Getting Started in Currency Trading, + Companion Website: Winning in Today's Market, 4th Edition

Chapter 6

FOREX by the Numbers

Introduction

Numbers. Some of us love them; some of us hate them. They excite, they scare. In this chapter, I err on the side of the hate-and-scare readers, leaving the love-and-excite souls to dig deeper with some of the resources in Appendix D.

FOREX is truly a numbers game with pips, dollars, lot size, stop-loss, take-profit, leverage, margin, profit and loss, transaction costs, and more to know. Separately, they are not difficult to understand but the interrelationships involving various mathematical formulas, ratios, decimals, and fractions can be difficult to master. For example, the pip amount of your take-profit divided by the pip amount of your stop-loss is the profit-to-loss ratio. It, in turn, is closely related to the ratio of winners to losers over a fixed number of trades. The new trader has a big plate, as is, even before considering these myriad mathematical mechanizations.

All of the mechanics are important and worth knowing. But I have found over years of mentoring new traders that, like the language of FOREX, they are best learned by practice. Your broker’s trading platform and tools on their website should allow you to calculate most of these values.

Tip: Simply using your demo account diligently can, over time, make most of these clear to you. As you calculate the values, make an effort to see the relationship between each of the numbers, essentially reverse-engineering them. Examples and repetition is a sure path to mastery. ...