Continuing on with the idea that Tokyo wants the 120 stops that went completely unscathed in calendar year 2006, we are looking to get long on a symmetrical pullback to the .618 retracement level. I'm looking to get long between 118.95-119.05 with stops at 118.75. The initial target is double our risk at 119.50. If you book profits at 119.50, trail the stop to at least breakeven for the bumpy landing into 120.00. From there, it's anyone's guess.

I would like to address the single most important skill a trader needs to acquire to become successful. To my older readers, you can skip this because you have heard me go on extensively about it before. But to my newer readers, please pay attention. Risk management is broken down into two categories; risk-reward ratio and account value at risk. First, we'll address risk-reward ratio. My older readers know by now the game we play is to setup trades designed to pull down 40-60 point winners with stop losses that are usually half that at 20-30 points. So on almost every single trade we enter, we should be able to make double what we put at risk. That way, if I'm batting 50% on my calls, I am still profitable in terms of my total P/L.

Account value at risk will help you determine how many lots are appropriate to trade on any single trade idea. It's really very simple. Take your points at risk on any trade, multiply that by how many lots you wish to trade, and then calculate the dollar loss that will result if we are stopped out on the trade. If that dollar value is greater than 10% of your account equity, either scale down your lot size, or skip the trade altogether. To put it all in perspective, some of the best analyst and traders in the world are not consistently 80-90% correct on trade calls, so therefore they will not risk more than 5-10% of their account on any single trade. If Todd is currently running about 50% correct on the calls and you are risking 50% of your account on any single trade, that math does not paint a bright future for your trading account.

The reason I'm going on about this tonight is that we took two, 25-point stop losses in the last few trades and I received a few â�,��"Lost half my accountâ�,� emails from the USD/JPY trade. I hate getting those emails, I hate seeing our clients lose money, and I hate to see our clients put so much at risk on any single trade idea. There is no reason for this to happen. But, if you rigorously obey the rules of proper money management, I believe your account statement will start improving at the end of every month, quarter, and year.

Todd Gordon is a Technical Currency Strategist and Fund Trader with GAIN Capital Group.

Disclaimer
The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.