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Automated Forex System Trading Robots – A Way to Avoid Trader’s Ruin
RUIN OF TRADERS
Even grown-ups can lose their shirt…it doesn’t matter if it’s Forex trading, stocks or gambling. As we have seen recently in financial markets, poor choices and risky behavior can bring down even the most powerful banks.
How can YOU avoid bad decisions and poor techniques that create account deletion errors? Curiously, it is the status of “little guy” that can be the salvation of the non-professional trader. By adopting a disciplined Forex trading behavior and realizing how vulnerable you are, you can become a winning trader!
The fact is, most Forex traders lose simply because they have never heard of “Trader’s Ruin”. More commonly known as “Gambler’s Ruin”, there are several reasons why it is important for the Forex trader to understand this concept.
1) Understanding this concept can easily make the difference between success or failure in a trading career.
2) Failure is a statistical and mathematical CERTAINTY if you don’t know the techniques needed to beat Trader’s Ruin.
The road to ruin
It has been said that the difference between gambling and speculation (or trading) is that in gambling the odds are fixed and they are always in favor of the house and in speculating the trader uses his intellect to move the odds in his favour. So logically, the PLAYER, even if he wins in the short term, if he continues to play, in the long term he will certainly lose. It then seems logical that the SPECULATOR (read Forex TRADER), who is adept at selecting Forex trading strategies where the odds are constantly in his favor, may win or lose in the short term, but in the long term will come out a winner.
The SAD TRUTH is that it is NOT TRUE.
Even if you had a source of Forex trading signals that had more winners than losers, the statistical reality is that if one side of the trading momentum (the Forex market) has more resources (deeper pockets) than the other side of the trade (read YOU), in the long run, the player with more resources will statistically always end up with all the money. OUCH!
For those of you who don’t care about math, a simple illustration is of two traders playing a game of tossing coins. Trader One (T1) and Trader Two (T2) each have the same number of coins. Each trader takes a turn tossing a coin and the other trader calls “coins or tails”. If the calling trader guesses correctly, he gets the coin. These are even odds, with each trader having a 50% chance of winning any flip. However, if you repeat this process long enough, eventually a trader will have all the coins – this is 100% statistical and mathematical certainty.
If one trader starts with significantly more coins than the other, that trader is the one who will take all the coins. If you want to see the calculations, it looks like this, where T1 and T2 are the probability of losing traders one and two respectively and “n” is the number of coins each trader holds.
T1 = n2 / (n1 + n2)
T2 = n1 / (n1 + n2)
If you plug in different numbers, you can see how it works. If Trader 1 and Trader 2 have the same number of coins, say 100 coins each. Then the probability that trader 1 loses all his coins is 100/200 or 0.5, or 50%. There is a 50-50 chance that either trader will lose all their coins to the other trader. BUT, if one trader has a much larger number of coins than the other, watch what happens.
If Trader 1 has 1000 coins and Trader 2 only has 100, the chances of Trader 1 losing are 100/1100 or 0.091, that means the chance of Trader 1 losing all his coins is not than 9.1%, less than one in ten. If Trader 1 is the Forex market, with essentially an infinite supply of coins, Trader 2’s chances of winning are infinitesimal. Translated into ordinary terms, this means that if there are two traders, each trader’s chance of going bust is equal to the ratio of the number of coins your opponent has to the total number of coins you both have. This means that without a major aberration (called a real run of incredible luck) the trader with the smallest bank account will always lose.
It seems logical that this is true in Las Vegas, where the odds are always stacked against you. But it seems so unfair in Forex market trading. The harsh truth is that this applies to stock markets, investment firms, hedge funds, large private investors and Forex traders! It is about “being able to stay”. The more money you have, the longer you can stay in the game, the better your chances of winning.
The little guys lose.
So do we all stop? Are we doomed? Yes and no. Unless you have a Forex trading strategy that protects your resources, you will inevitably lose. Losses and charges will suck the life out of your account. To beat the Forex markets, you must discipline your trading behavior to develop and protect your resources.
Beat the market and its minions at their game
In Vegas, the only way to win is to not play the game. But to accumulate real wealth, playing the markets is one of the only practical methods available to the ordinary trader. The financial industry knows this and everything they do, from asset allocation models, advertising, fees and commission structures, is biased to keep you IN the markets ON THEIR TERMS. If you stop playing their game, they lose their edge which is causing your trader to go bankrupt.
The wise investor must get off the train of the financial industry and master his own negotiation techniques. The statistical example above assumes that traders are making a very structured “bet”, each trade is the same size each time and it is a “winner takes all” bet. This is a way that many traders tend to trade, intentionally or functionally holding their trades too long when losing. Escaping this mindset and realizing how much discipline can help you “beat the streets” can swing your trading results strongly in your favor.
The first lesson that needs to be learned is that when the trade is not going to your advantage, you stop playing as soon as possible. This requires iron discipline on your part. You don’t have to be right every trade to win big in Forex or any market, in fact you don’t even have to be right most of the time. Most Forex traders think in terms of the percentage of trades they win. Many Forex trading systems or Forex robot developers boast results such as “95% winning trades”. This is the wrong way to look at a trading strategy.
The basic concept a trader should understand is that a trading system should ensure that you make more money than you lose over time. You can lose many more trades than you win, but if you limit your losses, you can overwhelm them with your winnings. Many of the best traders and investors often only make winning trades 40% of the time and build huge fortunes. They do this by making sure to “cut losses low and let the winners run”. If the trade goes against the winning trader, they immediately exit the trade and only play the game when they win. This is the essence of positive expectation (which will be discussed in another article) – small losses, big wins. If a trade turns against you, the sooner you exit the trade, the less you lose. When a trader holds on, hopes or expects a trade to reverse or improve and suffer even greater losses, that is when he enters the realm of trader ruin.
When the trade goes your way, let it go, watch it closely, and continually adjust your stops to protect your profits. Whether the stops are 10%, $10 or 2 pips, the trader must have an unbreakable rule that is followed without fail. If you win more, you can risk more but losses should be kept to a minimum. A trader’s frustration at being shut down and suffering repeated small losses often influences his trading techniques, causing him to make poor trading decisions leading to the trader’s ruin.
One of the easiest ways to apply the kind of discipline required for true success in Forex trading is to use an automated Forex trading system or Forex trading robots – often called Forex Bots. These software-based Forex trading systems are highly sophisticated computer programs that use a variety of Forex trading signals. Many of them can trade in fully automated mode, where all the trader does is monitor and check their account balance. These programs apply the kind of discipline that provides positive expectations. Automated trading systems can often open a trade, trail it, set stop losses and close the trade completely on their own, based on the rules programmed into the software using a data feed and an Internet connection at the trader’s brokerage.
Typically, successful Forex trading software of this type is often shut down and suffers many small losses because the program limits the amount of losses allowed for any trade. As mentioned earlier, being pulled out for losses repeatedly frustrates a human trader and emotion kicks in. Trading robots are mechanical Forex trading systems that feel no frustration. These programs also allow a winning trade to run until it “turns around”, some of the more sophisticated programs can widen the stops as a trade develops profits, but the percentage of the trade that could be returned is still very low and acted upon immediately if exceeded. This is the method that creates success and profits in trading.
This is how the small trader can “refuse to play” the industry game and still make huge profits. Many automated Forex systems have 100% guarantees, provide full installation and support service, and give a potential customer the ability to trade on paper in demo accounts in the real Forex market, so that traders can “try before you buy”. This website offers reviews of six of the best Forex auto trading systems available. These Forex auto trading systems have been selected based on a range of trading approaches, and each has the two very important main attributes listed above, the ability to trade on paper or test the system for at least 60 days and 100% unconditional money back guarantee. Whether you decide to try automatic Forex trading systems or maintain your own iron discipline, the important concept to internalize is that by protecting your assets, derailing the financial industry train, and controlling your system of trading, you protect your resources and improve your positive expectations. .
There is no secret. Disciplined trading should be followed rigorously, when hope, belief, false techniques or wishes enter your trading, followed closely by Trader’s Ruin.
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