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So far we have seen how I set up my charts before the trading session begins (chapter 1), also the price

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formations I like to base my entries on (chapter 2 and 3), and the exits and stop losses too (chapter 4),

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and finally we have seen how to integrate news announcements into my overall analysis (chapter 5).

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It's now time to talk about management.

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Trading is like any other business: you may manufacture the most innovative product in the world, run
a cunning advertisement campaign and hire the sharpest sales force, but if you (the CEO) do not apply
sound money management into the whole thing your business will go bankrupt at the first bump on
the road.

And we can't let that happen, can we? :)

Pre-trade management, also widely known as Money Management. Many traders say that pre-trade
Management is crucial for successful trading in the long run, and I must agree. But let's have a look at
those key-concepts we want to have on our side before entering a trade:

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The 3 SMA Trend Filter conditions

Pre-trade management begins with the application of the 3 SMA Trend Filter conditions. In a way, by
cherry-picking our setups, we're indeed making sure we only get involved in those markets presenting
the best trading prospects for the day. You must seek an edge on your trading, and making sure you
trade with the whole market sentiment pushing you along is the best way to start off.

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Spread Cost
I personally limit my candidate-list to those pairs with a 7-pip spread cost or lower. You know,
entering a trade with a -9, -12 or even -15 balance off the bat doesn't quite appeal me. I certainly would
recommend you guys to search for brokers with low spreads, even if there's a small commission per lot
traded. Those extra pips gone down the drain via spreads slowly mount up and they can make a
significant difference at the end of the trading year. The best spread costs are usually offered by ECN-
type brokers such as Interactive Brokers, Dukascopy or any Currenex-enabled institutional platform.
But they are usually only available to $50,000-plus accounts; for smaller accounts EFX Group is
probably the most competitive broker spread-wise.
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Lastly, compare the spread cost to the ADR. A spread cost of 7 pips for GBPJPY might be acceptable

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because its ADR is over 200 pips, but a 4-pip spread for a 40-pip-ADR currency pair might indeed be

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too expensive to trade, you see?

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Risk vs. reward ratio

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Another factor you certainly want to keep an eye on is the risk vs. reward ratio (R:R hereafter) of every
particular trade, meaning how much we can lose if our stop loss gets triggered compared to how much
we can earn if our price targets are met. I never take a trade with a lower R:R ratio than 1:1.5 because I
want to make sure that, even if my win/loss ratio remains at 50%, I will still be able to make money
over time by entering only those trades that carry an earning-potential larger than the loss-potential.

As you gain practice and experience under your belt, you may conquer better win/loss ratios above
50%, perhaps into the 60% or 70% marks. In that case, you can reduce your R:R requirement from
1:1.5 to 1:1 because you have the statistics on your side. But like I said only once you have been
consistent at 66% win/loss or better for a prolonged period of time.

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Lot size
How many lots to enter the market with per trade? There are a number of mathematical formulas to
determine how many lots to place per trade. I personally like to keep things simple and therefore I risk
a fixed 3% of my account pet trade. What does that mean? It means that if my stop loss is hit, I only
lose a 3% of my current account balance in that particular trade. The core principle to understand here
is that the stoploss location (and thus the potential monetary cost of that trade going belly-up) will
determine your lot size, not the other way around.

I use a very simple Microsoft Excel file for this purpose which you can download here (right click and
save it into your hard disk). However, I do not recommend you to risk more than 1% per trade until
you become consistently profitable. In fact, I always recommend doing some serious demo-trading
before going life to get accustomed and comfortable with the system.

That Excel file will keep you away from over-leveraging your account to potentially-hazardous levels.

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Compounding
Compounding is where the actual power of trading lays within. So what is this compounding thing all
about? It's basically letting your account take off exponentially by subsequently-increasing your lot
size as your balance grows. For example: let's say your account was $10,000 last month and you have
been entering the market with one-lot trades. However, this month your account has boomed into
$11,000 and now you can increase your lot size from 1 to 1.1, which will report you larger profits and
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thus growing your account faster, which will consequently allow you to increase your lot size yet

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again, and so on.

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You just need to worry about making sound trading decisions and limiting your losses, and
compounding will take care of growing your account for you over time, that I can assure you.

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Time zone

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Am I trading the right time zone for this currency pair? For example, GBPUSD puts in most of its
daily moves during London session, whereas it hardly moves an inch during Tokyo session. If you're
scouting a nice GBPUSD setup, be aware of the time of the day when the entry signal fires off because
you might easily take a trade that may remain stagnant for hours upon hours if entered at the wrong
time of the day.

That is why I exclusively trade the London session, because it's by far the most active one of all
markets regardless of what currency pair you trade. JPY-crosses may occasionally show some
interesting moves during Tokyo session, but overall it's London the girl to dance with. I am aware that
many brokers love to promote the idea that Forex is a 24-hour-tradable market, but in all fairness only
the London session and the first half of US session hold any interest. The second half of US and the
whole Tokyo session are crawling-slow and utterly momentum-less.

If you truly desire to become a full time Forex trader, you might want to consider adjusting your
schedules around the London session regardless of which world time zone you live in.

Don't trade off-peak hours guys or else you will see most of your positions dangerously sitting stagnant
upon entry!

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ADR
Already explained over previous chapters - am I entering a trade that has already poured in all the
milk for the day? How much gas is left in this currency pair?

If the market has already scored most of its ADR and a signal is given, you might want to let it go
because of the same reason above-mentioned regarding Time Zones: you might enter in a position just
to see it flat-lined for the rest of the trading session.

As pointed out, you definitely want to avoid markets with no momentum left whatsoever.

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Stop loss
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Are our technical analysis studies dictating that a large stop loss is due? Then you want to reduce your

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lot size in order to not swallow potentially-unacceptable drawdowns on your equity. That's one of the

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reasons to use the Excel file linked above: no matter how far the stop loss is to be placed, you won't

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risk more than a pre-defined fixed % of your account.

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A trader's job doesn't quite end when the entry order, stop loss and target price are punched in. Not at
all in fact. There are few factors we better keep an eye when we have a trade open:

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Take partial profits

I have already gone through this topic in Chapter 4. Taking partial profits falls in line with the “trading
is all about minimizing risks” principle, because by taking some money off the table we offset the risk
of price pulling a 180-degree turn which is always a possibility.

We must integrate those possible partial-exit levels within our trade plan before entering the trade so
we don't give in to emotion-trading mid-way through the trade.

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News blockout period

It's also being talked about in Chapter 1. If you are caught up by any upcoming major news
announcement with a trade open, don't hesitate to move stop to breakeven or even exit pre-news with a
small loss. Remember that news can shake price up 50+ pips in any direction within seconds. Leaving
a position open with an unprotected stoploss when the news come out is pure gambling.

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Breaking intraday levels of support/resistance

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Ever heard the “don't let a winner turn into a loser” principle?

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Sometimes full projection targets are not meant to be reached, as simple as that. You never know

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which swing is going to be the last one, the one to poof the whole trend away. Who knows, it might

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very well be the one you're surfing right now! That's why I don't have any problem in closing a

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winning trade half way through if I see symptoms of weakness on the trigger chart as the trade unfolds.

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You know, I'd rather grab some pips and run for my life than let the swing turn around and bite me in

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the butt! So like I said, if I see symptoms of weakness, I don't hesitate to close out.

Now the question is: how to identify that weakness in the trigger chart? Let me try to explain it out
but first of all, let me say that it's easier to identify weakness on longer term trades than on strictly
intraday trades – too much random noise in the micro time frames for a clear picture of what's actually
going on. Ok, let's cut to the chase: just as price swings up and down on the setup chart breaching and
retesting levels of support/resistance as it flows in the direction of the trend, so does the trigger chart as
it flows in the direction of the swing.

Let's assume a downtrend in the setup chart that's giving us some hints that a new swing down is on its
way. We zoom into the shorter time frame, trigger the entry and follow price closely as the new swing
down unfolds on. From now on we must read price action to ensure that price keeps its down bias
throughout the move – if a level of support is breached (let's assume a round number), later on
restested from below and finally continuing its downward momentum, we can safely say that the round
number has been confirmed as a level of support/resistance and thus we can trail our stop few pips
above that level so, if the swing fizzles and price shoots up, we have at least some pips secured.
However, it's important to understand that I don't trail my stop behind that level because I want to
secure some profits, but rather because I understand that the swing as a whole is jeopardized and thus I
don't want to be in that position anymore. That level was broken and confirmed with the pullback +
continuation aspects already, so if price decides to turn around later on and breach once again that level
to the upside, I would consider that the breakout hasn't delivered and therefore it's time to get out. Just
like in any other type of breakout guys.

Let me show you a video of one of the trades I took live on the 17th of May 2007 . But in this case I
won't show you the actual trade (you can watch it on my trade blog) but rather I will go through it
explaining the in-trade management applied.

Ch6.sec2.video01_IntradeManagement1.swf

As you can see, breakouts of levels of intraday support/resistance can help us providing safe
levels to trail our stops to.
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Identify micro price patterns

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I also sniff the trigger chart when in a trade is search for micro price patterns as seen on previous

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chapters: triangles, flags and ranges, and I apply the exact same principles. Let's go back to our

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previous example: a downtrend that seems to have a new swing down sprung and we have just

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triggered our short entry. Alright, what if price forms a triangle in the trigger chart mid-swing through?

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Like I said, the same principles apply: if the triangle breaks to the downside, I will consider that the

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swing still has some gas left to the downside and thus I keep the trade open. Conversely, if the triangle
breaks to the upside, that's a signal of weakness and I may either move stop to breakeven or close the
trade altogether.

As you can see, the principles behind a price formation breakout are universal and valid no matter the
time frame or the situation: they can give us valuable information to either enter or exit a trade. Let's
watch a video on this topic!

Ch6.sec2.video02.swf

And here we are at the final stage of my trading routine – the post-trade management or trade-logging.

Before beginning to record my trades live I used to take screenshots of every trade taken (both setup
chart and trigger chart) and print them out, storing them in a folder I have for that particular purpose.
In those chart printouts I would write every single note that went through my mind throughout the
whole process: where are my levels of support/resistance, my targets, in-trade management
adjustments, news blockout periods, longer time frames' possible conflicting signals, etc. Now that I
record them live and post them on my trade-blog I don't do it anymore, but regardless of the
technology you decide to go for, it's utterly important to log every trade with all those notes attached to
them. It allows you to re-analyze your trades in hindsight and spot possible recurring mistakes
and correct them out in future trades. Trust me, it's important because sometimes you see
everything with a new perspective once the heat of the trade -and your emotions too- have cooled off.
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Logging my trades and re-studying them later on helped me enormously, especially with my in-trade

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management skills. You know, it's pretty difficult to keep up with what's going on in a live chart,

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trying to factor in what's going on in the trigger chart, the news announcements rolling in, the levels of

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support/resistance being broken, etc and assembling them all together in real time might prove a
daunting task at the beginning. That's why you may miss some of the vital info you ought to keep track

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at every time, and by reviewing calmly the printouts you train your eyes and brain on that difficult

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task.

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Moreover, keep a fully-detailed Excel file with your track record listing every characteristic of each

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trade: which time frame was it based on? Which currency pair? Was it a short or long entry? Did you
take half out mid-swing through? Was it a breakout or a swing entry? Was it during London , US or
Tokyo session? How long did you keep your trade open? Has the pattern run all the way to its full
potential projection? How many lots did you enter with? What % of your account balance are you
risking in that precise time? The final outcome in pips and equity change. Etc etc. Absolutely every
single point you can think of, and try to run some statistical results once you gather enough trades
under your belt. By doing this, I personally realized for example that the 4H chart is the time frame I
score my best results with and that trades aiming for 50 to 80 pips grant me the highest win/loss ratio,
so those are the trades I prioritize now a days.

I have created a small Excel sheet [ Ch6.sec3.PostTradeBlog.xls ] with a number of columns where
you can keep track of all the important variables involved in each particular trade. I know it seems like
a pain in the ass to fill in all those blank spaces for every trade, but trust me it just takes 10 minutes
top and you will fish some valuable info out of it once you have some few dozen trades blogged in. By
all means, if you come up with any other important variable that I may have forgotten, don't hesitate to
include it on your own sheet.

Please guys, don't underestimate the importance of the post-trade management. Many novice traders
believe that once you push you EXIT button it's all finished, but if you don't study your own trades a
posteriori , how will you learn from your own mistakes? How will you avoid incurring in those
same mistakes in the next trade?

Every single professional trader logs his trades, analyzes them afterwards and runs some statistical
studies every now and then. Every single one of them. And there's a reason for that…