achilles heal in the Forecast is the reckless use of the stop loss. (bet you were wondering where this was going).

You can go back and read my previous blogs about stops. In essence, and I am not advising anyone of you to trade like this, I use money management in the execution of trades, and stop losses to get out of dead situations. And most times the stops are activated psychologically.

The money management is a basic system I use of dividing my account by the amount of deadly trades I can afford to lose. I also use a catastrophic event as a signal that allows me to recoup any hard loss I take. So if I have entered a trade and it went very south on me and pushes me out. I am going to be damn sure the next series of trades will bring my head back above water. And I do this by staying out of the market until a currency establishes a good direction, then I go back in. And I do this by observing the Forecasts.

Now, the one thing I don't want to do is have to start treading water because of the reckless use of stops.

So back to my demo. It played out while I was on the road. I try and think like a new user to the Forecasts and try and create a winning strategy based on limited experience with the Forecasts.

2 weeks ago, I picked a random evening and entered 4 trades based on the Forecasts. I only played the 4 majors. I know that in theory the euro/usd and usd/chf are correlated, and the gbp/usd and usd/jpy are correlated. (In this case meaning that the direction of one has the opposite direction effect on the other. So when the gbp/usd goes up, the usd/jpy goes down and vice versa.) My goal was to either let them all go into profit or cash out when the account was in a significant profit position. I put my profit inside of the the forecast range, and put my stops just outside.

So what happened? 2 of the pairs went into profit and cashed out, the other 2 got stopped out. I wound up losing money.

So then I did the same 4 pairs on a random night last week under the same parameters. But this time, left out the stops. What happened? They all eventually hit profit, even though many of them would have been stopped out.

So the moral of the story? Most times stops will prematurely get hit. Are you playing with fire if you don't use stops? Maybe, but if you monitor your positions, use proper money management, use a stop position based on saving yourself from a catastrophy, when the catastrophic event comes you can ride out the storm.

My theory, my thought, my strategy...not for everyone, but it works for me.

to view account:

http://stockandforexcenter.com/images/demooct11.jpg