How much money should you start up an account with?

By Sean Hyman | May 18, 2009

I’m often asked the question in our courses….”How much money should I start my account with?” Good question.

Let me give my personal opinion on this.A micro account CAN be started with $25 and a standard mini account CAN be started with $2,000. However, the less you start with, the bigger percentage of your account that you have at risk generally.

So one way you can increase you chances of success is to have a well funded account. Let’s say that you have a 100 pip stop on one lot. That would be a $100 loss in the mini account and a $10 loss in the micro account. Let’s focus on the micro account, since that’s the best place for most beginning traders to start out anyway.

If I have a $25 micro account and lose $10…then I’ve lost 40% of the account balance. However, if that balance were $100, then I’ve lost 10% of my account balance. I’m much more able to recover from a 10% loss than a 40% loss. Emotionally speaking too…it’s easier to handle the loss of 10% than it is for 40%. Now, if I had an account balance of $200, then my loss would be 5%.

This is why I suggest people start micro accounts with at least $500 to $1,000 and start off trading only 1 micro lot at a time. In the end, you’ll be glad you started this way vs. starting with the minimum. Again, this is strictly my opinion as a trader and as an instructor.

Ultimately, it will be your decision as to what you feel is the most prudent thing to do for you. However, a lot of people don’t think about the impact of their “beginning balance” upon their trading and the likelihood of their success and that’s why I bring it up here. Happy trading!

Sean Hyman

GM & Chrysler Dealership Closings won’t bode well for the Dollar!

By Sean Hyman | May 15, 2009

Even though these companies may go into and back out of bankruptcy…GM and Chrysler and the Detroit auto industry in general, just “does not get it”. As Detroit fumbles the ball and gives up even more market share to Japan (Toyota, Honda, Mazda, etc.), it won’t bode well for the U.S. dollar. It’s simply a negative sentiment issue when you see icons of American ingenuity go up in smoke. It’s things like this that will only accelarate the fresh “dollar downtrend” that we’ve just entered.Who could benefit the most? the Anti-dollar (as it’s nicknamed)…which is the euro.

Fundamentals in a Nutshell!

By Sean Hyman | May 15, 2009

Some people avoid fundamentals because they feel they are so complicated. However, the basics are very simple and easy to follow. You just follow the trail.

What’s the trail?Watch what the CPI (Consumer Price Index, which tracks inflation) does, especially on a Year over Year (YoY) basis. If it’s increasing, then central banks will have to address this by hiking interest rates. Increasing rates means that you can earn more money on your currency and money loves “yield”.

So the pattern is: higher CPI over time results in higher interest rates over time. Higher rates attract more money to that currency than a currency that has lower rates. Thus as money pours into that currency (they are buying up the currency), it pushes the currency higher. Therefore, over time…you end up with an appreciating currency that earns higher interest over time.

When do currencies not follow this simple pattern? When the pattern reverses. Slowing economy, can equal lower CPI and lower interest rates and money pouring out of a currency. So when a recession hits or an economic slowdown or a deflationary period hits….this cycle actually reverses. But even then, you know the drill and can profit from it.

Hope you’ve enjoyed this short lesson on fundamentals.

Sean Hyman

The yen is losing strength vs. AUD, NZD and GBP!

By Sean Hyman | May 14, 2009

USD/JPY has a daily head & shoulders pattern that broke below a neck line yesterday (extremely bearish pattern). So the dollar is getting clobbered by the yen. However, AUD/JPY, NZD/JPY and GBP/JPY are doing pretty good this morning after taking a bloodbath yesterday. These yen crosses have been very volatile lately…so lots of opportunity for the shorter term trader. Go where the movement is!

The yen is killing most everything today!

By Sean Hyman | May 13, 2009

Wow, the yen has mounted an assault on just about any currency it’s paired against today. USD/JPY looks to be completing a Head & Shoulders pattern on the daily chart. It also appears to have broken its daily uptrend line with the right shoulder…and heading below the 200 SMA too. So lots of bearish signs for USD/JPY and also most any other yen pair today.

A Tale of Two Traders!

By Sean Hyman | May 13, 2009

Two traders want to climb their way to success two different ways. Mr. Daytrader has a goal of 100 pips, and sets out to place 10 trades of 10 pips apiece in order to accomplish that goal. Mr. Swing Trader has the very same goal of 100 pips, yet sets out to do it in just two trades of 50 pips each.

They both trade the exact same pair: EUR/USDTheir spreads average 2.5 pips (or $2.50 per standard mini lot traded). Both traders reach their goal in this instance.

So what’s the difference?Mr. Daytrader had to incur 10 spread costs (25 pips or $25) in order to make 100 pips or $100. Meanwhile, Mr. Swing Trader paid a spread twice (5 pips or $5) for his trading costs in order to reach his 100 pip goal.

Wonder which trader has the better odds of success over the next year? Mr. Swing Trader…why? The lower your costs before you get into the profit, the more likely you are to actually “make that profit”.

So, I know it seems that everyone “wants” to be a day trader…but maybe they “need” to start off as a Swing Trader first. I hope you’ve enjoyed the “Tale of Two Traders”

Short Term Traders: Get Ready for a Big Breakout Soon!

By Sean Hyman | May 12, 2009

If you look at most daily charts, you will see that we’ve had some narrow trading days the last couple of days. That means that there will be a huge breakout coming soon once again…and it should produce some huge percentage movements on the day when it does. So be on the look out and alert. If you’re there at the right time, you can have a huge gain in a short amount of time. It can be very rewarding if you catch it right. In particular, the “dollar pairs” could be huge movers soon!