Trading Guidelines

While every trader has a different trading approach and varying risk appetite, Bull Bear Forex strongly recommends the following guidelines.

With our professional signals, you outsource a large part of your trading.
Nevertheless, you are still responsible yourself for actually executing the trades.

Therefore, we have put together the following list of common topics for both educational purposes and guidance for your actual trading.

How much risk to take on each trade?

Risk a maximum of 1% of your total available trading capital on any one trade.
1% offers the right compromise between potential profits and limited risk.
If your risk appetite is lower and your trading approach more conservative, you might even choose to risk only 0.5% instead.

The often-heard 2% are actually, under normal circumstances, too much and can cause more painful drawdowns and psychological pressure, leading in turn to irrational trading decisions, such as searching for revenge trades in order to get the lost money back instantly.

In trading, there are two key figures: Risk of Ruin and Risk of Drawdown.
The former determines what it takes to blow up your account, while the latter tells what must happen to make you reach certain drawdown levels.

Depending on your win rate and reward : risk ratio, you will find that it makes partially a huge difference how many percent you risk on each trade.
Doing the math, again we find that with maximum 1% you are on the safer side but at the same have good profit opportunities, as long as you have an edge with your trading system.
Check out freely available Risk of Ruin and Risk of Drawdown tables or calculators to see the details.

It is of utmost psychological importance that you can accept and cope with the amount you potentially lose on a trade.
Ask yourself what you are comfortable with.

Because if you don’t feel comfortable with it, it will definitely affect your trading performance as a whole, since several factors come into play, especially the fear of losing too much or even everything, leading in turn to either taking profits too early or stopping out trades manually before the initial stop loss, thereby destroying the whole trading system.

Another factor can be how confident you are with a trade.
If you feel the probability of a win is not the highest, but still you want to take the trade because the setup appears sound, you might choose not to go “all-in” with the usual 1%, but go for 0.5% instead.
Also, in case you want to take in general a more conservative and careful approach, then going for 0.5% is perfectly fine.

But there is also an exception on the other extreme: At times, there are unique trading opportunities with literally a 99% chance of success.
Examples are the Brexit decision with a clear short of the British Pound (GBP) or the Trump US election followed by a clear short of the Mexican Peso (MXN).
These are the kind of opportunities where you can make huge amounts of profit and where you may hence decide to get in bigger with 2% or even 5%, in case your trading account is large enough to survive possible and sudden short-term spikes in the other direction, since such events create insane volatility.

Often not understood by many, proper position sizing is one of the key elements of successful trading.
Almost nothing matters more than how many money units you trade because it determines, along with the other factors, your chance of maximizing your profits on one hand and to minimize drawdowns on the other.

There are various position sizing models out there, most notably laid out in the book “Definitive Guide To Position Sizing” of Van Tharp, which we strongly recommend to study, in order to get the whole picture on the topic.

Above all, keep always in mind that the most important thing to do as a trader is to protect what you already have, because once you lose your initial trading capital, you are out of the game.
Therefore, proper risk management is key.

Which reward : risk ratio should you target?

Take only trades that offer a reward : risk ratio of minimum 1:1.

The often-cited 2:1 or higher is, although of course desirable, unlike many want you to believe, not necessary to trade successfully and professionals make a lot of, partially even quick in-quick out, 1:1 trades on a daily basis.

Sometimes, the market does not provide more than a 1:1, and missing out on great profit opportunities, only to follow the 2:1 rule, cannot be in the trader’s interest.

Instead, you should aim for high ratios when the market offers it, such as in strong, healthy trends or other favourable setups with room for more profit potential, best in currency pairs with strongly deviating market sentiment.

Or choose to deploy trailing stops, once the 1:1 has been reached, if there is still potential for more.
Obviously, when taking 1:1 trades, your win rate has to be higher and should be minimum 60%, but better higher.

High win rate or high reward : risk ratio?

The old discussion of win rate versus reward : risk ratio (R:R).
Firstly, it depends on your personality.

If you are the kind of person who just hates losing, you should definitely not focus to achieve a high reward : risk ratio, since this will affect your win rate negatively and trigger psychological issues such as anger about the losses which will very negatively affect your next trades and overall trading performance.

Then it’s better for you to work out a trading strategy with a higher win rate and maybe a 1:1 R:R only, which allows you to sleep well.
If, on the other hand, you are fine with losing more often than you win, you can aim for a high R:R of 2:1, 3:1 or even more.

Basically, this question is always a trade-off.
Every higher R:R lets automatically the win rate drop, while every higher win rate worsens your R:R.

That’s why, it is wrong to say that traders should focus on one or the other because on their own, both performance figures are meaningless.
Rather, it is the combination of both win rate and R:R that matters.

Where to place your stop loss?

Always use stop loss orders on all trades / positions.
The main rule where to place your stop loss is: Place it where your trading setup would be invalidated.

Further, it must be at a hard-to-hit location, behind significant support/resistance barriers or recent swing highs/lows, and well beyond them to avoid becoming a stop-hunting victim of banks/institutions, before price turning around and going towards your anticipated direction, leaving you behind with a stopped-out position, triggering all kinds of psychological issues, which could have also a negative influence on your next trades.

Note that on one hand, the stop should be far enough away in order to give the trade room to breathe and work out and not get stopped out by price fluctuations, and on the other hand, it should be close enough in order to not require a far take profit target, which would cause a negative influence on the win rate, R:R ratio and the actual profit in monetary terms since your trading volume will be lower.

Only move the stop towards price (only when your setup does clearly not work out and quickly goes against you), but never away from it, as this would expose you to further losses as well as worsen your overall reward : risk.

Use a trailing stop on the way up to your profit targets in order to lock in profits after having reached significant levels.

Where to set take profit levels?

Set your take profit targets slightly before the next significant support / resistance level.
Should price show clear signs of a reversal a bit before reaching the level, take profit ahead of it, to avoid losing the already unrealized profit.

Remember that levels are actually wider zones, which can often not be defined on the exact pip.

How much trading capital do you require?

Sure, you can trade with little amounts and micro lots.
But ask yourself, what sense does it really make?
Is it worth all the effort?

Of course, it depends also on the cost of living in your country.
If you live in a cheap place, a hundred dollars a month will cover a part of the house rent.

Then, if your trading profits are only a side income for you because maybe you keep a day job, small profits are fine, but again, always ask yourself if the income is in proportion to the effort.

We recommend that you should have at least USD 5,000 available for trading.
Doing the math, in case you are an exceptionally good trader and manage to make 10% per month, you go home with USD 500 monthly less taxes.
This example shows that this size of the trading account is just enough for a side income.

If, however, you want to make a living from it and have a goal of say USD 5,000 monthly less taxes, you need a trading capital of at least USD 50,000.
If you make only 5% per month instead of 10%, you will need USD 100,000 to gain the same amount.

How to make a small account grow big?

Hard to believe at first, but actually it is possible to make a small account grow big over time.

Firstly, you need to have an edge in the market and let this edge play out on a daily basis, meaning you consistently make profit, the more the better.

Then, do not withdraw best anything or only little if really necessary, but instead leave the profits on your account and reinvest them, i.e. increase your lot sizes step by step after having reached determined levels.

In addition, if you have money available from e.g. a day job income, you can add that also to your trading account, which speeds up the process even further.

Your account will grow year after year exponentially and, depending on your account size at the start, after some years you could end up with a few hundred thousand dollars in your account.

This shows the insane potential of trading the markets, although obviously only a small percentage of traders get to that point.

How much money to put in your trading account?

Do never deposit all your trading capital in a broker’s account but leave the majority of it in the safety of your bank account.
Deposit only what you actually need on a daily basis; you can always add funds later if required.
10-20% of your trading capital should be enough, depending on the available leverage and how many trades you have open at any point in time.

Especially if you trade with brokers from questionable jurisdictions, which you shouldn’t, this can become a crucial safety aspect.
You never know what happens, what the fraud case and subsequent sudden bankruptcy of Refco, the largest broker in the world at the time, showed in 2005.

In addition, depending on your broker’s jurisdiction and terms and conditions, you may enjoy a negative balance protection that limits your total potential loss to the funds in your trading account.

Now imagine an event like the Swiss Central Bank decision a few years ago, which made price suddenly drop by 2,000+ pips and assume you are in such a trade in the future, being absent from your desk.
Then the aforementioned account protection comes into play and even if you get into the negatives, you will never lose more than the money on your broker account.

Now consider you have e.g. 10,000 monetary units on that account compared to 100,000 units.
In the above event, you will, in the former case, lose “only” 10,000 units and your life goes on, but with a loss of 100,000 units in the latter case maybe not so much.

Understand that you will, regardless of the amount in your trading account, calculate your trade volumes by taking the overall amount you have available as trading capital.
So, when you have 10,000 units in your broker account and 40,000 units in your bank account as trading capital, you take 50,000 units as the basis for your calculation.

How to use leverage to your advantage?

Of course, the high leverage offered in Forex has one main advantage: You can control huge amounts of money, i.e. have a high trade volume, without having to deposit the same huge amounts in your broker account.
This makes this business attractive to the average Joe and rightly so.

What makes leverage dangerous is when you apply it wrongly.
People think they can go in with 5+% on a trade in order to trade huge volumes to make huge profits.
Then, until the margin call and stop out comes and finally your account blow-up, is just a matter of time.

This is how to use leverage the wrong way.
With increased leverage comes increased responsibility.
Forex is an exciting and dynamic investment tool, but the same precautions apply as with any market.

Risk can be mitigated using the proper tools, sound trading practices and discipline.
You must, at all times, stick to your predetermined risk level.
If you do that, you can use also high leverage to your advantage.

Which broker to use?

Unlike others, we are not affiliated with any broker and will never ask you to open an account with one, and we receive hence no commission from any.

Choosing the right broker for you requires a good amount of research time, since several factors must be considered, such as their jurisdiction, history, spreads, what instruments and services they offer, safety of funds, offered leverage, etc.

The worst thing that can happen is that you start trading with a bad or fraud broker who will give you nothing but headache.
Luckily, we have spent several months of in-depth research on this topic and came up with a clear idea about who is good and who is not.

In case you require a private broker recommendation from us, feel free to contact us with your details and we will provide a short list of trustworthy brokers with a good history and favorable trading conditions.

We repeat that despite we will recommend a list of brokers to you, we will not receive any commission from any of them.
It is just a help from us to shorten your own research.

Do not trust the broker comparisons and recommendations in the internet, since they all earn commissions from the brokers and they don’t care whom they recommend.
Several of them are outright fraud brokers to stay away from.

Now, one more advice on brokers: Just like in other parts of life, don’t throw everything in one basket.
Rather, diversify, i.e. use 2-5 different top brokers and distribute your funds and trades among them, unless you trade only a few instruments and not often.

Better (intra)day-trading or longer-term trading?

Most general analysis available is based on macroeconomic developments and is thus longer-term.
Even if it is right in the end, and often it is not, the short-term fluctuations in between can cause drawdowns to your trading account that it cannot withstand.

Further, due to the much higher trade frequency of day-trading, it is the most profitable form of trading, although it requires the most work and dedication.

Often, so-called trading mentors push the idea that trading only longer-term charts such as weekly and daily is the way to go, because it firstly takes much less effort to take only a trade or two in a week and secondly it is less costly, since fewer trades cost less broker commission.
They say that for day-trading you have to sit at your desk all day watching the charts and you would overtrade.

Although the cost issue and time involved is certainly true, we at Bull Bear Forex could not disagree more with that, assuming that you are not a millionaire with a huge trading account, but do trading full-time for a living or consider doing it in the future.

The reason is simple: The main thing all these people don’t consider is trade frequency.
And frequency matters – a lot, actually.

The basis is that you have an edge in the market with your trading system, which means that you earn overall more than you lose.
And when that is the case, once you have that edge, the math is easy: The more you trade, the more you make.

Assume you make 10-20 trades a week trading the lower timeframes such as H1 or even M15, and compare the result with taking 1-2 trades a week on the daily or weekly timeframe.
You will inevitably find that you will make much more with day-trading because it simply allows your trading edge to play out much more often.
In addition, trades on the higher timeframes take much more time to play out; sometimes days or weeks.

Then assume you have a row of losing trades; you will end up waiting for a long time to recover these losses, while with day-trading you have enough trades to not let a few losing trades destroy your overall monthly performance.

The additional commission and time at the desk are worth it, if you depend on that income.
Consider that trading professionals in institutions etc. also constantly look for opportunities at their desks, rather than making only one trade per week.

If, on the other hand, you are a millionaire or have and want to keep a 9-5 day job and trading is hence only a side income, then obviously you can or must go for the larger timeframes, since you either don’t want to or cannot spend the whole day in front of the charts.

Which session to trade?

Obviously, it is mostly of advantage to trade the London and/or New York session, since there usually the larger movements happen which create the most profit opportunities.

However, if you like or are forced to trade the much quieter Asian session, you can also do that, and, contrary to common belief, it sometimes even offers a favorable environment with cleaner movements, although it requires more patience for something to play out and additionally the spreads are wider, making it more costly.

How many / which instruments to trade?

Be open to as many instruments as possible; don’t restrict yourself too much.
Because the more instruments you have in your portfolio, the more trade opportunities will be there, which brings us back to the topic of trade frequency.

Practically, choose at least all the major currency pairs since they have very low spreads and further much information is available about them.
Then add more as you like; currency crosses if you are more attracted by forex, commodities if you like precious metals or crude oil or choose the various fixed income or equity indices instruments, or even bitcoin.

Diversification of your portfolio is a good idea.
This is because during certain periods, certain markets might not show satisfactory trends or are too choppy to establish a clear bias.
Then the other markets often provide better opportunities, since at times they do more what they should do.

At times, some exotics offer great trades and you shouldn’t miss them; these are often overlooked or intentionally left out by traders.
Although their spreads are much higher, but when there is a great trend forming in currencies such as TRY or ZAR, often due to fundamental factors, the spread is peanuts compared to the gain.

Fundamental or technical analysis?

Truly a topic which had been discussed back and forth by many and their respective supporters mostly insist that their view is the right one.

Here today, we will tell you the truth about it.
And the truth is that both methods can work, if done properly.

There are successful fundamental traders and there are successful technical / price action traders.
It is not what kind of overall trading style you have, but how well your particular system is within that kind of style.

However, if there is one thing that comes as close to the “holy grail” as it can, then it is a COMBINATION of both styles with all their individual factors that will get you the best possible results.

If you are a day-trader, let the market sentiment of the day be in line with the technical setups and price action.
You will be surprised how this can be a game-changer in your trading.

Include all available tools, such as support and resistance, round numbers, pivot points, candlesticks, swing high/lows, market type, moving averages, mathematical indicators, currency strength analysis, chart patterns, and let the direction be in line with the daily or session sentiment – that is the key to high-probability trading.

Some people might find this too much work and complicated, but they should remember that if you want to make it in this game, you have to put some effort in and not be lazy.
Just like in other professions, nothing comes from nothing.

Trading education?

Our strong advice is to educate yourself properly before you get into this game.
There are thousands of websites out there and a variety of trading educators, as well as many trading books, some good and some not so good.
Find the few pearls among them to get enlightened.
Or if you have a professional trader as friend, the better.

Watch trading videos from some good educators and read blogs of reputable websites, but consider that all that glitters is not gold.
Consume and absorb all available information, but over time, and best as soon as possible, filter out the good from the bad ones.

Spend minimum some months of intense learning and then practising, better more such as 1-2 years, before you start trading a live account.
The better your feel for the market, the more successful you will be; and to acquire that feel takes time.

The emotions that appear when your hard-earned money is on the line are one of a kind and you must be prepared for it, both psychologically and with your knowledge.
The psychological part is the most difficult one.
You have to be mentally very stable and have to master total self-control.

You will be exposed to all kinds of emotions, like fear of missing out, revenge trade thoughts, having cut losses too late, having cut winners too early, losing streaks, overtrading, boredom, anxiety, greed, regrets, anger, fear of losing everything and going back to a 9-5 job, euphoria and so on.

Traders who don’t invest time and effort for education will have a hard time and most likely blow up their trading account at some point; probably sooner than later.

In case you traded other markets so far, such as individual stocks, and want to switch now to e.g. Forex, note that the approach of trading stocks is quite different.
Hence, you still have to learn about the Forex-specifics, just like it would be the other way around.

Take the time and invest in your trading career.
You have to develop a trading style that is unique to you, one that suits your personality.
If you are not prepared to invest time in educating yourself and practising to develop your skills, stop now before you lose all your money.

Before you start trading a live account, know all substantial parts of this unique business, from psychology, risk management, position sizing, patience, discipline, market fundamentals and sentiment, intermarket and correlation analysis, currency strength analysis and all parts of technical / price action analysis, such as support and resistance, candlesticks, breakouts, price action, divergences, mathematical indicators, moving averages, chart patterns etc. 

The more you know, the better chances you have to succeed.

With Bull Bear Forex, you have found a shortcut to some parts of it, but not all, since you are still responsible to take the trades yourself, decide position sizes, etc.

Trading routine and news?

Just like in life, have also in your trading a daily routine that you follow.

The imagination of a routine might sound boring, but is essential for your success, since when certain tasks feel like second nature, they can be processed easily and fast, so that you can concentrate deeply on the more difficult aspects.

Once you get to your desk, before you even open any charts, you should be aware what the markets were doing while you were away and how the sentiment for the day, or at the moment, is.

We advise you read trading-related news, applicable to the instruments that you trade, from reputable sources, but focus on news that can be transformed into actual trades, rather than reading all kinds of stories that are not specific enough.

Ideally, you have a real-time news feed, which provides data whenever there is any development in the geopolitical or economic scene, which allows you to stay tuned into the market and make better, well-informed trading decisions.

At the same time, always go through the economic calendar for the day or week and be aware of any risk events that could be harmful to any of your trades.

Trading setup?

Although it might appear too posh, but using larger screens makes indeed sense for the human eye.
Much information is better visible at the same time as many windows can be open next to each other.

There seem to be people trading, or better trying to trade, from their tiny mobile phones.
Ask yourself why professionals sit in front of larger screens or even multiple monitors every day.

We therefore recommend that the minimum size of a monitor to trade from should be a laptop or large tablet, although we personally use only stationery PC’s with very large screens and high-end power, since it just makes the analysis so much more comfortable.

In addition, have sufficient CPU and RAM power to run all programs, enabling you to have many trading websites open and possibly multiple trading platform instances, to not suffer from frozen screens, having a negative impact on your trades and causing frustration.