Senior Year Flashcards
When does trading become gambling?
A. When you go to a casino with your laptop and trade there
B. When your potential reward is small
C. When you don’t enforce money management rules
When you don’t enforce money management rules
Which among the following statements is true?
A. Money management rules only protect you in the sense of minimizing your risk
B. Money management rules only make you profitable
C. Money management rules protect you and make you profitable in the long-run
Money management rules protect you and make you profitable in the long-run
What’s the benefit of taking classes and having mentors to guide you in forex?
A. They’re expensive
B. They’re cheap
C. They shorten your learning curve
They shorten your learning curve
Retail brokers offer minimum account deposits as low as ___.
$25
Why is it recommended that you start currency trading with a relatively large amount?
A. You have enough capital to weather losses.
B. You have to be able to take as much trades as you can so you can learn faster.
C. You have to have enough credits to get instantaneous and accurate news feeds.
You have enough capital to weather losses.
What is a drawdown?
A. The reduction of one’s capital after a certain number of trades
B. The reduction of one’s capital after a series of losing trades
C. The reduction of one’s capital after a certain duration of time
The reduction of one’s capital after a series of losing trades
How do you calculate for your drawdown?
A. You divide your total loss by your initial capital.
B. You get the difference between a relative peak in equity capital minus a relative trough.
C. You multiply a relative peak in equity capital by a relative trough.
You get the difference between a relative peak in equity capital minus a relative trough.
Which of the following statements is true?
A. If your trading system is 70% profitable, this means for every 100 trades you make, you will win 7 out of every 10.
B. Successful traders have trading plans that allow them to avoid drawdowns.
C. Drawdowns are part of trading.
Drawdowns are part of trading.
True or false. In order to make it back to your original account size, you just have to win the same number of trades that you lost.
False
Which of the following is not a reason why you should only risk a small percentage of your account in each trade?
A. So that you can survive your losing streaks
B. In order to avoid a large drawdown in your account
C. So that it’s easier for you to make up for the trades you lost
So that it’s easier for you to make up for the trades you lost
What does a 5:1 reward-to-risk ratio mean?
A. You stand to win $5,000 if you risk $25,000.
B. If you risk $350 you have a chance of winning $1,750.
C. If you risk $250 you can lose $1,250.
If you risk $350 you have a chance of winning $1,750.
Which among the following must you consider in setting risk-to-reward ratios?
A. The time of the day you’re trading
B. Your entry and exit points
C. Your favorite currency pair
Your entry and exit points
Along with not understanding leverage, what’s the number one reason why new traders fail?
A. They are undercapitalized.
B. They open only mini accounts.
C. They suck.
They are undercapitalized.
True or false. Just because a broker may allow you to open an account with only $25, that does NOT mean you should.
True
What is leverage?
A. Amount of money needed by your broker to open your position.
B. The ability to control a large amount of money using none or very little of your own money and borrowing the rest.
C. The capital you need to start trading forex.
The ability to control a large amount of money using none or very little of your own money and borrowing the rest.
For example, to control a $100,000 position, your broker will set aside $2,000 from your account. What is your margin?
A. 50:1
B. 2%
C. 20%
2%
What do you call the money in your account that is available to open new positions?
A. Account margin
B. Used margin
C. Usable margin
Usable margin
You will get a margin call when the value of your losing positions drop beyond your…
A. …account margin levels
B. …used margin levels
C. …usable margin levels
.usable margin levels
Your equity falls when…
A. Your trade goes against you.
B. Your trade goes your way.
C. You close your trade too early.
Your trade goes against you.
What’s the advantage of trading on margin?
A. It increases your buying power.
B. It allows you more access to pairs.
C. It allows you to give your trades more room to move
It increases your buying power.
What do you get when your margin deposits fall below the required minimum level?
Margin call
True or false. Your broker cannot liquidate your account before giving you a margin call.
False
Which of the following statements is true?
A. If a 1% margin is required, you have a 100:1 leverage.
B. Your leverage ratio depends on the value of your total losses relative to the amount you deposited to your account.
C. Maximum leverage is the same as true leverage.
If a 1% margin is required, you have a 100:1 leverage.
What is true leverage?
A. The maximum leverage that you can trade with.
B. The full value of all your open positions divided by the equity value of your trading account.
C. Full amount of your total losses divided by the amount of money deposited in your trading account.
The full value of all your open positions divided by the equity value of your trading account.
Fill in the blanks: The ____ leverage you use, the ___ “breathing room” you have for the market to move before a margin call.
A. More, more
B. Less, more
C. More, less
More, less
Why is it recommended to trade with low leverage and ample capitalization?
A. Your losses are very small.
B. Your wins are multiplied by the dozen.
C. The spread is cheaper.
Your losses are very small.
Which of the following statements is not true?
A. Leverage is how many times you lever your whole account.
B. The maximum amount that you are allowed to lever is dependent on your margin requirement.
C. Your leverage increases along with your account balance.
Your leverage increases along with your account balance.
Fill in the blanks: The ____ your leverage, the ____ your transaction cost as a percentage of your trading capital.
A. higher, higher
B. higher, lower
C. lower, lower
higher, higher
Which of the following is a reason why using huge leverage appeals so much to new traders?
A. Spreads are smaller with high leverage
B. Leverage magnifies one’s profits
C. High leverage equal to more trades
Leverage magnifies one’s profits
True or false. The more you trade, the less your broker makes on the spread.
False
Which of the following statements is true?
a. Balance is used to determine usable margin.
b. Balance is used to determine used margin.
c. Equity is used to determine usable margin.
Equity is used to determine usable margin.
This is the most important skill in a trader's skill set. A. leveraging B. scalping C. position sizing D. swing trading
position sizing
You need to find the position size that keeps you within…
A. The profit zone
B. Your risk comfort level
C. The limit of your broker
Your risk comfort level
This is the act of setting the right amount of units of a currency pair to buy or sell.
A. Leverage
B. Scalping
C. Position sizing
Position sizing
Which of the following is something we don’t need to determine the appropriate position size?
A. Account equity or balance
B. Currency pair that you are trading
C. The percentage gain you wish to get
Stop loss in pips
D. Conversion currency pair exchange rates
The percentage gain you wish to get
Feel free to use the BabyPips.com position sizing calculator on this one! Let’s say you have a $100,000 account and want to risk only 1% of your account. How large should your position be if you are trading GBP/USD and plan to risk 200 pips?
A. 10,000 units
B. 50,000 units
C. 100,000 units
50,000 units
Assuming you have a $50,000 account and wish to risk 2%. You want to trade USD/CHF with a 50-pip stop. USD/CHF is currently trading at 0.9000. How many units should you trade?
A. 18,000 units
B. 90,000 units
C. 180,000 units
180,000 units
You need to perform an additional conversion step and use the pair’s current exchange rate when the account denomination is…
A. The same as the counter currency
B. The same as the base currency
C. Less than $100,000
The same as the base currency
The value of a currency pair is in the…
A. Counter currency
B. Base currency
C. Conversion rate
Counter currency
Let’s say you want to find the correct position size for your EUR/AUD trade and you have a dollar-denominated account. You will need the conversion rate for which pair?
A. EUR/USD
B. AUD/USD
C. EUR/GBP
AUD/USD
Aside from correct position sizing, you need __ to practice solid risk management.
A. High leverage
B. Large stops
C. Discipline
Discipline
Your stop loss should be the __ of your trade idea.
Invalidation point
A. Profit-taking point
B. Validation point
C. Invalidation point
Liquidity stop
Which of the following is not one of the four methods of setting stops? A. Time stop B. Equity stop C. Volatility stop D. Liquidity stop
Percentage stop
The equity stop is also known as the…
A. Fractional stop
B. Margin call stop
C. Percentage stop
The market environment and your system rules
You should always base your stop on…
A. How much you are willing to lose
B. How much you are willing to gain
C. The market environment and your system rules
An arbitrary price
The danger with using equity stops is that you are forced to set your stop at…
A. An inflection point
B. An arbitrary price
C. A psychological level
Support and resistance levels
Using a chart stop involves setting your stop above or below…
A. Support and resistance levels
B. The amount you’re willing to risk
C. The currency pair’s average true range
Exit your trade
When your trade idea is invalidated, you should…
A. Add to your position
B. Exit your trade
C. Keep your trade open
Volatility
This refers to the distance a market can potentially move over a given period of time.
A. Liquidity
B. Volatility
C. Leverage
Stochastic
Which of the following is NOT an indicator which can help you gauge volatility?
A. Stochastic
B. Average true range
C. Bollinger bands
Beyond the bands
f you’re using Bollinger Bands to set your stop, you would ideally place your stop…
A. Within the bands
B. Right on the bands
C. Beyond the bands
A predetermined period of time
Time stops are based on…
A. A predetermined period of time
B. An arbitrary period of time
C. Stop, hammer time!
Dead trades
Time stops can help you avoid tying up margin in…
A. Highly active pairs
B. Great trade setups
C. Dead trades
Average volatility
To give your trade enough room to breathe and avoid placing stops too tight, you should account for the pair’s…
A. Average liquidity
B. Average volatility
C. Average trade size
Decide where to place your stop first, then compute the position size
When setting stops, you should…
A. Compute your position size first, then determine the size of your stop
B. Decide where to place your stop first, then compute the position size
C. Use the position size to determine how much of your account you should risk
Set your stop closer to your entry point than your profit target
The general rule of thumb is to…
A. Set your stop farther from your entry point than your target
B. Set your stop as far from your entry point as your profit target
C. Set your stop closer to your entry point than your profit target
Above the resistance level
When going short, it’s a good idea to find the next potential resistance level and set your stop…
A. Above the resistance level
B. Below the resistance level
C. Right on the resistance level
Using a margin stop
Which of the following is not a way of executing stops?
A. Using an automatic stop
B. Using a margin stop
C. Using a mental stop
Moving your stop in the direction of a winning trade
Read more: http://forums.babypips.com/quiz.php?do=view_result_answers&taken_id=957960#ixzz4VHdYrtoD
Trailing your stop involves…
A. Moving your stop in the direction of a losing trade
B. Moving your stop in the direction of a winning trade
C. Never moving your stop
Moving your stop in the direction of a winning trade
Read more: http://forums.babypips.com/quiz.php?do=view_result_answers&taken_id=957960#ixzz4VHmHj9Xp
When should you widen your stop?
A. When the price moves in your favor
B. When the price moves against you
C. Never
Never
What does scaling mean?
a. Scaling is the adding or removing of units from your original open position
b. Scaling is measuring how big your risk is compared to your potential profit
c. Scaling is weighing all the trades you want to trade at that time and picking the best
Scaling is the adding or removing of units from your original open position
Which among the following is NOT a benefit of scaling?
a. Scaling decreases the need to pinpoint exactly where to get in
b. Scaling can help you protect your profits
c. Scaling makes sure you never lose a trade
Scaling makes sure you never lose a trade
Which among the following is NOT a drawback of scaling?
a. Scaling can increase your overall risk
b. Scaling can force your broker to close your account
c. Scaling can reduce your overall profits
Scaling can force your broker to close your account
When you “scale out”, you are effectively…
a. Increasing your exposure to the market
b. Reducing your exposure to the market
c. Adjusting the risk you are taking to the amount of profit you can make
Reducing your exposure to the market
If you buy one standard lot of EUR/USD at 1.3400 and three standard lots at 1.3200, what is your average entry price?
a. 1.3350
b. 1.3300
c. 1.3250
1.3250
What is your average entry price if you buy 10,000 units of EUR/USD at 1.3200, 1.3300 and 1.3350?
a. 1.3150
b. 1.3252
c. 1.3283
1.3283
When should you add to a losing position?
a. When your pre-determined trade plan and risk comfort says so
b. When you have margin available
c. When you’re stop loss is about to get hit
When your pre-determined trade plan and risk comfort says so
True or False: When scaling into a losing position, it’s best not to use stops so you can enter any time.
False
Scaling into winning positions is best used under which market condition?
a. Trending
b. Ranging
c. Choppy
Trending
Scaling out works best in which type of market environment?
a. Trending
b. Ranging
c. Choppy
Ranging
What is the forex term used to tell us the relative direction of movement between two currency pairs over some period of time?
a. Currency relationships
b. Currency connections
c. Currency correlation
Currency correlation
When two currency pairs move in the same direction, they are said to be…
a. Positively correlated
b. Inversely correlated
c. Not correlated
Positively correlated
When the correlation between two currency pairs is equal to zero, they are…
a. Positively correlated
b. Inversely correlated
c. Not correlated
Not correlated
True or False: If the correlation between two currency pairs is equal to two, then their correlation is stronger than two other currency pairs with a correlatoin equal to 1
a. True, because 2 is greater than 1
b. False, because a correlation larger than 1 is not possible
c. False, because the higher the number, the less correlated they are
False, because a correlation larger than 1 is not possible
If you buy AUD/USD, and you want to hedge your risk, what currency pair can you buy?
a. NZD/USD
b. USD/CAD
c. USD/CHF
USD/CAD
If you take same direction trades on two pairs that are positively correlated, you risk potentially..
a. increases
b. decreases
c. stays the same
increases
Which of the following is NOT a benefit of learning about currency correlations?
a. Leveraged positions
b. Risk is eliminated
c. Confirmation of breakouts and fakeouts
Risk is eliminated
Which of the following aren’t usually positively correlated?
a. USD/CHF and USD/JPY
b. AUD/USD and NZD/USD
c. GBP/USD and USD/JPY
USD/CHF and EUR/USD
True or False: The great thing about correlations is that they don’t change
False
Which of the following are typically inversely correlated? a. USD/CHF and USD/JPY b. AUD/USD and NZD/USD c. GBP/USD and USD/JPY
GBP/USD and USD/JPY
