{"id":1915,"date":"2010-02-28T01:30:10","date_gmt":"2010-02-28T05:30:10","guid":{"rendered":"http:\/\/club.ino.com:80\/trading\/?p=1915"},"modified":"2010-04-26T17:42:30","modified_gmt":"2010-04-26T21:42:30","slug":"the-free-trade-strategy","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2010\/02\/the-free-trade-strategy\/","title":{"rendered":"The Free Trade Strategy"},"content":{"rendered":"

\"\"Trader's Blog would like to welcome back Bill Poulos from ProfitsRun.com<\/a>. Whenever I ask Bill to come and teach, he always delivers. This time is no different with his article on the free trade strategy. Please take time today to read the article, comment below, and also if you'd like to learn more from Bill check out his \u201cForex Smart Start Profit Strategies Session\u201d webinar here<\/a>.<\/p>\n

===================================================================
\nTrading the Forex markets is risky business, make no mistake about it.\u00a0 As a trader, if you do not pay attention to risk first and foremost, you will lose, plain and simple.\u00a0 There are at least two key aspects to managing risk.\u00a0 One is the placement of stops and the management of the trade as it unfolds, and the other is the position size of the trade relative to the trader's account size.\u00a0 If either one of those is not handled properly, the trader will lose in the end.<\/p>\n

The good news is that both can be managed to the trader\u2019s advantage resulting in minimizing losses and providing the opportunity for great profits.<\/p>\n

<\/p>\n

One technique to reduce risk in a trade and dramatically alter the reward to risk ratio in favor of the trader is what I call the Free Trade Strategy.\u00a0 The Free Trade Strategy is very simple to apply to any trade and supports what I believe the initial goal of every trade should be, namely to reduce the risk in the trade to zero.<\/p>\n

Here is how it works.\u00a0 Once a trade in entered and triggered, the initial stop should be placed where the trader does not expect the market to go and if it goes there the premise of the trade is compromised and the trade is stopped out for a loss.\u00a0 However, as soon as the market moves favorable to the trade by a critical amount of pips, the initial stop should be moved to breakeven.\u00a0 By doing so, the initial risk in the trade has been zeroed out and puts the trade into a \u201cFree Trade\u201d status, where the only question remaining is how much profit will be made on this trade and if none, will be stopped out at breakeven.<\/p>\n

This strategy then dramatically alters the reward to risk ratio in the trade as well as the expected reward to risk ratio over a series of trades.\u00a0 The trader might enter into a trade with a one to one ratio based on the initial stop and profit target, but upon moving the initial stop to break even, the risk is now zero with nothing but reward remaining, so the ratio skyrockets in favor of the trader from one to one to mathematically undefined.<\/p>\n

But of course, the key to this strategy is to know when to move the stop to breakeven.\u00a0 If it is moved too soon, the trade may be stopped out prematurely, missing out on the ensuing profit potential.\u00a0 If it is moved too late, otherwise breakeven trades may be stopped out at the initial stop for an unnecessary loss.<\/p>\n

So here are the Free Trade Strategy rules.\u00a0 First, take note of the Average True Range (based on the last 20 bars) as of the bar before entering the trade.\u00a0 As soon as the market moves favorable to the trade by 75% of that Average True Range (meaning the open profit in the trade is equal to or greater than 75% of that Average True Range), change to initial stop to breakeven, zeroing out the risk in the trade.<\/p>\n

That\u2019s all there is to it, simple but powerful and you can apply this strategy to any time frame.\u00a0 Now there will be times where the trade will be stopped out prematurely, but over a series of trades following whatever method the trader uses, the expectancy for that series of trades should be greatly improved by adding the Free Trade Strategy.<\/p>\n

Thanks again to Adam for having me today and I look forward to answering your comments!<\/p>\n

Good Trading,
\nBill Poulos<\/p>\n

Also I'm hosting my first ever \u201cForex Smart Start Profit Strategies Session\u201d on Wednesday, March 3rd to help frustrated forex traders break down their real world problems with solutions that work.<\/p>\n

To grab a seat in this very cool session, click here.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Trader's Blog would like to welcome back Bill Poulos from ProfitsRun.com. Whenever I ask Bill to come and teach, he always delivers. This time is no different with his article on the free trade strategy. 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