At the time I decided to start forex trading (2 years ago) the Forex Boom was just starting. I really did think I had stumbled on that legendary pot of gold, and that I would soon be on easy street.
Here was a multi-trillion dollar online business where a smart guy like me couldn't fail to make lots of easy money.
I'd read that over 90% of forex traders fail, but hey — that wouldn't happen to me — I've got a college degree! If I learned the best forex trading techniques and studiously avoided the pitfalls, I'd be a top forex trader in no time!
So I invested in the best forex training course I could find, almost entirely dvd-based training, and it cost me more than $4000. It came on 10 dvds, with 14 hours of top quality forex education, and several pieces of software, including free forex signals software which was already set up with passwords etc... and ready to go. I even got a forex spread-betting account. Mmm... better still, now I can trade forex tax-free!
I also received access to the author's web site and could see his daily forex trades. Every evening I could review his trades and listen to his commentary, and see how many pips he had made or lost. Most days he made about 20 — 30 forex pips — mostly in the GBP/Dollar market.
This was going to be be easy!
The course covered all aspects of trading including preparation, record keeping, paper trading, even the phsychology of forex trading. I watched the entire dvd set over a couple of days. Then I re-watched the dvds covering actual FX trades and particular forex techniques — he was a technical trader.
I coudn't wait to get started. So I opened my spread betting account (another $5,000 but what the hell....). Oh, and I sent for the latest Mercedes and Ferrari literature — it wouldn't be long now....
That was nearly 2 years ago.
So do I have the Mercedes or the Ferrari? Nope! Have I made my fortune? Not yet!
In fact I've lost money — lots of money!
I haven't lost my confidence in the forex market as a way to make money online, I've seen and met too many traders who make good money trading the forex markets. I know it's possible, I've seen it done.
So it must be my system! So I invested even more money.
I bought the very best online forex trading systems — but only after I had carefully checked their testimonials and ensured that people were making serious money with them. I also bought books — lots of books. Books on forex training, books on forex trading, books to compare forex trading systems. I also bought downloadable forex courses and forex guides, I studied day trading systems versus long term trading systems — I was determined to succeed and make money in forex trading.
So am I making money now? Not really!
But at last I know where the problem is and why I have failed. It hurts to admit it, but...
The problem is ME.
Yep- me! I'm the problem.
I now know that my approach, my style, my methods, were all letting me down. Even when using a proven winning trading system, I would lose money.
And for a long (and very costly) time, I hadn't even realized it. It wasn't because I didn't invest enough money either.
I now accept that I can purchase a winning forex trading system online for very little, and that a top forex course will cost very little too. Indeed, there are a whole range of very affordable forex resources and training out there.
I can quickly and easily be ALMOST fully equipped to make money on the forex markets. Almost?
So what's the missing link? What's the difference between the winners and the losers? Who else should I consult to be the complete forex trader?
Well — me... It's me!
I've identified a whole load of personal traits and deficiencies that have prevented my success — (and very uncomfortable reading they make too). Words like self-discipline, concentration, resolution, dedication and honesty come to mind.
I've also learned that MOST available forex tutorials fail to cover this topic adequately — probably because their writers are successful forex traders who already possess the vital ingredient that the rest of us lack. They just don't realize it's a problem.
What's the problem?
In a sentence — "Most forex traders are incapable of sticking to the systems they have learned". That's why most forex traders fail.
So now I have written "The Missing Link, the other successful forex trading strategy". It's nothing to do with entry or exit points, or technical analysis, or news trading. It's everything to do with attitude and mind-set- and provides a totally different set of trading rules without which even the most successful forex trading strategy can fail.
Thursday, September 3, 2009
Take Control in Forex Trading
Forex Trading is not that easy, all FX traders before they enter this business, they think that they will be rich very quickly and make $20 000 in one or two weeks, but when they begin trading currencies they discover it is not true, it is not easy to make money especially when we work with money. Very tricky business, many of us think that there is a conspiracy planned by "THE BIG GUYS", they know what we think what we plan to do and they do the opposite to steel our money, many times we think to make the opposite of our decision (if I see the market is going up then I will sell). And we begin searching for someone to help us making at least 200 or 300 pips a month, probably many of us work with signals advisors who simply took our money and probably do not help us making decent profit. Many of us thought stop trading many of us quit FX trading but I think most of us will not quit easily because we see in it a golden opportunity to have our own business and make our fortune!
Foreign exchange is an opportunity to make a fortune and in same time it is an opportunity to loose our money, we can make a fortune if we knew how to handle Forex, if we don't know how to control Forex it will destroy us, so we must be stronger than it, and if we don't know how to control it with our own hands it will destroy us too. So how I can be stronger than this ferocious beast? It is simply by learning, observing, and practicing. The FX market will not go anywhere it will be trending and ranging for ever, so learn from experienced traders how they became that good, observe charts and look for common points look for the reason why the price change direction, and when you discover the reason which influence a currency you will have in your hand the first tool that gives you control. And each new thing you discover, try it on a demo account, see if it is valid and develop it. In this Forex article I am helping you to find your way, this Forex article does not give you the fish but it teaches you fishing. There is no conspiracy theory in this business, no big or small guys, we loose because we don't know, and the first thing we must do to become good traders is to admit that we don't know and we must always learn.
In this Forex Article I will give some clues and I will leave you learn, observe and practice.
First of all you must know that you must use fundamental and technical analysis in conjunction, both complete each others, so don't rely on one and leave the other. Fundamental is one of the reasons which influence the market, so if you are in a long trade and suddenly the trading currency went down so go and see if a report was released and see what its forecast and what was the released data and compare this data to your chart and you will have your first tool to control your business.
Second, in my opinion all the technical indicators didn't help me at all, I tried all the combinations nothing work, and indicators describe the status of the market but don't give you information about the next direction. I read a Forex article about a guy who describes his Forex Trading strategy in a Forex article, I was completely lost, he uses a combination of 12 indicators EMA340, SEMA890, EMA2900 etc: and he inserted FIBONACCI in it. I was totally lost. Even if his strategy worth 95% success I will not use it because I can control the market by using simpler techniques. So we don't need to seek indicators, only one indicator I use the Bollinger Bands which is the perfect weapon in my battle against Forex trading. So I want you to look at the Bollinger Bands and see how it affects a currency, focus on it and read well this Forex article and you will discover a lot of things, and you will have your second tool.
Third, suppose you are in a long trade and suddenly for no reason the Forex Trading price went down, there are no released reports it just turned down, this is weird. But weird things are those we don't understand, but if you observe your chart and go back several hours or days and drop a break line from higher swing points you will see that the price turns down because it reached that break line, you see there is no mystery. So this break line will be your Resistance and if price breaks it, it will continue going up, but going where and till when? Observe very carefully and you will learn as I did. And no need for midnight or afternoon candles, be simple as you can, that beast is not as ferocious as you think. So breakout is your third tool.
Fourth, what timeframe to use, it is up to you to choose the suitable timeframe, H1, H4, D1: I don't know, compare the charts and you will see the suitable timeframe. Timeframe is important and when you find it you will have your Fourth tool.
And that's it, I repeat observe your charts and focus and think in these clues in this Forex article and the more you think the more you discover, read Forex article, learn strategies and get foreign exchange books.
I do good profit from my Forex trading strategy because I program it, I gave my system the data and leave it do his job. This eliminates the fear factor and gave me more time to go out and have fun.
Foreign exchange is an opportunity to make a fortune and in same time it is an opportunity to loose our money, we can make a fortune if we knew how to handle Forex, if we don't know how to control Forex it will destroy us, so we must be stronger than it, and if we don't know how to control it with our own hands it will destroy us too. So how I can be stronger than this ferocious beast? It is simply by learning, observing, and practicing. The FX market will not go anywhere it will be trending and ranging for ever, so learn from experienced traders how they became that good, observe charts and look for common points look for the reason why the price change direction, and when you discover the reason which influence a currency you will have in your hand the first tool that gives you control. And each new thing you discover, try it on a demo account, see if it is valid and develop it. In this Forex article I am helping you to find your way, this Forex article does not give you the fish but it teaches you fishing. There is no conspiracy theory in this business, no big or small guys, we loose because we don't know, and the first thing we must do to become good traders is to admit that we don't know and we must always learn.
In this Forex Article I will give some clues and I will leave you learn, observe and practice.
First of all you must know that you must use fundamental and technical analysis in conjunction, both complete each others, so don't rely on one and leave the other. Fundamental is one of the reasons which influence the market, so if you are in a long trade and suddenly the trading currency went down so go and see if a report was released and see what its forecast and what was the released data and compare this data to your chart and you will have your first tool to control your business.
Second, in my opinion all the technical indicators didn't help me at all, I tried all the combinations nothing work, and indicators describe the status of the market but don't give you information about the next direction. I read a Forex article about a guy who describes his Forex Trading strategy in a Forex article, I was completely lost, he uses a combination of 12 indicators EMA340, SEMA890, EMA2900 etc: and he inserted FIBONACCI in it. I was totally lost. Even if his strategy worth 95% success I will not use it because I can control the market by using simpler techniques. So we don't need to seek indicators, only one indicator I use the Bollinger Bands which is the perfect weapon in my battle against Forex trading. So I want you to look at the Bollinger Bands and see how it affects a currency, focus on it and read well this Forex article and you will discover a lot of things, and you will have your second tool.
Third, suppose you are in a long trade and suddenly for no reason the Forex Trading price went down, there are no released reports it just turned down, this is weird. But weird things are those we don't understand, but if you observe your chart and go back several hours or days and drop a break line from higher swing points you will see that the price turns down because it reached that break line, you see there is no mystery. So this break line will be your Resistance and if price breaks it, it will continue going up, but going where and till when? Observe very carefully and you will learn as I did. And no need for midnight or afternoon candles, be simple as you can, that beast is not as ferocious as you think. So breakout is your third tool.
Fourth, what timeframe to use, it is up to you to choose the suitable timeframe, H1, H4, D1: I don't know, compare the charts and you will see the suitable timeframe. Timeframe is important and when you find it you will have your Fourth tool.
And that's it, I repeat observe your charts and focus and think in these clues in this Forex article and the more you think the more you discover, read Forex article, learn strategies and get foreign exchange books.
I do good profit from my Forex trading strategy because I program it, I gave my system the data and leave it do his job. This eliminates the fear factor and gave me more time to go out and have fun.
FOREX trading potential can be predicted by looking at your daily emotional behavior
As hundreds and thousands of articles have been written on the subject of trading the markets, and with the emergence of new financial instruments every day, I feel compelled to put together a dissertation on the most important element of trading, the emotional effect.
Before detailing the key elements, I will offer to you the thoughts of two prominent individuals. They do not need any introduction, as their work is known and appreciated all over the world. I am sure you will love their insight into the human psyche.
"When dealing with people, remember you are not dealing with creatures of logic but creatures of emotion". Dale Carnegie (1888-1955)
"Let's not forget that the little emotions are the great captains of our lives and we obey them without realizing it". Vincent Van Gogh (1853-1890)
In a world apparently dominated by logic, it is very interesting to find such "heretic" ideas. There is nothing more debilitating than the thought of us acting not on our heavily trained conscious, but rather on the unknown subconscious impulses.
I would like to add just one more fact to my presentation, in order for you to fully grasp the importance of this new approach to trading and in general to any business activity.
The Institute for Health and Human Potential, with offices in U.S.A., Canada and Australia is a research and learning organization that uses Emotional Intelligence to leverage performance and leadership. Fortune 500 companies, the world's top business schools, professional athletes and Olympic medallists seek their expertise.
According to their studies, "Research tracking over 160 high performing individuals in a variety of industries and job levels revealed that emotional quotient was two times more important in contributing to excellence than intellect and expertise alone"
Shocking? Not at all. It is our way to act on impulse, without questioning the triggers. .
It is well known already that the two emotions dominating trading are GREED and FEAR. What is less grasped is the extent to which these emotions influence our decisions.
While amateur traders are greedy when they lose and fearful when they win, professional operators have an exactly opposite attitude, being fearful when losing and greedy when winning.
While simple psychological training could help you discipline your impulse reactions, it is the experience you get "in the ring" that makes you understand how to play with these primal emotions.
We all hate to lose, not necessarily money. The sentiment is very powerful. ALL professional operators are well versed in dealing with it day in and day out. Although they have been through tense moments due to financial losses, they have learned the most important rule in trading the markets: losses are the COST OF DOING BUSINESS. They have a high emotional management procedure and are trained to implement it no matter how hard their "ego" may suffer.
This is easier said than done, as emotions kick in and all theory crash and burn together with any trading plan.
Here you have some easy steps to help you start taming your emotional horses.
— What you see is NOT what you get, as opposed to what you have been taught all your life. The way you act is just a consequence of years and years of education and interaction with others and not your genuine attitude. You are the product of an outside education, not necessarily positive.
— In the long run, your Forex business is just PART of your whole life, together with your family, friends, hobbies, long-term projects and various other activities. I personally use a very powerful "mantra" when in pain following a loss. LIVE TO FIGHT ANOTHER DAY!
— Never lose sight of the general picture. That is your primary goal. For a professional Forex operator, the primary goal is the PROTECTION of his or her trading capital. Keep a trading journal and learn from your mistakes.
— If you want to get a pretty accurate picture of your trading prospects, take a look at your daily emotional decisions. Most of the time, you will repeat all emotional behavior in your professional life.
If you take your time to sit back and observe your daily routines, the picture will emerge with greater clarity, helping you foresee hurdles along your trading career. Do you have a swinging mood? Do you change your mind very often? Are you capable of keeping a commitment? Do you lose your temper easily? Are you on the "half-full glass" or "half-empty glass" side of life?
These traits will not change just because you start trading. That is why you have to be very careful with your expectations. Base them both on your assets as well as liabilities, in order to obtain an accurate picture.
That is just the beginning, but a very resourceful one on a journey few of us have started yet.
I have seen traders taking NLP (Neuro-Linguistic Programming) lessons, practicing the Tai-Chi art or simply meditating. They try to get in touch with unseen forces at work deep inside, vectors of influence that rule our inner world.
The way to succeed in life has infinite variations but one common start, superbly crystallized in the following aphorism, inscribed in golden letters at the entrance to the Temple Of Apollo at Delphi and attributed to Socrates, among several other ancient Greek philosophers: NOSCE TE IPSUM,(Know yourself).
Before detailing the key elements, I will offer to you the thoughts of two prominent individuals. They do not need any introduction, as their work is known and appreciated all over the world. I am sure you will love their insight into the human psyche.
"When dealing with people, remember you are not dealing with creatures of logic but creatures of emotion". Dale Carnegie (1888-1955)
"Let's not forget that the little emotions are the great captains of our lives and we obey them without realizing it". Vincent Van Gogh (1853-1890)
In a world apparently dominated by logic, it is very interesting to find such "heretic" ideas. There is nothing more debilitating than the thought of us acting not on our heavily trained conscious, but rather on the unknown subconscious impulses.
I would like to add just one more fact to my presentation, in order for you to fully grasp the importance of this new approach to trading and in general to any business activity.
The Institute for Health and Human Potential, with offices in U.S.A., Canada and Australia is a research and learning organization that uses Emotional Intelligence to leverage performance and leadership. Fortune 500 companies, the world's top business schools, professional athletes and Olympic medallists seek their expertise.
According to their studies, "Research tracking over 160 high performing individuals in a variety of industries and job levels revealed that emotional quotient was two times more important in contributing to excellence than intellect and expertise alone"
Shocking? Not at all. It is our way to act on impulse, without questioning the triggers. .
It is well known already that the two emotions dominating trading are GREED and FEAR. What is less grasped is the extent to which these emotions influence our decisions.
While amateur traders are greedy when they lose and fearful when they win, professional operators have an exactly opposite attitude, being fearful when losing and greedy when winning.
While simple psychological training could help you discipline your impulse reactions, it is the experience you get "in the ring" that makes you understand how to play with these primal emotions.
We all hate to lose, not necessarily money. The sentiment is very powerful. ALL professional operators are well versed in dealing with it day in and day out. Although they have been through tense moments due to financial losses, they have learned the most important rule in trading the markets: losses are the COST OF DOING BUSINESS. They have a high emotional management procedure and are trained to implement it no matter how hard their "ego" may suffer.
This is easier said than done, as emotions kick in and all theory crash and burn together with any trading plan.
Here you have some easy steps to help you start taming your emotional horses.
— What you see is NOT what you get, as opposed to what you have been taught all your life. The way you act is just a consequence of years and years of education and interaction with others and not your genuine attitude. You are the product of an outside education, not necessarily positive.
— In the long run, your Forex business is just PART of your whole life, together with your family, friends, hobbies, long-term projects and various other activities. I personally use a very powerful "mantra" when in pain following a loss. LIVE TO FIGHT ANOTHER DAY!
— Never lose sight of the general picture. That is your primary goal. For a professional Forex operator, the primary goal is the PROTECTION of his or her trading capital. Keep a trading journal and learn from your mistakes.
— If you want to get a pretty accurate picture of your trading prospects, take a look at your daily emotional decisions. Most of the time, you will repeat all emotional behavior in your professional life.
If you take your time to sit back and observe your daily routines, the picture will emerge with greater clarity, helping you foresee hurdles along your trading career. Do you have a swinging mood? Do you change your mind very often? Are you capable of keeping a commitment? Do you lose your temper easily? Are you on the "half-full glass" or "half-empty glass" side of life?
These traits will not change just because you start trading. That is why you have to be very careful with your expectations. Base them both on your assets as well as liabilities, in order to obtain an accurate picture.
That is just the beginning, but a very resourceful one on a journey few of us have started yet.
I have seen traders taking NLP (Neuro-Linguistic Programming) lessons, practicing the Tai-Chi art or simply meditating. They try to get in touch with unseen forces at work deep inside, vectors of influence that rule our inner world.
The way to succeed in life has infinite variations but one common start, superbly crystallized in the following aphorism, inscribed in golden letters at the entrance to the Temple Of Apollo at Delphi and attributed to Socrates, among several other ancient Greek philosophers: NOSCE TE IPSUM,(Know yourself).
The Funny Sort Of Traders In Forex Currency Trading
What is the very reason why people get into forex currency trading? The money, of course. They would not be in it for anything other than that. Although there are very few who are more interested in knowing how the foreign market and the system work. But few of them really. Forex currency trading can offer a lot of money if the trader knows how to play their cards right.
Foreign currency trading has become the best income-generating industry in the world today. It is quite understandable because people do not need years of education to get into one. Compared with other industries that require some years of expertise, traders only have to learn some basic points about foreign currency trading, online for that matter. With the many online web sites offering free trainings and instant education, it is no wonder that people can get into foreign currency trading without any hassle at all.
Many people get into foreign currency trading but not all become successful either.
Some of the factors affecting the foreign currency trading are those within the market itself. These are expected and traders should know them about them first-hand to be able to anticipate and plan the needed action to counter it.
Other reasons for not succeeding in the foreign currency trading is because of the traders themselves. lacking of discipline and poor money management to mention some. These are problems that could be prevented but was not given much attention to.
There are really no personification of the "perfect trader" because the foreign currency trading is not perfect itself. Though some advises are given, they do not really ensure smooth sailing in the foreign currency trading. they just serve as guidelines to give traders some pointers on what to do when the situation calls for it.
Here are some of types of persons who enter into foreign currency trading that people do not know about and may not get to read everyday. They may sound almost absurd but there are really some of them out there.
The type who put your investment in the safest possible market. Then try to forget about them. The fact that some traders are really not into the foreign currency trading but is trying to "make" it there is an accepted fact. There are those who just want to invest and not make time for them. This is the best advise that can be given those kinds.
If they do not have the patience to try and make their trades work then they could just invest into some stable market and have them check one in a while. Or forget them altogether. They would be surprise at how their foreign currency trading is coming along without them putting any time and work into them.
It can work too. Money is not the issue here. Some people may just want to be a part of foreign currency trading and leave everything to fate. One way or another they are at least contributing to the industry. At least, their money is.
The itchy trader. This is the traders who are the exact opposite of the first ones mentioned. This kind of trader is the impatient one. Always trying to check what has been happening to the foreign currency trading especially the trade that he or she have invested on.
This is the kind that does not play around with money. Every cent counts and if putting some of it into the foreign currency trading would multiply that sum, then the trader would do everything to make it gain some profit. If it means taking more time and dedication that is allowed, then this trader would be more than happy to spend more time in the foreign currency trading.
This is also the kind that views foreign currency trading as a sport. Should always be there to see the action taking place and not wanting to miss a thing.
It is ironic how these two types of foreign currency traders have qualities that goes extremely opposite each other. Either way, one or more of the styles they are using can also bring some money into the bag. The one thing that they have in common is the fact that they both are willing enough to take the inherent risks.
Foreign currency trading has become the best income-generating industry in the world today. It is quite understandable because people do not need years of education to get into one. Compared with other industries that require some years of expertise, traders only have to learn some basic points about foreign currency trading, online for that matter. With the many online web sites offering free trainings and instant education, it is no wonder that people can get into foreign currency trading without any hassle at all.
Many people get into foreign currency trading but not all become successful either.
Some of the factors affecting the foreign currency trading are those within the market itself. These are expected and traders should know them about them first-hand to be able to anticipate and plan the needed action to counter it.
Other reasons for not succeeding in the foreign currency trading is because of the traders themselves. lacking of discipline and poor money management to mention some. These are problems that could be prevented but was not given much attention to.
There are really no personification of the "perfect trader" because the foreign currency trading is not perfect itself. Though some advises are given, they do not really ensure smooth sailing in the foreign currency trading. they just serve as guidelines to give traders some pointers on what to do when the situation calls for it.
Here are some of types of persons who enter into foreign currency trading that people do not know about and may not get to read everyday. They may sound almost absurd but there are really some of them out there.
The type who put your investment in the safest possible market. Then try to forget about them. The fact that some traders are really not into the foreign currency trading but is trying to "make" it there is an accepted fact. There are those who just want to invest and not make time for them. This is the best advise that can be given those kinds.
If they do not have the patience to try and make their trades work then they could just invest into some stable market and have them check one in a while. Or forget them altogether. They would be surprise at how their foreign currency trading is coming along without them putting any time and work into them.
It can work too. Money is not the issue here. Some people may just want to be a part of foreign currency trading and leave everything to fate. One way or another they are at least contributing to the industry. At least, their money is.
The itchy trader. This is the traders who are the exact opposite of the first ones mentioned. This kind of trader is the impatient one. Always trying to check what has been happening to the foreign currency trading especially the trade that he or she have invested on.
This is the kind that does not play around with money. Every cent counts and if putting some of it into the foreign currency trading would multiply that sum, then the trader would do everything to make it gain some profit. If it means taking more time and dedication that is allowed, then this trader would be more than happy to spend more time in the foreign currency trading.
This is also the kind that views foreign currency trading as a sport. Should always be there to see the action taking place and not wanting to miss a thing.
It is ironic how these two types of foreign currency traders have qualities that goes extremely opposite each other. Either way, one or more of the styles they are using can also bring some money into the bag. The one thing that they have in common is the fact that they both are willing enough to take the inherent risks.
The Advantages of Trading Alone
People sometimes experiment with the idea to trade with other people. It might work, but for me, it did not. I trade alone. The advantages of trading alone are:
Furthermore, there are people who do not have faith in their abilities and in their capacity to learn to trade successfully. I know of individuals who need constant reassurance before they take any step towards their goals. In similar circumstances, trading in a group may be the only option available for some people to give them the push they need: otherwise, they may never start.
- You are free to make your own decisions without having to find a way to explain the rationale of your decisions to anybody else. Your time and effort can be focussed on what the market is doing and how you react to it, instead of worrying about the psychological and emotional dynamics of a trading group.
- You are free to experiment, based on the knowledge you gain from your experiences and your self-education, without having to asking others to allocate a certain portion of the trading funds to let you conduct your experiments.
- No one can blame you for their failures. No time is wasted on justifying your actions or feeling guilty about the impact of your trading blunders on someone else's financial situation.
- You alone are responsible and accountable for your own success or failure. You cannot shift the blame to anybody else. It could be disappointing to some knowing that they cannot blame anyone else if they fail. For others, it is very empowering to know that they, and they alone, are in charge of their own destiny.
Furthermore, there are people who do not have faith in their abilities and in their capacity to learn to trade successfully. I know of individuals who need constant reassurance before they take any step towards their goals. In similar circumstances, trading in a group may be the only option available for some people to give them the push they need: otherwise, they may never start.
Trading Your Emotions: How to Cope with Psychological Pressures
We all like to read about and study the subjects of strategy and analysis and Forex trading. For many traders, that is the familiar, understandable, and easier part of trading. By contrast, emotional control and money management belong to the more arcane category of knowledge in currency trading. On news channels, the websites of brokers and online and visual sources of news and analysis, you often find the various market movements and strategies based on them debated heatedly and with passion, but commentators who are often not traders themselves do not feel so inclined to discuss the psychological aspect of trading in their presentations.
The fact, however, is that the vast majority of online traders fail, and that the main cause of the failure is lack of emotional control and mental discipline. In many cases, the trader does not even reach a stage where a good knowledge of economic data and statistics can support his trading to generate better results. Instead, many accounts get wiped out early, as traders act like scared rabbits in the tense and emotionally charged atmosphere of the markets. Clearly, seekers of success in trading must devote a lot more energy to perfecting their skills of psychological control.
What are we seeking in trading? We seek money, profits. Does money, and the market action that creates it respond to our joy, pride, sorrow, or despair? Are the markets crueler on us when we are sad, or more gentle when we feel invincible? Are we more successful when we trade on baseless optimism, or panicky pessimism? Which is the better way to manage our emotions?
The better way of managing our feelings in trading is to isolate and exclude them while we are dealing with the markets. Prices move according to emotional responses in the short term, and economic dynamics in longer periods. But they can only be evaluated by logic, as that is the only tool possessed by human beings.
And some will rise and say, perhaps justifiably, that the markets move on emotions, and that by isolating and excluding them from our decisions we are losing the chance to understand the markets. In response we say that human beings understand and analyze through reason only, and as emotions cannot be predicted through reason, there is almost no benefit in trying to trade the markets emotional responses. Emotions are unpredictable, we all know that much. What is the point of trying to predict or evaluate market action on the basis of something which is itself unknowable, and unpredictable?
In sum, emotions have no place in a successful trading career. There should be no joy in profit, and no pain or sorrow in a loss. We can enjoy the fruits of our profits with friends and family later, but if we try to enjoy them while trading, our joy will quickly turn to sorrow. Until you absorb this piece of Forex wisdom, do not spend much of your time screening the Forex broker list seeking the best choice for you. The first step to success in Forex is emotional control. Without it, no broker or mentor will help you much.
The fact, however, is that the vast majority of online traders fail, and that the main cause of the failure is lack of emotional control and mental discipline. In many cases, the trader does not even reach a stage where a good knowledge of economic data and statistics can support his trading to generate better results. Instead, many accounts get wiped out early, as traders act like scared rabbits in the tense and emotionally charged atmosphere of the markets. Clearly, seekers of success in trading must devote a lot more energy to perfecting their skills of psychological control.
What are we seeking in trading? We seek money, profits. Does money, and the market action that creates it respond to our joy, pride, sorrow, or despair? Are the markets crueler on us when we are sad, or more gentle when we feel invincible? Are we more successful when we trade on baseless optimism, or panicky pessimism? Which is the better way to manage our emotions?
The better way of managing our feelings in trading is to isolate and exclude them while we are dealing with the markets. Prices move according to emotional responses in the short term, and economic dynamics in longer periods. But they can only be evaluated by logic, as that is the only tool possessed by human beings.
And some will rise and say, perhaps justifiably, that the markets move on emotions, and that by isolating and excluding them from our decisions we are losing the chance to understand the markets. In response we say that human beings understand and analyze through reason only, and as emotions cannot be predicted through reason, there is almost no benefit in trying to trade the markets emotional responses. Emotions are unpredictable, we all know that much. What is the point of trying to predict or evaluate market action on the basis of something which is itself unknowable, and unpredictable?
In sum, emotions have no place in a successful trading career. There should be no joy in profit, and no pain or sorrow in a loss. We can enjoy the fruits of our profits with friends and family later, but if we try to enjoy them while trading, our joy will quickly turn to sorrow. Until you absorb this piece of Forex wisdom, do not spend much of your time screening the Forex broker list seeking the best choice for you. The first step to success in Forex is emotional control. Without it, no broker or mentor will help you much.
Trading Psychology: Mistakes in a Trading Environment
When it comes to trading, one of the most neglected subjects are those dealing with trading psychology. Most traders spend days, months and even years trying to find the right system. But having a system is just part of the game. Don't get us wrong, it is very important to have a system that perfectly suits the trader, but it is as important as having a money management plan, or to understand all psychology barriers that may affect the trader decisions and other issues. In order to succeed in this business, there must be equilibrium between all important aspects of trading.
In the trading environment, when you lose a trade, what is the first idea that pops up in your mind? It would probably be, "There must be something wrong with my system", or "I knew it, I shouldn't have taken this trade" (even when your system signaled it). But sometimes we need to dig a little deeper in order to see the nature of our mistake, and then work on it accordingly.
When it comes to trading the Forexa market as well as other markets, only 5% of traders achieve the ultimate goal: to be consistent in profits. What is interesting though is that there is just a tiny difference between this 5% of traders and the rest of them. The top 5% grow from mistakes; mistakes are a learning experience, they learn an invaluable lesson on every single mistake made. Deep in their minds, a mistake is one more chance to try it harder and do it better the next time, because they know they might not get a chance the next time. And at the end, this tiny difference becomes THE big difference.
Mistakes in the trading environment
Most of us relate a trading mistake to the outcome (in terms of money) of any given trade. The truth is, a mistake has nothing to do with it, mistakes are made when certain guidelines are not followed. When the rules you trade by are violated. Take for instance the following scenarios:
First scenario: The system signals a trade.
1. Signal taken and trade turns out to be a profitable trade. Outcome of the trade: Positive, made money. Experience gained: Its good to follow the system, if I do this consistently the odds will turn in my favor. Confidence is gained in both the trader and the system. Mistake made: None.
2. Signal taken and trade turns out to be a loosing trade. Outcome of the trade: Negative, lost money. Experience gained: It is impossible to win every single trade, a loosing trade is just part of the business; our raw material, we know we can't get them all right. Even with this lost trade, the trader is proud about himself for following the system. Confidence in the trader is gained. Mistake made: None.
3. Signal not taken and trade turns out to be a profitable trade. Outcome of the trade: Neutral. Experience gained: Frustration, the trader always seems to get in trades that turned out to be loosing trades and let the profitable trades go away. Confidence is lost in the trader self. Mistake made: Not taking a trade when the system signaled it.
4. Signal not taken and trade turns out to be a loosing trade. Outcome of the trade: Neutral. Experience gained: The trader will start to think "hey, I'm better than my system". Even if the trader doesn't think on it consciously, the trader will rationalize on every signal given by the system because deep in his or her mind, his or her "feeling" is more intelligent than the system itself. From this point on, the trader will try to outguess the system. This mistake has catastrophic effects on our confidence to the system. The confidence on the trader turns into overconfidence. Mistake made: Not taking a trade when system signaled it
Second Scenario: System does not signal a trade.
1. No trade is taken Outcome of the trade: Neutral Experience gained: Good discipline, we only need to take trades when the odds are in our favor, just when the system signals it. Confidence gained in both the trader self and the system. Mistake made: None
2. A trade is taken, turns out to be a profitable trade. Outcome of the trade: Positive, made money. Experience gained: This mistake has the most catastrophic effects in the trader self, the system and most importantly in the trader's trading career. You will start to think you need no system, you know better from them all. From this point on, you will start to trade based on what you think. Confidence in the system is totally lost. Confidence in the trader self turns into overconfidence. Mistake made: Take a trade when there was no signal from the system.
3. A trade is taken, turned out to be a loosing trade. Outcome of the trade: negative, lost money. Experience gained: The trader will rethink his strategy. The next time, the trader will think it twice before getting in a trade when the system does not signal it. The trader will go "Ok, it is better to get in the market when my system signals it, only those trade have a higher probability of success". Confidence is gained in the system. Mistake made: Take a trade when there was no signal from the system
As you can see, there is absolutely no correlation between the outcome of the trade and a mistake. The most catastrophic mistake even has a positive trade outcome, made money, but this could be the beginning of the end of the trader's career. As we have already stated, mistakes must only be related to the violation of rules a trader trades by.
All these mistakes were directly related to the signals given by a system, but the same is applied when getting out of a trade. There are also mistakes related to following a trading plan. For example, risking more money on a given trade than the amount the trader should have risked and many more.
Most mistakes can be avoided by first having a trading plan. A trading plan includes the system: the criteria we use to get in and out the market, the money management plan: how much we will risk on any given trade, and many other points. Secondly, and most important, we need to have the discipline to follow strictly our plan. We created our plan when no trade was placed on, thus no psychology barriers were up front. So, the only thing we are certain about is that if we follow our plan, the decision taken is on our best interests, and in the long run, these decisions will help us have better results. We don't have to worry about isolated events, or trades that could had give us better results at first, but then they could have catastrophic results in our trading career.
How to deal with mistakes
There are many possible ways to properly manage mistakes. We will suggest the one that works better for us.
Step one: Belief change. Every mistake is a learning experience. They all have something valuable to offer. Try to counteract the natural tendency of feeling frustrated and approach mistakes in a positive manner. Instead of yelling to everyone around and feeling disappointed, say to yourself "ok, I did something wrong, what happened? What is it?
Step two: Identify the mistake made. Define the mistake, find out what caused the mistake, and try as hard as you can to effectively see the nature of that mistake. Finding the mistake nature will prevent you from making the same mistake again. More than often you will find the answer where you less expected. Take for instance a trader that doesn't follow the system. The reason behind this could be that the trader is afraid of loosing. But then, why is he or she afraid? It could be that the trader is using a system that does not fit him or her, and finds difficult to follow every signal. In this case, as you can see, the nature of the mistake is not in the surface. You need to try as hard as you can to find the real reason of the given mistake.
Step three: Measure the consequences of the mistake. List the consequences of making that particular mistake, both good and bad. Good consequences are those that make us better traders after dealing with the mistake. Think on all possible reasons you can learn from what happened. For the same example above, what are the consequences of making that mistake? Well, if you don't follow the system, you will gradually loose confidence in it, and this at the end will put you into trades you don't really want to be, and out of trades you should be in.
Step four: Take action. Taking proper action is the last and most important step. In order to learn, you need to change your behavior. Make sure that whatever you do, you become "this-mistake-proof". By taking action we turn every single mistake into a small part of success in our trading career. Continuing with the same example, redefining the system would be the trader's final step. The trader would put a system that perfectly fits him or her, so the trader doesn't find any trouble following it in future signals.
Understanding the fact that the outcome of any trade has nothing to do with a mistake will open your mind to other possibilities, where you will be able to understand the nature of every mistake made. This at the same time will open the doors for your trading career as you work and take proper action on every mistake made.
The process of success is slow, and plenty of times it is attributed to repeated mistakes made and the constant struggle to get past these mistakes, working on them accordingly. How we deal with them will shape our future as a trader, and most importantly as a person.
In the trading environment, when you lose a trade, what is the first idea that pops up in your mind? It would probably be, "There must be something wrong with my system", or "I knew it, I shouldn't have taken this trade" (even when your system signaled it). But sometimes we need to dig a little deeper in order to see the nature of our mistake, and then work on it accordingly.
When it comes to trading the Forexa market as well as other markets, only 5% of traders achieve the ultimate goal: to be consistent in profits. What is interesting though is that there is just a tiny difference between this 5% of traders and the rest of them. The top 5% grow from mistakes; mistakes are a learning experience, they learn an invaluable lesson on every single mistake made. Deep in their minds, a mistake is one more chance to try it harder and do it better the next time, because they know they might not get a chance the next time. And at the end, this tiny difference becomes THE big difference.
Mistakes in the trading environment
Most of us relate a trading mistake to the outcome (in terms of money) of any given trade. The truth is, a mistake has nothing to do with it, mistakes are made when certain guidelines are not followed. When the rules you trade by are violated. Take for instance the following scenarios:
First scenario: The system signals a trade.
1. Signal taken and trade turns out to be a profitable trade. Outcome of the trade: Positive, made money. Experience gained: Its good to follow the system, if I do this consistently the odds will turn in my favor. Confidence is gained in both the trader and the system. Mistake made: None.
2. Signal taken and trade turns out to be a loosing trade. Outcome of the trade: Negative, lost money. Experience gained: It is impossible to win every single trade, a loosing trade is just part of the business; our raw material, we know we can't get them all right. Even with this lost trade, the trader is proud about himself for following the system. Confidence in the trader is gained. Mistake made: None.
3. Signal not taken and trade turns out to be a profitable trade. Outcome of the trade: Neutral. Experience gained: Frustration, the trader always seems to get in trades that turned out to be loosing trades and let the profitable trades go away. Confidence is lost in the trader self. Mistake made: Not taking a trade when the system signaled it.
4. Signal not taken and trade turns out to be a loosing trade. Outcome of the trade: Neutral. Experience gained: The trader will start to think "hey, I'm better than my system". Even if the trader doesn't think on it consciously, the trader will rationalize on every signal given by the system because deep in his or her mind, his or her "feeling" is more intelligent than the system itself. From this point on, the trader will try to outguess the system. This mistake has catastrophic effects on our confidence to the system. The confidence on the trader turns into overconfidence. Mistake made: Not taking a trade when system signaled it
Second Scenario: System does not signal a trade.
1. No trade is taken Outcome of the trade: Neutral Experience gained: Good discipline, we only need to take trades when the odds are in our favor, just when the system signals it. Confidence gained in both the trader self and the system. Mistake made: None
2. A trade is taken, turns out to be a profitable trade. Outcome of the trade: Positive, made money. Experience gained: This mistake has the most catastrophic effects in the trader self, the system and most importantly in the trader's trading career. You will start to think you need no system, you know better from them all. From this point on, you will start to trade based on what you think. Confidence in the system is totally lost. Confidence in the trader self turns into overconfidence. Mistake made: Take a trade when there was no signal from the system.
3. A trade is taken, turned out to be a loosing trade. Outcome of the trade: negative, lost money. Experience gained: The trader will rethink his strategy. The next time, the trader will think it twice before getting in a trade when the system does not signal it. The trader will go "Ok, it is better to get in the market when my system signals it, only those trade have a higher probability of success". Confidence is gained in the system. Mistake made: Take a trade when there was no signal from the system
As you can see, there is absolutely no correlation between the outcome of the trade and a mistake. The most catastrophic mistake even has a positive trade outcome, made money, but this could be the beginning of the end of the trader's career. As we have already stated, mistakes must only be related to the violation of rules a trader trades by.
All these mistakes were directly related to the signals given by a system, but the same is applied when getting out of a trade. There are also mistakes related to following a trading plan. For example, risking more money on a given trade than the amount the trader should have risked and many more.
Most mistakes can be avoided by first having a trading plan. A trading plan includes the system: the criteria we use to get in and out the market, the money management plan: how much we will risk on any given trade, and many other points. Secondly, and most important, we need to have the discipline to follow strictly our plan. We created our plan when no trade was placed on, thus no psychology barriers were up front. So, the only thing we are certain about is that if we follow our plan, the decision taken is on our best interests, and in the long run, these decisions will help us have better results. We don't have to worry about isolated events, or trades that could had give us better results at first, but then they could have catastrophic results in our trading career.
How to deal with mistakes
There are many possible ways to properly manage mistakes. We will suggest the one that works better for us.
Step one: Belief change. Every mistake is a learning experience. They all have something valuable to offer. Try to counteract the natural tendency of feeling frustrated and approach mistakes in a positive manner. Instead of yelling to everyone around and feeling disappointed, say to yourself "ok, I did something wrong, what happened? What is it?
Step two: Identify the mistake made. Define the mistake, find out what caused the mistake, and try as hard as you can to effectively see the nature of that mistake. Finding the mistake nature will prevent you from making the same mistake again. More than often you will find the answer where you less expected. Take for instance a trader that doesn't follow the system. The reason behind this could be that the trader is afraid of loosing. But then, why is he or she afraid? It could be that the trader is using a system that does not fit him or her, and finds difficult to follow every signal. In this case, as you can see, the nature of the mistake is not in the surface. You need to try as hard as you can to find the real reason of the given mistake.
Step three: Measure the consequences of the mistake. List the consequences of making that particular mistake, both good and bad. Good consequences are those that make us better traders after dealing with the mistake. Think on all possible reasons you can learn from what happened. For the same example above, what are the consequences of making that mistake? Well, if you don't follow the system, you will gradually loose confidence in it, and this at the end will put you into trades you don't really want to be, and out of trades you should be in.
Step four: Take action. Taking proper action is the last and most important step. In order to learn, you need to change your behavior. Make sure that whatever you do, you become "this-mistake-proof". By taking action we turn every single mistake into a small part of success in our trading career. Continuing with the same example, redefining the system would be the trader's final step. The trader would put a system that perfectly fits him or her, so the trader doesn't find any trouble following it in future signals.
Understanding the fact that the outcome of any trade has nothing to do with a mistake will open your mind to other possibilities, where you will be able to understand the nature of every mistake made. This at the same time will open the doors for your trading career as you work and take proper action on every mistake made.
The process of success is slow, and plenty of times it is attributed to repeated mistakes made and the constant struggle to get past these mistakes, working on them accordingly. How we deal with them will shape our future as a trader, and most importantly as a person.
Forex Trading: The Fear Factor
Market knowledge and ability to understand analysis will only get you so far in forex trading, but without the nerve to actively compete risking your own money in the process you can never become a successful trader.
Wagering huge volumes of money in a market as susceptible to change is liable to cause a whole range of opposing emotions; fear, excitement and anxiety just to name a few. Battling against your emotions in order to complete a successful deal is one of the major hurdles, which must be overcome if you are to become a trader able to close huge deals and earn vast sums of money. If you can overcome or even use these emotions to make trades on the Forex then a successful career may be beckoning, but failure to do so will almost certainly cost you a substantial amount of money and end any lingering desires to progress in the busy world of exchange rate trading.
Initiating and closing a trade at the right times are the backbone of becoming a successful Forex trader. If a person cannot execute these deals at the right times, the psychological and financial damage can be crippling. Missing a huge trend or sitting too long on a good price, can be a demoralising experience, but one that many will encounter during a career in Forex trading.
Entering at the right time is just one thing that must be done correctly, but if you are unable to leave at the right time or hold your nerve during the course of the trade, the implications are potentially severe. For example accepting a small loss just before the market rises can lead to a horrendous huge profit/loss ratio margin. Similarly sitting on a currency price that is plummeting for too long could be financially crippling. Understanding the Forex market and having faith in your ability to judge a trend will pay dividends if you hold your nerve, backing out at the wrong time can prove to be a catastrophic misnomer.
The fear generated by investing your own personal money is the main thing that must be overcome. It is the culprit in so many failure stories, people who just couldn't overcome their anxiety investing unwisely, pulling out at the wrong time, missing a rise completely, all result in failure and are caused by fear. Accepting this fear, and using it to your potential will make you a stronger trader, able to trade freely and enjoy the thrill of the exchange. Fighting it will get you nowhere, understanding and overcoming it are the best remedies to this baseless emotion.
Trading strategies will help you ride out the rough times and capitalize on the good ones. Sometimes just taking a step back and accepting a few losses will give you the energy and the knowledge to attack the Forex with renewed vigour, and make some serious profits. Accepting that sometimes you will lose out, you need to be able to take the hits and roll with a punch, there are no guarantees in the trading market, so being able to move on and start again is a skill that is paramount to generating success.
Analysis and charts can only get you so far. You must first master these things, and be able to correctly interpret the figures that are represented in order to spot the trends and make your move. But this all means nothing if you don't have the courage of your convictions. If you are too afraid to buy and not sure when to sell then a glittering career in market trading is likely to elude you. 'The trend is your friend' but it means nothing if you firstly can't spot it and secondly don't have the courage to back it. Knowledge, strategies and overcoming fear may well be the 3 best ways to become to unlock the door to becoming a successful trader. Without all 3 you will more often than not become unstuck, so prepare, practice and evaluate everything before taking the plunge in the complicated world of Forex trading.
Wagering huge volumes of money in a market as susceptible to change is liable to cause a whole range of opposing emotions; fear, excitement and anxiety just to name a few. Battling against your emotions in order to complete a successful deal is one of the major hurdles, which must be overcome if you are to become a trader able to close huge deals and earn vast sums of money. If you can overcome or even use these emotions to make trades on the Forex then a successful career may be beckoning, but failure to do so will almost certainly cost you a substantial amount of money and end any lingering desires to progress in the busy world of exchange rate trading.
Initiating and closing a trade at the right times are the backbone of becoming a successful Forex trader. If a person cannot execute these deals at the right times, the psychological and financial damage can be crippling. Missing a huge trend or sitting too long on a good price, can be a demoralising experience, but one that many will encounter during a career in Forex trading.
Entering at the right time is just one thing that must be done correctly, but if you are unable to leave at the right time or hold your nerve during the course of the trade, the implications are potentially severe. For example accepting a small loss just before the market rises can lead to a horrendous huge profit/loss ratio margin. Similarly sitting on a currency price that is plummeting for too long could be financially crippling. Understanding the Forex market and having faith in your ability to judge a trend will pay dividends if you hold your nerve, backing out at the wrong time can prove to be a catastrophic misnomer.
The fear generated by investing your own personal money is the main thing that must be overcome. It is the culprit in so many failure stories, people who just couldn't overcome their anxiety investing unwisely, pulling out at the wrong time, missing a rise completely, all result in failure and are caused by fear. Accepting this fear, and using it to your potential will make you a stronger trader, able to trade freely and enjoy the thrill of the exchange. Fighting it will get you nowhere, understanding and overcoming it are the best remedies to this baseless emotion.
Trading strategies will help you ride out the rough times and capitalize on the good ones. Sometimes just taking a step back and accepting a few losses will give you the energy and the knowledge to attack the Forex with renewed vigour, and make some serious profits. Accepting that sometimes you will lose out, you need to be able to take the hits and roll with a punch, there are no guarantees in the trading market, so being able to move on and start again is a skill that is paramount to generating success.
Analysis and charts can only get you so far. You must first master these things, and be able to correctly interpret the figures that are represented in order to spot the trends and make your move. But this all means nothing if you don't have the courage of your convictions. If you are too afraid to buy and not sure when to sell then a glittering career in market trading is likely to elude you. 'The trend is your friend' but it means nothing if you firstly can't spot it and secondly don't have the courage to back it. Knowledge, strategies and overcoming fear may well be the 3 best ways to become to unlock the door to becoming a successful trader. Without all 3 you will more often than not become unstuck, so prepare, practice and evaluate everything before taking the plunge in the complicated world of Forex trading.
Forex: No psychological limitations
Back when I first started learning about investing, I decided to start from the beginning and read basic books on personal finance as well as "guides" for understanding all of the investment world in a nut shell. Most of these authors were very knowledgeable and informative, but their investment advice was far too conservative for my taste. They would literally write chapter after chapter talking about the differences between conservative investing, which according to them generally yields somewhere around 5% PA, as opposed to "risky" investing which usually meant a diversified stock/mutual fund portfolio yielding (in my mind) only slightly higher averages. What kind of returns can you expect in the stock market? Well they say the market has gone up an average of 10% a year since Adam and Eve. Popular indexes like the DOW and the now more popular S&P500 have always, like real estate, "gone up over time."
Now, these market averages are almost worshiped like golden calves. Repeatedly drilled into my brain was the concept that there were hundreds (if not thousands) of fund managers and other "professionals" out there with Harvard degrees, decades of experience, millions of dollars under management, and they were all spending 15 hours a day consuming every single bit of market information in the hopes of beating these golden calves by a few points.
What chance did I have? If Dr. Fund Guru Jr. who eats, sleeps, breathes the markets and has more credentials than I have individual hairs on my body can't consistently make 20% a year...well...forget it kid...your chances are slim to none. I guess I'll buy some shares of XYZ fund and accept the scraps off the table from the stock gurus.
NOT!
The foreign exchange market offers many benefits that the stock market does not have. Most of these have been beaten to death on various forums, blogs, articles, e-books, etc. However, it's always good to reiterate the positive (my own personal reason is last): — Forex offers unprecedented liquidity. With over two trillion dollars transacted per day on the market, it makes filling any buy/sell order virtually instant. That equates to less slippage and more profitability. "Paper trading" stocks vs actually trading stocks is very different, because orders may not be filled in a timely manner. The difference between trading a forex demo account and an actual account is virtually nill. — Forex is available 24 hours a day 5.5 days a week, as opposed to the daylight trading hours of the stock exchanges. — Forex is uncontrollable by large entities. Large net worth individuals, banks and fund managers who throw their weight around in the stock market can often have huge effects on price action. Because of the immense volume of foreign currency traded per day, the market is unmoved by "heavy hitters." Not even central banks can control the Forex market. — Forex offers up to 200:1 leverage as opposed to 2:1 stock leverage. — Forex has no restrictions for selling short, as opposed to the stock market's "uptick" rule — Forex can actually be traded INSIDE of an IRA or Roth IRA account. — Forex gains are taxed at the preferred 60/40 rate, no matter what trading style you use (intra-day, swing, position) as opposed to the tax penalties for holding stocks for short periods of time.
The list does go on, but for me the biggest advantage is a psychological one. I know it probably sounds silly, but fear and intimidation can sometimes subconsciously defeat us before we even begin. I don't like the idea of having to live up to, and in a way, compete with "professional managers" who have more knowledge of the fundamentals of the markets than I ever will. It's almost as if Forex, in some way, levels the playing field. I don't have to psychologically compete against anyone's idea of what kind of returns are "acceptable and realistic" and what kind of returns are "pure fantasy." I only have to trade until I can find an acceptable reward to risk ratio, and consistent profitability thereof.
Now, these market averages are almost worshiped like golden calves. Repeatedly drilled into my brain was the concept that there were hundreds (if not thousands) of fund managers and other "professionals" out there with Harvard degrees, decades of experience, millions of dollars under management, and they were all spending 15 hours a day consuming every single bit of market information in the hopes of beating these golden calves by a few points.
What chance did I have? If Dr. Fund Guru Jr. who eats, sleeps, breathes the markets and has more credentials than I have individual hairs on my body can't consistently make 20% a year...well...forget it kid...your chances are slim to none. I guess I'll buy some shares of XYZ fund and accept the scraps off the table from the stock gurus.
NOT!
The foreign exchange market offers many benefits that the stock market does not have. Most of these have been beaten to death on various forums, blogs, articles, e-books, etc. However, it's always good to reiterate the positive (my own personal reason is last): — Forex offers unprecedented liquidity. With over two trillion dollars transacted per day on the market, it makes filling any buy/sell order virtually instant. That equates to less slippage and more profitability. "Paper trading" stocks vs actually trading stocks is very different, because orders may not be filled in a timely manner. The difference between trading a forex demo account and an actual account is virtually nill. — Forex is available 24 hours a day 5.5 days a week, as opposed to the daylight trading hours of the stock exchanges. — Forex is uncontrollable by large entities. Large net worth individuals, banks and fund managers who throw their weight around in the stock market can often have huge effects on price action. Because of the immense volume of foreign currency traded per day, the market is unmoved by "heavy hitters." Not even central banks can control the Forex market. — Forex offers up to 200:1 leverage as opposed to 2:1 stock leverage. — Forex has no restrictions for selling short, as opposed to the stock market's "uptick" rule — Forex can actually be traded INSIDE of an IRA or Roth IRA account. — Forex gains are taxed at the preferred 60/40 rate, no matter what trading style you use (intra-day, swing, position) as opposed to the tax penalties for holding stocks for short periods of time.
The list does go on, but for me the biggest advantage is a psychological one. I know it probably sounds silly, but fear and intimidation can sometimes subconsciously defeat us before we even begin. I don't like the idea of having to live up to, and in a way, compete with "professional managers" who have more knowledge of the fundamentals of the markets than I ever will. It's almost as if Forex, in some way, levels the playing field. I don't have to psychologically compete against anyone's idea of what kind of returns are "acceptable and realistic" and what kind of returns are "pure fantasy." I only have to trade until I can find an acceptable reward to risk ratio, and consistent profitability thereof.
Emotions And Forex Trading Don't Mix
The key to making money in the currency exchange market is to avoid emotional decisions and to follow a carefully thought out strategy that takes the current market and history into account. Going with your gut is not the way to go in the Forex market. Going with your gut could cost you money. Forex trading is a highly volatile market where emotions tend to run high. Emotions can influence your trading decisions, unless you have a strategy planned in advance, and stick to it, no matter what you think you're seeing at the moment. The keys to success in Forex are system, analysis and perseverance.
Most experienced traders tell novice traders that they need to develop a system — and stick to it no matter what. Letting your emotions rule your decisions can hurt your trading in a number of ways. The system tells you when to buy, what to buy, when to trade and what to trade for. By sticking to your system you'll maximize your profits. A system based on technical analysis of historical market trends is one of the most potent tools that you can utilize if you're just getting started in Forex trading. Many traders, with years of experience, continue to use this system to keep the profits rolling in. Many traders will tell you that when their gut instinct and their system collide, the system is almost always right.
Using a mechanical system takes the emotion out of your trading, eliminating one of the reasons people fail. Your system doesn't sway with emotions. It sticks to a tried and true course. To be effective, your system — whether you develop your own or adopt one created by someone else — should identify the entry and exit point of your trade, mitigating factors, and an exit strategy. In general terms this is as follows:
Under what conditions should I acquire a currency?
For instance, you may have a buy order for when a particular currency drops more than 5 pips because your analysis tells you that that's likely to be as low as it goes.
When should I trade one currency for another and for which one?
There are two reasons to exit — to maximize your profit, or minimize your loss. That means you have a set stop-loss order and a set take-profit order at which point you cash out your trade.
What factors will I allow to change that decision?
While the money market moves in predictable patterns, there are always individual variations of a trend within those patterns. If you've taken those variations into account, it will be far easier to decide when a factor really does make a difference, and when it's just wishful thinking. If you're not careful however this is where emotion could come into play and sour deals for you.
How will I trade out of a currency?
Your exit strategy may be as simple as a stop-loss order when my loss hits 5% or a take-profit order when I make 40% profit'.
Another key is perseverance. Analysis of trends in the market will show you that the market moves in dips and spurts within overall patterns that are predictable. No trend moves smoothly in an up or down line — there are inevitable periods of time when values suddenly spiral up or down based on some outside factor. These are the times when emotion can hurt your portfolio. When a currency that you're holding takes a sudden dip south, it's tempting to succumb to panic trading, cut your losses and run even if your system tells you to hold on. On the other hand, it's easy to catch the rising excitement as a trade starts increasing in value and scramble to buy more of the same. These are exactly the times to rely most heavily on your trading system. It will tell you exactly when to trade for maximum profit.
Most experienced traders tell novice traders that they need to develop a system — and stick to it no matter what. Letting your emotions rule your decisions can hurt your trading in a number of ways. The system tells you when to buy, what to buy, when to trade and what to trade for. By sticking to your system you'll maximize your profits. A system based on technical analysis of historical market trends is one of the most potent tools that you can utilize if you're just getting started in Forex trading. Many traders, with years of experience, continue to use this system to keep the profits rolling in. Many traders will tell you that when their gut instinct and their system collide, the system is almost always right.
Using a mechanical system takes the emotion out of your trading, eliminating one of the reasons people fail. Your system doesn't sway with emotions. It sticks to a tried and true course. To be effective, your system — whether you develop your own or adopt one created by someone else — should identify the entry and exit point of your trade, mitigating factors, and an exit strategy. In general terms this is as follows:
Under what conditions should I acquire a currency?
For instance, you may have a buy order for when a particular currency drops more than 5 pips because your analysis tells you that that's likely to be as low as it goes.
When should I trade one currency for another and for which one?
There are two reasons to exit — to maximize your profit, or minimize your loss. That means you have a set stop-loss order and a set take-profit order at which point you cash out your trade.
What factors will I allow to change that decision?
While the money market moves in predictable patterns, there are always individual variations of a trend within those patterns. If you've taken those variations into account, it will be far easier to decide when a factor really does make a difference, and when it's just wishful thinking. If you're not careful however this is where emotion could come into play and sour deals for you.
How will I trade out of a currency?
Your exit strategy may be as simple as a stop-loss order when my loss hits 5% or a take-profit order when I make 40% profit'.
Another key is perseverance. Analysis of trends in the market will show you that the market moves in dips and spurts within overall patterns that are predictable. No trend moves smoothly in an up or down line — there are inevitable periods of time when values suddenly spiral up or down based on some outside factor. These are the times when emotion can hurt your portfolio. When a currency that you're holding takes a sudden dip south, it's tempting to succumb to panic trading, cut your losses and run even if your system tells you to hold on. On the other hand, it's easy to catch the rising excitement as a trade starts increasing in value and scramble to buy more of the same. These are exactly the times to rely most heavily on your trading system. It will tell you exactly when to trade for maximum profit.
Forex Market Trading And The Mind Games
First, what is Forex: The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.
Mind Games defined: Mind Games are a kind of social interaction where participants try to screw with one anothers' heads. The concept is most often used colloquially to refer to deceitful, confusing or Machiavellian situations. However some mind games are described by the psychology of transactional analysis.
When it comes to trading on the Forex market, winning is a matter of the mind rather than mind over matter. Any trader who's been in the game for any length of time will tell you that psychology has a lot to do with both your own performance on the trading floor and with the way that the market is moving. Playing a winning hand depends on knowing your own mind — and understanding the way that psychology moves the market.
Studying the psychology of the market is nothing new. It doesn't take a genius to understand that any arena that rides and falls on decisions made by people is going to be heavily influenced by the minds of people. Few people take into account all the various levels of mind games that motivate the market, though. If you keep your eye on the way that psychology influences others — including the mass psychology of the people that use the currency on a daily basis — but neglect to know what moves you, you're going to end up hurting your own position. The best Forex coaches will tell you that before you can really become a successful trader, you have to know yourself and the triggers that influence you. Knowing those will help you overcome them or use them. Are you saying 'Huh?" about now? Believe me, I understand. I felt the same way the first time that someone tried to explain how the mind games we play with ourselves influence the trades and decisions that we make. Let me break it down into more manageable pieces for you.
Anything involving winning or losing large sums of money becomes emotionally charged. All right. You've heard that playing the market is a mathematical game. Plug in the right numbers, make the right calculations and you'll come out ahead. So why is it that so many traders end up on the losing end of the market? After all, everyone has access to the same numbers, the same data, the same info — if it's math, there's only one right answer, right?
The answer lies in interpretation. The numbers don't lie, but your mind does. Your hopes and fears can make you see things that just aren't there. When you invest in a currency, you're investing more than just money — you make an emotional investment. Being 'right' becomes important. Being 'wrong' doesn't just cost you money when you let yourself be ruled by your emotions — it costs you pride. Why else would you let a loser ride in the hope that it will bounce back? It's that little thing inside your head that says, "I KNOW I'm right on this, dammit!"
To most people, being right is more important than making money. Here's the deal. The way to make real money in the forex market is to cut your losses short and let your winners ride. In order to do that, you have GOT to accept that some of your trades are going to lose, cut them loose and move on to another trade. You've got to accept that picking a loser is NOT an indication of your self-worth, it's not a reflection on who you are. It's simply a loss, and the best way to deal with it is to stop losing money by moving on — and really move on. Moving on means you don't keep a running total of how many losses you've had — that's the way to paralyze yourself. This brings us to the next point:
Losing traders see loss as failure. Winning traders see loss as learning. Not too long ago, my twelve year old son told me that before Thomas Edison invented a working light bulb, he invented 100 light bulbs that didn't work. But he didn't give up — because he knew that creating a source of light from electricity was possible. He believed in his overall theory — so when one design didn't work, he simply knew that he'd eliminated one possibility. Keep eliminating possibilities long enough, and you'll eventually find the possibility that works.
Winning traders see loss in the same way. They haven't failed — they've learned something new about the way that they and the market work. Winning traders can look at the big picture while playing in the small arena.
Suppose I told you that last year, I made 75 trades that lost money, and 25 that made money. In the eyes of most people, that would make me a pretty poor trader. I'm wrong 75% of the time. But what if I told you that my average loss was $1000, but my average profit on a winning trade was $10,000? That means that I lost $75,000 on trades — but I made $250,000, making my overall profit $175,000. It's a pretty clear numbers game — but how do you keep on trading when you're losing in trade after trade? Simple — just remember that one trade does not make or break a trader. Focus on the trade at hand, follow the triggers that you've set up — but define yourself by what really matters — the overall record.
Bottom line: You can't keep emotions out of the picture, but you can learn not to let them control your decisions. Keep it all in perspective and realise that there are a lot of big boys playing this game and playing it to win...
Mind Games defined: Mind Games are a kind of social interaction where participants try to screw with one anothers' heads. The concept is most often used colloquially to refer to deceitful, confusing or Machiavellian situations. However some mind games are described by the psychology of transactional analysis.
When it comes to trading on the Forex market, winning is a matter of the mind rather than mind over matter. Any trader who's been in the game for any length of time will tell you that psychology has a lot to do with both your own performance on the trading floor and with the way that the market is moving. Playing a winning hand depends on knowing your own mind — and understanding the way that psychology moves the market.
Studying the psychology of the market is nothing new. It doesn't take a genius to understand that any arena that rides and falls on decisions made by people is going to be heavily influenced by the minds of people. Few people take into account all the various levels of mind games that motivate the market, though. If you keep your eye on the way that psychology influences others — including the mass psychology of the people that use the currency on a daily basis — but neglect to know what moves you, you're going to end up hurting your own position. The best Forex coaches will tell you that before you can really become a successful trader, you have to know yourself and the triggers that influence you. Knowing those will help you overcome them or use them. Are you saying 'Huh?" about now? Believe me, I understand. I felt the same way the first time that someone tried to explain how the mind games we play with ourselves influence the trades and decisions that we make. Let me break it down into more manageable pieces for you.
Anything involving winning or losing large sums of money becomes emotionally charged. All right. You've heard that playing the market is a mathematical game. Plug in the right numbers, make the right calculations and you'll come out ahead. So why is it that so many traders end up on the losing end of the market? After all, everyone has access to the same numbers, the same data, the same info — if it's math, there's only one right answer, right?
The answer lies in interpretation. The numbers don't lie, but your mind does. Your hopes and fears can make you see things that just aren't there. When you invest in a currency, you're investing more than just money — you make an emotional investment. Being 'right' becomes important. Being 'wrong' doesn't just cost you money when you let yourself be ruled by your emotions — it costs you pride. Why else would you let a loser ride in the hope that it will bounce back? It's that little thing inside your head that says, "I KNOW I'm right on this, dammit!"
To most people, being right is more important than making money. Here's the deal. The way to make real money in the forex market is to cut your losses short and let your winners ride. In order to do that, you have GOT to accept that some of your trades are going to lose, cut them loose and move on to another trade. You've got to accept that picking a loser is NOT an indication of your self-worth, it's not a reflection on who you are. It's simply a loss, and the best way to deal with it is to stop losing money by moving on — and really move on. Moving on means you don't keep a running total of how many losses you've had — that's the way to paralyze yourself. This brings us to the next point:
Losing traders see loss as failure. Winning traders see loss as learning. Not too long ago, my twelve year old son told me that before Thomas Edison invented a working light bulb, he invented 100 light bulbs that didn't work. But he didn't give up — because he knew that creating a source of light from electricity was possible. He believed in his overall theory — so when one design didn't work, he simply knew that he'd eliminated one possibility. Keep eliminating possibilities long enough, and you'll eventually find the possibility that works.
Winning traders see loss in the same way. They haven't failed — they've learned something new about the way that they and the market work. Winning traders can look at the big picture while playing in the small arena.
Suppose I told you that last year, I made 75 trades that lost money, and 25 that made money. In the eyes of most people, that would make me a pretty poor trader. I'm wrong 75% of the time. But what if I told you that my average loss was $1000, but my average profit on a winning trade was $10,000? That means that I lost $75,000 on trades — but I made $250,000, making my overall profit $175,000. It's a pretty clear numbers game — but how do you keep on trading when you're losing in trade after trade? Simple — just remember that one trade does not make or break a trader. Focus on the trade at hand, follow the triggers that you've set up — but define yourself by what really matters — the overall record.
Bottom line: You can't keep emotions out of the picture, but you can learn not to let them control your decisions. Keep it all in perspective and realise that there are a lot of big boys playing this game and playing it to win...
Psychiatrists Make Better Traders Than Expert Economists
| It should be noted that millionaire traders, Elder, Williams and some others are in fact professional psychiatrists. And it is not accidental that not the economists are the leaders and most successful traders, but professional psychiatrists and psychotherapists. Think about it. You will become a successful trader when you understand why it happens with Forex. You will understand what your Forex mistakes are, and why you are making them. And when you correct these mistakes you will become a trader who has no psychological barriers and obstacles on his way to better earnings in the Forex market. So, why do the psychiatrists make better traders than economists who, as one would think, have the Forex market at their finger tips? The economists are confused by: — the fact that exchange rates are not always related directly to the economic circumstances in the countries. Well, do you know any economist who would be bidding for low fx rates when the economic situation is getting better and better? Or the one who admits that technical analysis of currency pairs is more important for Forex trading than the fundamental one? Any economist is confident that this can never happen because he knows all the economic dogmas. But it happens in the Forex. After all, how can a trader lose with the currencies moving up and down by the economic rules? The currency will surely react to the economic changes in the country, but who knows when and how? Here is a tip: there is the Elliott fifth way to teach a lesson to the ones who believe that fundamental knowledge is enough (before the trend turns, the currency spurts absurdly by the old trend), to confuse and draw the newbies into the game, while the experts wait for the trend to turn back. — the lack of psychological knowledge that helps to understand the behavior of the crowd. And that is self-evident. Are there any methods to overcome this fear? It seems that every Forex book, every article offers efficient solutions for psychological difficulties experienced by the traders. IN FACT NEITHER OF THESE BOOKS CONTAINS METHODS TO OVERCOME THE FEAR EXPERIENCED BY A FOREX TRADER! But what do these books offer instead? Almost every book of this kind consists of two unequal parts: — the bigger part of the book narrates about traders' problem that interfere with their Forex work and make it unsuccessful (nervousness, doubts, worries, fear, sleep deprivation, etc.). As if the traders do not know their own problems. — the considerably lesser part contains conclusions and recommendations to the traders who are to solve their problems and overcome their fears to become successful. The conclusions are disappointing: Many psychiatrists realize that the new field opens before their eyes — now they may treat traders whose number amounts to millions all over the world and is growing with every day. And since most traders have a dream to become as successful as George Soros and other famous traders, this new field promises to be rather lucrative. One thing is bad though: the overwhelming majority of these new-sprung trader brain specialists do not even know what the Forex is all about. |
Serious Money
There is an article in this week's news section which is entitled How to Combat Over Trading. It's an issue that I tackle often in this column because it is probably the greatest source of pain for most traders I know. K and I are often amazed by emails we get from subs who tell us that they have blown up even after BKT has had a huge run of winning trades. The reason clearly is that they over trading their account. Now this particular article tries to fix the problem by talking about the need to "visualize you plan", "talk out your trades" and "keep a running diary". While all those sentiments are noble I am here to tell you that they are all pure bunk.
Let's face it, as currency traders we are in the markets because we love to trade. We don't pore over balance sheets looking for misalignment in cashflow calculations like the credit gnomes in the bond market. Nor do we spend endless hours researching business plans like stock investors. FX is the purest speculative market there is driven first and foremost by sentiment. What is the value of a currency anyway? Some will argue that the dollar isn't worth the paper its printed on. But we don't care. There are no bear markets in FX. We are the ultimate "absolute return" asset class.
We are in the game because we want to PLAY. We want to match wits with the smartest people in the world and win. Trading is also very much like violin playing. If you don't practice every day - you lose your touch. But just as violin players miss a few notes from time to time, so do we miss a few trades. The key difference of course is that the violin does not crumble into a thousand little pieces after each bad performance, but our trading account can be decimated by just one bad trade.
So how do we reconcile our desire to play with our need remain disciplined and preserve capital? Simple. We separate our money. I have multiple accounts just for that reason. For example we trade the BKT account only twice or three times a week and not surprisingly it has the best performance by far. The reason is of course because we are extremely disciplined and take only the trades that are consistent with our trading model. Next, I have an account where trade K's calendar calls both proactively and reactively. Those of you who have been with me in live chat are familiar with some of those trades. Finally I have an account that I just trade - no real rules, lots of experimentation and needless to say a lot of stupid mistakes.
The BKT account is serious money, the procactive/reactive account is semi-serious money and the free trade account is just stupid money. The key to winning in FX is not to curtail the over trading. It is not only futile but arrogant to think that we can conquer our worst impulses. The key is not to over trade your serious money. Ironically enough the more freedom you give yourself to experiment in your stupid account, the more likely you are to stick to your trading plan in your primary account. Give it a try and let me know if it helps.
Let's face it, as currency traders we are in the markets because we love to trade. We don't pore over balance sheets looking for misalignment in cashflow calculations like the credit gnomes in the bond market. Nor do we spend endless hours researching business plans like stock investors. FX is the purest speculative market there is driven first and foremost by sentiment. What is the value of a currency anyway? Some will argue that the dollar isn't worth the paper its printed on. But we don't care. There are no bear markets in FX. We are the ultimate "absolute return" asset class.
We are in the game because we want to PLAY. We want to match wits with the smartest people in the world and win. Trading is also very much like violin playing. If you don't practice every day - you lose your touch. But just as violin players miss a few notes from time to time, so do we miss a few trades. The key difference of course is that the violin does not crumble into a thousand little pieces after each bad performance, but our trading account can be decimated by just one bad trade.
So how do we reconcile our desire to play with our need remain disciplined and preserve capital? Simple. We separate our money. I have multiple accounts just for that reason. For example we trade the BKT account only twice or three times a week and not surprisingly it has the best performance by far. The reason is of course because we are extremely disciplined and take only the trades that are consistent with our trading model. Next, I have an account where trade K's calendar calls both proactively and reactively. Those of you who have been with me in live chat are familiar with some of those trades. Finally I have an account that I just trade - no real rules, lots of experimentation and needless to say a lot of stupid mistakes.
The BKT account is serious money, the procactive/reactive account is semi-serious money and the free trade account is just stupid money. The key to winning in FX is not to curtail the over trading. It is not only futile but arrogant to think that we can conquer our worst impulses. The key is not to over trade your serious money. Ironically enough the more freedom you give yourself to experiment in your stupid account, the more likely you are to stick to your trading plan in your primary account. Give it a try and let me know if it helps.
Trading Forex To Advance Your Financial Position
Everyday, currencies are traded in an international foreign exchange market, otherwise known as the forex market, with the main marketplaces (otherwise known as bourses) existing in the world's financial centes New York, London, Tokyo, Frankfurt and Zurich. Historically, the only way to participate was from the trading floor of one of these bourses, but today, people can trade forex from anywhere through a secure internet connection and a PC.
Today's traders operate in a global network, taking positions in the market and making investment decisions based on either relative value between two currencies, or a particular currency's actual price. Currency value fluctuations are constantly renegotiated through trading activity, and this activity, and the corresponding currency values are also indicators of the levels of currency supply.
An example of market behaviour greater demand for the Euro might indicate a weakening supply. Low supply and increased demand will drive the price of the Euro up against other currencies like the dollar, until the price better reflects what traders are prepared to pay when short supply exists. Another way to look at this situation is this higher demand means it will cost more dollars to buy the Euro, which equates to a weakening of the dollar in comparison. Analysis of situations such as in this example forms the basis for a trader's investment decisions, and they will purchase or sell currency accordingly.
This should be remembered, as while many see the foreign exchange market as the vehicle for converting their home currency while travelling abroad, many others choose to use the market to advance their financial position and secure their future.
Today's traders operate in a global network, taking positions in the market and making investment decisions based on either relative value between two currencies, or a particular currency's actual price. Currency value fluctuations are constantly renegotiated through trading activity, and this activity, and the corresponding currency values are also indicators of the levels of currency supply.
An example of market behaviour greater demand for the Euro might indicate a weakening supply. Low supply and increased demand will drive the price of the Euro up against other currencies like the dollar, until the price better reflects what traders are prepared to pay when short supply exists. Another way to look at this situation is this higher demand means it will cost more dollars to buy the Euro, which equates to a weakening of the dollar in comparison. Analysis of situations such as in this example forms the basis for a trader's investment decisions, and they will purchase or sell currency accordingly.
This should be remembered, as while many see the foreign exchange market as the vehicle for converting their home currency while travelling abroad, many others choose to use the market to advance their financial position and secure their future.
The 6 Advantages Forex Trading Has Over Other Investments
There are many different advantages to trading forex instead of futures or stocks, such as:
1. Lower Margin
Just like futures and stock speculation, a forex trader has the ability to control a large amount of the currency basically by putting up a small amount of margin. However, the margin requirements that are needed for trading futures are usually around 5% of the full value of the holding, or 50% of the total value of the stocks, the margin requirements for forex is about 1%. For example, margin required to trade foreign exchange is $1000 for every $100,000. What this means is that trading forex, a currency trader's money can play with 5-times as much value of product as a futures trader's, or 50 times more than a stock trader's. When you are trading on margin, this can be a very profitable way to create an investment strategy, but it's important that you take the time to understand the risks that are involved as well. You should make sure that you fully understand how your margin account is going to work. You will want to be sure that you read the margin agreement between you and your clearing firm. You will also want to talk to your account representative if you have any questions.
The positions that you have in your account could be partially or completely liquidated on the chance that the available margin in your account falls below a predetermined amount. You may not actually get a margin call before your positions are liquidated. Because of this, you should monitor your margin balance on a regular basis and utilize stop-loss orders on every open position to limit downside risk.
2. No Commission and No Exchange Fees
When you trade in futures, you have to pay exchange and brokerage fees. Trading forex has the advantage of being commission free. This is far better for you. Currency trading is a worldwide inter-bank market that lets buyers to be matched with sellers in an instant.
Even though you do not have to pay a commission charge to a broker to match the buyer up with the seller, the spread is usually larger than it is when you are trading futures. For example, if you were trading a Japanese Yen/US Dollar pair, forex trade would have about a 3 point spread (worth $30). Trading a JY futures trade would most likely have a spread of 1 point (worth $10) but you would also be charged the broker's commission on top of that. This price could be as low as $10 in-and-out for self-directed online trading, or as high as $50 for full-service trading. It is however, all inclusive pricing though. You are going to have to compare both online forex and your specific futures commission charge to see which commission is the greater one.
3. Limited Risk and Guaranteed Stops
When you are trading futures, your risk can be unlimited. For example, if you thought that the prices for Live Cattle were going to continue their upward trend in December 2003, just before the discovery of Mad Cow Disease found in US cattle. The price for it after that fell dramatically, which moved the limit down several days in a row. You would not have been able to leave your position and this could have wiped out the entire equity in your account as a result. As the price just kept on falling, you would have been obligated to find even more money to make up the deficit in your account.
4. Rollover of Positions
When futures contracts expire, you have to plan ahead if you are going to rollover your trades. Forex positions expire every two days and you need to rollover each trade just so that you can stay in your position.
5. 24-Hour Marketplace
With futures, you are generally limited to trading only during the few hours that each market is open in any one day. If a major news story breaks out when the markets are closed, you will not have a way of getting out of it until the market reopens, which could be many hours away. Forex, on the other hand, is a 24/5 market. The day begins in New York, and follows the sun around the globe through Europe, Asia, Australia and back to the US again. You can trade any time you like Monday-Friday.
6. Free market place
Foreign exchange is perhaps the largest market in the world with an average daily volume of US$1.4 trillion. That is 46 times as large as all the futures markets put together! With the huge number of people trading forex around the globe, it is very hard for even governments to control the price of their own currency.
1. Lower Margin
Just like futures and stock speculation, a forex trader has the ability to control a large amount of the currency basically by putting up a small amount of margin. However, the margin requirements that are needed for trading futures are usually around 5% of the full value of the holding, or 50% of the total value of the stocks, the margin requirements for forex is about 1%. For example, margin required to trade foreign exchange is $1000 for every $100,000. What this means is that trading forex, a currency trader's money can play with 5-times as much value of product as a futures trader's, or 50 times more than a stock trader's. When you are trading on margin, this can be a very profitable way to create an investment strategy, but it's important that you take the time to understand the risks that are involved as well. You should make sure that you fully understand how your margin account is going to work. You will want to be sure that you read the margin agreement between you and your clearing firm. You will also want to talk to your account representative if you have any questions.
The positions that you have in your account could be partially or completely liquidated on the chance that the available margin in your account falls below a predetermined amount. You may not actually get a margin call before your positions are liquidated. Because of this, you should monitor your margin balance on a regular basis and utilize stop-loss orders on every open position to limit downside risk.
2. No Commission and No Exchange Fees
When you trade in futures, you have to pay exchange and brokerage fees. Trading forex has the advantage of being commission free. This is far better for you. Currency trading is a worldwide inter-bank market that lets buyers to be matched with sellers in an instant.
Even though you do not have to pay a commission charge to a broker to match the buyer up with the seller, the spread is usually larger than it is when you are trading futures. For example, if you were trading a Japanese Yen/US Dollar pair, forex trade would have about a 3 point spread (worth $30). Trading a JY futures trade would most likely have a spread of 1 point (worth $10) but you would also be charged the broker's commission on top of that. This price could be as low as $10 in-and-out for self-directed online trading, or as high as $50 for full-service trading. It is however, all inclusive pricing though. You are going to have to compare both online forex and your specific futures commission charge to see which commission is the greater one.
3. Limited Risk and Guaranteed Stops
When you are trading futures, your risk can be unlimited. For example, if you thought that the prices for Live Cattle were going to continue their upward trend in December 2003, just before the discovery of Mad Cow Disease found in US cattle. The price for it after that fell dramatically, which moved the limit down several days in a row. You would not have been able to leave your position and this could have wiped out the entire equity in your account as a result. As the price just kept on falling, you would have been obligated to find even more money to make up the deficit in your account.
4. Rollover of Positions
When futures contracts expire, you have to plan ahead if you are going to rollover your trades. Forex positions expire every two days and you need to rollover each trade just so that you can stay in your position.
5. 24-Hour Marketplace
With futures, you are generally limited to trading only during the few hours that each market is open in any one day. If a major news story breaks out when the markets are closed, you will not have a way of getting out of it until the market reopens, which could be many hours away. Forex, on the other hand, is a 24/5 market. The day begins in New York, and follows the sun around the globe through Europe, Asia, Australia and back to the US again. You can trade any time you like Monday-Friday.
6. Free market place
Foreign exchange is perhaps the largest market in the world with an average daily volume of US$1.4 trillion. That is 46 times as large as all the futures markets put together! With the huge number of people trading forex around the globe, it is very hard for even governments to control the price of their own currency.
Introduction To Forex Trading
There are many markets: markets for stocks, futures, options and currencies. These are probably the most accessible markets for everyday traders like you and I. People easily understand the basics of trading shares, so I will occasionally use examples from that market.
I began trading shares first and then I moved on to trading currencies; therefore, most of the examples I will be using in this book are derived from trading currencies.
If you do not know a lot about currency trading, allow me to introduce it to you. It is what I trade and I believe that it is one of the best markets to trade because of its efficiency. The transaction costs to execute a trade are minimal and most brokers provide you with the tools and data you need to make your trading decisions, they usually provide them for free. The market is open 24 hours a day which allows you to design your trading hours around your daily commitments. It is very volatile, which is great for those people who are looking for day-trading opportunities.
The foreign exchange market is the market in which currencies are bought and sold against one another. People may loosely refer to this market under different labels, including foreign exchange market, forex market, fx market or the currency market.
The foreign exchange market is the largest market in the world, with daily trading volumes in excess of $1.5 trillion US dollars. All transactions involving international trade and investment must go through this market because these transactions involve the exchange of currencies.
It is the most perfect market that exists because it has a large number of buyers and sellers all selling the same products. There is a free flow of information and there are little barriers to participate.
The currency exchange market is an over-the-counter (OTC) market which means that there is not one specific location where buyers and sellers can actually meet to exchange currencies. Instead, transactions are conducted by phone, fax, e-mail or through the websites of brokers who specialize in currency trading.
The major dealing centres at the time of writing are: London , with about 30% of the market, New York , with 20%, Tokyo , with 12%, Zurich , Frankfurt, Hong Kong and Singapore , with about 7% each, followed by Paris and Sydney with 3% each. Because of the fact that these centres are all over the world, foreign exchange traders can execute transactions 24 hours a day. The market only closes on the weekends.
THE MAIN 'PLAYERS' IN THE FOREX MARKET
The five broad categories of participants are: consumers, businesses, investors, speculators, commercial banks, investment banks and central banks.
Consumers, including visitors of countries, tourists and immigrants, do need to exchange currencies when they travel so that they can buy local goods and services. These participants do not have the power to set prices. They just buy and sell according to the prevailing exchange rate. They make up a significant proportion of the volume being traded in the market.
Businesses that import and export goods and services need to exchange currencies to receive or make payments for goods they may have bought or services they may have rendered.
Investors and speculators require currencies to buy and sell investment instruments such as shares, bonds, bank deposits or real estate.
Large commercial and investment banks are the 'price makers'. They are the ones who buy and sell currencies at the bid-and-offer exchange rates that they declare through their foreign exchange dealers.
Commercial banks deal with customers on one hand, and with the Interbank or other banks, on the other hand. They profit by utilizing the bid-and-offer spread. The bid price is the exchange rate that the buyer is willing to buy and the offer price is the exchange rate at which the seller is willing to sell. The difference is called the bid-offer spread. They also make profits from speculating about whether the exchange rate will rise or fall.
Central banks participate in the foreign exchange market in their effective duty as banks for their particular government. They trade currencies not for the intention of making profits but rather to facilitate government monetary policies and to help smoothen out the fluctuation of the value of their economy's currency.
I began trading shares first and then I moved on to trading currencies; therefore, most of the examples I will be using in this book are derived from trading currencies.
If you do not know a lot about currency trading, allow me to introduce it to you. It is what I trade and I believe that it is one of the best markets to trade because of its efficiency. The transaction costs to execute a trade are minimal and most brokers provide you with the tools and data you need to make your trading decisions, they usually provide them for free. The market is open 24 hours a day which allows you to design your trading hours around your daily commitments. It is very volatile, which is great for those people who are looking for day-trading opportunities.
The foreign exchange market is the market in which currencies are bought and sold against one another. People may loosely refer to this market under different labels, including foreign exchange market, forex market, fx market or the currency market.
The foreign exchange market is the largest market in the world, with daily trading volumes in excess of $1.5 trillion US dollars. All transactions involving international trade and investment must go through this market because these transactions involve the exchange of currencies.
It is the most perfect market that exists because it has a large number of buyers and sellers all selling the same products. There is a free flow of information and there are little barriers to participate.
The currency exchange market is an over-the-counter (OTC) market which means that there is not one specific location where buyers and sellers can actually meet to exchange currencies. Instead, transactions are conducted by phone, fax, e-mail or through the websites of brokers who specialize in currency trading.
The major dealing centres at the time of writing are: London , with about 30% of the market, New York , with 20%, Tokyo , with 12%, Zurich , Frankfurt, Hong Kong and Singapore , with about 7% each, followed by Paris and Sydney with 3% each. Because of the fact that these centres are all over the world, foreign exchange traders can execute transactions 24 hours a day. The market only closes on the weekends.
THE MAIN 'PLAYERS' IN THE FOREX MARKET
The five broad categories of participants are: consumers, businesses, investors, speculators, commercial banks, investment banks and central banks.
Consumers, including visitors of countries, tourists and immigrants, do need to exchange currencies when they travel so that they can buy local goods and services. These participants do not have the power to set prices. They just buy and sell according to the prevailing exchange rate. They make up a significant proportion of the volume being traded in the market.
Businesses that import and export goods and services need to exchange currencies to receive or make payments for goods they may have bought or services they may have rendered.
Investors and speculators require currencies to buy and sell investment instruments such as shares, bonds, bank deposits or real estate.
Large commercial and investment banks are the 'price makers'. They are the ones who buy and sell currencies at the bid-and-offer exchange rates that they declare through their foreign exchange dealers.
Commercial banks deal with customers on one hand, and with the Interbank or other banks, on the other hand. They profit by utilizing the bid-and-offer spread. The bid price is the exchange rate that the buyer is willing to buy and the offer price is the exchange rate at which the seller is willing to sell. The difference is called the bid-offer spread. They also make profits from speculating about whether the exchange rate will rise or fall.
Central banks participate in the foreign exchange market in their effective duty as banks for their particular government. They trade currencies not for the intention of making profits but rather to facilitate government monetary policies and to help smoothen out the fluctuation of the value of their economy's currency.
The Benefits of Trading The Forex Market
Historically, the FX market was available most to major banks, multinational corporations and other participants who traded in large transaction sizes and volumes. Small-scale traders including individuals like you and I, had little access to this market for such a long time. Now with the advent of the Internet and technology, FX trading is becoming an increasingly popular investment alternative for the general public.
The benefits of trading the currency market:
It is open 24-hours and it closes only on the weekends;
It is very liquid and efficient;
It is very volatile;
It has very low transaction costs;
You can use a high level of leverage (borrowed money) with ease; and
You can profit from a bull or a bear market.
Continuous, 24-Hour Trading
The currency exchange is a 24-hour market. You may decide to trade after you come home from work. Regardless of what time-frame you want to trade at whatever time of the day, there would be enough buyers and sellers to take the other side of your trade. This feature of the market gives you enough flexibility to manage your trading around your daily routine.
Liquidity And Efficiency
When there are a lot of buyers and a lot of sellers, you can expect to buy or sell at a price that is very close to the last market price. The currency market is the most liquid market in the world. Trading volume in the currency markets can be between 50 and 100 times larger than the New York Stock Exchange (Source: Oanda.)
When you are trading stocks, you may have experienced events where one piece of news accelerates or decelerates the price of the underlying stock you may have bought into. Perhaps a director has been kicked out by the shareholders of a company or the company has just released a new product and big investors are buying the shares of a particular company. Share prices can be drastically affected by the actions or inactions of one or a few individuals. So if you are relying on television reports and newspapers to get your news, most of the opportunities or warnings will have come too late for you to take advantage by the time you get them.
The value of currencies on the other hand is affected by so many factors and so many participants that the likelihood of any one individual or group of individuals drastically affecting the value of a currency is minute. Because of its sheer size, the currency market is hard to manipulate. The ability for people to engage in 'insider trading' is virtually eliminated. As an average trader, you are less disadvantaged. You are likely to be playing on relatively equal ground along with all the other traders and investors whom you are competing against.
Note about price gaps:
For those people who have already traded other markets, you probably know about price 'gaps'. 'Gaps' occur when prices 'jump' from one price level to another without having taken any incremental steps to get there. For example, you may be trading a share that closes at $10 at the end of today but due to some event that happens overnight; it opens tomorrow at $5 and continues to go downwards for the rest of the day.
Gaps bring about another degree of uncertainty that may meddle with a trader's strategy. Probably one of the most worrying aspects of this is when a trader uses stop-losses. In this case, if a trader puts a stop-loss at $7 because he no longer wants to be in a trade if the share price hits $7, his trade will remain open overnight and the trader wakes up tomorrow with a loss bigger than he may have been prepared for.
After looking at a couple of forex charts, you will realize that there are little price 'gaps' or none at all, especially on the longer-term charts like the 3-hour, 4-hour or the daily charts.
Volatility
Trading opportunities exist when prices fluctuate. If you buy a share for $2 and it stays there, there is no opportunity to make a profit. The magnitude of level of this fluctuation and its frequency is referred to as volatility. As a trader, it is volatility that you profit from. Large volume transactions and high liquidity combined with fewer trading instruments generate greater intra-day volatility in the currency market that can be exploited by day-traders. The high volatility of the currency market indicates that a trader can potentially earn 5 times more money from currency trading than trading the most liquid shares.
Volatility is a measure of maximum return that a trader can generate with perfect foresight. Volatility for the most liquid stocks are between 60 to 100. Volatility for currency trading is 500. (Source: Oanda.)
In this respect, currencies make a better trading vehicle for day-traders than the equity markets.
Low Transaction Costs
A currency transaction typically incurs no commission or transaction fees. For a forex trader, the spread is the only cost he or she needs to cover in taking on a position. In addition, because of the currency market's efficiency, there is little or no 'slippage' costs.
'Slippage' is the cost involved when traders enter the market at a price worse than the level they wanted to get into. For example, a trader wants to buy a share at $2.00 but by the time, the order gets executed, his gets to buy the shares at $2.50. That fifty cents difference is his slippage cost. Slippage cost affects large-volume traders a lot. When they buy large quantities of a commodity, it oversupplies the market with buy orders. This applies a pressure for the price to go up. By the time they get to buy all the quantities they wanted, the average price they got their commodities would be higher than the price they intended to get them for. Conversely, when they sell large quantities of a commodity, they oversupply the market with sell orders. This applies a pressure for the price to go down. By the time they finish selling all their commodities, their average selling price is less than what they initially intended to sell them for.
Due to lower transaction costs, minimum slippage and strong intra-day volatility, individuals can trade frequently at small costs. As an approximate, you may only expect to have a spread of 0.03% of your position size. To give you an example, you can buy and sell 10,000 US Dollars and this will only incur a 3-point spread, equivalent to $3.
Leverage
There are not a lot of banks or people who would lend you money so that you can use it to trade shares. And if there are, it would be very hard for you to convince them to invest in you and in your idea that a certain share is going to go up or down. Therefore, most of the time, if you have a $10,000 account, you can only really afford to buy $10,000 worth of stocks.
In currency trading however, because you use 'borrowed money', you can trade $10,000 of a currency and you only need anywhere between fifty (For a margin lending ratio of 200:1) to two hundred dollars ( For a margin lending ratio of 50:1) in your trading account. This makes it possible for an average trader with a small trading account, under $10,000 to be able to profit sufficiently from the movements of the currency exchange rates. This concept is explained further in The Part-Time Currency Trader.
Profit From A Bull And Bear Market
When you are trading shares, you can only profit when the price of a stock goes up. When you suspect that it is about to go down or that it is just going to be moving sideways, then the only thing you can do is sell your shares and stand aside. One of the frustrations of trading shares is that an individual cannot profit when prices are going down. In the currency market, it is easy for you to trade a currency downward so that you can profit when you think it is going to lose value. This is easy to do because currency trading simply involves buying one currency and selling another, there is no structural bias that makes it difficult to trade 'downwards'. This is why the currency market has been occasionally referred to as the eternal bull market.
The benefits of trading the currency market:
It is open 24-hours and it closes only on the weekends;
It is very liquid and efficient;
It is very volatile;
It has very low transaction costs;
You can use a high level of leverage (borrowed money) with ease; and
You can profit from a bull or a bear market.
Continuous, 24-Hour Trading
The currency exchange is a 24-hour market. You may decide to trade after you come home from work. Regardless of what time-frame you want to trade at whatever time of the day, there would be enough buyers and sellers to take the other side of your trade. This feature of the market gives you enough flexibility to manage your trading around your daily routine.
Liquidity And Efficiency
When there are a lot of buyers and a lot of sellers, you can expect to buy or sell at a price that is very close to the last market price. The currency market is the most liquid market in the world. Trading volume in the currency markets can be between 50 and 100 times larger than the New York Stock Exchange (Source: Oanda.)
When you are trading stocks, you may have experienced events where one piece of news accelerates or decelerates the price of the underlying stock you may have bought into. Perhaps a director has been kicked out by the shareholders of a company or the company has just released a new product and big investors are buying the shares of a particular company. Share prices can be drastically affected by the actions or inactions of one or a few individuals. So if you are relying on television reports and newspapers to get your news, most of the opportunities or warnings will have come too late for you to take advantage by the time you get them.
The value of currencies on the other hand is affected by so many factors and so many participants that the likelihood of any one individual or group of individuals drastically affecting the value of a currency is minute. Because of its sheer size, the currency market is hard to manipulate. The ability for people to engage in 'insider trading' is virtually eliminated. As an average trader, you are less disadvantaged. You are likely to be playing on relatively equal ground along with all the other traders and investors whom you are competing against.
Note about price gaps:
For those people who have already traded other markets, you probably know about price 'gaps'. 'Gaps' occur when prices 'jump' from one price level to another without having taken any incremental steps to get there. For example, you may be trading a share that closes at $10 at the end of today but due to some event that happens overnight; it opens tomorrow at $5 and continues to go downwards for the rest of the day.
Gaps bring about another degree of uncertainty that may meddle with a trader's strategy. Probably one of the most worrying aspects of this is when a trader uses stop-losses. In this case, if a trader puts a stop-loss at $7 because he no longer wants to be in a trade if the share price hits $7, his trade will remain open overnight and the trader wakes up tomorrow with a loss bigger than he may have been prepared for.
After looking at a couple of forex charts, you will realize that there are little price 'gaps' or none at all, especially on the longer-term charts like the 3-hour, 4-hour or the daily charts.
Volatility
Trading opportunities exist when prices fluctuate. If you buy a share for $2 and it stays there, there is no opportunity to make a profit. The magnitude of level of this fluctuation and its frequency is referred to as volatility. As a trader, it is volatility that you profit from. Large volume transactions and high liquidity combined with fewer trading instruments generate greater intra-day volatility in the currency market that can be exploited by day-traders. The high volatility of the currency market indicates that a trader can potentially earn 5 times more money from currency trading than trading the most liquid shares.
Volatility is a measure of maximum return that a trader can generate with perfect foresight. Volatility for the most liquid stocks are between 60 to 100. Volatility for currency trading is 500. (Source: Oanda.)
In this respect, currencies make a better trading vehicle for day-traders than the equity markets.
Low Transaction Costs
A currency transaction typically incurs no commission or transaction fees. For a forex trader, the spread is the only cost he or she needs to cover in taking on a position. In addition, because of the currency market's efficiency, there is little or no 'slippage' costs.
'Slippage' is the cost involved when traders enter the market at a price worse than the level they wanted to get into. For example, a trader wants to buy a share at $2.00 but by the time, the order gets executed, his gets to buy the shares at $2.50. That fifty cents difference is his slippage cost. Slippage cost affects large-volume traders a lot. When they buy large quantities of a commodity, it oversupplies the market with buy orders. This applies a pressure for the price to go up. By the time they get to buy all the quantities they wanted, the average price they got their commodities would be higher than the price they intended to get them for. Conversely, when they sell large quantities of a commodity, they oversupply the market with sell orders. This applies a pressure for the price to go down. By the time they finish selling all their commodities, their average selling price is less than what they initially intended to sell them for.
Due to lower transaction costs, minimum slippage and strong intra-day volatility, individuals can trade frequently at small costs. As an approximate, you may only expect to have a spread of 0.03% of your position size. To give you an example, you can buy and sell 10,000 US Dollars and this will only incur a 3-point spread, equivalent to $3.
Leverage
There are not a lot of banks or people who would lend you money so that you can use it to trade shares. And if there are, it would be very hard for you to convince them to invest in you and in your idea that a certain share is going to go up or down. Therefore, most of the time, if you have a $10,000 account, you can only really afford to buy $10,000 worth of stocks.
In currency trading however, because you use 'borrowed money', you can trade $10,000 of a currency and you only need anywhere between fifty (For a margin lending ratio of 200:1) to two hundred dollars ( For a margin lending ratio of 50:1) in your trading account. This makes it possible for an average trader with a small trading account, under $10,000 to be able to profit sufficiently from the movements of the currency exchange rates. This concept is explained further in The Part-Time Currency Trader.
Profit From A Bull And Bear Market
When you are trading shares, you can only profit when the price of a stock goes up. When you suspect that it is about to go down or that it is just going to be moving sideways, then the only thing you can do is sell your shares and stand aside. One of the frustrations of trading shares is that an individual cannot profit when prices are going down. In the currency market, it is easy for you to trade a currency downward so that you can profit when you think it is going to lose value. This is easy to do because currency trading simply involves buying one currency and selling another, there is no structural bias that makes it difficult to trade 'downwards'. This is why the currency market has been occasionally referred to as the eternal bull market.
Forex Trading
So what is is Forex trading you may ask? Forex is the exchange you can buy and sell currencies. For example, you might buy British pounds (by exchanging them to the dollars you had), then, after pounds / dollar ratio goes up, you sell pounds and buy dollars again. At the end of this operation you are going to have more dollars, then you had at the beginning.
The Forex market has much higher liquidity, then the stock market, as much more money is being exchanged. Forex is spread between banks all over the planet and as a result it means 24 hour trading.
Unlike stocks, Forex trades are performed with high leverage, usually it is 100. It means that by investing $1000 you can control $100,000, and increase potential profits accordingly. Some brokers provide also so called mini-Forex, where the size of minimum deposit equals $100. It makes possible for individuals to enter this market easily.
The name convention. In Forex, the name of a "symbol" is composed of two parts — one for first currency, and another for the second currency. For example, the symbol usdjpy stands for US dollars (usd) to Japanese yen (jpy).
As with stocks, you can apply tools of the technical analysis to Forex charts. Trader's indexes can be optimized for Forex "symbols", allowing you to find winning strategy.
Example Forex transaction
Assume you have a trading account of $25,000 and you are trading with a 1% margin requirement. The current quote for EUR/USD is 1.3225/28 and you place a market order to buy 1 lot of 100,000 Euros at 1.3228, expecting the euro to rise against the dollar. At the same time you place a stop-loss order at 1.3178 representing a maximum loss of 2% of your account equity if the trade goes against you, 50 pips below your order price, and a limit order at 1.3378, 150 pips above your order price. For this trade, you are risking 50 pips to gain 150 pips, giving you a risk/reward ratio of 1 part risk to 3 parts reward. This means that you only need to be right one third of the time to remain profitable.
The notional value of this trade is $132,280 (100,000 * 1.3228). Your required margin deposit is 1% of the total, which is equal to $1322.80 ($132,280 * 0.01).
As you expected, the Euro strengthens against the dollar and your limit order is reached at 1.3378. The position is closed. Your total profit for this trade is $1500, each pip being worth $10.
The Forex market has much higher liquidity, then the stock market, as much more money is being exchanged. Forex is spread between banks all over the planet and as a result it means 24 hour trading.
Unlike stocks, Forex trades are performed with high leverage, usually it is 100. It means that by investing $1000 you can control $100,000, and increase potential profits accordingly. Some brokers provide also so called mini-Forex, where the size of minimum deposit equals $100. It makes possible for individuals to enter this market easily.
The name convention. In Forex, the name of a "symbol" is composed of two parts — one for first currency, and another for the second currency. For example, the symbol usdjpy stands for US dollars (usd) to Japanese yen (jpy).
As with stocks, you can apply tools of the technical analysis to Forex charts. Trader's indexes can be optimized for Forex "symbols", allowing you to find winning strategy.
Example Forex transaction
Assume you have a trading account of $25,000 and you are trading with a 1% margin requirement. The current quote for EUR/USD is 1.3225/28 and you place a market order to buy 1 lot of 100,000 Euros at 1.3228, expecting the euro to rise against the dollar. At the same time you place a stop-loss order at 1.3178 representing a maximum loss of 2% of your account equity if the trade goes against you, 50 pips below your order price, and a limit order at 1.3378, 150 pips above your order price. For this trade, you are risking 50 pips to gain 150 pips, giving you a risk/reward ratio of 1 part risk to 3 parts reward. This means that you only need to be right one third of the time to remain profitable.
The notional value of this trade is $132,280 (100,000 * 1.3228). Your required margin deposit is 1% of the total, which is equal to $1322.80 ($132,280 * 0.01).
As you expected, the Euro strengthens against the dollar and your limit order is reached at 1.3378. The position is closed. Your total profit for this trade is $1500, each pip being worth $10.
Forex Enterprise — A Full Review
A new marketing course to hit the internet by Nick Marks that advertises earnings of $1000 a day and $30,000 a month respectively. This turnkey system generating multiple streams of income is relatively new and so it is my pleasure to review it for you.
After purchasing you are given a login page where you are introduced to the system which is in website format. Everything is easy to access and well organized.
After Nick gives you a little pep talk about positive thinking and goal setting, you will be introduced to his first recommendation: join Coastal Vacations. While not a part of his main Forex system this is a recommendation I could've done without.
In the pay per click section you are given a large list of keywords that Nick found convert really well with his system. Some of the keywords in the list have bid prices already attached to them so you can get front page exposure.
The course also has $50 in free adwords credit that unfortunately only works with new accounts so I was out of luck. If you don't already have an account this is worth the price of the course alone.
The forex course shows you some inexpensive traffic methods and provides links to these sources. He also covers stuff like pop-over ads, e-mail lists and autoresponders. Not bad information by any means, and is an alternative to pay per click advertising if you have a smaller budget.
He has an ebook package that seemed like it was going to be really cool as there were dozens of bonus ebooks and software programs covering everything from creating ebooks and website templates, to getting top positions in the major search engines.
As I took a closer look at this package I realized there were some bargain bin informational products included. However, there were also alot of goodies in there as well that I found rather useful. You get so many ebooks and software in here that it really is worth far more than the price of the course.
There is a section on becoming an Ebay power seller in 90 days that goes into a fair amount of detail and wasn't bad. However, Ebay isn't something I have ever been particularly interested in doing. There is also a section on baccarat strategies that I had no interest in.
One of the last sections of his course introduces you to e-currency exchanging using the DXINONE system. It is a great way to acquaint yourself with this increasingly popular opportunity without having to buy standalone e-currency courses which can cost a couple hundred dollars.
The author has combined several effective ways to earn money online and rolled them all into one course. While I didn't jump up and down about all of his strategies, the free ebooks, software, and adwords credit make Forex Enterprise worth the money.
After purchasing you are given a login page where you are introduced to the system which is in website format. Everything is easy to access and well organized.
After Nick gives you a little pep talk about positive thinking and goal setting, you will be introduced to his first recommendation: join Coastal Vacations. While not a part of his main Forex system this is a recommendation I could've done without.
In the pay per click section you are given a large list of keywords that Nick found convert really well with his system. Some of the keywords in the list have bid prices already attached to them so you can get front page exposure.
The course also has $50 in free adwords credit that unfortunately only works with new accounts so I was out of luck. If you don't already have an account this is worth the price of the course alone.
The forex course shows you some inexpensive traffic methods and provides links to these sources. He also covers stuff like pop-over ads, e-mail lists and autoresponders. Not bad information by any means, and is an alternative to pay per click advertising if you have a smaller budget.
He has an ebook package that seemed like it was going to be really cool as there were dozens of bonus ebooks and software programs covering everything from creating ebooks and website templates, to getting top positions in the major search engines.
As I took a closer look at this package I realized there were some bargain bin informational products included. However, there were also alot of goodies in there as well that I found rather useful. You get so many ebooks and software in here that it really is worth far more than the price of the course.
There is a section on becoming an Ebay power seller in 90 days that goes into a fair amount of detail and wasn't bad. However, Ebay isn't something I have ever been particularly interested in doing. There is also a section on baccarat strategies that I had no interest in.
One of the last sections of his course introduces you to e-currency exchanging using the DXINONE system. It is a great way to acquaint yourself with this increasingly popular opportunity without having to buy standalone e-currency courses which can cost a couple hundred dollars.
The author has combined several effective ways to earn money online and rolled them all into one course. While I didn't jump up and down about all of his strategies, the free ebooks, software, and adwords credit make Forex Enterprise worth the money.
Why Trade the FOREX
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.
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.
Forex Avenue: The Road to Riches
In my continuing quest to provide visitors of my site with a large amount of options to chose from when considering working from home I have done some research on Forex trading. I first learned of Forex trading while pursuing my MBA program. For those of you who have never heard of this, Forex trading is the exchange of foreign currency.
I know I would have never even know this was an option for making money had I not found out in class. Most of the really big corporations have departments of people that do this for a living because it can be very lucrative if done correctly. The best news I have learned about this process of exchanging currencies is that many of the websites that you can sign up with to do this offer free trial accounts to help you learn before you invest your money into trying it. You won't make any money in the trial accounts if you do well, it is just pretend money essentially but with the real market conditions. If you do well in the trial account you will know if this is something you want to try on your own.
Benefits to Forex trading are that is can be done 24/7 whereas the stock market is a business hours only exchange. It is 24/7 because it is done with countries around the world so clearly there are countries that are awake and working while we sleep. Another benefit is you are in control of the trading on your account. You do not need to hire a licensed broker to make your trades and charge you fees. Along those same lines, anyone who does any investing most likely knows that some funds require you to own then for a certain period of time or pay early withdrawal fees. You do not need to concern yourself with this either. One last benefit that I would like to point out is the fact that Forex is not really subject to the same kinds of swings in the market that stocks are subject to. Of course if you always buy and sell the same currencies then there will be market swings. But, because there are hundreds of currencies out there, there is always going to be something for you to make money on because while one currency is up in value another one is down and vice versa.
There are many resources available to someone interested in becoming involved in this type of training. The Federal Reserve Bank's website is just one example of the information available — http://www.ny.frb.org/markets/foreignex.html. Here is another article that you will find helpful in starting out in this field. http://www.forex.com/pdf/pro2.pdf . I have also included one of the sites that does offer a free lesson.
While there are many benefits to this type of training, as I mentioned above, there are certainly risks involved as well. There are risks with exchange rates, central banks in foreign countries, and risks involving interest rates and credit. Forex is quickly becoming a popular way to help diversify your investment portfolio. If you are good with understanding investing concepts and enjoy doing it this may be the home business opportunity for you. Just do your research and try to find one of the sites offering the free trial account to practice with and you are well on your way down the Road to Riches.
I know I would have never even know this was an option for making money had I not found out in class. Most of the really big corporations have departments of people that do this for a living because it can be very lucrative if done correctly. The best news I have learned about this process of exchanging currencies is that many of the websites that you can sign up with to do this offer free trial accounts to help you learn before you invest your money into trying it. You won't make any money in the trial accounts if you do well, it is just pretend money essentially but with the real market conditions. If you do well in the trial account you will know if this is something you want to try on your own.
Benefits to Forex trading are that is can be done 24/7 whereas the stock market is a business hours only exchange. It is 24/7 because it is done with countries around the world so clearly there are countries that are awake and working while we sleep. Another benefit is you are in control of the trading on your account. You do not need to hire a licensed broker to make your trades and charge you fees. Along those same lines, anyone who does any investing most likely knows that some funds require you to own then for a certain period of time or pay early withdrawal fees. You do not need to concern yourself with this either. One last benefit that I would like to point out is the fact that Forex is not really subject to the same kinds of swings in the market that stocks are subject to. Of course if you always buy and sell the same currencies then there will be market swings. But, because there are hundreds of currencies out there, there is always going to be something for you to make money on because while one currency is up in value another one is down and vice versa.
There are many resources available to someone interested in becoming involved in this type of training. The Federal Reserve Bank's website is just one example of the information available — http://www.ny.frb.org/markets/foreignex.html. Here is another article that you will find helpful in starting out in this field. http://www.forex.com/pdf/pro2.pdf . I have also included one of the sites that does offer a free lesson.
While there are many benefits to this type of training, as I mentioned above, there are certainly risks involved as well. There are risks with exchange rates, central banks in foreign countries, and risks involving interest rates and credit. Forex is quickly becoming a popular way to help diversify your investment portfolio. If you are good with understanding investing concepts and enjoy doing it this may be the home business opportunity for you. Just do your research and try to find one of the sites offering the free trial account to practice with and you are well on your way down the Road to Riches.
7 Reasons to Trade Forex
here are many money-making opportunities out there and we've been involved with quite a few, namely property marketing, web development, residential construction security, multi-level marketing businesses etc.
We've come to a few conclusions with the help of some well-known properity coaches.
Often people with the income they desire don't have the time to enjoy it. Those that have time don't often have money. You don't have to sacrifice your life-style to earn an above-average income. If you focus on the for a few months you can make that dream a reality and create time and money to do what you REALLY want.
To earn a living money is given in exchange for a product or service rendered. It needs to be sold continuously otherwise your income stops abruptly unless it's a repeat type of product or service.
Money is a medium of exchange. There's no magical formula to possess it, you need to exchange something of value for it.
What if, you could have access to thousands of customers who are ready, willing and able to buy from you whenever you wanted? Wouldn't it be great to avoid any hassles like money collection problems (just had a delayed payment from my web business), keeping difficult customers happy (we all know what that's like), competition stealing your business without providing the same value etc.
All that is possible with . You can also trade from anywhere. Take your laptop with you, find an internet connection and away you go.
Another advantage is that you don't need experience to get started. Get a traditionally job involves accumulating specialized experience, having a well-polished resume and having the right contacts. With the right training course, you can get started straight away.
Here's 7 more reasons to trade :
1. It never closes. It's open around the clock, worldwide. Trading positions open at Monday 7am, New Zealand time and close 5pm New York time on Friday. During this time, you can enter or exit the market whenever you like. It's a continuous electronic currency exchange. This is great because you can trade whenever you have spare time.
2. Leverage. Standard $100 000 currency lots can be traded with as little as $1000. This is mainly because of the ease with which you can buy and sell, some brokers will leverage up to 200 times, so with $100 you can control a 200 000 unit currency position. It's the best use of trading capital around, even banks lending on property investments don't come close.
3. Accurately predict the outcomes. Currency prices generally repeat themselves in predictable cycles so you can see what the trends are. 'Technical Analysis' helps to see these trends and profit from them.
4. Low Transaction Cost. In other words, you mistakes won't cost you a fortune. Good brokers won' charge commissions to trade or maintain an account even if you have a mini account and trade small volumes.
5. Unlimited Earning Potential. has a daily trading volume of over 1.5 trillion, the largest financial market in the world. It dwarfs the equities market (50 billion daily) and the futures market (30 billion).
6. You can make money in any market conditions. Each market is one currency against another, so when you buy in one, you're selling in another so there's no biase towards either currency moving up or down. This means it's up to you to choose which currency to buy or sell with. Yu can make money going up or down.
7. Market transparency. This is an advantage in any business or trading environment. It means you can manage risk and execute orders within seconds. It's highly efficient and allows you to avoid unexpected 'surprises'.
We've come to a few conclusions with the help of some well-known properity coaches.
Often people with the income they desire don't have the time to enjoy it. Those that have time don't often have money. You don't have to sacrifice your life-style to earn an above-average income. If you focus on the for a few months you can make that dream a reality and create time and money to do what you REALLY want.
To earn a living money is given in exchange for a product or service rendered. It needs to be sold continuously otherwise your income stops abruptly unless it's a repeat type of product or service.
Money is a medium of exchange. There's no magical formula to possess it, you need to exchange something of value for it.
What if, you could have access to thousands of customers who are ready, willing and able to buy from you whenever you wanted? Wouldn't it be great to avoid any hassles like money collection problems (just had a delayed payment from my web business), keeping difficult customers happy (we all know what that's like), competition stealing your business without providing the same value etc.
All that is possible with . You can also trade from anywhere. Take your laptop with you, find an internet connection and away you go.
Another advantage is that you don't need experience to get started. Get a traditionally job involves accumulating specialized experience, having a well-polished resume and having the right contacts. With the right training course, you can get started straight away.
Here's 7 more reasons to trade :
1. It never closes. It's open around the clock, worldwide. Trading positions open at Monday 7am, New Zealand time and close 5pm New York time on Friday. During this time, you can enter or exit the market whenever you like. It's a continuous electronic currency exchange. This is great because you can trade whenever you have spare time.
2. Leverage. Standard $100 000 currency lots can be traded with as little as $1000. This is mainly because of the ease with which you can buy and sell, some brokers will leverage up to 200 times, so with $100 you can control a 200 000 unit currency position. It's the best use of trading capital around, even banks lending on property investments don't come close.
3. Accurately predict the outcomes. Currency prices generally repeat themselves in predictable cycles so you can see what the trends are. 'Technical Analysis' helps to see these trends and profit from them.
4. Low Transaction Cost. In other words, you mistakes won't cost you a fortune. Good brokers won' charge commissions to trade or maintain an account even if you have a mini account and trade small volumes.
5. Unlimited Earning Potential. has a daily trading volume of over 1.5 trillion, the largest financial market in the world. It dwarfs the equities market (50 billion daily) and the futures market (30 billion).
6. You can make money in any market conditions. Each market is one currency against another, so when you buy in one, you're selling in another so there's no biase towards either currency moving up or down. This means it's up to you to choose which currency to buy or sell with. Yu can make money going up or down.
7. Market transparency. This is an advantage in any business or trading environment. It means you can manage risk and execute orders within seconds. It's highly efficient and allows you to avoid unexpected 'surprises'.
Forex The Future Investment
There are many many advantages over the various other ways of investing. First of all it is a 24 hr market, except for weekends of course. You have the US market then the european and then the Asian. One of the great times to trade is during the over lapping periods. The USA and european overlap between 5am & 9am eastern and the Euro & Asian between 11pm & 1am eastern. Usually the busiest time and best to trade.
The is also the risk factor for the accounts. With futures and options you can get margin calls that can wipe you out. If you get caught in a bad trade not only do you lose the money in the account but you may have to come up with alot more from your pocket. It can be very risking. But not in Forex. Worst case senerio you could lose whats in you account. But you would have to do something really stupid. Like making a big trade on a Fundamental day and leave it alone. If market takes a bad move and you weren't there. OOOPS. But That wouldn't happen with a smarth trader.
Then there are the demo accounts which is an account where you can trade using all the right things, platform,charts,and information. But you are using play money, or what we call paper trading too.
Plus with Forex you have a mini account. Instead of needing thousands of dollars to get into it. You can open an account with as little as $300.00. Now of course you will be trading at 1 tenth of a trade. IN other words you controling 10,000 instead of 100,000.00 These are call lots. Which also means you will only risk 1 tenth too!
The is also the risk factor for the accounts. With futures and options you can get margin calls that can wipe you out. If you get caught in a bad trade not only do you lose the money in the account but you may have to come up with alot more from your pocket. It can be very risking. But not in Forex. Worst case senerio you could lose whats in you account. But you would have to do something really stupid. Like making a big trade on a Fundamental day and leave it alone. If market takes a bad move and you weren't there. OOOPS. But That wouldn't happen with a smarth trader.
Then there are the demo accounts which is an account where you can trade using all the right things, platform,charts,and information. But you are using play money, or what we call paper trading too.
Plus with Forex you have a mini account. Instead of needing thousands of dollars to get into it. You can open an account with as little as $300.00. Now of course you will be trading at 1 tenth of a trade. IN other words you controling 10,000 instead of 100,000.00 These are call lots. Which also means you will only risk 1 tenth too!
Investing in Forex
Investing in foreign currencies is a relatively new avenue of investing. There are considerably fewer people are aware of this market than there are people aware of several other avenues of investing. Trading foreign currency, also known as forex, is the most lucrative investment market that exists. There are several factors that make this true among which, successful forex traders earn realistic profits of one hundred plus percent each month. Compared to some of the better known investment markets such as corporate stocks, this is an unheard of return on investment. It's very necessary to mention here that a person who invests in forex must, without exception, make it a point to learn the detailed, but simple strategies and information surrounding the market. This very fact is what makes the difference between successful forex traders and other traders.
A few additional points, which create such powerful leverage for investors within the forex market are: The amount of capital required to begin investing in the market is only three hundred dollars. For the most part, any other investment market is going to demand thousands of dollars of the investor in the beginning. Also, the market offers opportunities to profit regardless what the direction of the market may be; In most commonly known markets investors sit and wait for the market to begin an up trend before entering a trade. Even then, investors, as a rule must sit and wait some more to be able to exit the trade with a nice profit. Given that the forex market produces several up, down, and sideways trends in a single day, it can easily be seen that forex stands head and shoulders above other markets. Additionally there are trading strategies, which are taught that provide for compounded profits; these are profits on top of profits. In addition, free demo accounts are available within the industry of forex trading, which facilitate the sharpening of skills without the risk losing any capital. And the advantage regarding the time factor in trading foreign currency is a very attractive point for any investor. Compared to one of the most sought after avenues of investing, which often requires forty or more hours each week, namely in the real-estate market, the forex market requires a much smaller demand on the investor's time. Forex trading requires approximately ten to fifteen hours each week to earn a full time income. It's easy to see that the advantages and great leverage that exist in the forex market, make it among the most lucrative, time liberating, and easy to enter by far.
A few additional points, which create such powerful leverage for investors within the forex market are: The amount of capital required to begin investing in the market is only three hundred dollars. For the most part, any other investment market is going to demand thousands of dollars of the investor in the beginning. Also, the market offers opportunities to profit regardless what the direction of the market may be; In most commonly known markets investors sit and wait for the market to begin an up trend before entering a trade. Even then, investors, as a rule must sit and wait some more to be able to exit the trade with a nice profit. Given that the forex market produces several up, down, and sideways trends in a single day, it can easily be seen that forex stands head and shoulders above other markets. Additionally there are trading strategies, which are taught that provide for compounded profits; these are profits on top of profits. In addition, free demo accounts are available within the industry of forex trading, which facilitate the sharpening of skills without the risk losing any capital. And the advantage regarding the time factor in trading foreign currency is a very attractive point for any investor. Compared to one of the most sought after avenues of investing, which often requires forty or more hours each week, namely in the real-estate market, the forex market requires a much smaller demand on the investor's time. Forex trading requires approximately ten to fifteen hours each week to earn a full time income. It's easy to see that the advantages and great leverage that exist in the forex market, make it among the most lucrative, time liberating, and easy to enter by far.
Forex Trading Psychology
In forex trading psychology, there are 2 destructive emotions that are always present in the world of trading and that is, greed and fear. I can say that most traders or 99% of the traders are hugely affected by these two emotions and no doubt it's part of our human's nature.
Successful forex traders have those emotions too, but the difference that separates the successful traders and those who failed is the technique of controlling the emotions well. We will look at some of the forex trading tips that can help you as a trader to control those emotions well and get consistent profits out from the forex market.
1. Learn to trade forex with a DISCIPLINED plan and not by hindsight. There is a problem with many forex and that is they take shopping more seriously than forex trading, and I'm serious! An average shopper will not spend a $100 on something without much research or if he/she has not done some reviews on it. But I have seen people risking their trades with a few hundred dollars based only on their intuition or 'feeling'.
So what people need to do here is to have a trading plan at the starting of the day and follow it throughout the whole day. The trading plan should consist of stop loss (it's a must!) and profit target levels, so that your trade is planned to be taken out early when the market goes against you and yet also there is a profit target to aim for if the market goes in your direction.
2. Make sure you follow the forex trading rules. A forex trading system is meant to help you make accurate trading decisions, so please be sure that all the conditions are met before you even place a trade.
Sounds easy? Indeed it seems real easy for anyone to follow a rule right? But there are many traders who can't control their temptation to trade when not all the rules are met, they often trade earlier even before the forex signals are generated. This is also an important part of forex trading psychology, you must not let excitement, fear or other people's influence ruin your trading system that works.
3. Successful forex traders do not trade all the time. A good trader will understand that the forex market does not move in a straight line, it moves in waves. For example, the trend may be an uptrend, but there will certainly be retracements, so conservative traders may only want to wait for forex trading signals to buy and will refrain from selling during retracements.
Having said that, it all depends on the market conditions and if it allows for trading during big retracements, so be it. You have to learn how to judge the market condition on whether it is trendy or choppy. For me, I'll always avoid trading when the market is choppy because it's too unpredictable.
Successful forex traders have those emotions too, but the difference that separates the successful traders and those who failed is the technique of controlling the emotions well. We will look at some of the forex trading tips that can help you as a trader to control those emotions well and get consistent profits out from the forex market.
1. Learn to trade forex with a DISCIPLINED plan and not by hindsight. There is a problem with many forex and that is they take shopping more seriously than forex trading, and I'm serious! An average shopper will not spend a $100 on something without much research or if he/she has not done some reviews on it. But I have seen people risking their trades with a few hundred dollars based only on their intuition or 'feeling'.
So what people need to do here is to have a trading plan at the starting of the day and follow it throughout the whole day. The trading plan should consist of stop loss (it's a must!) and profit target levels, so that your trade is planned to be taken out early when the market goes against you and yet also there is a profit target to aim for if the market goes in your direction.
2. Make sure you follow the forex trading rules. A forex trading system is meant to help you make accurate trading decisions, so please be sure that all the conditions are met before you even place a trade.
Sounds easy? Indeed it seems real easy for anyone to follow a rule right? But there are many traders who can't control their temptation to trade when not all the rules are met, they often trade earlier even before the forex signals are generated. This is also an important part of forex trading psychology, you must not let excitement, fear or other people's influence ruin your trading system that works.
3. Successful forex traders do not trade all the time. A good trader will understand that the forex market does not move in a straight line, it moves in waves. For example, the trend may be an uptrend, but there will certainly be retracements, so conservative traders may only want to wait for forex trading signals to buy and will refrain from selling during retracements.
Having said that, it all depends on the market conditions and if it allows for trading during big retracements, so be it. You have to learn how to judge the market condition on whether it is trendy or choppy. For me, I'll always avoid trading when the market is choppy because it's too unpredictable.
Forex for Dummies
Forex Basics
If you've already read the "What is Forex?" section then you should know what Forex market is and what it is all about. If not, please, do it. There are five essential aspects of foreign currency market a beginner trader (and an old one as well) should be aware of:- Forex Fundamental Analysis
- Forex Technical Analysis
- Money Management
- Forex Trading Psychology
- Forex Brokerage
Forex Fundamental Analysis
Fundamental analysis is the process of market analysis which is done regarding only "real" events and macroeconomic data which is related to the traded currencies. Fundamental analysis is used not only in Forex but can be a part of any financial planning or forecasting. Concepts that are part of Forex fundamental analysis: overnight interest rates, central banks meetings and decisions, any macroeconomic news, global industrial, economical, political and weather news. Fundamental analysis is the most natural way of making Forex market forecasts. In theory, it alone should work perfectly, but in practice it is often used in pair with technical analysis. Recommended e-books on Forex fundamental analysis:- Reminiscences of a Stock Operator
- What Moves the Currency Market
Forex Technical Analysis
Technical analysis is the process of market analysis that relies only on market data numbers - quotes, charts, simple and complex indicators, volume of supply and demand, past market data, etc. The main idea behind Forex technical analysis is the postulate of functional dependence of the future market technical data on the past market technical data. As well as with fundamental analysis, technical analysis is believed to be self-sufficient and you can use only it to successfully trade Forex. In practice, both analysis methods are used. Recommended e-books on Forex fundamental analysis are:- The Law Of Charts
- Candlesticks For Support And Resistance
- Trend Determination
Money Management in Forex
Even if you master every possible method of market analysis and will make very accurate predictions for future Forex market behavior, you won't make any money without a proper money management strategy. Money management in Forex (as well as in other financial markets) is a complex set of rules which you develop to fit your own trading style and amount of money you have for trading. Money management play very important role in getting profits out of Forex; do not underestimate it. To get more information on money management you can read these books:- Risk Control and Money Management
- Money Management (A chapter from The Mathematics of Gambling)
Forex Trading Psychology
While learning a lot about market analysis and money management is an obvious and necessary step to be a successful Forex traders, you also need to master your emotions to keep your trading performance under strict control of mind and intuition. Controlling your emotions in Forex trading is often a balancing between greed and cautiousness. Almost any known psychology practices and techniques can work for Forex traders to help them keep to their trading strategies rather to their spontaneous emotions. Problems you'll have to deal while being a professional Forex trader:- Your greed
- Overtrading
- Lack of discipline
- Lack of confidence
- Blind following others' forecasts
- Calming The Mind So That Body Can Perform
- The Miracle of Discipline
Forex Brokerage
Every Forex trader like any other professional needs tools to trade. One of these tools, which is vital to be in market, is a Forex broker and specifically for Internet - on-line Forex broker - a company which will provide real-time market information to trader and bring his orders to Forex market. While choosing a right Forex broker things to look for are the following:- Being a professional company you can trust
- Provide you with real-time quotes
- Execute your orders fast and accurately
- Don't take a lot of commissions
- Support the withdraw/deposit methods that you can use
- FXOpen — one of the most popular and progressive brokers with MetaTrader platform and comfortable trading conditions for all kind of traders.
- InstaForex — a reputable MetaTrader 4 brokers, allows Islamic Forex trading accounts, while you can deposit and withdraw money via WebMoney.
- FXcast — good because you can start trading Forex with as little as 10$, use MetaTrader 4 platform and the dozoen of various deposit and withdraw methods, including WebMoney, e-Bullion and wire transfer.
- LiteForex — broker that supports MetaTrader 4 Forex trading platform and doesn't require a lot of money to start with.
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