My purpose for writing this article is to demonstrate to you the advantages of trading on the FOREX market. However, there is one myth that I want to dispel before I go further. The myth is that there is a difference between trading and investing. To dispel that myth I quote from Al Thomas, President of Williamsburg Investment Company, who wrote "If It Doesn't Go Up, Don't Buy It". He said "Everyone who invests is a trader, only the time period is different." It is a lesson that I took seriously after taking a beating in the stock market in 2000.
So now, let's compare features of currency trading to those of stock and commodity trading.
Liquidity
The FOREX market is the most liquid financial market in the world around 1.9 trillion dollars traded everyday. The commodities market trades around 440 billion dollars a day, and the US stock market trades around 200 billion dollars a day. This ensures better trade execution and prevents market manipulation. It also ensures easily executable trading.
Trading Times
The FOREX market is open 24 hours a day (except weekends) which means that in the US it opens at 3:00 pm Sunday (EST) and closes Friday at 5:00 (EST), allowing active traders to choose the times they want to trade. Commodities trading hours are all over the board depending on which commodity you are trading. Including extended trading times US stocks can be traded from 8:30 am to 6:30 pm (ET) on weekdays.
Leverage
Depending on your FOREX account size, your leverage may be 100:1, although there are FOREX brokers that offer leverage of up to 400:1 (not that I would ever recommend that kind of leverage). Leverage in the stock market can be as high as 4:1, and in the commodities market, leverage varies with the commodity traded but it can be quite high. Because the commodity markets are not as liquid as the FOREX market, its leverage is inherently riskier. Although I was never shut out of a commodity trade by the day limit, the fear was always in the back of my mind.
Trading costs
Transaction costs in the FOREX market is the difference between the buy and sell price of each currency pair. There are no brokerage fees. For both the stock and the commodity markets, there are transaction costs and brokerage fees. Even when you use discount brokers, those fees add up.
Minimum investment
You can open a FOREX trading account for as little as $300.00. It took $5,000 for me to open my futures trading account.
Focus
85% of all trading transactions are made on 7 major currencies. In the US stock market alone there are 40,000 stocks. There are just over 200 commodity markets, although quite a few are so illiquid that they are not traded except by hedgers. As you can see, the fewer number of instruments allows us to study each one more closely.
Trade execution
In the FOREX market, trade execution is almost instantaneous. In both the equity and commodity markets, you count on a broker to execute your trades and their results are sometimes inconsistent.
While all of these features make trading the FOREX market very attractive, it still requires a lot of education, discipline, commitment and patience. All trading can be risky.
Wednesday, September 30, 2009
Others Vs Forex Trading
What are the advantages of Forex over other types of investments? LOW RISK - HIGH YIELD is the first thing that comes to mind. Forex Trading can be risky and the general rule for investing is: When the return is high the risk is high, but with correct planning and strategy combined with a certain amount of self discipline you can bring the risk factor down to a level that is quite low. It is even possible to strategically plan your market entry and exit levels and control exactly how much you profit or lose.
This can be done in a way that allows the investor to still profit even when they misjudge the market 50% of the time! Compare that to other types of investments.
GEARING, is another area that stands out as a major advantage; this also substantially reduces the risk to you the investor. When you trade 1 forex "Mini lot" you will be trading a parcel of money valued at $10,000 USD And you only need $100 USD of your own money! If you trade a regular "Lot" you only need $1,000 USD to trade $100,000 USD. How's that for gearing? Try and do that with other kinds of investments!
LOW CAPITAL REQUIRED, many investments require a substantial amount of capital before you can take advantage of a particular investment opportunity, with Forex You only need $300 USD to "get into the market", and only need to have $100 USD in order to trade your $10,000 "Mini Lot".
CONVIENIENCE, if you have a laptop and an internet connection you can make a trade in 5- 10 minutes! Depending on how long your computer takes to start up, and the speed of your connection.
LIQUIDITY, many other forms of investing require tying your money up for long periods of time, and if you need to use the capital it can be difficult or impossible to access to it without taking a huge loss (Real Estate). Not so with Forex trading. With Forex Trading you have full control of your capital.
CAN PROFIT IN BULLISH OR BEARISH MARKETS
Stock market traders need stock prices to rise in order to take a profit, Real Estate prices must go up in order to make a capital gain.
However, The Forex investor can make a profit in both situations, a rising or falling market.
The Forex Market is open 24 hrs a day.
Can anyone do it or do you need to be some kind of super genius?
Forex Trading isn't for the faint hearted so be warned, while you can get yourself a "Demo Account" and practice as you learn in real time in the real market.
You can't experience the emotions that come with putting your real money on the line.
You can however prepare yourself well by using one of the many Forex Trading courses that are available online today.
Forex Trading - Advantages Over Traditional Investment Methods
Most people are looking for the perfect way to invest their money. No one will argue against the fact that your money is only going to grow by any reasonable amount if you have invested in some type of market. The first piece of advice usually given is that they should take advantage of whatever is offered by their employer's 401k plan, if that is an option for them. This is good, sound and advice and should be followed if at all possible.
However, many people either don't have the option of investing in a 401k, or they have maxed out their 401k contributions and are looking for a good place to invest their additional funds for maximum growth. For obvious reasons (ie - terrible perfomance), traditional savings accounts and CDs are out of the question. These people are usually advised that investing in mutual funds is the only practical, "safe" alternative to a 401k.
Many people hold the belief that a mutual fund is the only "safe" way for an individual to invest beyond the typical savings accounts and CD's offered by their local bank. This belief is no doubt due to the success enjoyed by mutual funds throughout the 1990's, when all of the stock market benefited from the huge bull market that was driven by the tech sector. Ironically, though, just as mutual funds have soared in popularity, they have also peaked in performance, and over the last few years most have seen an astonishing lack of overall success.
So the intrepid investor goes off in search of the perfect mutual fund, only to find that there is a bewildering array of funds to choose from, and an overwhelming number of factors to consider when making that decision. Some people will forge ahead and make a decision on a mutual fund, while others will decide to go to the next level and start looking for investments that give them more control, and hopefully greater returns.
The next level for most investors is usually the stock market, where they hope to achieve phenomenal returns. But most people are not prepared for the reality of investing in stocks, which presents them with an array of choices that is several orders of magnitude greater than that offered by mutual funds. The natural question is: Which is a good stock to invest in? How do you select the one or two rising stars out of all the thousands of stocks there are to choose from?
So just like in the search for a mutual fund, the investor is stuck with the problem of how to pick which investment is the best place for his funds. At this point many people give up, which is a shame, because there are some other options available to them besides mutual funds and stocks.
The most common option considered besides stocks would be commodities. The lure of commodities is that they are able provide tremendous returns for your investment dollars due to leveraging. Leveraging simply means that for every dollar invested you are able to control more than a dollar's worth of commodity. This can lead to tremendous returns, but unfortunately commodities come with a huge downside. One of the disadvantages of commodities are broker's fees, which can be quite high per trade. Another disadvantage is market liquidity... sometimes the markets being traded don't offer enough buyers and sellers to ensure that your order can be executed in a timely manner. This can lead to unexpected losses during times of extreme market volatility.
Another disadvantage endured by commodities traders is the advantage enjoyed by the floor traders in the exchanges. These traders have a huge advantage over the retail trader because they trade with much lower commissions, and also since they have such an intimate knowledge of their market, they know what are the most likely stop and limit targets that have been set by the retail traders through their brokers. This means that they can "flush out" the retail trader by gunning for their stops and taking small incremental profits from the market. Once the small traders have been flushed out of the markets by having their stops hit, the market can continue to move in its original direction. Sadly, many of the retail traders may have been right in their opinion of the direction the market was headed, but they are now out of the market because their stops have been hit.
An alternative to consider to all of the above investment options is to trade the Forex market. The Forex market is the global, electronic, decentralized trading of the world's major currencies. In the past, only major banks government institutions were able to trade on the Forex. But recently the Forex market was opened up to retail traders who are able to trade through retail brokers.
The advantages of trading the Forex are numerous when compared to all the other investment methods. The most obvious advantage is that, unlike stocks, you don't have to search through thousands of different investment types to find a likely candidate. There are a very limited number of currencies that are traded, and most Forex traders only trade in one of the four major currencies: The British Pound, the Euro, the US Dollar, and the Japanese Yen. Each market gives enough volatility to offer plenty of trade opportunities each day. So while the stock trader is busy looking for which stock to trade, the Forex trader is already busy analyzing the market and setting up his trades.
Another advantage of the Forex is that there is no one single "common place" or exchange where the trades are made. The Forex is an electronic market that is traded globally among a network of computers, and is not centralized to any one location. This means that there are no floor traders to compete with, and no one who can "flush out" the retail trader by gunning for his stops.
Yet another advantage of the Forex market is that it is traded 24 hours a day, 5 days a week. This offers the extraordinary opportunity for traders all over the world to trade when it is convenient for them, and not be confined to trading a market that is only open during hours that would impossible or inconvenient.
One thing the Forex offers is identical to what is offered by the futures markets: leverage. Like commodities traders, the individual trading the Forex market can make fantastic returns compared to stocks, mutual funds. But unlike commodities traders the Forex market trades with much lower commissions. Instead of standard commissions, the Forex trader pays a small spread on each trade.
There are a lot of details about the Forex market, and trading the Forex market, that have been left out of this article. This is just a very quick introduction to some of the problems with traditional investing and to the advantages to be had by trading the Forex.
However, many people either don't have the option of investing in a 401k, or they have maxed out their 401k contributions and are looking for a good place to invest their additional funds for maximum growth. For obvious reasons (ie - terrible perfomance), traditional savings accounts and CDs are out of the question. These people are usually advised that investing in mutual funds is the only practical, "safe" alternative to a 401k.
Many people hold the belief that a mutual fund is the only "safe" way for an individual to invest beyond the typical savings accounts and CD's offered by their local bank. This belief is no doubt due to the success enjoyed by mutual funds throughout the 1990's, when all of the stock market benefited from the huge bull market that was driven by the tech sector. Ironically, though, just as mutual funds have soared in popularity, they have also peaked in performance, and over the last few years most have seen an astonishing lack of overall success.
So the intrepid investor goes off in search of the perfect mutual fund, only to find that there is a bewildering array of funds to choose from, and an overwhelming number of factors to consider when making that decision. Some people will forge ahead and make a decision on a mutual fund, while others will decide to go to the next level and start looking for investments that give them more control, and hopefully greater returns.
The next level for most investors is usually the stock market, where they hope to achieve phenomenal returns. But most people are not prepared for the reality of investing in stocks, which presents them with an array of choices that is several orders of magnitude greater than that offered by mutual funds. The natural question is: Which is a good stock to invest in? How do you select the one or two rising stars out of all the thousands of stocks there are to choose from?
So just like in the search for a mutual fund, the investor is stuck with the problem of how to pick which investment is the best place for his funds. At this point many people give up, which is a shame, because there are some other options available to them besides mutual funds and stocks.
The most common option considered besides stocks would be commodities. The lure of commodities is that they are able provide tremendous returns for your investment dollars due to leveraging. Leveraging simply means that for every dollar invested you are able to control more than a dollar's worth of commodity. This can lead to tremendous returns, but unfortunately commodities come with a huge downside. One of the disadvantages of commodities are broker's fees, which can be quite high per trade. Another disadvantage is market liquidity... sometimes the markets being traded don't offer enough buyers and sellers to ensure that your order can be executed in a timely manner. This can lead to unexpected losses during times of extreme market volatility.
Another disadvantage endured by commodities traders is the advantage enjoyed by the floor traders in the exchanges. These traders have a huge advantage over the retail trader because they trade with much lower commissions, and also since they have such an intimate knowledge of their market, they know what are the most likely stop and limit targets that have been set by the retail traders through their brokers. This means that they can "flush out" the retail trader by gunning for their stops and taking small incremental profits from the market. Once the small traders have been flushed out of the markets by having their stops hit, the market can continue to move in its original direction. Sadly, many of the retail traders may have been right in their opinion of the direction the market was headed, but they are now out of the market because their stops have been hit.
An alternative to consider to all of the above investment options is to trade the Forex market. The Forex market is the global, electronic, decentralized trading of the world's major currencies. In the past, only major banks government institutions were able to trade on the Forex. But recently the Forex market was opened up to retail traders who are able to trade through retail brokers.
The advantages of trading the Forex are numerous when compared to all the other investment methods. The most obvious advantage is that, unlike stocks, you don't have to search through thousands of different investment types to find a likely candidate. There are a very limited number of currencies that are traded, and most Forex traders only trade in one of the four major currencies: The British Pound, the Euro, the US Dollar, and the Japanese Yen. Each market gives enough volatility to offer plenty of trade opportunities each day. So while the stock trader is busy looking for which stock to trade, the Forex trader is already busy analyzing the market and setting up his trades.
Another advantage of the Forex is that there is no one single "common place" or exchange where the trades are made. The Forex is an electronic market that is traded globally among a network of computers, and is not centralized to any one location. This means that there are no floor traders to compete with, and no one who can "flush out" the retail trader by gunning for his stops.
Yet another advantage of the Forex market is that it is traded 24 hours a day, 5 days a week. This offers the extraordinary opportunity for traders all over the world to trade when it is convenient for them, and not be confined to trading a market that is only open during hours that would impossible or inconvenient.
One thing the Forex offers is identical to what is offered by the futures markets: leverage. Like commodities traders, the individual trading the Forex market can make fantastic returns compared to stocks, mutual funds. But unlike commodities traders the Forex market trades with much lower commissions. Instead of standard commissions, the Forex trader pays a small spread on each trade.
There are a lot of details about the Forex market, and trading the Forex market, that have been left out of this article. This is just a very quick introduction to some of the problems with traditional investing and to the advantages to be had by trading the Forex.
Sunday, September 20, 2009
An Overview Of Forex Trading
Forex, is an exchange that allows investors to trade national currencies through the foreign exchange. This is the worlds largest market for currency, based on the Dollar, anywhere between 1 - 2 TRILLION dollars are traded upon this market on a daily basis. This type of trade is typically performed online or on the telephone. By taking advantage of the world wide web, you are enabling yourself to make your investments in a reliable, easy, safe and fast way.
Some investors are able to enjoy returns of around thirty percent on a monthly basis, this takes a great deal of experience to gain this type of enormous return on your investment. The Forex market does not have one specific place of trade like many of the other markets do, for this reason alone is why most of the trade is performed by internet, fax, or telephone. In the beginning for currency trade was not all that popular, they were bringing in only about seventy billion dollars on a daily basis, with the invention of Forex, that number grew massively.
Of course, the currencies do not only deal with the American dollar, these currencies can be translated to over 5,000 currency institutions world wide, which include, commercial companies, large brokers, international banks, and government banks. Many major countries have forex trading centers such as, Frankfurt, London, New York, Paris, Hong Kong, Tokyo, and Bombay to name a few.
When trading online there are many benefits such as, the ability to trade or track your investments at anytime day or night, from anywhere within the world that offers an internet connection. Another added benefit, is that some online exchange sites allow you to start with a small investment, known as a mini account, some with as little as two-hundred dollars. With online trading, the trade is instant. When you trade offline you have to deal with paperwork, with online trading there is no paper work involved.
The world of the internet, has allow us to do many things with just a click of a button, where else can you bank, trade, talk to your family and friends, research your investments and earn money all at the same time? Make the internet work in your best interest by implementing online trading into your portfolio. There's a whole world of money waiting for you to earn with your online investments, and it's all available at the click of your mouse button.
Some investors are able to enjoy returns of around thirty percent on a monthly basis, this takes a great deal of experience to gain this type of enormous return on your investment. The Forex market does not have one specific place of trade like many of the other markets do, for this reason alone is why most of the trade is performed by internet, fax, or telephone. In the beginning for currency trade was not all that popular, they were bringing in only about seventy billion dollars on a daily basis, with the invention of Forex, that number grew massively.
Of course, the currencies do not only deal with the American dollar, these currencies can be translated to over 5,000 currency institutions world wide, which include, commercial companies, large brokers, international banks, and government banks. Many major countries have forex trading centers such as, Frankfurt, London, New York, Paris, Hong Kong, Tokyo, and Bombay to name a few.
When trading online there are many benefits such as, the ability to trade or track your investments at anytime day or night, from anywhere within the world that offers an internet connection. Another added benefit, is that some online exchange sites allow you to start with a small investment, known as a mini account, some with as little as two-hundred dollars. With online trading, the trade is instant. When you trade offline you have to deal with paperwork, with online trading there is no paper work involved.
The world of the internet, has allow us to do many things with just a click of a button, where else can you bank, trade, talk to your family and friends, research your investments and earn money all at the same time? Make the internet work in your best interest by implementing online trading into your portfolio. There's a whole world of money waiting for you to earn with your online investments, and it's all available at the click of your mouse button.
Finding a Forex Broker
Foreign exchange is the largest financial market and everyday new investors plan to jump in when they learn of the benefits, that is, high returns on investment which is as high as 20% per month a month. However, inexperience and over enthusiasm can only do bad and bring in losses so, you'll need an experienced forex broker to help you put your money in the right place at the right time.
A forex broker with a cool head, preferably with a long list of satisfied clients and experience is the right guy. Once you've found the right forex broker, all that's to be done is, keep a regular check on your investments and it is advised to do it independently to avoid scams, because one can never know. So, how to find the right forex broker, is that the question? Well, good news, this article was written just for you.
In a market where cash flows faster than the F1 circuit, scams should come as no surprise even with reputed names and it's your responsibility to be aware of where the money is and keep a check on the movement and earnings. Different people prefer different levels of risk and depending on that factor you might like to check how different forex broker work and then select the one from them.
Even before you start the search, remember to strike down brokers promising windfalls, they are scams without doubt and same for brokers who are promising huge profits or no risk. Trading always involves some form of risk because of the nature of the market which you must be prepared to incur.
Make sure to check the spread of the forex broker as that's where they earn their money, read their terms of service carefully and check the services offered. There might be a lot of services being offered upfront at no cost but you might be billed for them later on, so make sure to sign up only for the services that are required.
A forex broker is a long term partner for financial success so, make sure to research their background well. All that's to be done is put in a little effort by checking the credibility of the forex broker or company upfront for peace of mind in long term.
How to trade successfully in the Forex Market
This article is about money management and trading psychology. This is the lesson that you never get with 99% of other Forex systems that you have come across.
I find it interesting that most of the systems out there don't include this because if they actually were successful traders, they would know that this was the key to success and to leave it out makes an incomplete system that won't work!! This tells me that the people that wrote them or are selling them aren't traders at all. They are just in the business of selling HOPE!
Well, if you haven't noticed yet, I am a trader, and I am different than the others. Don't get me wrong, there are honest trainers out there, I learned from one and I am eternally grateful to him.
So let's get on with this. First of all, this is my own interpretation of several sources, and the practices that have worked for me. Please read EVERYTHING you can find on trading psychology, and money management. There are a lot of slightly different views but overall, they are very similar and the main important points are all pretty much the same.
There are two main issues that cause 99% of the problems. Can you guess what they are?
If you answered FEAR and GREED, you are correct. These two emotions are probably responsible for 99% of the worlds problems as well but that is beyond the scope of this course À .
So, now that we know what the big obstacles are, let's try and figure out how to overcome them. In the course of my lessons, I have listed a few but I will put them all together here in one place so that it is easier to follow, and perhaps make it easier for you to develop your own system to help you trade better.
We can't eliminate fear and greed. They will still be there in your heart and mind, but we can make some rules so that they don't interfere with your trading success. We can come up with systems and procedures to follow, since we KNOW ahead of time that fear and greed are major problems. I'm sure you have heard the statistic that 95% of all speculative leveraged traders FAIL. This is absolutely true. Here is another statistic that I believe... 100% of traders that don't know how to overcome fear and greed will FAIL. So does that mean that if I can teach you how to overcome these problems that your chance of success is 100%? Of course not. But I can tell you that you cannot be successful if you don't protect yourself from yourself.
In lessons 1-3 I have outlined a trading system. The first thing you must do, whether you follow my system, another system, or your own system is to follow the rules of the system WITHOUT FAIL. If your system calls for a certain entry point, do not enter until there is a signal to enter.
Systems are designed for a reason. That is why it is called a system. What do we learn from this? Patience. Perhaps the stupidest thing you can do is enter a trade on a hunch.
This brings us to our first FACT:
The odds are in your favor before you enter a trade. This is true for most trading systems. Void of fear and greed, if you follow each system exactly, you will profit. Some systems may offer better profits than others, but overall you should be able to profit with any system, IF you have no fear and no greed.
This brings us to THE BIG SECRET. Other than omitting trading psychology, other systems also don't tell you that you are playing a game of odds. Let's say for example that we are playing "coin toss." Theoretically, for 100 flips of the coin, 50 will come up heads, and 50 will come up tails. Of course, the first 100 may be 55/45, but the more you play, the closer to 50/50 the numbers will get. Our system for "coin toss" is as follows: We play for 20 hours, and flip the coin exactly 5 times each hour, and for every heads that comes up, we get paid $2, and for every tails that comes up we pay $1. This should be a profitable system. After our game we see that heads came up 50 times and tails came up 50 times. (Stay with me here). So at the end of 100 tosses, we have paid $50 and received $100. A profit of $50.
So let's say that during our second game of coin toss, we decide that we are going to let the flipper(hint: the market is the flipper) keep flipping the coin for an hour while we take lunch but we are not going to pay or be paid for those flips. During our lunch hour, heads comes up 5 times in a row (which is theoretically possible, and not that unlikely). And now we are back from lunch, and we are down $10 for the hour. Now, theoretically the odds of 5 tails in a row coming up after 5 heads in a row are pretty good because for every ten tosses, you should have about 5 heads and five tails. So now we get 5 tails in a row and now we are down another $5, for a total of $15. So not counting the 5 tosses during lunch, this leaves 90 tosses that we still have to account for and let's say that they were 45 heads and 45 tails. Our profit for these tosses is $45 (45x2 minus 45x1), now if we take away the $15 for the tosses we didn't take, and that string of losers, we are left with a profit if $30. So lunch and 5 lousy spins cost us 40% of our profits.
Now this is theory but it absolutely applies to this market. If you are picky about what trades you want to take and what trades you don't want to take, you are MESSING WITH THE ODDS. My point for this whole big story about "coin toss" is this: If the conditions are met, TAKE THE TRADE without hesitation. The odds are in your favor, but only if you take ALL of the trades that meet the conditions. When I say ALL trades I know the market is open 24 hours a day and you can't possibly take every trade. You need to pick a time frame and stick to that same time frame everyday and take ALL trades during that time frame.
I can tell you that in the month before I realized this (my first month of trading real money actually), my total profit was 92 pips. I had an idea of what I was doing wrong so I was keeping track of the trades that I didn't take along with the ones that I did. I included entry point, day, time, and whether the profit target was hit or if it was stopped out. Don't get me wrong, I was extremely happy to be in profit after trading for only one month with real money. But then I went back and looked at the numbers for "what could have been." Guess what? Had I taken every trade that met my conditions, my profit for the month would have been 355 pips! I was not happy. But soon I realized that I had messed with the odds. After realizing what I had done wrong (or not done right in this case) I began to have more confidence in my systems. The very next month my total profit was 515 pips, or a 560% improvement just for taking all of the trades that met the conditions. I think that is enough said about that.
Sorry to stay with the coin flip game here but it actually works very well in teaching these principles.
This brings us to:
FACT #2. You do not need to know what is going to happen to make money. If we know that we are going to make $2 fifty times and pay $1 fifty times as long as we flip the coin, are we going to play? Of course! Well, all trading systems have similar odds. From my testing, I know that this system on average will produce 9 wins of 20 pips for every 1 loss of 40 pips (that number may vary but that is the maximum loss I ever take). So we know ahead of time that 9 wins at 20 pips is 180 pips, and minus the loss of 40 pips, leaves us with 140 pips profit. Now keep in mind that you may be 8 and 2 this week and 10 and 0 next week. We never know when a loss is going to come. We may even lose every trade for a week, but not lose a trade for the next 9 weeks. Believe me it happens. You do not need to know exactly what is going to happen, you just need to take every trade that meets the conditions and then count your profits at the end of the month/week/year etc.
This section deals with money management as well as psychology. Back to coin toss for a minute. We know that each win brings us $2. And we know that for each win in this trading system we get 20 pips. We know that each tail that comes up costs us $1. And in our system we know that each loss is 40 pips. If we know what our loss is going to be ahead of time, we know what it is going to cost us to find out "what is going to happen." From this we can decide how much we want to risk based on our account size.
FACT 3: You know how much it will cost to find out. I have decided not to ever risk more than 5% of my account on any one trade. So knowing that, I can figure out how many lots to trade ahead of time based on my account size. It may cost $250 in margin for a 1 lot position but this is not what we are risking, we are actually risking ten dollars times the number of pips in our stop. If our stop is 40 pips, we are risking $400. Now we know that we better have at least $8000 in our account to take a position of this size. If this trade turns out to be a loser, and our balance falls to $7600, we know that we can't afford to take that trade again because a loss of $400 is more than 5% of our balance. We would need to adjust our number of lots down accordingly to keep our risk.
I find it interesting that most of the systems out there don't include this because if they actually were successful traders, they would know that this was the key to success and to leave it out makes an incomplete system that won't work!! This tells me that the people that wrote them or are selling them aren't traders at all. They are just in the business of selling HOPE!
Well, if you haven't noticed yet, I am a trader, and I am different than the others. Don't get me wrong, there are honest trainers out there, I learned from one and I am eternally grateful to him.
So let's get on with this. First of all, this is my own interpretation of several sources, and the practices that have worked for me. Please read EVERYTHING you can find on trading psychology, and money management. There are a lot of slightly different views but overall, they are very similar and the main important points are all pretty much the same.
There are two main issues that cause 99% of the problems. Can you guess what they are?
If you answered FEAR and GREED, you are correct. These two emotions are probably responsible for 99% of the worlds problems as well but that is beyond the scope of this course À .
So, now that we know what the big obstacles are, let's try and figure out how to overcome them. In the course of my lessons, I have listed a few but I will put them all together here in one place so that it is easier to follow, and perhaps make it easier for you to develop your own system to help you trade better.
We can't eliminate fear and greed. They will still be there in your heart and mind, but we can make some rules so that they don't interfere with your trading success. We can come up with systems and procedures to follow, since we KNOW ahead of time that fear and greed are major problems. I'm sure you have heard the statistic that 95% of all speculative leveraged traders FAIL. This is absolutely true. Here is another statistic that I believe... 100% of traders that don't know how to overcome fear and greed will FAIL. So does that mean that if I can teach you how to overcome these problems that your chance of success is 100%? Of course not. But I can tell you that you cannot be successful if you don't protect yourself from yourself.
In lessons 1-3 I have outlined a trading system. The first thing you must do, whether you follow my system, another system, or your own system is to follow the rules of the system WITHOUT FAIL. If your system calls for a certain entry point, do not enter until there is a signal to enter.
Systems are designed for a reason. That is why it is called a system. What do we learn from this? Patience. Perhaps the stupidest thing you can do is enter a trade on a hunch.
This brings us to our first FACT:
The odds are in your favor before you enter a trade. This is true for most trading systems. Void of fear and greed, if you follow each system exactly, you will profit. Some systems may offer better profits than others, but overall you should be able to profit with any system, IF you have no fear and no greed.
This brings us to THE BIG SECRET. Other than omitting trading psychology, other systems also don't tell you that you are playing a game of odds. Let's say for example that we are playing "coin toss." Theoretically, for 100 flips of the coin, 50 will come up heads, and 50 will come up tails. Of course, the first 100 may be 55/45, but the more you play, the closer to 50/50 the numbers will get. Our system for "coin toss" is as follows: We play for 20 hours, and flip the coin exactly 5 times each hour, and for every heads that comes up, we get paid $2, and for every tails that comes up we pay $1. This should be a profitable system. After our game we see that heads came up 50 times and tails came up 50 times. (Stay with me here). So at the end of 100 tosses, we have paid $50 and received $100. A profit of $50.
So let's say that during our second game of coin toss, we decide that we are going to let the flipper(hint: the market is the flipper) keep flipping the coin for an hour while we take lunch but we are not going to pay or be paid for those flips. During our lunch hour, heads comes up 5 times in a row (which is theoretically possible, and not that unlikely). And now we are back from lunch, and we are down $10 for the hour. Now, theoretically the odds of 5 tails in a row coming up after 5 heads in a row are pretty good because for every ten tosses, you should have about 5 heads and five tails. So now we get 5 tails in a row and now we are down another $5, for a total of $15. So not counting the 5 tosses during lunch, this leaves 90 tosses that we still have to account for and let's say that they were 45 heads and 45 tails. Our profit for these tosses is $45 (45x2 minus 45x1), now if we take away the $15 for the tosses we didn't take, and that string of losers, we are left with a profit if $30. So lunch and 5 lousy spins cost us 40% of our profits.
Now this is theory but it absolutely applies to this market. If you are picky about what trades you want to take and what trades you don't want to take, you are MESSING WITH THE ODDS. My point for this whole big story about "coin toss" is this: If the conditions are met, TAKE THE TRADE without hesitation. The odds are in your favor, but only if you take ALL of the trades that meet the conditions. When I say ALL trades I know the market is open 24 hours a day and you can't possibly take every trade. You need to pick a time frame and stick to that same time frame everyday and take ALL trades during that time frame.
I can tell you that in the month before I realized this (my first month of trading real money actually), my total profit was 92 pips. I had an idea of what I was doing wrong so I was keeping track of the trades that I didn't take along with the ones that I did. I included entry point, day, time, and whether the profit target was hit or if it was stopped out. Don't get me wrong, I was extremely happy to be in profit after trading for only one month with real money. But then I went back and looked at the numbers for "what could have been." Guess what? Had I taken every trade that met my conditions, my profit for the month would have been 355 pips! I was not happy. But soon I realized that I had messed with the odds. After realizing what I had done wrong (or not done right in this case) I began to have more confidence in my systems. The very next month my total profit was 515 pips, or a 560% improvement just for taking all of the trades that met the conditions. I think that is enough said about that.
Sorry to stay with the coin flip game here but it actually works very well in teaching these principles.
This brings us to:
FACT #2. You do not need to know what is going to happen to make money. If we know that we are going to make $2 fifty times and pay $1 fifty times as long as we flip the coin, are we going to play? Of course! Well, all trading systems have similar odds. From my testing, I know that this system on average will produce 9 wins of 20 pips for every 1 loss of 40 pips (that number may vary but that is the maximum loss I ever take). So we know ahead of time that 9 wins at 20 pips is 180 pips, and minus the loss of 40 pips, leaves us with 140 pips profit. Now keep in mind that you may be 8 and 2 this week and 10 and 0 next week. We never know when a loss is going to come. We may even lose every trade for a week, but not lose a trade for the next 9 weeks. Believe me it happens. You do not need to know exactly what is going to happen, you just need to take every trade that meets the conditions and then count your profits at the end of the month/week/year etc.
This section deals with money management as well as psychology. Back to coin toss for a minute. We know that each win brings us $2. And we know that for each win in this trading system we get 20 pips. We know that each tail that comes up costs us $1. And in our system we know that each loss is 40 pips. If we know what our loss is going to be ahead of time, we know what it is going to cost us to find out "what is going to happen." From this we can decide how much we want to risk based on our account size.
FACT 3: You know how much it will cost to find out. I have decided not to ever risk more than 5% of my account on any one trade. So knowing that, I can figure out how many lots to trade ahead of time based on my account size. It may cost $250 in margin for a 1 lot position but this is not what we are risking, we are actually risking ten dollars times the number of pips in our stop. If our stop is 40 pips, we are risking $400. Now we know that we better have at least $8000 in our account to take a position of this size. If this trade turns out to be a loser, and our balance falls to $7600, we know that we can't afford to take that trade again because a loss of $400 is more than 5% of our balance. We would need to adjust our number of lots down accordingly to keep our risk.
Is Forex A Part of Your Investment Portfolio?
FOREX is the abbreviation for the Foreign Exchange market. The main principle of Forex is converting one currency into another. As far as the freedom from any external control and free competition are concerned, FOREX is a perfect market and is also the world's biggest financial market. In many investment portfolios, you will find FOREX more and more since the currency exchange realm has opened up to the small investor. In its simplest form, Forex is transaction of monetary funds from one government to another or business associates of different countries. There are substantial earnings to be made in the foreign currency market, but trading in the Forex is for the well-informed. In addition, forecasting Forex is not easy, as Forex is a fast moving market where several changes occur in the fraction of seconds.
Trading Forex works remarkably easy and is convenient since the currency exchange market is open 24 hours a day 7 days a week, providing plenty of trading opportunities. You can get started trading the (spot) FOREX with little money and there are many brokers on the internet that will allow you to make paper practice trades for up to 30 days, free of charge, to see if Forex is for you. They have guides that show techniques for day trading as well as mid-term Forex trading (one to seven days). Trading currency with tighter spreads can improve your trading profits, and you can see for yourself how taking short-term trading positions can be exciting. Low spreads and high volatility is a very popular way of trading on Forex, and is known as day trading.
The foreign exchange (currency or Forex or FX) market exists wherever one currency is traded for another. Trading Foreign Exchange currency in the global Forex trading system market can make you money. Very often currency pairs are closely related to one another - and this is something that can be used to the Forex Traders advantage. There are Consumer Alerts, however, and you should beware of Foreign Currency Trading Frauds. You should educate yourself first in all areas relating to currency trading. It's a great way to get comfortable with a currency trading system and to develop a successful Forex trading strategy. Use the currency forecasts to set profit points and maximize your return. You can make significant earnings in the foreign currency market, but trading in the Forex is for the well-informed and you should take advantage of advice from a reputable broker.
A broker is any person or firm that charges a fee in exchange for executing trades for a trader. When it is time to find a broker, there are several factors to consider. Assuming you are dealing with a reputable broker, there are still risks to FOREX trading. But inexperience is not the only broker reason to consider using a Forex broker to trade in the high risk international currencies market. Most traders find that it is necessary to utilize a broker when making transactions on the FOREX exchange and this has created a market demand for an online Forex broker, Forex dealers and a currency exchange service. As an example, your Forex currency broker is able to purchase $100,000 with only a deposit of $1,000, as the rest of the amount is leveraged to you by your Forex broker. With this type of account, your broker/dealer basically trades your money on the Forex market for you, and will always show the highest bid and the lowest offer.
In simplest terms Forex can be as simple as you would want it to be. Managed Forex is an area of Forex trading that's continuing to grow. FOREX is a somewhat unique market for a number of reasons... Forex is maximum liquidity; FOREX is real trade, in term of business. Basically, Forex is transaction of monetary funds from one government to another or business associates of different countries. For the astute investor, Forex is better than the stock market and every other money-making opportunity. Since Forex is entirely electronic and the liquidity and size is so much larger, it tends to be easier and more efficient to do a Forex transaction.
Trading Forex works remarkably easy and is convenient since the currency exchange market is open 24 hours a day 7 days a week, providing plenty of trading opportunities. You can get started trading the (spot) FOREX with little money and there are many brokers on the internet that will allow you to make paper practice trades for up to 30 days, free of charge, to see if Forex is for you. They have guides that show techniques for day trading as well as mid-term Forex trading (one to seven days). Trading currency with tighter spreads can improve your trading profits, and you can see for yourself how taking short-term trading positions can be exciting. Low spreads and high volatility is a very popular way of trading on Forex, and is known as day trading.
The foreign exchange (currency or Forex or FX) market exists wherever one currency is traded for another. Trading Foreign Exchange currency in the global Forex trading system market can make you money. Very often currency pairs are closely related to one another - and this is something that can be used to the Forex Traders advantage. There are Consumer Alerts, however, and you should beware of Foreign Currency Trading Frauds. You should educate yourself first in all areas relating to currency trading. It's a great way to get comfortable with a currency trading system and to develop a successful Forex trading strategy. Use the currency forecasts to set profit points and maximize your return. You can make significant earnings in the foreign currency market, but trading in the Forex is for the well-informed and you should take advantage of advice from a reputable broker.
A broker is any person or firm that charges a fee in exchange for executing trades for a trader. When it is time to find a broker, there are several factors to consider. Assuming you are dealing with a reputable broker, there are still risks to FOREX trading. But inexperience is not the only broker reason to consider using a Forex broker to trade in the high risk international currencies market. Most traders find that it is necessary to utilize a broker when making transactions on the FOREX exchange and this has created a market demand for an online Forex broker, Forex dealers and a currency exchange service. As an example, your Forex currency broker is able to purchase $100,000 with only a deposit of $1,000, as the rest of the amount is leveraged to you by your Forex broker. With this type of account, your broker/dealer basically trades your money on the Forex market for you, and will always show the highest bid and the lowest offer.
In simplest terms Forex can be as simple as you would want it to be. Managed Forex is an area of Forex trading that's continuing to grow. FOREX is a somewhat unique market for a number of reasons... Forex is maximum liquidity; FOREX is real trade, in term of business. Basically, Forex is transaction of monetary funds from one government to another or business associates of different countries. For the astute investor, Forex is better than the stock market and every other money-making opportunity. Since Forex is entirely electronic and the liquidity and size is so much larger, it tends to be easier and more efficient to do a Forex transaction.
How is Forex Trading Different?
If you're wondering why there seems to be so much buzz these days about forex trading, you're not alone. There are a number of reasons why forex trading is one of the hottest "new" investment opportunities for average folks. Fortunately, more and more information is surfacing about forex, making it a great time to start doing your research.
The purpose of this short article is to present a basic overview of key aspects which differentiate forex from other investment vehicles with which most of us are more familiar.
Today, the average person has a home computer with an internet connection. In addition, the number of people with a hi-speed broadband connection is rapidly increasing. This places a power and control in our hands that we've never before experienced. It's no longer necessary to have to rely upon the technical infrastructure of banks, brokerage firms and mutual fund advisors. This is incredibly significant. The internet represents more and more independence and choice for the individual to handle investing activities.
The nature of forex fits right in with the independence and freedom of having your internet connection. You can trade anytime from anywhere, starting with a very low investment; under $1000. There are no fees to pay and although the currency market is very liquid, it's also very predictable. You can also make money whether markets are up or down. That's why it works. The really fun thing is that you can get online and practice by paper trading and learn without any risk. Then, after gaining a better understanding of how it works, you can begin with a small amount and make it grow.
Previously, only the "big boys" and financial institutions were in-the-know about forex trading and very active in it as well. Seasoned investors have also been involved over the last few years. Experienced stocks and commodities traders have discovered the power of forex trading. The daily forex trading volume is said to be somewhere in the neighborhood of 1.5 trillion dollars, which is 30 times the combined volume of all the US equity markets. That's some pretty tall talking, but certainly worthy of your investigation. Now, because of certain regulatory changes that occurred in the late '90's and the explosion of home computing & internet technology, forex has become an investment opportunity that most people can be involved with in the comfort of their home as they control their own investment strategies.
Like I said, this is really just a light overview, but I urge you to give some attention to forex trading and discovering more about it. You may find it quite rewarding.
The purpose of this short article is to present a basic overview of key aspects which differentiate forex from other investment vehicles with which most of us are more familiar.
Today, the average person has a home computer with an internet connection. In addition, the number of people with a hi-speed broadband connection is rapidly increasing. This places a power and control in our hands that we've never before experienced. It's no longer necessary to have to rely upon the technical infrastructure of banks, brokerage firms and mutual fund advisors. This is incredibly significant. The internet represents more and more independence and choice for the individual to handle investing activities.
The nature of forex fits right in with the independence and freedom of having your internet connection. You can trade anytime from anywhere, starting with a very low investment; under $1000. There are no fees to pay and although the currency market is very liquid, it's also very predictable. You can also make money whether markets are up or down. That's why it works. The really fun thing is that you can get online and practice by paper trading and learn without any risk. Then, after gaining a better understanding of how it works, you can begin with a small amount and make it grow.
Previously, only the "big boys" and financial institutions were in-the-know about forex trading and very active in it as well. Seasoned investors have also been involved over the last few years. Experienced stocks and commodities traders have discovered the power of forex trading. The daily forex trading volume is said to be somewhere in the neighborhood of 1.5 trillion dollars, which is 30 times the combined volume of all the US equity markets. That's some pretty tall talking, but certainly worthy of your investigation. Now, because of certain regulatory changes that occurred in the late '90's and the explosion of home computing & internet technology, forex has become an investment opportunity that most people can be involved with in the comfort of their home as they control their own investment strategies.
Like I said, this is really just a light overview, but I urge you to give some attention to forex trading and discovering more about it. You may find it quite rewarding.
Types of Forex Trading and Strategies
The foreign exchange market, or forex, being the largest financial market in the World has been the domain of government central banks as well as for commercial and investment banks in a scandalous manner and it exists wherever one currency is traded for another. But recently more numbers of individuals are handling the forex market as it offers trading 24-hours a day, five days a week, and the daily dollar volume of currencies traded in the currency market that exceeds $1.9 trillion daily, making it the largest liquid market in the world.
"Foreign Exchange" is the place where the money of one nation is traded with the other nation. The most popular pair of exchange in the forex market is "Euro Dollar". You can view these pairs in all forex display screens as "EUR/USD". Forex trading strategies are the key to triumphant forex trading or online currency trading. The management team of One World Capital Group bid proficiency in both Forex trading and internet technologies and proven track records that deals with large, global trading and brokerage operations as well. Forex made easy is as simple as you would want it to be.
Forex trading is different from trading in stocks entirely and it uses Forex trading strategies that will give you lot of advantages as well as help you to comprehend greater profits in the short term. There are wide ranges of forex trading strategies that are available to investors. It is one of the most useful of these forex trading strategies called as leverage. Knowledge of these Forex trading strategies can imply the difference between profits along with a loss and so it is essential that you fully grasp the strategies that are being used in Forex trading. The world of Forex trading is highly complicated and success requires education and familiarity with terms, charts, signals and indicators.
As you can be able to access it from home or office from any parts of the country, Global Forex trading is the most profitable and attractive internet income opportunity. And you do not need to do anything or there is no need of internet promotion for getting succeeded. Forex Capital Markets are nothing but foreign exchange markets where the currencies are been bought and sold continuously for profits. These capital markets of forex are present globally and their transactions are always non-stop in this forex cash market. A managed Forex account is forex made easy. Many different companies offer these accounts to their clients. The foreign exchange market is a worldwide market and as per to some estimates is almost as big as thirty times the turnover of the US Equity markets.
"Foreign Exchange" is the place where the money of one nation is traded with the other nation. The most popular pair of exchange in the forex market is "Euro Dollar". You can view these pairs in all forex display screens as "EUR/USD". Forex trading strategies are the key to triumphant forex trading or online currency trading. The management team of One World Capital Group bid proficiency in both Forex trading and internet technologies and proven track records that deals with large, global trading and brokerage operations as well. Forex made easy is as simple as you would want it to be.
Forex trading is different from trading in stocks entirely and it uses Forex trading strategies that will give you lot of advantages as well as help you to comprehend greater profits in the short term. There are wide ranges of forex trading strategies that are available to investors. It is one of the most useful of these forex trading strategies called as leverage. Knowledge of these Forex trading strategies can imply the difference between profits along with a loss and so it is essential that you fully grasp the strategies that are being used in Forex trading. The world of Forex trading is highly complicated and success requires education and familiarity with terms, charts, signals and indicators.
As you can be able to access it from home or office from any parts of the country, Global Forex trading is the most profitable and attractive internet income opportunity. And you do not need to do anything or there is no need of internet promotion for getting succeeded. Forex Capital Markets are nothing but foreign exchange markets where the currencies are been bought and sold continuously for profits. These capital markets of forex are present globally and their transactions are always non-stop in this forex cash market. A managed Forex account is forex made easy. Many different companies offer these accounts to their clients. The foreign exchange market is a worldwide market and as per to some estimates is almost as big as thirty times the turnover of the US Equity markets.
Are Forex Robots For You?
The Forex market is one of the most volatile markets and yet the most continuous and simultaneous trading in the world. A Forex trader profits from the movement of the different currency worldwide. It’s market is very speculative and unpredictable. Currency values can change in milliseconds because of different factors. This is where Forex robots come in.
Forex robots enable traders to trade without letting emotions rule trading. There would be times when traders exit a trade because of changes, only to find out that the endangered value would come up again. For some traders, keeping your emotions in check and maintaining composure and being rational can be very difficult.
What is a Forex robot?
A Forex robot is a computer program that analyzes the Forex market based on a particular Forex trading system or strategy. The good thing is that these Forex robots are capable of analyzing more than one currency pair. It is programmed to identify a pre-determined point where the robot can place an order or exit a trade. Upon determining a particular trade deal where you would be able to profit, the robot can place or continue with the order without the trader actually being present.
Forex market changes very fast. Political, social and economic changes in a country can change the value of the country’s currency. Aside from that, there are other factors that can change the currency value. And it could happen in just a matter or milliseconds. This abrupt change can make timing very difficult for traders. About 95 percent of traders fail to make any profit every day. How can you be part of the successful 5 percent?
Whenever you are doing some Forex trading, timing is crucial. This could either make or break your profit. A Forex robot could help you to improve the timing of your trading. This change could actually help you attain bigger profits in the long run.
The good thing about a Forex robot is that it could monitor all the currencies in the world. It could monitor and determine not just one but more than 20 trading signals. With this capability, it could easily monitor all the currencies and let you know if it has detected a profitable trading opportunity for you.
A Forex robot can even be left at charge. It is ideal for traders who needs time flexibility or have time constraints. Forex robot can do the work and seal the deal for you while you are doing something else or doing some other work. They can even continue trading for you even if you are sleeping or playing golf.
Forex robots are not the same though. If you are looking for a Forex robot, you would have to take account your personal situation or lifestyle, objectives and previous trading experiences. Unfortunately, not all Forex robots have the same profitability. Its quality could sometimes be dependent on the manufacturer of the program. There are some Forex robots which would claim that their profitability would be about 95%, while some would be less that that, or sometimes worse.
So when looking for a Forex robot to help you with your trade, you would have to consider a lot before making a purchase. Aside from that, not all Forex robots can be left to operate on their own. There are some which would require to have manual participation while making the trade. You would have to take account all of this when looking for a Forex robot.
Automated Forex Trading System and Things To Avoid
Automated Forex trading system is an answer for some traders. Some would say that using this kind of system enabled them to win and earn profits that they would unlikely earn when doing manual trading. Successful users of the Forex trading software would say that not only would they earn money, but they would earn it consistently.
But not everything is a walk in the park. There are traders that would say that getting an automated system and using it for their Forex trade did not help them at all, worse even made them lose profit. Actually, failure in using the automated Forex trading system would depend on the how we take advantage and use this system. Some would commit common mistakes which they can readily avoid.
What are the things that we should be conscious about and at the same time what are the commonly made mistakes when using the automated Forex trading system.
Mistakes would oftentimes start when you are just beginning to choose your Forex trading software. Of course you can check the testimonials of the customers. But do not solely rely on them, it can be fictitious testimonials. So, what you can do is check forums where not only opinions about the software are tackled, but also about the problems encountered and how customers were able to resolve them.
Another mistake is that traders would think that just because that the software they want got god ratings in the market and good customer feedback, it is already perfect. It can still encounter some problems on the way. So make sure that the software you will be choosing have a live support, whether it is over the internet or phone.
It is also a mistake to believe that since you have a trading software, losing is next to impossible. Even the best and most expensive trading programs, can still make mistakes and in the end, make you lose some profits. Winning and earning big profits does not happen in a matter of weeks. In Forex trading, you could have fewer transactions but these transactions could give you more profits. You would have to build solid transactions andtrades that can give you bigger accumulated profits in the long run.
Some would think that winning trades could happen everyday. But that is not the case. Very good deals and trades do not happen everyday. You need patience to be able to earn big profits. Making a lot of trades or overtrading does not mean you would be able to get big profits in the end.
Some traders would rely too much on their trading software and forget getting involved manually on the trade. Being lazy in learning your trade is a big, big mistake. Just because computer programs are working for you, does not give you any excuse not to understand and learn the Forex market.
But listening to all experts and following what they say do not guarantee success altogether. Knowledge is meant to compliment your trading style and system. Just because they say that a particular strategy or system works for them, it could also work for you.
Also, if you have encountered a bad software in past, do not think that all Forex trading programs are scams. It is a mistake to stop looking for ideal trading software. Be patient and keep looking.
It is common for everybody to make mistakes, even if you are using an automated Forex trading system. You just have to make sure that your software compliments your trading style and knowledge.
Thursday, September 17, 2009
Trading Trend and Ranges in Forex
Knowing the importance of trading trends and ranges in Forex trading is very important. If you are thinking of trading in the Forex market, be sure you know what these terms mean and their implications.
Trading Trend
When price moves consistently in one direction in the Forex, a trend occurs. When the direction is higher, the trend is often called bullish. When the direction of the price is moving lower, the trend is often called bearish. These terms are relative of course. When you define a trend, you should always remember that price peaks and troughs are in the same direction. When you are dealing with a bearish trend, remember that price highs and lows are moving lower. Likewise when you are dealing with a bullish trend, they are moving higher.
Often when trends occur, it is possible to draw support lines under one that is moving higher (an uptrend). You can also often draw resistant lines above one that is moving lower (a downtrend). Once you see these lines break, it can be assumed that the trend is complete. At this point there is a possibility that the trend will begin to reverse. When it does reverse, you will need to know the pattern of what that entails.
Trend Reversal
When you hear of a trend reversal, it simply means that the direction of market prices is changing. Often you will see trend reversals following a four step pattern. Usually, this includes the market making a new high, the trend line being broken, the market making an intermediate low, and a new rally that does not match the first high. Many times you will see prices break the previous low however. You may come across terms such as Double, Triple Tops, and Bottoms, which are all trend reversal patterns. Head and shoulders patterns are also popular reversal patterns.
Trading Range
The trading range is actually a sideways chart pattern. It is often used to represent a resting period before the original trend is resumed. You may see these when you are charting trends and should know what they imply.
Often trends are very important to investors. Those who engage in trend-following are people who look at major trends and make decisions in the direction of the trend. This can be a good strategy, but you must know a great deal about trends and the market in general in order to use this technique successfully. Beginners are not usually very good at tracking trends and using trend-following techniques. One thing that you should also note is that some price movements are trendless. This means that they have no clear direction, which makes trend-following nearly impossible.
Remember, that in order to fully understand trends, you must be educated in the ways of the market and foreign exchange in general. Beginners should not rely heavily on foreign exchange market trend tracking. Once you get more experience you can begin looking into tracking more and more. However, be aware that different things affect and influence the Forex. These influences can change what people expect trends to be. Therefore, you should be a seasoned trader in order to rely on the trends and ranges alone. Educate yourself on these terms and learn to recognize them in the actual market. After all, learning the terms is one thing and being able to see them in reality is different.
Trend Reversal
When you hear of a trend reversal, it simply means that the direction of market prices is changing. Often you will see trend reversals following a four step pattern. Usually, this includes the market making a new high, the trend line being broken, the market making an intermediate low, and a new rally that does not match the first high. Many times you will see prices break the previous low however. You may come across terms such as Double, Triple Tops, and Bottoms, which are all trend reversal patterns. Head and shoulders patterns are also popular reversal patterns.
Trading Range
The trading range is actually a sideways chart pattern. It is often used to represent a resting period before the original trend is resumed. You may see these when you are charting trends and should know what they imply.
Often trends are very important to investors. Those who engage in trend-following are people who look at major trends and make decisions in the direction of the trend. This can be a good strategy, but you must know a great deal about trends and the market in general in order to use this technique successfully. Beginners are not usually very good at tracking trends and using trend-following techniques. One thing that you should also note is that some price movements are trendless. This means that they have no clear direction, which makes trend-following nearly impossible.
Remember, that in order to fully understand trends, you must be educated in the ways of the market and foreign exchange in general. Beginners should not rely heavily on foreign exchange market trend tracking. Once you get more experience you can begin looking into tracking more and more. However, be aware that different things affect and influence the Forex. These influences can change what people expect trends to be. Therefore, you should be a seasoned trader in order to rely on the trends and ranges alone. Educate yourself on these terms and learn to recognize them in the actual market. After all, learning the terms is one thing and being able to see them in reality is different.
Wednesday, September 16, 2009
Trade FOREX From Home
Benefits of Trading FOREX
There are many benefits and advantages to trading the Forex market as a home based business. Here are just a few reasons why so many people are choosing to trade in the FOREX market as a home based business, rather than stocks, options or futures.
Open 24 Hours, 6 Days Per Week
The FOREX Market never sleeps. It is a 24 hour, 6 days a week market. A currency trader may take advantage of all profitable market conditions at any time. There is
no waiting for an opening bell as in the case of trading stocks. It is a 24-hour, continuous currency exchange that never closes. This is very desirable for those who want to trade on a part-time basis, because you can choose when you want to trade: morning, noon or night. Because of the overlapping time zones you can actually effectively trade the equivalent of 6 days per week.
Superior Market Liquidity
With $1.5 trillion changing hands daily, the FOREX market is also extremely liquid. This means that with a click of a mouse you can instantaneously buy and sell at will. Whether it's 6pm or 6am, somewhere in the world there are always buyers and sellers actively trading foreign currencies. You are never 'stuck' in a trade. You can even set the online trading platform to automatically close your position at your desired profit level(limit order), and/or close a trade if a trade is going against you (stop order).
Maximum Leverage
FOREX investors are permitted to trade foreign currencies on a highly leveraged basis - up to 100 times their investment. Leverage gives the trader the ability to make extraordinary profits and at the same time keep risk capital to a minimum. In stocks, for every $1,000 cash you invest, you control a maximum of $2,000 worth of stocks. The maximum leverage is 2:1. But with FOREX, if you invest $1,000 margin on a foreign currency trade, you can control up to $100,000 in currencies. Leverage gives the trader the ability to make extraordinary profits and at the same time keep the risk to capital to a minimum.
Profit Potential in Both Rising and Falling Markets
In FOREX trading you can profit in both rising and falling markets. There is no need to fear a falling 'bear' market. Trading currency allows traders to earn profits during rising and falling markets. One can just as easily "short" a particular currency as go "long", because currencies trade in "pairs". Thus, when you buy a particular currency, you are actually simultaneously selling the other currency in that particular pair. As the market moves, one of the currencies will increase in value versus the other. Of course, it is up to you to choose the correct one to be long or short. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. This means a trader has an equal potential to profit in a rising or falling market.
Low Transaction Costs
Active stock and futures traders often see substantial portions of their gross profits going to broker commissions, exchange fees, and data/chart feeds. In FOREX there are no brokerage commission fees. In FOREX what you see is what you get, allowing you to make quick decisions on your trades without having to worry or account for fees that may affect your profit/loss or slippage. In the equity markets, you must pay both a commission and exchange fees. The over-the-counter structure of the FOREX market eliminates exchange and clearing fees, which in turn lowers transaction costs. Costs are further reduced by the efficiencies created by a purely electronic marketplace that allows clients to deal directly with the market maker, eliminating both ticket costs and middlemen.
Because the currency market offers round-the-clock liquidity, you receive tight, competitive spreads both intra-day and night. Stock traders can be more vulnerable to liquidity risk and typically receive wider trading spreads, especially during after hours trading.
Sunday, September 13, 2009
Dow Theory
Dow never actually wrote his observations down in one manuscript, so the principles of Dow theory gathered together here have come from several different locations, not from one comprehensive source. You will find different interpretations of what Dow theory is. Here, though, are the six key principles in what I believe to be the most convenient grouping of Dow's thoughts.
- The market indexes cover the whole market and discount all market information.
- Markets have three time horizons for trends: primary, secondary, and tertiary.
- Each trend goes through three phases.
- For a trend to be in effect, it must be confirmed by volume.
- For an overall market trend to be confirmed, the market indexes must agree with each other.
- A trend is in effect until a clear signal is given that it has reversed.
The first point to note when looking at Dow's theory and applying it to today's markets is that he was working in a world where the industrial average (referred to as the Dow these days) and the transportation average covered all listed securities. There was no NASDAQ. The aspects of Dow theory that refer to market indexes are only relevant when assessing the overall direction of the market, which we do as day traders to give us a bias on the direction in which we prefer to trade. In other words, those aspects of Dow theory are presented mainly for the sake of thoroughness. Let's examine each principle in turn and see how it relates to trading today.
- The market indexes cover the whole market and discount all market information. Dow's industrial and transportation indexes covered the whole market at the time, and he believed that their prices reflected the sum total of knowledge and opinion at any give time of how those indexes should be priced. All factors related to the supply and demand of securities are assumed to be represented by the movement of the indexes. Dow also asserted that any significant information gets quickly assimilated into the price, things like wars, unexpected interest rate changes, and the like. Dow was therefore able to reduce his market study to keeping up with the two averages and drawing his conclusions about market direction on the basis of their movement.
- Markets have three time horizons for trends: primary, secondary, and tertiary. This is a general rule that can still be seen today. At the time of Dow's study, he determined that the primary trends that represented the overall direction of the market lasted between one and two years. A secondary trend occurred as a temporary interruption of the primary trend and acted as a temporary correction. (When we examine them later in this chapter, secondary trends will be seen as continuation patterns.) At that time, Dow considered that such corrections took between three weeks and three months to complete, and he viewed them as temporary as long as they corrected no more than 66 percent of the primary trend.
Tertiary trends were identified as fluctuations within secondary trends and could last for up to three weeks. They could be in the direction of either the primary or secondary trends. These classifications are useful in terms of placing short-term movements within the context of an overall trend. This concept is essential to proper trading when the market is in the Phase 2 stage identified in Chapter 1. As a means of analyzing the overall market, however, the time scales for each trend are not applicable any more. It is much more useful simply to be aware of the fact that countertrends exist within the overall trend, often identifying themselves as pullbacks to areas of support in the main trend. - Each trend goes through three phases. His description of the three phases is probably the most important Dow rule for day trading. Dow's explanation of these phases almost exactly describes how trends exist in the intraday movements that day traders can profit from. This is not surprising. In Dow's day, the flow of information was remarkably slow compared to today's speed of information delivery. What we see, therefore, is a concatenation of time scales for what happened in the past. In other words, what Dow described as taking place over the course of days or weeks, we can see taking place in the markets within minutes or hours. Here, then, are three phases, first for an uptrend, or bull move, then for a downtrend, or bear move. In a bull move, the first move up is caused by those with superior information or those with superior insight as to the market's appetite for the security. During this stage, the majority are selling the stock, believing worse is to come, which allows those better informed to purchase the security. Since as day traders we merely react to trends that exist, the first phase is of no interest in terms of attracting our capital. The second phase is where the day trader hopes to identify and take advantage of the trend. Price accelerates out of the initial trend and the trend becomes established for everyone to see. The final stage is characterized by rampant speculation following up the significant price rise that professional traders have enjoyed. This is when the professionals sell into what are referred to as „weak hands,“ those who do not follow the market as closely as the professionals and therefore only get in on the end of the trend. The price falls when there are no more weak hands left to buy the stock. The professionals have sold out and the weak hands are driving the price down in their urgency to get out and limit their losses.
This is what I mean when I advise getting out of a winning position when you can, rather than when you have to. If you have a positive position, sell when there are still plenty of buyers. You will miss out on catching the top and, therefore, the most gain, but over time you will do better by not having to execute a trade when there are next to no buyers.
Bear market moves are similar in concept, but, of course, in the opposite direction to bull runs. Bear declines start when the professionals sell, either as a result of taking profits, or, in anticipation of a decline, selling short. The second move is typified by investors selling out their positions as they realize they have made a mistake with that investment. The last gasp is when the overly optimistic or those who say they are in it for the long term finally lose faith and take big losses.
These observations by Dow are critical for the day trader to internalize, because they really nail the notion of when a trend should be entered and exited. By the last gasp run, whether in the upward or downward direction, the professional should already be out, or for sure making an immediate exit. - For a trend to be in effect, it must be confirmed by volume. This is best illustrated with reference to the below figure.
Here we see an uptrend, always the easiest to trade, especially in this case, since it is clear that the volumes are confirming the direction of price movement. As price moves up, volume picks up, indicating that the market is in agreement with the price movement. When the price moves down, volume falls, indicating that the market as a whole does not agree with the downward direction in the price movement and that more people are waiting for the price to turn up again before buying in.
This point of Dow theory is less directly relevant to day trading than the last. It does, however, bear consideration as a secondary indicator. Most commonly, you will see this illustrated on intraday charts as a significant move in the security coinciding with heightened volume. It is not much of a predictor for the day trader because the price movement itself is telling you all you need to know. That volume is confirming it is nice, but not essential. Where a day trader can get value from this Dow point is that you tend to see an increase in trades, i.e., an increase in volume, when a security is starting to run up, which is better seen by judging the pace of trades through a time-of-sales screen than by looking at the volume bars on the chart. - For an overall market trend to be confirmed, the market indexes must agree with each other. This Dow point is really only of value to the day trader when assessing overall market health. It places a bias on the direction that day trades should be made in. In Charles Dow's day, the industrial average and the transportation average covered all securities in the market, and Dow thought that both had to be trending in the same direction for it to be said that the market was in a confirmed trend. These days, those indexes clearly do not represent the market. They do not include any of the NASDAQ securities we will be trading, so as it stands, this Dow point is useless. We can, however, update it a bit by saying that perhaps the market is best represented by the S&P 500, which must be trending for the market to be considered in a trend. In my own experience, the S&P and the S&P futures have not provided much help in terms of deciding how to trade an individual security. There are some market gurus who will advise closely watching the S&P futures, the price of oil, and a whole bunch of other indicators in order to decide how to trade an individual security. I have not seen reliable enough signals from these indicators to make them part of my decision to put capital at risk, or more accurately.
- A trend is in effect until a clear signal is given that it has reversed. This is a very important Dow point for the day trader to know and appreciate. During Phase 2 trading, when we are looking for trends, this point should be paramount in our minds. If you see a trend that has pulled back to support a couple of times, it is definitely worth entering that trend the next time support is reached. If, however, that turns out to be the point at which the trendline breaks, a swift exit should be made. Time and again, I have seen traders convince themselves that the market would turn in their favor and watch their losses mount as they wait for the bounce back. Occurrences like the break of a trendline should be seen as signals that the existing trend is no longer in effect. The astute day trader waits for the next trend to be established. This Dow point also helps to stop us from prematurely entering a short in the market just because we believe the market is too high. If, indeed, a strong bull run has pushed a security to all-time highs, it is probable that a pullback will happen, but we don't know when that pullback will occur until something definite signals it, like a reversal pattern. This Dow point should also stop people from buying a favorite security that is in a confirmed downtrend just because they believe it is too cheap.
This is not to say that as day traders we should wait for a signal that the trend has finished before exiting a winning position. It is always better to protect your profits and get out while you can, when there are plenty of buyers, even if it means missing out on some further appreciation. I myself prefer to wait for a sign of weakness, rather than a complete signal, before selling out. This thinking is covered in more detail in the next section, which discusses trend more fully.
Thursday, September 10, 2009
4 Simple Tips to choose a Forex Broker
Finding a Forex broker for your trading needs is a difficult process for the most of us .Hence, there is a necessity of outside assistance. Trading in the unpredictable Forex market without a broker could possibly lead to disastrous results for the normal investor. Even choosing the wrong Forex broker for your needs will lead to the same disastrous results.
- It is very important that you be sincere in researching any prospective brokerage firms to handle your financial portfolio. A good Forex broker will supply you with successful clients contact info with out any hesitation. Check out their client history and you should get a pretty good idea about them. Note that testimonials by traders should be used as a part of research in finding the right forex broker but not the deciding factor as many brokers have "special" clients who will speak just positive about them.
- Another good way to test the reliability of any Forex broker is the amount of information, literature and tutorials that they are giving to you. Most Forex brokers out there are of a decent reputation as well as a solid background.But, there are quite a few out there that don't have a good history or no history and it is wise to avoid such forex brokers.
- Another simple but good avenue to find out about prospective forex brokers is to ask your aquaintaces about the forex brokers they deal with. This will not only give you prospective referrals to great Forex brokers but will also equip you with decent ideas and resources that you may not have located. If you get a referral, be sure to do your own research on the broker. DO not commit to any broker until you have completely analysed them.
- A Forex trading margin heavily influences your money and various Forex brokers offer different margins. If you find a Forex broker, who is giving you a margin of ten to one isn't a very good find so it's worthwhile to put some time in research. Remember that forex market is all about customer service and catering to the customers.
So, if your prospective Forex broker doesnt return your calls with a reasonable turn around time ,Better look for another!
20 Rules To Stop Losing Money in Forex Market!
20 Rules To Stop Losing Money in Forex Market!
1. Dont blindly trust others opinions - It's your money at stake, not theirs.Use your brains too. Do your own analysis and make decisions.
2. Don't believe in Any company - Trading is not like investment. Just concentrateon the numbers and forget the press releases.
3. Don't break your own rules - You made them up for tough situations, just like the one you are probably in right now!
4. Never try to get even - Trading is never a game of catch-up. Every position will and must stand on its merits. Take your losses with patience and analytically, and take the next trade with unhindered discipline.
5. Don't trade over your head - If your last name isn't Buffett or Cramer, don't try tp trade like them. Concentrate on playing the game with good tactics, and don't worry about making or losing money.
6. Don't seek the Holy Grail! - There is no secret trading formula that will fetch you unlimited profits, other than good risk management. So stop searching for it.
7. Don't forget your discipline - Learning the basics is pity easy. Most newbie traders will fail in due course as a result of lack of discipline, not a lack of knowledge.
8. Don't try tochase the crowd - Listen to the beat of your heart . By the time the crowd acts, you might be too late…..or too early.
9. Don't trade the obvious pattern - The prettiest patterns can set you up the most painful losses. "If it looks too good to be true, it probably is".
10. Don't ignore the warning signs at any trustable sources -Major losses rarely come without any warning. Do keep a look out for warnings!
11. Don't count your chickens - Profits aren't booked until the trade is closed. The forex market gives and the market takes away with great fury with out a damn for any one.
12. Don't forget your plan - Always Remember the reasons why you took the trade in the first place, and don't get blinded unnecessarily by volatility.
13. Don't have a shrewd paycheck mentality - The market only pays off big time when you're right, and your timing is really, really ON TIME ;).
14. Don't join groups - Trading is not a team sport requiring unity . Avoid stock boards, chatrooms and financial news on TV. You dont wanna repent later and will end up cursing the group!
15. Don't ignore your intuition - Respect the little voice that tells you what to do, and what to avoid. That could be the voice of the winner trying to get into your thick head.
16. Don't hate losing in the market- Expect to win and lose with great regularity. Expect the losing to teach you more about winning, than the winning itself. Thats FX market for you.
17. Don't fall into the complexity hole - A well-trained eye is much more effective than a stack of automated indicators. Common sense is more valuable than a backtested system. AS they say common sense is very uncommon.
18. Don't confuse execution with opportunity - Overpriced software which promise you results won't help you trade like a pro. Pretty colors and flashing lights make you a faster trader, not a better one.
19. Don't project your personal life in trading forex- Trading gives you the perfect opportunity to discover sometimes just how screwed up your life really is.
20. Don't think its entertainment - Trading should be boring most of the time, just like the real job you have right now. But never look for entertainment in there. You wont get it!
1. Dont blindly trust others opinions - It's your money at stake, not theirs.Use your brains too. Do your own analysis and make decisions.
2. Don't believe in Any company - Trading is not like investment. Just concentrateon the numbers and forget the press releases.
3. Don't break your own rules - You made them up for tough situations, just like the one you are probably in right now!
4. Never try to get even - Trading is never a game of catch-up. Every position will and must stand on its merits. Take your losses with patience and analytically, and take the next trade with unhindered discipline.
5. Don't trade over your head - If your last name isn't Buffett or Cramer, don't try tp trade like them. Concentrate on playing the game with good tactics, and don't worry about making or losing money.
6. Don't seek the Holy Grail! - There is no secret trading formula that will fetch you unlimited profits, other than good risk management. So stop searching for it.
7. Don't forget your discipline - Learning the basics is pity easy. Most newbie traders will fail in due course as a result of lack of discipline, not a lack of knowledge.
8. Don't try tochase the crowd - Listen to the beat of your heart . By the time the crowd acts, you might be too late…..or too early.
9. Don't trade the obvious pattern - The prettiest patterns can set you up the most painful losses. "If it looks too good to be true, it probably is".
10. Don't ignore the warning signs at any trustable sources -Major losses rarely come without any warning. Do keep a look out for warnings!
11. Don't count your chickens - Profits aren't booked until the trade is closed. The forex market gives and the market takes away with great fury with out a damn for any one.
12. Don't forget your plan - Always Remember the reasons why you took the trade in the first place, and don't get blinded unnecessarily by volatility.
13. Don't have a shrewd paycheck mentality - The market only pays off big time when you're right, and your timing is really, really ON TIME ;).
14. Don't join groups - Trading is not a team sport requiring unity . Avoid stock boards, chatrooms and financial news on TV. You dont wanna repent later and will end up cursing the group!
15. Don't ignore your intuition - Respect the little voice that tells you what to do, and what to avoid. That could be the voice of the winner trying to get into your thick head.
16. Don't hate losing in the market- Expect to win and lose with great regularity. Expect the losing to teach you more about winning, than the winning itself. Thats FX market for you.
17. Don't fall into the complexity hole - A well-trained eye is much more effective than a stack of automated indicators. Common sense is more valuable than a backtested system. AS they say common sense is very uncommon.
18. Don't confuse execution with opportunity - Overpriced software which promise you results won't help you trade like a pro. Pretty colors and flashing lights make you a faster trader, not a better one.
19. Don't project your personal life in trading forex- Trading gives you the perfect opportunity to discover sometimes just how screwed up your life really is.
20. Don't think its entertainment - Trading should be boring most of the time, just like the real job you have right now. But never look for entertainment in there. You wont get it!
7 Tips to better Currency Trading
Currency trading training is not over when a trader finally sees the equity increasing in their account.
The Forex market is a very demanding environment and for a trader to maintain a success level, constant currency trading training is necessary.
The following 7 favorite tips can be used as timely reminders and need to be read and absorbed on a regular basis:
#1 - Take Responsibility
"The buck stops here." Don't blame the markets, or a host of other factors for a losing trade. You entered it for whatever reasons you had at the time. Take responsibility for it.
#2 - Use Each Losing Trade As A Stepping Stone
You lost a trade? Good. It will help you focus on a potential problem in your trading method. If after careful analysis you are satisfied you worked according to your plan, fine. Move on.
#3 - Never Become Impatient With The Market
New traders in the early stages of their currency trading training can be eaten alive by the market. During periods of consolidation with little liquidity the anxious impatient trader will force trading opportunities where there none.
Learn to accept the fact that around 70% of the time price will be in a consolidation channel.
#4 - Focus Daily On Improving Your Trading Skills
Currency trading training is an ongoing process. Day by day, step by step the trader improves. So rather than be preoccupied with profits and losses, concentrate on developing the skills. Your account will start to reflect your focus in time.
#5 - Be Pleased With Well Executed Trades Whatever The Outcome
Is this possible? Yes. You can feel well pleased even with a losing trade if you stuck to your methodology and executed the trade well. It is dangerous to feel good about a winning trade when you went against your trading method to achieve it. Your elation is likely to be short lived. Learn to execute the plan!
#6 - If In Doubt Stay Out
The feeling of regret can drain a person mentally and emotionally from entering a poorly considered trade. Once the trigger has been pulled and the trade starts going wrong, the agony of watching it inch towards your stop should renew in the trader the determination to stay out when in doubt!
#7 - Always Have A Good Reason
Currency trading training involves careful analysis of reasons for entering a trade. Just because price is high is not a reason to go short or long if price is low. Price will do what price wants to do so rather than trading from gut reaction, e.g. "Price can't go any higher (or lower)" learn to detach emotions and use pure technical analysis to establish a number of reasons why you should take a trade.
As currency trading training is a long term commitment, skills and disciplines learned can sometimes be forgotten as bad habits creep in.
It is necessary to constantly renew the thinking processes by repeating over and over the habits of successful traders.
These 7 favorite tips will keep the newer trader out of a lot of trouble!
The Forex market is a very demanding environment and for a trader to maintain a success level, constant currency trading training is necessary.
The following 7 favorite tips can be used as timely reminders and need to be read and absorbed on a regular basis:
#1 - Take Responsibility
"The buck stops here." Don't blame the markets, or a host of other factors for a losing trade. You entered it for whatever reasons you had at the time. Take responsibility for it.
#2 - Use Each Losing Trade As A Stepping Stone
You lost a trade? Good. It will help you focus on a potential problem in your trading method. If after careful analysis you are satisfied you worked according to your plan, fine. Move on.
#3 - Never Become Impatient With The Market
New traders in the early stages of their currency trading training can be eaten alive by the market. During periods of consolidation with little liquidity the anxious impatient trader will force trading opportunities where there none.
Learn to accept the fact that around 70% of the time price will be in a consolidation channel.
#4 - Focus Daily On Improving Your Trading Skills
Currency trading training is an ongoing process. Day by day, step by step the trader improves. So rather than be preoccupied with profits and losses, concentrate on developing the skills. Your account will start to reflect your focus in time.
#5 - Be Pleased With Well Executed Trades Whatever The Outcome
Is this possible? Yes. You can feel well pleased even with a losing trade if you stuck to your methodology and executed the trade well. It is dangerous to feel good about a winning trade when you went against your trading method to achieve it. Your elation is likely to be short lived. Learn to execute the plan!
#6 - If In Doubt Stay Out
The feeling of regret can drain a person mentally and emotionally from entering a poorly considered trade. Once the trigger has been pulled and the trade starts going wrong, the agony of watching it inch towards your stop should renew in the trader the determination to stay out when in doubt!
#7 - Always Have A Good Reason
Currency trading training involves careful analysis of reasons for entering a trade. Just because price is high is not a reason to go short or long if price is low. Price will do what price wants to do so rather than trading from gut reaction, e.g. "Price can't go any higher (or lower)" learn to detach emotions and use pure technical analysis to establish a number of reasons why you should take a trade.
As currency trading training is a long term commitment, skills and disciplines learned can sometimes be forgotten as bad habits creep in.
It is necessary to constantly renew the thinking processes by repeating over and over the habits of successful traders.
These 7 favorite tips will keep the newer trader out of a lot of trouble!
133 Trading tips
1. Learn the basics of forex trading. It's amazing how many people simply don't know
what they're doing. In order to compete at the highest level in the trading business and
be one of the few truly successful participants you must be well-educated about what
you are doing. This does not mean having a degree from a well-respected university –
the market doesn’t care where you were educated.
2. Forex trading is a zero sum game. For every long there is also a short. If 80% of
the traders are on the long side ,then the remaining 20% are on the short side. This
means further that the shorts must be well capitalized and are considered to be strong
hands. The 80%, who are holding much smaller positions per trader, are considered to
be weaker hands who will be forced to liquidate those longs on any sudden turn in
prices.
3. Nobody is bigger than the market.
4. The challenge is not to be the market, but to read the market. Riding the wave is
much more rewarding than being hit by it.
5. Trade with the trends, rather than trying to pick tops and bottoms.
6. Trying to pick tops and bottoms is another common fx trading mistake. If you're
going to trade tops and bottoms, at least wait until the price action actually confirms
that a top or a bottom has been formed before you take a position in the market.
Trying to pin-point tops and bottoms in the foreign exchange market is very risky, but
exercising a little patience and waiting for a proven top or bottom to form can
increase your odds of profiting and somewhat reduce your risk.
7. There are at least three types of markets: up trending, range bound, and down. Have
different trading strategies for each.
8. Standing aside is a position.
9. In uptrends, buy the dips ;in downtrends, sell bounces.
10. In a Bull market, never sell a dull market, in Bear market, never buy a dull market.
11. Up market and down market patterns are ALWAYS present, merely one is more
dominant. In an up market, for example, it is very easy to take sell signal after sell
signal, only to be stopped out time and again. Select trades with the trend.
12. A buy signal that fails is a sell signal. A sell signal that fails is a buy signal.
13. Let profits run, cut losses short.
14. Let your profits run, but don't let greed get in the way. Once you've already made
a nice profit on a trade, consider taking either some or all of the money off the table
and move on to the next trade. It's natural to hope that one trade will end up as your
"winning lottery ticket" and make you rich, but that is simply not realistic. Don't hold
the position too long and end up giving all your well-deserved profits back to the
market.
15. Use protective stops to limit losses.
16. Use appropriate stop-loss orders at all times to cut your losses and never, ever sit
back and let your losses run. Almost every trader at some point makes the mistake of
letting his or her losses run in hopes that the market will eventually turn around in his
or her favor but, more often than not, it simply leads to an even greater loss. You win
some, you lose some. Simply learn to cut your losses, take your occasional lumps and
move on to the next trade. And if you made a mistake, learn from it and don't do it
again. To avoid letting your losses run, get into the habit of determining an
acceptable profit target as well as an acceptable risk tolerance level for each and every
forex trade before entering the market. Then simply place a stop-loss order at the
appropriate price - but not so tight (close to the market) that the stop could quickly
take you out of the position before the market has a chance to move in your favor.
Using a stop is always the smart move.
17. Avoid placing protective stops at obvious round numbers. Protective stops on long
positions should be placed below round numbers (10, 20, 25, 50,75, 100) and on short
positions ,above such numbers.
18. Placing stop loss is an art. The trader must combine technical factors on the price
chart with money management considerations.
19. Analyze your losses. Learn from your losses. They're expensive lessons; you paid
for them. Most traders don't learn from their mistakes because they don't like to think
about them.
20. Stay out of trouble, your first loss is your smallest loss.
21. Survive! In forex trading, the ones who stay around long enough to be there when
those "big moves" come along are often successful.
22. If you are a new trader, be a small trader (mini account) for at least a year, then
analyze your good trades and your bad ones. You can really learn more from your bad
ones.
23. Don't trade unless you're well financed...so that market action, not financial
condition, dictates your entry and exit from the market. If you don't start with enough
money, you may not be able to hang in there if the market temporarily turns against
you.
24. Be more objective and less emotional.
25. Use money management principles.
26. Money management increases the odds that the trader will survive to reach the
long run.
27. Diversify, but don’t overdo it.
28. Employ at least a 3 to 1 reward-to-risk ratio.
29. Calculate the risk/reward ratio before putting a trade on, then
guard against holding it too long.
30. Don’t trade impulsively ; have a plan
31. Have specific goals and objectives.
32. Five steps to build a trading system:
a) Start with a concept b)Turn it into a set of objective rules.
c) Visually check it out on the charts d) Formally test it with a demo
e) Evaluate the results.
33. Plan your work and work your plan.
34. Trade with a plan - not with hope, greed, or fear. Plan where you will get in the
market, how much you will risk on the trade, and where you will take your profits.
35. Follow your plan. Once a position is established and stops are selected, do not get
out unless the stop is reached or the fundamental reason for taking the position
changes.
36. Any successful trading system must take into account three important factors:
price forecasting , timing , and money management. Price forecasting indicates
which way a market is expected to trend. Timing determines specific entry and exit
points. Money management determines how much to commit to the trade.
37. Don't cherry-pick your system's set-ups. Trade every signal.
38.Trading systems that work in an up market may not work in a down market.
39. Establish your trading plans before the market opening to eliminate emotional
reactions. Decide on entry points, exit points, and objectives. Subject your decisions
to only minor changes during the session. Profits are for those who act, not react.Don't
change during the session unless you have a very good reason.
40. Double-check everything.
41. Always think in terms of probabilities. Trading is all about thinking in
probabilities NOT certainties. You can make all the “right” decisions and the trade
still goes against you. This does not make it a “wrong” trade, just one of the many
trades you will take which, through probability, are on the “loosing” side of your
trading plan. Don’t expect not to have negative trades - they are a necessary part of
the plan and cannot be avoided.
42. The place to start your market analysis is always by determining the general trend
of the market.
43. Trade only with a strategy that you've proven to yourself.
44. When pyramiding (adding positions), follow these guidelines.
a. Each successive layer should be smaller than before.
b. Add only to winning positions.
c. Never add to a losing position. One of the few trade management rules
that we can state we never break is ‘Never add to a losing trade’.
Trades are split into winners and losers, and if a trade is a loser, the
chances of it turning right around and becoming a winner are too small
to risk more money on. If indeed it is a winner disguised as a loser,
why not wait until it shows it’s true colors (and becomes a
d. winner)before you add to it. If you do this you will notice that nearly
always the trade ends up hitting your stop loss and does not look back.
Sometimes the trade turns around before it hits your stop and becomes
a winner and you can count yourself very fortunate. Sometimes the
trade hits your stop loss and then turns around and becomes a winner
and you can count yourself unlucky. Whatever the result, it is never
worth adding to a loser, hoping that it will become a winner. The odds
of success are just too low to risk more capital in addition to the initial
risk.
e. Adjust protective stops to the breakeven point.
45. Risk Control
A)Never risk more than 3-4 percent of your capital on any trade
B)Predetermine your exit point before you get into a trade
c)If you lose a certain predetermined amount of your starting capital, stop trading,
analyze what went wrong, and wait until you feel confident before you begin trading
46. Don’t trade scared money.
No one ever made any money trading when they had to do it to pay the mortgage at
the end of the month. Having a requirement to make X dollars per month or you will
be financially in trouble is the best way I know to completely mess up all trading
discipline, rules, objectives, and leads quickly to disaster.
Trading is about taking a reasonable risk in order to achieve a good reward. The
markets and how and when they give up their profits is not under your control. Do not
trade if you need the money to pay bills. Do not trade if your business and personal
expenses are not covered by another income stream or cash reserve. This will only
lead to additional unmanageable stress and be very detrimental to your trading
performance.
47. Know why you are in the markets. To relieve boredom? To hit it big? When you
can honestly answer this question, you may be on your way to successful forex
trading
.
48. Never meet a margin call; don’t throw good money after bad.
49. Close out losing positions before the winning ones,
50. Except for very short term trading, make decisions away from the market,
preferably when the markets are closed.
51. Work from the long term to the short term.
52. Use intraday charts to fine-tune entry and exit.
53. Master interday trading before trying intraday trading.
54. Don't trade the time frame. Trade the pattern. Reversal patterns, hesitation patterns
and breakout patterns appear often. Learn to look for the pattern in any time frame.
55. Try to ignore conventional wisdom; don’t take anything said in the financial
media too seriously.
56. Always do your homework and stay current on global events. You never know
what's going to set off a particular currency on any given day.
57. Learn to be comfortable being in the minority. If you are right on the market, most
people will disagree with you. (90% losers,10% winners).
58. Technical analysis is a skill that improves with experience and study. Always be a
student and keep learning.
59. Beware of all tips and inside information. Wait for the market's action to tell you
if the information you've obtained is accurate, then take a position with the
developing trend.
60. Buy the rumor, sell the news.
61. K.I.S.S – Keep It Simple Stupid, more complicated isn’t always better.
62. Timing is especially crucial in forex trading.
63. Timing is everything in forex trading. Determining the correct direction of the
market only solves a portion of the trading problem. If the timing of the entry point is
off by a day ,or sometimes even minutes ,it can mean the difference between a winner
or a loser.
64. A “buy and hold” strategy doesn’t apply in forex trading
65. When you open an account with a broker, don't just decide on the amount of
money, decide on the length of time you should trade. This approach helps you
conserve your equity, and helps avoid the Las Vegas approach of "Well, I'll trade till
my stake runs out." Experience shows that many who have been at it over a long
period of time end up making money.
66. Carry a notebook with you, and jot down interesting market information. Write
down the market openings, price ranges, your fills, stop orders, and your own
personal observations. Re-read your notes from time to time; use them to help analyze
your performance.
67. Don't count profits in your first 20 trades. Keep track of the percentage of wins.
Once you know you can pick direction, profits can be increased with multi-plot
trading and variations in using your stops. In other words, now is the time to get
serious about money management.
68."Rome was not built in a day," and no real movement of importance takes place in
one day.
69. Do not overtrade.
70. Have two accounts. One real account and the other a demo account. Learning
doesn't stop when trading real dollars begins. Keep the demo account and use it to test
alternative trades, alternative stops, etc.
71. Patience is important not only in waiting for the right trades,but also in staying
with trades that are working.
72. You are superstitious; don't trade if something bothers you.
73. Technical analysis is the study of market action through the use of charts,for the
purpose of forecasting future price trends.
74. The charts reflect the bullish or bearish psychology of the marketplace.
75. The whole purpose of charting the price action of a market is to identify trends in
early stages of their development for the purpose of trading in the direction of those
trends
76. The fundamentalist studies the cause of market movement, while the technician
studies the effect.
77. Rising commodity prices generally hint at a stronger economy and rising
inflationary pressure. Falling commodity prices usually warn that the economy is
slowing along with inflation.
78. The longer the period of time that priced trade in a support or resistance area,the
more significant that area becomes.
79. There are three decisions confronting the trader –whether- to go long, go short or
do nothing. When a market is rising ,the best strategy is preferable. When the market
is falling, the second approach would be correct. However ,when the market is
moving sideways ,the third choise –to stay out of the market- is usually the wisest.
80. Channel lines have measuring implications. Once a breakout occurs from an
existing price channel ,prices usually travel a distance equal to the width of the
channel .Therefore, the trader has to simply measure the width of the channel and then
project that amount from the point at which either trendline is broken.
81. The larger the Pattern ,the Great the potential. When we use the term “larger” ,we
are referring to the the height and the width of the price pattern. The height measures
the volatility of the pattern. The width is the amount of time required to build and
complete the pattern. The greater the size of the pattern-that is ,the wider the price
swings within the pattern (the volatility ) and the longer it takes to build –the more
important the pattern becomes and the greater the potential for the ensuing price
move.
82. The breaking of important trendlines . The first sign of an impending trend
reversal is often the breaking of an important trendline. Remember however ,that the
violation of a major trendline does not necessarily signal a trend reversal.The
breaking of a major up trendline might signal the beginning of a sideways price
pattern ,which later would be intedified as either the reversal or consolidation
type.Sometimes the breaking of the major trendline coincides with the completion of
the price pattern.
83. The minimum requirement for a triangle is four reversal points. Remember that it
always takes two points to draw a trendline.
84. The moving average is a follower , not a leader. It never anticipates;it only reacts.
The moving average follows a market and tells us that a trend has begun, but only
after the fact.
85. Shorter term averages are more sensitive to the price action ,whereas longer range
averages are less sensitive.In certain types of markets ,it is more advantageous to use
a shorter average and ,at other times , a longer and less sensitive average proves more
useful.
86. When the closing price moves above the moving average , a buy signal is
generated. A sell signal is given when prices move below the moving average.
87. A buying signal on a two-moving average combination occurs when the shorter
term of two consecutive averages intersects the longer one upward. A selling signal
occurs when the reverse happens, and the longer of two consecutive averages
intersects the shorter one downward.
89. Shorter average generates more false signals ,it has the advantage of giving trend
signals earlier in the move .The trick is to find the average that is sensitive enough to
generate early signals, but insensitive enough to avoid most of the random “noise”.
90. Cutting losses is painful for every trader.The ability to cut one’s losses in time is
the sign of a seasoned trader.
91.A channel breakout suggests a target for the currency price equal to the width of
the channel.
92. Long term charts provide important information regarding long-terms or cycles.
The trader can get a correct perspective regarding the real direction of the market in
the long run, the strength or direction of the current trend occurring within that trend,
or the possibility of a breakout from the long-term trend.
93. Common Points All Of Reversal Patterms
A)The first signal of an impending trend reversal is often the breaking of an important
trendline.
B)The larger the pattern,the greater the subsequent move
C)Topping patterns are usually shorter in duration and more volatile than bottoms.
D)Bottoms usually have smaller price ranges and take longer to build
94. The head-and-shoulders formation is confirmed only when the completion of the
three rallies and their reversals is followed by a breach of the neckline. The failure of
the price to break through the neckline on closing prices basis puts on hold or negates
the validity of the formation.
95. The double-top formation is confirmed only when the full completion of the two
rallies and their respective reversals is followed by a breach of the neckline (the
closing price is outside the neckline ).The failure of the price to break through the
neckline puts on hold or negates the validity of the formation.
96. The flag formation is a reliable chart pattern that provides two vital signals:
direction and price objective. This formation consists of a brief consolidation period
within a solid and steep upward trend or downward trend. The consolidation itself
tends to be sloped in the opposite direction from the slope of the original trend, or
simply flat.
97. A Breakaway gap provides the direction of the market.
98. The runaway or measurement gap provides the direction of the market. This gap
confirms the health and velocity of the trend.
99. The runaway or measurement gap is the only type of gap that provides a price
objective. The price objective is the previous length of the trend, measured from the
runaway gap, in the same direction as the original trend.
100. The exhaustion gap provides the direction of the market.
101. Near the beginning of important moves, oscillator analysis isn’t that helpful and
can be misleading. Toward the end of market moves ,however ,oscillators become
extremely valuable.
102. When the oscillator reaches an extreme value in either the upper or lower end of
the band, this suggest that the current price move have gone too far too fast and is due
for a correction of some type.
103. The oscillator is most useful when its value reaches an extreme reading near the
upper or lower end of its boundaries. The market is said to be overbought when it is
near the upper extreme and oversold when it is near the lower extreme. This warns
that the price trend is overextended and vulnerable.
104. A divergence between the oscillator and the price action when the oscillator is in
an extreme position is usually an important warning.
105.-Oscillator-The crossing of the zero line can give important trading signals in the
direction of the price trend.
106.Because of the way it is constructed, the momentum line is always a step ahead of
the price movement. It leads the advance or decline in prices , then levels off while
the current price trend is still in effect. It then begins to move in the opposite direction
as prices begin to level off.
107. RSI is plotted on a vertical scale of 0 to 100. Movements above 70 are
considered overbought, while an oversold condition would be a move under 30
.Because of shifting that takes place in bull and bear markets, the 80 level usually
becomes the overbought level in bull markets and the 20 level the oversold level in
bear markets.
108. The first move of RSI into the overbought or oversold region is usually just a
warning. The signal to pay close attention to is the second move by the oscillator into
the danger zone. If the second move fails to confirm the price move into new highs or
new lows, a possible divergence exists. At that point ,some defensive action can be
taken to protect existing positions. If the oscillator moves in the opposite direction,
breaking a previous high or low, then a divergence or failure swing is confirmed.
109. Stochastics simply measures , on a percentage basis of 0 to 100, where the
closing price is in relation to the total price range for a selected time period. A very
high reading (over 80) would put the closing price near the top of the range ,while a
low reading (under 20) near the bottom of the range.
110. One way to combine daily and weekly stochastics is to use weekly signals to
determine market direction and daily signals for timing(it depends from the type of
the trader). It’s also a good idea to combine stochastics with RSI.
111. Most oscillator buy signals work best in uptrends and oscillator sell signals are
most profitables in downtrends. The place to start your market analysis is always by
determining the general trend of the market. Oscillators can then be used to help time
market entry.
112. Give less attention to the oscillators in the early stages of an important move, but
pay close attention to its signals as the move reaches maturity.
113.The best way to combine technical indicators is use weekly signals to determine
market direction and the daily signals to fine-tune entry and exit points. A daily signal
is followed only when it agrees with the weekly signal. (daily-weekly, 4 hour-daily,4
hour-1 hour).
114. The failure of prices to react to bullish news in an overbought area is a clear
warning that a turn may be near. The failure of prices in an oversold area to react to
bearish news can be taken as a warning that all the bad news has been fully
discounted in the current low price. Any bullish news will push prices higher.
115. -Elliot Wave Theory- A complete bull market cycle is made up of eight waves,
five up waves followed by three down waves.
116 -Elliot Wave Theory- A trend divides into five waves in the direction of the
longer trend.
117-Elliot Wave Theory- Corrections always take place in three waves.
118-Elliot Wave Theory- Waves can be expanded into longer waves and subdivided
into shorter waves.
119-Elliot Wave Theory- Sometimes one of the impulse waves extends. The other
two should then be equal in time and magnitude.
120-Elliot Wave Theory- The Finobacci sequence is the mathematical basis of the
Elliot Wave Theory.
121-Elliot Wave Theory- The number of waves follows the Finobacci sequence.
122-Elliot Wave Theory- Finobacci ratios and retracements are used to determine
price objectives. The most common retracements are 62%, 50% and 38%.
123 -Elliot Wave Theory- Bear markets should not fall below the bottom of the
previous fourth wave.
124 -Elliot Wave Theory- Wave 4 should not overlap wave 1.
125 .Support and resistance are the most effective chart tools to use for entry and exit
points. For purposes of placing stop loss, support and resistance levels are most
valuable.
126. One of the commodities most effected by the dollar is the gold market. The
prices of gold and the U.S. dollar usually trend in opposite directions.
127. The Yen is sensitive to changes in the price or structure of the raw material
markets.
128. The commodity-producing countries (Canada, Australia, N. Zealand ) are more
dependent on Japan than the other way around.
129. The Yen is sensitive to the fortunes of the Nikkei index, the Japanese stock
market and the real estate market.
130. The majority of the pound transactions take place in London with a volume
decreasing significantly in the U.S. market, and slowing down to a trickle in Asia.
Therefore, in the New York market, many banks have to stop quoting the pound at
noon.
131. Swiss Franc has a very close economic relationship with Germany, and thus to
the euro zone.
132. The major markets are London, with 32 percent of the market,New York with 18
percent and Tokyo with 8 percent. Singapore follows with 7 percent, Germany has 5
percent and Switzerland, France and Hong Kong have 4 percent each.
133. Don't use the markets to feed your need for excitement.
what they're doing. In order to compete at the highest level in the trading business and
be one of the few truly successful participants you must be well-educated about what
you are doing. This does not mean having a degree from a well-respected university –
the market doesn’t care where you were educated.
2. Forex trading is a zero sum game. For every long there is also a short. If 80% of
the traders are on the long side ,then the remaining 20% are on the short side. This
means further that the shorts must be well capitalized and are considered to be strong
hands. The 80%, who are holding much smaller positions per trader, are considered to
be weaker hands who will be forced to liquidate those longs on any sudden turn in
prices.
3. Nobody is bigger than the market.
4. The challenge is not to be the market, but to read the market. Riding the wave is
much more rewarding than being hit by it.
5. Trade with the trends, rather than trying to pick tops and bottoms.
6. Trying to pick tops and bottoms is another common fx trading mistake. If you're
going to trade tops and bottoms, at least wait until the price action actually confirms
that a top or a bottom has been formed before you take a position in the market.
Trying to pin-point tops and bottoms in the foreign exchange market is very risky, but
exercising a little patience and waiting for a proven top or bottom to form can
increase your odds of profiting and somewhat reduce your risk.
7. There are at least three types of markets: up trending, range bound, and down. Have
different trading strategies for each.
8. Standing aside is a position.
9. In uptrends, buy the dips ;in downtrends, sell bounces.
10. In a Bull market, never sell a dull market, in Bear market, never buy a dull market.
11. Up market and down market patterns are ALWAYS present, merely one is more
dominant. In an up market, for example, it is very easy to take sell signal after sell
signal, only to be stopped out time and again. Select trades with the trend.
12. A buy signal that fails is a sell signal. A sell signal that fails is a buy signal.
13. Let profits run, cut losses short.
14. Let your profits run, but don't let greed get in the way. Once you've already made
a nice profit on a trade, consider taking either some or all of the money off the table
and move on to the next trade. It's natural to hope that one trade will end up as your
"winning lottery ticket" and make you rich, but that is simply not realistic. Don't hold
the position too long and end up giving all your well-deserved profits back to the
market.
15. Use protective stops to limit losses.
16. Use appropriate stop-loss orders at all times to cut your losses and never, ever sit
back and let your losses run. Almost every trader at some point makes the mistake of
letting his or her losses run in hopes that the market will eventually turn around in his
or her favor but, more often than not, it simply leads to an even greater loss. You win
some, you lose some. Simply learn to cut your losses, take your occasional lumps and
move on to the next trade. And if you made a mistake, learn from it and don't do it
again. To avoid letting your losses run, get into the habit of determining an
acceptable profit target as well as an acceptable risk tolerance level for each and every
forex trade before entering the market. Then simply place a stop-loss order at the
appropriate price - but not so tight (close to the market) that the stop could quickly
take you out of the position before the market has a chance to move in your favor.
Using a stop is always the smart move.
17. Avoid placing protective stops at obvious round numbers. Protective stops on long
positions should be placed below round numbers (10, 20, 25, 50,75, 100) and on short
positions ,above such numbers.
18. Placing stop loss is an art. The trader must combine technical factors on the price
chart with money management considerations.
19. Analyze your losses. Learn from your losses. They're expensive lessons; you paid
for them. Most traders don't learn from their mistakes because they don't like to think
about them.
20. Stay out of trouble, your first loss is your smallest loss.
21. Survive! In forex trading, the ones who stay around long enough to be there when
those "big moves" come along are often successful.
22. If you are a new trader, be a small trader (mini account) for at least a year, then
analyze your good trades and your bad ones. You can really learn more from your bad
ones.
23. Don't trade unless you're well financed...so that market action, not financial
condition, dictates your entry and exit from the market. If you don't start with enough
money, you may not be able to hang in there if the market temporarily turns against
you.
24. Be more objective and less emotional.
25. Use money management principles.
26. Money management increases the odds that the trader will survive to reach the
long run.
27. Diversify, but don’t overdo it.
28. Employ at least a 3 to 1 reward-to-risk ratio.
29. Calculate the risk/reward ratio before putting a trade on, then
guard against holding it too long.
30. Don’t trade impulsively ; have a plan
31. Have specific goals and objectives.
32. Five steps to build a trading system:
a) Start with a concept b)Turn it into a set of objective rules.
c) Visually check it out on the charts d) Formally test it with a demo
e) Evaluate the results.
33. Plan your work and work your plan.
34. Trade with a plan - not with hope, greed, or fear. Plan where you will get in the
market, how much you will risk on the trade, and where you will take your profits.
35. Follow your plan. Once a position is established and stops are selected, do not get
out unless the stop is reached or the fundamental reason for taking the position
changes.
36. Any successful trading system must take into account three important factors:
price forecasting , timing , and money management. Price forecasting indicates
which way a market is expected to trend. Timing determines specific entry and exit
points. Money management determines how much to commit to the trade.
37. Don't cherry-pick your system's set-ups. Trade every signal.
38.Trading systems that work in an up market may not work in a down market.
39. Establish your trading plans before the market opening to eliminate emotional
reactions. Decide on entry points, exit points, and objectives. Subject your decisions
to only minor changes during the session. Profits are for those who act, not react.Don't
change during the session unless you have a very good reason.
40. Double-check everything.
41. Always think in terms of probabilities. Trading is all about thinking in
probabilities NOT certainties. You can make all the “right” decisions and the trade
still goes against you. This does not make it a “wrong” trade, just one of the many
trades you will take which, through probability, are on the “loosing” side of your
trading plan. Don’t expect not to have negative trades - they are a necessary part of
the plan and cannot be avoided.
42. The place to start your market analysis is always by determining the general trend
of the market.
43. Trade only with a strategy that you've proven to yourself.
44. When pyramiding (adding positions), follow these guidelines.
a. Each successive layer should be smaller than before.
b. Add only to winning positions.
c. Never add to a losing position. One of the few trade management rules
that we can state we never break is ‘Never add to a losing trade’.
Trades are split into winners and losers, and if a trade is a loser, the
chances of it turning right around and becoming a winner are too small
to risk more money on. If indeed it is a winner disguised as a loser,
why not wait until it shows it’s true colors (and becomes a
d. winner)before you add to it. If you do this you will notice that nearly
always the trade ends up hitting your stop loss and does not look back.
Sometimes the trade turns around before it hits your stop and becomes
a winner and you can count yourself very fortunate. Sometimes the
trade hits your stop loss and then turns around and becomes a winner
and you can count yourself unlucky. Whatever the result, it is never
worth adding to a loser, hoping that it will become a winner. The odds
of success are just too low to risk more capital in addition to the initial
risk.
e. Adjust protective stops to the breakeven point.
45. Risk Control
A)Never risk more than 3-4 percent of your capital on any trade
B)Predetermine your exit point before you get into a trade
c)If you lose a certain predetermined amount of your starting capital, stop trading,
analyze what went wrong, and wait until you feel confident before you begin trading
46. Don’t trade scared money.
No one ever made any money trading when they had to do it to pay the mortgage at
the end of the month. Having a requirement to make X dollars per month or you will
be financially in trouble is the best way I know to completely mess up all trading
discipline, rules, objectives, and leads quickly to disaster.
Trading is about taking a reasonable risk in order to achieve a good reward. The
markets and how and when they give up their profits is not under your control. Do not
trade if you need the money to pay bills. Do not trade if your business and personal
expenses are not covered by another income stream or cash reserve. This will only
lead to additional unmanageable stress and be very detrimental to your trading
performance.
47. Know why you are in the markets. To relieve boredom? To hit it big? When you
can honestly answer this question, you may be on your way to successful forex
trading
.
48. Never meet a margin call; don’t throw good money after bad.
49. Close out losing positions before the winning ones,
50. Except for very short term trading, make decisions away from the market,
preferably when the markets are closed.
51. Work from the long term to the short term.
52. Use intraday charts to fine-tune entry and exit.
53. Master interday trading before trying intraday trading.
54. Don't trade the time frame. Trade the pattern. Reversal patterns, hesitation patterns
and breakout patterns appear often. Learn to look for the pattern in any time frame.
55. Try to ignore conventional wisdom; don’t take anything said in the financial
media too seriously.
56. Always do your homework and stay current on global events. You never know
what's going to set off a particular currency on any given day.
57. Learn to be comfortable being in the minority. If you are right on the market, most
people will disagree with you. (90% losers,10% winners).
58. Technical analysis is a skill that improves with experience and study. Always be a
student and keep learning.
59. Beware of all tips and inside information. Wait for the market's action to tell you
if the information you've obtained is accurate, then take a position with the
developing trend.
60. Buy the rumor, sell the news.
61. K.I.S.S – Keep It Simple Stupid, more complicated isn’t always better.
62. Timing is especially crucial in forex trading.
63. Timing is everything in forex trading. Determining the correct direction of the
market only solves a portion of the trading problem. If the timing of the entry point is
off by a day ,or sometimes even minutes ,it can mean the difference between a winner
or a loser.
64. A “buy and hold” strategy doesn’t apply in forex trading
65. When you open an account with a broker, don't just decide on the amount of
money, decide on the length of time you should trade. This approach helps you
conserve your equity, and helps avoid the Las Vegas approach of "Well, I'll trade till
my stake runs out." Experience shows that many who have been at it over a long
period of time end up making money.
66. Carry a notebook with you, and jot down interesting market information. Write
down the market openings, price ranges, your fills, stop orders, and your own
personal observations. Re-read your notes from time to time; use them to help analyze
your performance.
67. Don't count profits in your first 20 trades. Keep track of the percentage of wins.
Once you know you can pick direction, profits can be increased with multi-plot
trading and variations in using your stops. In other words, now is the time to get
serious about money management.
68."Rome was not built in a day," and no real movement of importance takes place in
one day.
69. Do not overtrade.
70. Have two accounts. One real account and the other a demo account. Learning
doesn't stop when trading real dollars begins. Keep the demo account and use it to test
alternative trades, alternative stops, etc.
71. Patience is important not only in waiting for the right trades,but also in staying
with trades that are working.
72. You are superstitious; don't trade if something bothers you.
73. Technical analysis is the study of market action through the use of charts,for the
purpose of forecasting future price trends.
74. The charts reflect the bullish or bearish psychology of the marketplace.
75. The whole purpose of charting the price action of a market is to identify trends in
early stages of their development for the purpose of trading in the direction of those
trends
76. The fundamentalist studies the cause of market movement, while the technician
studies the effect.
77. Rising commodity prices generally hint at a stronger economy and rising
inflationary pressure. Falling commodity prices usually warn that the economy is
slowing along with inflation.
78. The longer the period of time that priced trade in a support or resistance area,the
more significant that area becomes.
79. There are three decisions confronting the trader –whether- to go long, go short or
do nothing. When a market is rising ,the best strategy is preferable. When the market
is falling, the second approach would be correct. However ,when the market is
moving sideways ,the third choise –to stay out of the market- is usually the wisest.
80. Channel lines have measuring implications. Once a breakout occurs from an
existing price channel ,prices usually travel a distance equal to the width of the
channel .Therefore, the trader has to simply measure the width of the channel and then
project that amount from the point at which either trendline is broken.
81. The larger the Pattern ,the Great the potential. When we use the term “larger” ,we
are referring to the the height and the width of the price pattern. The height measures
the volatility of the pattern. The width is the amount of time required to build and
complete the pattern. The greater the size of the pattern-that is ,the wider the price
swings within the pattern (the volatility ) and the longer it takes to build –the more
important the pattern becomes and the greater the potential for the ensuing price
move.
82. The breaking of important trendlines . The first sign of an impending trend
reversal is often the breaking of an important trendline. Remember however ,that the
violation of a major trendline does not necessarily signal a trend reversal.The
breaking of a major up trendline might signal the beginning of a sideways price
pattern ,which later would be intedified as either the reversal or consolidation
type.Sometimes the breaking of the major trendline coincides with the completion of
the price pattern.
83. The minimum requirement for a triangle is four reversal points. Remember that it
always takes two points to draw a trendline.
84. The moving average is a follower , not a leader. It never anticipates;it only reacts.
The moving average follows a market and tells us that a trend has begun, but only
after the fact.
85. Shorter term averages are more sensitive to the price action ,whereas longer range
averages are less sensitive.In certain types of markets ,it is more advantageous to use
a shorter average and ,at other times , a longer and less sensitive average proves more
useful.
86. When the closing price moves above the moving average , a buy signal is
generated. A sell signal is given when prices move below the moving average.
87. A buying signal on a two-moving average combination occurs when the shorter
term of two consecutive averages intersects the longer one upward. A selling signal
occurs when the reverse happens, and the longer of two consecutive averages
intersects the shorter one downward.
89. Shorter average generates more false signals ,it has the advantage of giving trend
signals earlier in the move .The trick is to find the average that is sensitive enough to
generate early signals, but insensitive enough to avoid most of the random “noise”.
90. Cutting losses is painful for every trader.The ability to cut one’s losses in time is
the sign of a seasoned trader.
91.A channel breakout suggests a target for the currency price equal to the width of
the channel.
92. Long term charts provide important information regarding long-terms or cycles.
The trader can get a correct perspective regarding the real direction of the market in
the long run, the strength or direction of the current trend occurring within that trend,
or the possibility of a breakout from the long-term trend.
93. Common Points All Of Reversal Patterms
A)The first signal of an impending trend reversal is often the breaking of an important
trendline.
B)The larger the pattern,the greater the subsequent move
C)Topping patterns are usually shorter in duration and more volatile than bottoms.
D)Bottoms usually have smaller price ranges and take longer to build
94. The head-and-shoulders formation is confirmed only when the completion of the
three rallies and their reversals is followed by a breach of the neckline. The failure of
the price to break through the neckline on closing prices basis puts on hold or negates
the validity of the formation.
95. The double-top formation is confirmed only when the full completion of the two
rallies and their respective reversals is followed by a breach of the neckline (the
closing price is outside the neckline ).The failure of the price to break through the
neckline puts on hold or negates the validity of the formation.
96. The flag formation is a reliable chart pattern that provides two vital signals:
direction and price objective. This formation consists of a brief consolidation period
within a solid and steep upward trend or downward trend. The consolidation itself
tends to be sloped in the opposite direction from the slope of the original trend, or
simply flat.
97. A Breakaway gap provides the direction of the market.
98. The runaway or measurement gap provides the direction of the market. This gap
confirms the health and velocity of the trend.
99. The runaway or measurement gap is the only type of gap that provides a price
objective. The price objective is the previous length of the trend, measured from the
runaway gap, in the same direction as the original trend.
100. The exhaustion gap provides the direction of the market.
101. Near the beginning of important moves, oscillator analysis isn’t that helpful and
can be misleading. Toward the end of market moves ,however ,oscillators become
extremely valuable.
102. When the oscillator reaches an extreme value in either the upper or lower end of
the band, this suggest that the current price move have gone too far too fast and is due
for a correction of some type.
103. The oscillator is most useful when its value reaches an extreme reading near the
upper or lower end of its boundaries. The market is said to be overbought when it is
near the upper extreme and oversold when it is near the lower extreme. This warns
that the price trend is overextended and vulnerable.
104. A divergence between the oscillator and the price action when the oscillator is in
an extreme position is usually an important warning.
105.-Oscillator-The crossing of the zero line can give important trading signals in the
direction of the price trend.
106.Because of the way it is constructed, the momentum line is always a step ahead of
the price movement. It leads the advance or decline in prices , then levels off while
the current price trend is still in effect. It then begins to move in the opposite direction
as prices begin to level off.
107. RSI is plotted on a vertical scale of 0 to 100. Movements above 70 are
considered overbought, while an oversold condition would be a move under 30
.Because of shifting that takes place in bull and bear markets, the 80 level usually
becomes the overbought level in bull markets and the 20 level the oversold level in
bear markets.
108. The first move of RSI into the overbought or oversold region is usually just a
warning. The signal to pay close attention to is the second move by the oscillator into
the danger zone. If the second move fails to confirm the price move into new highs or
new lows, a possible divergence exists. At that point ,some defensive action can be
taken to protect existing positions. If the oscillator moves in the opposite direction,
breaking a previous high or low, then a divergence or failure swing is confirmed.
109. Stochastics simply measures , on a percentage basis of 0 to 100, where the
closing price is in relation to the total price range for a selected time period. A very
high reading (over 80) would put the closing price near the top of the range ,while a
low reading (under 20) near the bottom of the range.
110. One way to combine daily and weekly stochastics is to use weekly signals to
determine market direction and daily signals for timing(it depends from the type of
the trader). It’s also a good idea to combine stochastics with RSI.
111. Most oscillator buy signals work best in uptrends and oscillator sell signals are
most profitables in downtrends. The place to start your market analysis is always by
determining the general trend of the market. Oscillators can then be used to help time
market entry.
112. Give less attention to the oscillators in the early stages of an important move, but
pay close attention to its signals as the move reaches maturity.
113.The best way to combine technical indicators is use weekly signals to determine
market direction and the daily signals to fine-tune entry and exit points. A daily signal
is followed only when it agrees with the weekly signal. (daily-weekly, 4 hour-daily,4
hour-1 hour).
114. The failure of prices to react to bullish news in an overbought area is a clear
warning that a turn may be near. The failure of prices in an oversold area to react to
bearish news can be taken as a warning that all the bad news has been fully
discounted in the current low price. Any bullish news will push prices higher.
115. -Elliot Wave Theory- A complete bull market cycle is made up of eight waves,
five up waves followed by three down waves.
116 -Elliot Wave Theory- A trend divides into five waves in the direction of the
longer trend.
117-Elliot Wave Theory- Corrections always take place in three waves.
118-Elliot Wave Theory- Waves can be expanded into longer waves and subdivided
into shorter waves.
119-Elliot Wave Theory- Sometimes one of the impulse waves extends. The other
two should then be equal in time and magnitude.
120-Elliot Wave Theory- The Finobacci sequence is the mathematical basis of the
Elliot Wave Theory.
121-Elliot Wave Theory- The number of waves follows the Finobacci sequence.
122-Elliot Wave Theory- Finobacci ratios and retracements are used to determine
price objectives. The most common retracements are 62%, 50% and 38%.
123 -Elliot Wave Theory- Bear markets should not fall below the bottom of the
previous fourth wave.
124 -Elliot Wave Theory- Wave 4 should not overlap wave 1.
125 .Support and resistance are the most effective chart tools to use for entry and exit
points. For purposes of placing stop loss, support and resistance levels are most
valuable.
126. One of the commodities most effected by the dollar is the gold market. The
prices of gold and the U.S. dollar usually trend in opposite directions.
127. The Yen is sensitive to changes in the price or structure of the raw material
markets.
128. The commodity-producing countries (Canada, Australia, N. Zealand ) are more
dependent on Japan than the other way around.
129. The Yen is sensitive to the fortunes of the Nikkei index, the Japanese stock
market and the real estate market.
130. The majority of the pound transactions take place in London with a volume
decreasing significantly in the U.S. market, and slowing down to a trickle in Asia.
Therefore, in the New York market, many banks have to stop quoting the pound at
noon.
131. Swiss Franc has a very close economic relationship with Germany, and thus to
the euro zone.
132. The major markets are London, with 32 percent of the market,New York with 18
percent and Tokyo with 8 percent. Singapore follows with 7 percent, Germany has 5
percent and Switzerland, France and Hong Kong have 4 percent each.
133. Don't use the markets to feed your need for excitement.
What is Forex?
The immense desire of a few top notch individuals to yearn for goods and currency from different countries under the rapid pace of the twin fronts of globalization of economy and open market has found its floodgate through a professional foundation in the name of Forex or Foreign Exchange Market. Though it had been initiated by the Bretton-Woods Agreement in 1944, the spread of Internet has only enabled it to reach the zenith of its popularity and started involving a much wider gamut. Statistically, it involves a turnover of $1.9 trillion daily as liquid finance, which has even left NASDAQ far behind.
The term Forex is applied to the realm of exchange of currencies between any two countries. When we talk of Forex, we talk of a virtual bank, which does not have any physical existence. Is it raising doubts about the security of your hard earned funds? Never worry! Forex operates through an internationally networked banks, financial institutes, central banks etc and maintains a 24 hours working time as per the latest service concept precipitated by the IT world. It starts from 00:00 hrs of each Monday and ends up at 10:00 PM on the following Friday, ensuring the coverage of versatile time zones starting from Tokyo to Hawaii.
The present concept of Forex had found its inception in seventies, when all governmental stipulations were withdrawn from the exchange rates and were allowed to float freely due to the necessity of time. Business houses engaged in voluminous exports had always been classified in the elite group and the trading volume had been growing continuously ensuing a large amount of foreign exchange over the years. The free floating format has been appreciated by all corners and the initial boost had kept a long term impact where today's phenomenally grown signboards of 100% EOU have been constantly supplying the required oxygen to the Forex.
The salient advantage of the Forex market is that it is NOT governed by any law of any nation, rather it is the participants, who are always in the driver's seat to determine the exchange rates. This is also true that controlling the rate of Forex by any individual company is almost impossible as in that case the company has to invest billions or trillions of dollar on their own in the Foreign Exchange Market. So, Forex is the preferred choice for millions because of its free competitive nature and participation in Forex is at their absolute discretion. The share market at times witnesses a wide variance of price between the beginning and close of day, but the volatility of the Forex market is highly limited, keeping your risk factor highly limited.
Forex has become a lucrative profession for people, termed as brokers, who want to take the chance of making money through currency exchange. Leaving aside the traditional investors, who have got direct access to the Forex, Brokers play a significant role in the foreign exchange market and forex trading. The Forex companies or individuals work in a highly systematic manner who allows you to trade in different currencies of your choice and play with them, by keeping a marginal commission for each trading. The Internet era has made the entire process very simple and you can take the advantage of its instantaneous effect. In reality the entire foreign exchange trading has found its vast improvement with the growth of Internet and the overwhelming improvisation of telecom industry as it works as the backbone of Forex.
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