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Your FOREX Trading Philosophy
“Easy money” is the allure that captivates many beginning FOREX traders. FOREX websites offer “risk-free” trading, “high returns”, “low investment.” These claims have a grain of truth in them, but the reality of FOREX is a bit more complex.
Mistakes Of The Beginning Trader
There are 2 common mistakes that many beginner traders make: trading without a strategy and letting emotions rule their decisions. After opening a FOREX account it may be tempting to dive right in and start trading. Watching the movements of EURUSD for example, you may feel that you are letting an opportunity pass you by if you don’t enter the market immediately. You buy and watch the market move against you. You panic and sell, only to see the market recover.
This kind of undisciplined approach to FOREX is guaranteed to lose money. FOREX traders must have a rational trading strategy and not make trading decisions in the heat of the moment.
Understanding Market Movements
To make rational trading decisions, the FOREX trader must be well educated in market movements. He must be able to apply technical studies to charts and plot out entry and exit points. He must take advantage of the various types of orders to minimize his risk and maximize his profit.
The first step in becoming a successful FOREX trader is to understand the market and the forces behind it. Who trades FOREX and why? This will allow you to identify successful trading strategies and use them.
Accountability
There are 5 major groups of investors who participate in FOREX: governments, banks, corporations, investment funds, and traders. Each group has its own objectives, but 1 thing all groups except traders have in common is external control. Every organization has rules and guidelines for trading currencies and can be held accountable for their trading decisions. Individual traders, on the other hand, are accountable only to themselves.
Large organizations and educated traders approach the FOREX with strategies, and if you hope to succeed as a FOREX trader you must follow suit.
Money Management
Money management is an integral part of any trading strategy. Besides knowing which currencies to trade and how to recognize entry and exit signals, the successful trader has to manage his resources and integrate money management into his trading plan.
There are various strategies for money management. Many rely on the calculation of core equity — your starting balance minus the money used in open positions.
Core Equity And Limited Risk
When entering a position try to limit your risk to 1% to 3% of each trade. This means that if you are trading a standard FOREX lot of 100,000 you should limit your risk to 1,000 to 3,000. You do this with a stop loss order 100 pips (1 pip = 10) above or below your entry position.
As your core equity rises or falls, adjust the pound amount of your risk. With a starting balance of 10,000 and 1 open position, your core equity is 9000. If you wish to add a second open position, your core equity would fall to 8000 and you should limit your risk to 900. Risk in a third position should be limited to 800.
Greater Profit, Greater Risk
You should also raise your risk level as your core equity rises. After 5,000 profit, your core equity is now 15,000. You could raise your risk to 1,500 per transaction. Alternatively, you could risk more from the profit than from the original starting balance. Some traders may risk up to 5% against their realized profits (5,000 on a 100,000 lot) for greater profit potential.
These are the kinds of strategic tactics that allow a beginner to get a foothold on profitable trading in FOREX.
Would You Like To Forex Or DayTrade?
Online trading is great way for serious investors to make money, but inexperienced traders often wind up with big losses. A good set of instructions can minimize the risks and save months of expensive trial-and-error learning.
Day Trading
Day Trading had its heyday during the bull market of the 1990′s. All the amateurs have since dropped out, but day trading is still being practiced by professionals. There are fewer opportunities in the current market, but skilled investors can still find them if they know what to look for.
FOREX Trading
The Foreign Exchange Market (FOREX), the world’s largest financial exchange market, originated in 1973. It has a daily turnover of currency worth more than 1.2 trillion pounds.
Unlike many other securities, FOREX does not trade on a fixed exchange rate; instead, currencies are traded primarily between central banks, commercial banks, various non-banking international corporations, hedge funds, personal investors and not to forget, speculators. Previously, smaller investors were excluded from FOREX due to the huge amount of deposit involved. This was changed in 1995, and now smaller investors can trade alongside the multi-nationals. As a result, the number of traders within the FOREX market has grown rapidly, and many FOREX courses are appearing to help individual traders increase their skills.
As a matter of fact, it’s advisable to take FOREX training even before opening a trading account.
It is vital to know the market mechanics of FOREX, leveraging in FOREX, rollovers and the analysis of the FOREX market. Due to this fact, potential FOREX traders would do well to either enroll in a FOREX training courses or even purchase some books regarding FOREX trading.
There are pros and cons to enrolling into a FOREX course. For beginners a FOREX course is a rapid method of learning the basics of FOREX trading. Not much time is spent on history of the market or arcane economic theories. Often, on-line or phone support from a skilled FOREX trader is available to answer any questions. Also, the information is condensed and practical, often with graphs and charts.
The disadvantage is the price, as courses are more expensive than a paperback from the bookstore. Also,
the course may just teach the approach of the trader who wrote it, and individuals have different trading strategies. The student may grow accustomed to the logic and focus of the teacher without coming to realise that nothing is predictable in the FOREX market, and many different strategies will bring profits in varying market circumstances. Also, knowledge of practical applications may not be enough, as the FOREX is highly unpredictable and there are many external factors, such as political issues, affecting the flow of finances in the market.
Working The FOREX Market-The Basics
What Does FOREX Stand For ?
FOREX stands for Foreign Currency Exchange Market. It is gaining more and more interest
in the investing world, and for good reason. The FOREX Market is the largest market in the world
and can be accessed anywhere in the world. The FOREX Market’s volume is over 1.5 Trillion, providing
almost infinate liquidity and flexability.
How do you trade?
Instead of trading “stocks” where there is thousands to choose from, you are trading pairs
of currency against eachother. This gives you an advantage because you can focus on just 2
pairs of currencies instead of countless stocks. You can trade from your home computer, or any computer
with an internet connection from anywhere in the world.
When do you trade?
The FOREX Market is open 24 hours a day so you can trade whenever you want! You just need a computer,
a Demo or Real Money account and a willingness to learn, research, and trade!
Why Should I Trade?
You should only trade if you are ready to change your mind about how much money you
CAN make and reach your full potential.
You should trade forex because its a great tool to leverage your time and replace your income.
Here are the benifits of Trading Forex:
You can work anytime you want 24 hours a day, 6 days a week. Its a continuous onine (electronic) that
never closess. Work at home, on the beach, or anywhere in the world!
You can trade foreign currencies on a high leveraged basis, sometimes up to 200 times your investment!
This is made possible by the higher levels of liquidity in the market.
Price movements are highly predictable! Fx Market trends generally repeat themselves, creating trends
that are easily predictable!
With all these benifits and tons of others, you can easily make 200 to 3000 pounds a day trading!
Too good to be true ? Let us prove you wrong for FREE!
There are many other AWESOME reasons to trade FOREX and you can learn them all by downloading our FREE E-Book!
Why You Should Trade FOREX Over Other Investments
Everyone has heard of stocks and shares, probably even the futures market, but trading the FOREX (Foreign Currency Exchange, or FX) market is a relatively new phenomenon. Until recently, FOREX was the domain of the banking fraternity (large banks can trade billions of pounds daily), and the elite in financial and business circles. But now it is possible for the average person to be a part of this incredible and very profitable way of making a living, thanks to the personal computer and an internet connection. All done electronically and considered an over-the-counter (OTC) market, trading is far easier and less risky than either the futures or the stock markets. Money can be made both on a rising and falling market, unlike the stock market, which relies on shares increasing in price to create profit.
More and more astute internet entrepreneurs are shunning the traditional financial markets and turning to FOREX trading. They know that it is possible to earn a full-time income from part-time effort if youd like to make 200 to 3,000 for as little as ten minutes work, and with minimal risk, then FOREX is for you.
FOREX, the spot (cash) market for buying and selling currency, is the largest financial market in the world. Every day more than 1.5 trillion (yes, trillion) is traded globally and, unlike the stock market, which has fixed hours, it is a market that never sleeps. Somewhere in the world, at any time of day or night, FOREX is open for business, six days a week. The market starts each day in Sydney and moves around the globe as other FOREX financial centers open: first to Tokyo, then London and New York.
In simple terms, currencies are traded in pairs, for example the Euro and the US pound (EURUSD). The first currency in this case the Euro is known as the base currency; the second currency (here, the US pound), is the counter-currency. All trades result in the simultaneous buying of one currency and the selling of the other. Thus, in this example, if you place an order to buy the EURUSD, you are buying the Euro and selling the US pound. If you were to sell the pair, you would be selling the Euro and buying the US pound. There are many other currency pairs, such as USDJPY, GBPUSD, EURGBP, USDCHF and so on.
What makes trading FOREX an incredible way to make money online, is that price movements are highly predictable, creating trends that can be anticipated when it comes to decide when to buy and sell. Contrasting with stocks and shares, FOREX trading through brokers is commission free. It is also possible and definitely recommended to open a demo (practice) account with a broker first, where you can learn to trade and gain experience before you part with a cent of your own money.
Do you want financial freedom? With huge advantages over other more conventional money markets, why not experience the excitement of pips, rollovers, leverage, lots, long and short positions, limit orders etc. and start to trade FOREX. Good luck!
Penelope Housden.
Why Technical Analysis Works Well In The Forex Market
If you are considering currency trading in the Forex market, or you are already involved in Forex currency trading, here’s a money-making lesson that we can borrow from investors who use technical analysis to help them make investment decisions in the stock market.
The goal of performing technical analysis when currency trading is to predict profitable currency pair movements by analyzing price trends. The principles of technical analysis in the equity markets are the same as those in the Forex currency trading markets. In fact, the only real difference between the two is that the Forex market is open 24 hours a day while the equity markets are not.
This means that certain analytics that take time periods in consideration will need to be adjusted for Forex currency trading. Other than that, any of these common forms of equity technical analysis methodologies can be used when currency trading:
Elliott Waves — Developed by Ralph Nelson Elliott, this methodology is based upon the theory that market performance can be predicted by studying wave patterns that develop over a period of time.
Fibonacci Studies — Developed by 12th century mathematician Leonardo Fibonacci, this methodology is based upon the theory that changes in trends can be predicted based upon prices interacting with lines based upon certain sequences of numbers.
Parabolic SAR — Developed by J. Wells Wilder, this methodology is based upon the examination of prices in comparison to “stop and reversal” (SAR) numbers that indicate entry and exit points for a trade.
Pivot Points — A mathematical formula used to determine when to exit a trade based upon the numerical average of the high, low and closing prices.
As I mentioned earlier in this article, the key difference between technical analysis in the equities market, and technical analysis in the Forex currency trading market, is the fact that it is possible to participate in Forex trading 24 hours a day, seven days a week. That key difference is also the primary reason that technical analysis works so well in currency trading.
In order for technical analysis techniques to deliver maximum results, there needs to be extended periods of time available for patterns to develop and repeat. Because the Forex market never closes, and currency pairs are traded around the clock, definable patterns develop more quickly and the technical analyst has a plethora of Forex currency trading data available to work with.
Because more data means more accurate forecasting results, technical analysts can see better results, in quicker time, when combining technical analysis and Forex currency trading.
Understanding the Forex Trading System
The forex trading system involves buying and selling foreign currency. Unlike the stock market there is no fixed market for the forex trading system. A good and effective forex trading system allows the traders to transact easily and provide more chances to increase the earnings. Forex, foreign exchange market, is a market place where a currency of one country is sold for another countrys currency for some profit. Currencies are traded in pares, like, US pound and Japanese Yen or US pound and Euro.
Foreign exchange tradings are a great money making opportunity for those who know their way around, for newbie its a dream world where they either fall hard, sail well or fly high, its not easy to be a successful trader in the forex trading system., its a mix of luck and experience that must work to find success. There are a lot of companies and individuals over the internet and offline willing to help you earn money from the forex trading system but only a handful of these are true and can actually help.
Nowadays most of the calculations are done by easy to use software that need minimum input from the user. You will need help initially, and may take some time for you to get to know the forex trading system. The high degree off leverage can sweep you either way, in the forex trading system one has to assess the risk for self, think of the chance one may have individually or with the help of a broker and or signal provider one may have and the amount which one can safely risk without putting yourself into financial trouble. Its a law of nature, where theres potential to earn there potential to loose so just be prepared before you dive in.
Understanding the Basics of Forex Trading
Forex trading or Foreign Exchange Trading refers to the simultaneous tradingthat is, buying and sellingof two different currencies. It is done between and among major financial institutions, central banks, small retail currency traders or speculators, large international companies, government institutions, companies with overseas operations and the like.
Based on the amount of money being traded, the international forex trading market is the worlds biggest financial market. Everyday, forex trading market gets an average revenue of US 1 trillionan amount far greater than the total revenues produced by all the stock and bond markets in the world.
Characteristics
Forex trading is a kind of over-the-counter tradingit occurs directly between to financial institutions or currency traders. The trading markets may be interconnected but there is no single unified market. Hence, there is also no single or standard rate. Each rate or price depends on what is being traded. However, the traders traditionally use nearly similar rates.
Another characteristic of a forex trading is that it operates 24 hours; thus, one can trade any time of the day. Also, there is no need of an exchange floor, it operates through a global electronic network where trading occurs over the telephone and computer networks. This characteristic also prevents delays that consume a lot of time.
Forex trading market is also very competitive and is highly liquid. This allows the parties to get low dealing costs and better price.
Top Currency Traders and Major Currencies Traded
Wall Street Journal Europe says ten major currencies account for 73 percent of the total forex trading volume. Among them are Deutsche Bank, UBS, Citigroup, HSBC, Barclays, Merrill Lynch, J.P. Morgan Chase, Goldman Sachs, ABN Amro, and Morgan Stanley.
Among the currencies mostly traded are the US, Canadian, and Australian pounds; Euro; Yen; and Swiss Franc.
A study conducted by the Bank for International Settlements says that the most traded products are EuroUSD, USDJPY, and GBPUSD. The study noted that in spite euros continuous growth, forex trading market remains to be concentrated in pounds.
The Trade
Trade happens when you accept the offered price and when the dealer confirms. Exchange floor is no longer required, as mentioned earlier.
In every trade, two currencies are always involved and the currencies traded serve as the products traded. Each currency has a price expressed in another currency such as 1 euro is equivalent to 1.204 pound. In the said example, the euro trader sells the euro and buys the pound. There are no further costs in the trade. There are no commissions and other fees as well.
Large multinational companies engage in forex trading when they are buying from and selling goods to other countries. However, this kind of forex trading encompass only a small portion of he daily activities in the foreign exchange market. Most of the trading activities are carried out by currency speculators who earn from the changes in value of a particular currency.
Key players in the Market
BIS study shows that more than 50%of the forex trading transactions are interbank transactions. Trading revenues of most commercial establishments and currency speculators are deposited in the bank.
Central banks also play a big role in the forex trading market. These banks control the supply of money, interest, inflation and target rates in order to stabilize the forex trading market.
Understanding Forex – #4 – Money Management.
This is a series of articles about The Foreign Exchange Market. You will learn here what Forex is , how it works and how profitable it can be. The whole series contain the following articles . . .
1.What is Forex
2.Technical analysis
3.Fundamental analysis
4.Money management
5.Compound interest
Money Management.
This is one of the most important aspects of a good trading system. Even if your market forecasts are accurate, you may still not be profitable in the long run unless you implement proper money management techniques.
Money management refers to how you manage your trading capital. It has to do with how much money you invest on each trade. Also, how much do you expect to make on each trade compared to how much you are risking. Furthermore, you can also use different kinds of orders that allow you to manage your trades automatically like stop loss, limit order and trailing stop.
In my opinion the two more important aspects of money management are position sizing and expectancy. Position sizing refers to the size of your positions. You should not risk more than 1% – 2% per trade.
Expectancy refers to how much do you expect to make vs how much you are willing to lose. The expectancy should be always positive. For example, if you enter a position and you expect to realize a 50 pips profit while you are willing to lose only 15 pips, that’s positive expectancy.
The example above means that you can be wrong three times in a row and still be profitable the fourth time. A method to implement positive expectancy on your trading strategies is by using trailing stops. I will explain this now and the other orders that I mentioned above.
Let’s start with a stop loss order. This one helps you automatically close a losing position and prevent it from decreasing your total trading capital. Why you need stop orders? Many things could go against you and make you lose big time.
The platform you are treading on could freeze. The placecomputer you are trading from could go off power. Market news could drive the price of currencies mad quickly. Do you get the point? Many people use stop loss orders just as an “insurance” against these events taking place.
Something else a stop loss order could be good for is to establish an automatic trading system. Some trading systems do not require you to be in front of your computer all day. You can set them on autopilot and let the marketplatform do its thing. If the market moves against you, the stop loss will be triggered and your losing position will be cancelled automatically.
The second order mentioned above is the limit order. This one is good to automatically take a profit once the price of the currency pair has moved to a desired level. You can use a limit order for the same purpose you use a stop loss order. It is good to automate your trading in general. Once the target price is reached, the limit order will be triggered canceling your winning position and preventing it from turning into a losing position.
Now, something very important about trading “cut your loses short, let your winners run.” Most traders do this the other way around. That’s why they lose in the long run.
Some of the easiest ways you can implement this technique is by using a trailing stop. These kinds of orders let you get positive expectancy, which is one of the most important aspects about money management as mentioned above.
A trailing stop is like a limit order and a stop order at the same time. For example, let’s say that you enter a position and the market moves in your favor. Then notice what happens.
With a trailing stop you have a chance that you don’t have with a limit order. If the market keeps moving in the direction you expected, the trailing stop order will move with the market. This way there is no limit to how much profits you can get. On the other hand if after moving in your favor the trend retraces a certain percentage, the trailing stop will be triggered canceling the position and preventing it from turning into a losing trade.
These are common techniques used in most successful trading systems. You can learn other important aspects about Forex like technical analysis and fundamental analysis from other articles on this series.
EasyWebRiches 2006
Understanding Forex – #2 – Technical Analysis
This is a series of articles about The Foreign Exchange Market. You will learn here what Forex is , how it works and how profitable it can be. The whole series contain the following articles . . .
1.What is Forex
2.Technical analysis
3.Fundamental analysis
4.Money management
5.Compound interest
Technical Analysis.
Unless you are new to trading you probably know already that technical analysis is a method of forecasting future price movement of commodities, securities, etc (in this case currencies) based on chart analysis, pattern formations, technical indicators, etc. Forex can be traded technically and in my opinion it is quiet predictable.
No trading strategy will work 100% of the time. That’s why you need proper money management techniques. Anyway, technical analysis is important to determine where the price of the currencies is going, also when to enter and exit positions.
There are different technical analysis techniques that you can implement to your trading strategies. I show here how to use technical indicators which is a very common technique among most technical traders.
There are many technical indicators. Some of them are more common and useful than others. In my opinion you won’t need dozens of them to know when to enter or exit a trade. It is about quality, not quantity. I think though that it is better to relay on a few indicators than in only one.
If you trade based on the signals of only one indicator, you may miss some important information about the market that other technical indicators would reveal to you. By using a few technical indicators instead of only one, you can make more educated and accurate choices.
So, I will show you here some very common technical indicators and how they are used to forecast market prices. Remember that technical indicators are the basis of technical analysis systems.
You can implement three different aspects to your trading systems. One is technical analysis as I explain here. The other is fundamental analysis. The third one is money management as I explain in my other articles on this series.
Common technical indicators and their definitions:
1. Average Directional Index – ADX
An indicator used in technical analysis to determine the strength of a prevailing trend.
2.Exponential Moving Average – EMA
A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data.
3.Moving Average Convergence Divergence – MACD
A trend-following momentum indicator that shows the relationship between two moving averages of prices.
4.Bollinger Band
A band plotted two standard deviations away from a simple moving average.
5.Fibonacci – There are many Fibonacci indicators like the following . . .
a.Fibonacci Time Zones
b.Fibonacci Fan
c.Fibonacci Channel
d.Fibonacci Arc
c.Fibonacci Clusters
d.Fibonacci NumbersLines
e.Fibonacci Retracement
f.Fibonacci Extensions
6.Relative Strength Index – RSI
A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset.
7.Stochastic Oscillator
A technical momentum indicator that compares a security’s closing price to its price range over a given time period.
8.Williams %R
In technical analysis, this is a momentum indicator measuring overbought and oversold levels, similar to a stochastic oscillator.
You can learn more about these technical indicators and how they are used if you visit www.investopedia.com. Most technical analysis systems combine at least a few technical indicators to forecast the market. I think that proper technical analysis skills are an important aspect of most successful trading systems.
You can learn more about Forex and trading systems from my other articles on this series. I covered here important aspects of technical analysis, but most successful trading systems need some fundamental analysis andor money management too.
EasyWebRiches.com 2006