The main rules in Forex trading is “keep your losses small”. With small losses, you can outlast those times the market moves against you, and be well positioned for when the trend turns around. The proven method to keeping your losses small is to set your Stop loss before you even open a Forex trading position. The maximum Stop loss is the greatest amount of capital that you are comfortable losing on any one trade.
With your maximum loss set as a small percentage of your Forex trading float, a string of losses won’t stop you from trading. 95% of Forex traders out there are lose their money because they haven’t applied good money management rules to their Forex trading system, you will be far down the road to success with this money management rule.
What happens if you don’t set a stop loss? Let’s look at an example. If I had a Forex trading float of $1.000, and I began trading with $100 a trade, it would be reasonable to experience three losses in a row. This would reduce my Forex trading capital to $700. What do you think those 95% of traders say at this time? They would reason, “Well, I’ve already had three losses in a row. So I’m really due for a win now.” and that’s totaly wrong!
Their reason for failure was because they risked too much and didn’t apply good money management. Remember, the goal here is to keep our losses as small as possible while also making sure that we open a large enough position to capitalize on profits.With your money management rules in place, in your Forex trading system, you will always be able to do this.
Tuesday, January 27, 2009
AVOID TRADING FOREX DURING HOLIDAY
Holiday trading is useless. It can be difficult to pull yourself away from the excitement on the market and take a break from the action. Banks are usually closed on holidays and professional traders and big institution are on vacation. Because of this, two way trading is very limited. That means that prices can move very easily in one direction if any surprise large orders come in.
The unexpected behavior is usually the exception rather than the rule. Most of the time, there is very little action in the forex market on holidays. For daytrading purposes, technical analysis usually fails. The market is usually so slow that even if you can make money, it will probably be so little that it isn’t worth it.
The market also have less Liquidity that sometimes a surprising event will happen and because the markets are not liquid, they will move very quickly and sharply. These moves can take place in a blink and if you are trading, the market can make a move against you before you even have a chance to act.
Rest of all that you shouldn’t be trading on holidays because you have to rest sometime. It’s better to take time off and spend it with your family. That time does not come around often and it’s better to take that time off while you can. The forex trading markets are busy most of the time. Holidays are a perfect time to rest, reflect, and recharge. Merry chrtistmas-Happy new year and Happy holiday there.
The unexpected behavior is usually the exception rather than the rule. Most of the time, there is very little action in the forex market on holidays. For daytrading purposes, technical analysis usually fails. The market is usually so slow that even if you can make money, it will probably be so little that it isn’t worth it.
The market also have less Liquidity that sometimes a surprising event will happen and because the markets are not liquid, they will move very quickly and sharply. These moves can take place in a blink and if you are trading, the market can make a move against you before you even have a chance to act.
Rest of all that you shouldn’t be trading on holidays because you have to rest sometime. It’s better to take time off and spend it with your family. That time does not come around often and it’s better to take that time off while you can. The forex trading markets are busy most of the time. Holidays are a perfect time to rest, reflect, and recharge. Merry chrtistmas-Happy new year and Happy holiday there.
STAYING NEUTRAL AND DON'T FIGHT THE MARKET
Holiday trading is useless. It can be difficult to pull yourself away from the excitement on the market and take a break from the action. Banks are usually closed on holidays and professional traders and big institution are on vacation. Because of this, two way trading is very limited. That means that prices can move very easily in one direction if any surprise large orders come in.
The unexpected behavior is usually the exception rather than the rule. Most of the time, there is very little action in the forex market on holidays. For daytrading purposes, technical analysis usually fails. The market is usually so slow that even if you can make money, it will probably be so little that it isn’t worth it.
The market also have less Liquidity that sometimes a surprising event will happen and because the markets are not liquid, they will move very quickly and sharply. These moves can take place in a blink and if you are trading, the market can make a move against you before you even have a chance to act.
Rest of all that you shouldn’t be trading on holidays because you have to rest sometime. It’s better to take time off and spend it with your family. That time does not come around often and it’s better to take that time off while you can. The forex trading markets are busy most of the time. Holidays are a perfect time to rest, reflect, and recharge. Merry chrtistmas-Happy new year and Happy holiday there.
The unexpected behavior is usually the exception rather than the rule. Most of the time, there is very little action in the forex market on holidays. For daytrading purposes, technical analysis usually fails. The market is usually so slow that even if you can make money, it will probably be so little that it isn’t worth it.
The market also have less Liquidity that sometimes a surprising event will happen and because the markets are not liquid, they will move very quickly and sharply. These moves can take place in a blink and if you are trading, the market can make a move against you before you even have a chance to act.
Rest of all that you shouldn’t be trading on holidays because you have to rest sometime. It’s better to take time off and spend it with your family. That time does not come around often and it’s better to take that time off while you can. The forex trading markets are busy most of the time. Holidays are a perfect time to rest, reflect, and recharge. Merry chrtistmas-Happy new year and Happy holiday there.
THE ESSENTIAL REAL TIME OF FOREX CHARTING
Forex trader must have an understanding of technical analysis and in particular an ability to keep track of currency pairs by learning the skill of reading live or real time forex charts.If you can mastering chart pattern recognition for forex you will be well on your way to trading with confidence. Line charts are basic to read and give a broad overview of price movements which often allows you to clearly define patterns in price movements. By contrast, bar charts are not quite as easy to read but do provide far more information.
Online forex charting conveys information about currency prices at specific time intervals ranging from as little as one minute up to several years and prices can be plotted either as simple line charts or as bar or candlestick charts showing price variations at specific time intervals. Invented by the Japanese to analyze rice contracts, candlestick charts are similar to bar charts but are far easier to read as they are color-coded. For example, green candlesticks are used to show rising prices while red candlesticks show falling prices.
Opening and closing prices are shown on each bar so that you can see at a glance whether the price has risen or fallen and just what the variation in price has been. In simple terms the length of each bar on a bar chart indicates the price spread for a given period and the longer the bar the larger the variation between high and low prices.
Candlestick charts is that the candlestick shapes when viewed in relation to one another form patterns many of which have been given names and once you learn to recognize these patterns it is an easy matter to identify trends in the market. A real time forex chart can give you a great deal of information about a particular currency pair trend, strength, volatility and cycle indicators all of which are used to predict the market.
Online forex charting conveys information about currency prices at specific time intervals ranging from as little as one minute up to several years and prices can be plotted either as simple line charts or as bar or candlestick charts showing price variations at specific time intervals. Invented by the Japanese to analyze rice contracts, candlestick charts are similar to bar charts but are far easier to read as they are color-coded. For example, green candlesticks are used to show rising prices while red candlesticks show falling prices.
Opening and closing prices are shown on each bar so that you can see at a glance whether the price has risen or fallen and just what the variation in price has been. In simple terms the length of each bar on a bar chart indicates the price spread for a given period and the longer the bar the larger the variation between high and low prices.
Candlestick charts is that the candlestick shapes when viewed in relation to one another form patterns many of which have been given names and once you learn to recognize these patterns it is an easy matter to identify trends in the market. A real time forex chart can give you a great deal of information about a particular currency pair trend, strength, volatility and cycle indicators all of which are used to predict the market.
TRADING USING MULTIPLE TIME FRAME ANALYSIS
Forex trader must have an understanding of technical analysis and in particular an ability to keep track of currency pairs by learning the skill of reading live or real time forex charts.If you can mastering chart pattern recognition for forex you will be well on your way to trading with confidence. Line charts are basic to read and give a broad overview of price movements which often allows you to clearly define patterns in price movements. By contrast, bar charts are not quite as easy to read but do provide far more information.
Online forex charting conveys information about currency prices at specific time intervals ranging from as little as one minute up to several years and prices can be plotted either as simple line charts or as bar or candlestick charts showing price variations at specific time intervals. Invented by the Japanese to analyze rice contracts, candlestick charts are similar to bar charts but are far easier to read as they are color-coded. For example, green candlesticks are used to show rising prices while red candlesticks show falling prices.
Opening and closing prices are shown on each bar so that you can see at a glance whether the price has risen or fallen and just what the variation in price has been. In simple terms the length of each bar on a bar chart indicates the price spread for a given period and the longer the bar the larger the variation between high and low prices.
Candlestick charts is that the candlestick shapes when viewed in relation to one another form patterns many of which have been given names and once you learn to recognize these patterns it is an easy matter to identify trends in the market. A real time forex chart can give you a great deal of information about a particular currency pair trend, strength, volatility and cycle indicators all of which are used to predict the market.
Online forex charting conveys information about currency prices at specific time intervals ranging from as little as one minute up to several years and prices can be plotted either as simple line charts or as bar or candlestick charts showing price variations at specific time intervals. Invented by the Japanese to analyze rice contracts, candlestick charts are similar to bar charts but are far easier to read as they are color-coded. For example, green candlesticks are used to show rising prices while red candlesticks show falling prices.
Opening and closing prices are shown on each bar so that you can see at a glance whether the price has risen or fallen and just what the variation in price has been. In simple terms the length of each bar on a bar chart indicates the price spread for a given period and the longer the bar the larger the variation between high and low prices.
Candlestick charts is that the candlestick shapes when viewed in relation to one another form patterns many of which have been given names and once you learn to recognize these patterns it is an easy matter to identify trends in the market. A real time forex chart can give you a great deal of information about a particular currency pair trend, strength, volatility and cycle indicators all of which are used to predict the market.
HOW TO BECOME A FULL TIME TRADER
The fact is that you only need to master one trading setup to be a consistently profitable trader. The best setup to begin with is the one that you see and understand easiest. If you are forcing yourself to learn a setup because you believe another person is successful using it you may be taking the longer route to profitability.
We are all different, our brains and personalities will gravitate to different setups. This is also true of exit techniques. Most traders I hear from lengthen their road to profitability by trying to apply too many concepts before owning the first one. They have studied a myriad of techniques but have yet to master any. This allows them to talk about trading but unable to consistently trade profitably.
The first decision to make is, do you desire to be a counter trend trader? or a with the trend trader? Eventually, you can be both. At the beginning, or a new beginning perhaps, you will do best choosing to master a setup and follow the trend. If you have been at this game for awhile and are not yet consistently profitable you know what I am saying is correct.
Create your trading techniques and setups with the intent that it will aid you. Forget about combination of various styles and setups. PICK ONE, MASTER IT, BE CONSISTENTLY and BE PROFITABLE and do this exercise on it and backtest it before you deciding to jump into real account.
We are all different, our brains and personalities will gravitate to different setups. This is also true of exit techniques. Most traders I hear from lengthen their road to profitability by trying to apply too many concepts before owning the first one. They have studied a myriad of techniques but have yet to master any. This allows them to talk about trading but unable to consistently trade profitably.
The first decision to make is, do you desire to be a counter trend trader? or a with the trend trader? Eventually, you can be both. At the beginning, or a new beginning perhaps, you will do best choosing to master a setup and follow the trend. If you have been at this game for awhile and are not yet consistently profitable you know what I am saying is correct.
Create your trading techniques and setups with the intent that it will aid you. Forget about combination of various styles and setups. PICK ONE, MASTER IT, BE CONSISTENTLY and BE PROFITABLE and do this exercise on it and backtest it before you deciding to jump into real account.
10 GOLDEN TRADING RULES FOR SUCCESS IN FUTURES & FOREX TRADING
It is a well known fact that 90 percent of investors lose money in futures and forex trading, 5-7 percent break even and only 3-5 percent make money. Given the high casualty rate, it is all the more important for investors to approach futures and forex trading in the correct manner. Below are some of the rules that traders should consider following if he is to make money consistently in the futures and forex market:
RULE 1 : USE MONEY THAT YOU CAN AFFORD TO LOSE
Trade only with "extra" money, i.e, money that is not earmarked to pay bank loans, car installments, housing loans, telephone and electricity bills, etc. One of the major reasons for investing only with extra funds is that your trading judgment will remain objective.
RULE 2 : DON’T OVERTRADE
Inexperienced traders can easily become overconfident after a number of winning trades. This can lead to overtrading – which is dangerous. One can be right 7 times out of 10 but the three times that you are wrong can wipe you out if you had overgeared yourself because of overconfidence. Success comes from prudence in money management. Never overtrade.
RULE 3 : CUT YOUR LOSSES SHORT, LET YOUR PROFITS RUN
Learn to be very impatient with losing positions. Learn to resist the temptation of taking your profits too early. Success comes from holding on to profitable positions and riding with the trend for maximum gains while keeping losses small by getting out quickly when you are wrong. One way to protect you from suffering catastrophic losses is to place stop loss orders for every trade entered.
RULE 4 : IF YOU GET INTO A LOSING STREAK, TAKE A BREATHER
When things don’t work out right, when your best forecasts fail you – get away from the market and take a trading break. A period away from the market can be refreshing and will recharge you.
RULE 5 : BUILD A PYRAMID WHEN ADDING TO A PROFITABLE TRADE
As the market moves up and you are long much earlier, you must learn not to double up your positions. Instead, reduce your positions each time you add to a position. If at first you had 10 contracts, the second should not be more than 5-6 contracts and the third should be 50% of your second (i.e. 3 contracts). An upside down pyramid will be top heavy and could wipe out all your hard-earned profits should the market reverse.
RULE 6 : NEVER ADD TO A LOSING POSITION
Adding to a losing position by averaging is very dangerous. Remember you are investing with "margin" and did not pick up scrips. The contract is not yours; you merely paid a percentage of the total value. Averaging a losing position is equivalent to not admitting your mistakes, that you were wrong in the first place. Successful traders cut their losses short.
RULE 7 : DON’T RISK YOUR ENTIRE CAPITAL ON ONE TRADE
Divide your trading capital into 10 equal parts and never lose more than 10 percent on one trade. If you lost the first trade, you still have nine more opportunities to be right. Putting all your capital on one trade is suicidal.
RULE 8 : NEVER MEET MARGIN CALLS
When you are wrong about the market, get out. Once you start procrastinating, very often prices will go against your position, further triggering a margin call from your broker. A margin call simply means that you are wrong in the market and your position should be closed out. Margin calls are made because people do not want to admit being wrong and take a loss; they hope the market will eventually go in their direction. To avoid this mistake, you should never meet margin calls. Just cut your losses and "get the hell out".
RULE 9 : REMOVE PROFITS FROM YOUR ACCOUNT
Probably no more than 1% of traders have a rule to take profits out of their trading account. The few wise investors I know have bought a house, a car or simply put part of their winnings into a fixed deposit account, otherwise the chances are high that they may lose them all back.
RULE 10 : HAVE A GAME PLAN
Lack of a game plan is not knowing what to do when you are wrong – and not knowing what to do even when you are right.
Here are a few guidelines:
1. Know when and at what price you are going to enter the market.
2. Know how much money you are going to risk on each and every trade.
3. Know when and at what price you are going to get out when you are wrong.
4. Know when and at what price you are going to take your profits if you are right.
5. Know how much money you are going to make if you are right.
6. Have a safety stop in case the market does the unexpected.
7. Have an approximate idea of when the market should meet your objectives or when it should begin to make a move; and if it has not done so, get out.
SUMMARY:
You will note that none out of the ten rules of trading mentioned above are on money management. Only Rule 10 describes the importance of having a trading system to determine "when to enter and exit". This just goes to show that good money management is the key to your success in making money in the stocks, futures and currency markets. A good trading system comes second. Nick Leeson, the rogue trader for Barings in Singapore, got into trouble because he did not respect some of the 10 golden trading rules.
RULE 1 : USE MONEY THAT YOU CAN AFFORD TO LOSE
Trade only with "extra" money, i.e, money that is not earmarked to pay bank loans, car installments, housing loans, telephone and electricity bills, etc. One of the major reasons for investing only with extra funds is that your trading judgment will remain objective.
RULE 2 : DON’T OVERTRADE
Inexperienced traders can easily become overconfident after a number of winning trades. This can lead to overtrading – which is dangerous. One can be right 7 times out of 10 but the three times that you are wrong can wipe you out if you had overgeared yourself because of overconfidence. Success comes from prudence in money management. Never overtrade.
RULE 3 : CUT YOUR LOSSES SHORT, LET YOUR PROFITS RUN
Learn to be very impatient with losing positions. Learn to resist the temptation of taking your profits too early. Success comes from holding on to profitable positions and riding with the trend for maximum gains while keeping losses small by getting out quickly when you are wrong. One way to protect you from suffering catastrophic losses is to place stop loss orders for every trade entered.
RULE 4 : IF YOU GET INTO A LOSING STREAK, TAKE A BREATHER
When things don’t work out right, when your best forecasts fail you – get away from the market and take a trading break. A period away from the market can be refreshing and will recharge you.
RULE 5 : BUILD A PYRAMID WHEN ADDING TO A PROFITABLE TRADE
As the market moves up and you are long much earlier, you must learn not to double up your positions. Instead, reduce your positions each time you add to a position. If at first you had 10 contracts, the second should not be more than 5-6 contracts and the third should be 50% of your second (i.e. 3 contracts). An upside down pyramid will be top heavy and could wipe out all your hard-earned profits should the market reverse.
RULE 6 : NEVER ADD TO A LOSING POSITION
Adding to a losing position by averaging is very dangerous. Remember you are investing with "margin" and did not pick up scrips. The contract is not yours; you merely paid a percentage of the total value. Averaging a losing position is equivalent to not admitting your mistakes, that you were wrong in the first place. Successful traders cut their losses short.
RULE 7 : DON’T RISK YOUR ENTIRE CAPITAL ON ONE TRADE
Divide your trading capital into 10 equal parts and never lose more than 10 percent on one trade. If you lost the first trade, you still have nine more opportunities to be right. Putting all your capital on one trade is suicidal.
RULE 8 : NEVER MEET MARGIN CALLS
When you are wrong about the market, get out. Once you start procrastinating, very often prices will go against your position, further triggering a margin call from your broker. A margin call simply means that you are wrong in the market and your position should be closed out. Margin calls are made because people do not want to admit being wrong and take a loss; they hope the market will eventually go in their direction. To avoid this mistake, you should never meet margin calls. Just cut your losses and "get the hell out".
RULE 9 : REMOVE PROFITS FROM YOUR ACCOUNT
Probably no more than 1% of traders have a rule to take profits out of their trading account. The few wise investors I know have bought a house, a car or simply put part of their winnings into a fixed deposit account, otherwise the chances are high that they may lose them all back.
RULE 10 : HAVE A GAME PLAN
Lack of a game plan is not knowing what to do when you are wrong – and not knowing what to do even when you are right.
Here are a few guidelines:
1. Know when and at what price you are going to enter the market.
2. Know how much money you are going to risk on each and every trade.
3. Know when and at what price you are going to get out when you are wrong.
4. Know when and at what price you are going to take your profits if you are right.
5. Know how much money you are going to make if you are right.
6. Have a safety stop in case the market does the unexpected.
7. Have an approximate idea of when the market should meet your objectives or when it should begin to make a move; and if it has not done so, get out.
SUMMARY:
You will note that none out of the ten rules of trading mentioned above are on money management. Only Rule 10 describes the importance of having a trading system to determine "when to enter and exit". This just goes to show that good money management is the key to your success in making money in the stocks, futures and currency markets. A good trading system comes second. Nick Leeson, the rogue trader for Barings in Singapore, got into trouble because he did not respect some of the 10 golden trading rules.
29 Trading Rules and 6 Guidelines
Trading Rules
Never over-trade. Never risk more than 10% of your trading capital in a single trade.
Never trade without protective stops.
Never cancel a stop-loss after placing a trade.
Never average a loss.
Never let a profit run into a loss.
Never buy or sell just because the price is low or high.
Never try to guess tops or bottoms.
Never limit a profiting trade, instead move your stops to guarantee a profit.
Never get out of the market because you have lost patience or get in because you are anxious from waiting.
Never hedge a losing position.
Never change your position or close a trade without a good reason.
Never follow a blind man’s advice.
Never enter a trade if you are unsure of the trend.
Never buck a trend.
Avoid scalping for small profits and taking large losses.
Avoid trading after long periods of success or failure.
Avoiding going in and out of the market too often.
Avoid getting in wrong or getting in right and out wrong, making a double mistake.
Always identify strong support/resistance levels.
Always lock in a profit at predetermined increments on profiting trades. Always use protective stops on open trades.
Always distribute your risk equally among different markets.
Always be willing to make money from both sides of the market.
Always reduce trading after the first loss; never increase.
Always cut your losses short and let your profits run.
When in doubt, get out.
Do not get in when in doubt.
Only trade active markets.
Only pyramid trades that have a strong trend and should be accomplished once the price has crossed support/resistance.
Profits from a successful trade should be kept for future trade margins.
Guidelines
Understand for yourself the type of trader that you are, whether aggressive or conservative, long-term or short. Have a trading strategy before entering the market. Know before the trade is executed where you will take profits/loss. Understand why a win/loss occurred and how you could of made the trade better. Consistency is the key to trading success, without it you have nothing. Your judgment is the only concern, do not let outside factors affect the way you trade. Not everyone can be a trader, deem yourself worthy if given this opportunity.
Tuesday, January 6, 2009
FX TRADING APPROACH
Trading Approach
Every trader approaches the market differently. It is how you derive data about market conditions that help you decide your trading style. The types of approach are technical and fundamental or can be a combination of the two. We go a bit more in detail from here.
Technical Analysis
The practice of predicting currency prices by examining trading patterns and comparing the shape of current charts to those from the past.
Technical analysts use a variety of complex charting techniques, but some of the most basic involve plotting price movements of a currency over time on a chart. The shape of the chart is supposed to reveal something about whether the currency is headed up or down. A head and shoulders pattern, for instance, could imply a currency has topped out. Technicians look for currencies that have broken through their resistance level (on the upside). A currency that has broken through its support level (on the downside) is considered poised for further downward movement.
Advocates insist that the currency market clearly moves in a trend, and that careful charting and knowledge of history can recognize these. Whether or not technical analysis has any validity, it does provide good indicators of market movement, and on that basis alone influences currency prices.
Fundamental Analysis
An approach where an investor determines the price movement by studying a currency's history, evaluating economic conditions such as growth and interest rates, inflation, supply and demand, politics and other factors that will affect its strength and value in comparison to another currency. This approach sets fundamental analysts apart from technical analysts, who study previous trading patterns to forecast which direction (up or down) a currency or the market itself will head in the future.
Technical Analysis or Fundamental Analysis?
All traders of FX utilize a combination of both techniques to analyze price movements; technical analysis to determine immediate short-term trends and fundamental analysis to derive data about market volatility. Technical analysts will follow many currencies at one time while fundamental analysts specialize in market data of a particular currency. Technical analysis works well in strong trending markets like that of FOREX, and fundamental analysis serves as good indicators for current trend duration. Once both technical and fundamental analyses are mastered, they can be applied with equal ease at any time frame or currency traded.
Every trader approaches the market differently. It is how you derive data about market conditions that help you decide your trading style. The types of approach are technical and fundamental or can be a combination of the two. We go a bit more in detail from here.
Technical Analysis
The practice of predicting currency prices by examining trading patterns and comparing the shape of current charts to those from the past.
Technical analysts use a variety of complex charting techniques, but some of the most basic involve plotting price movements of a currency over time on a chart. The shape of the chart is supposed to reveal something about whether the currency is headed up or down. A head and shoulders pattern, for instance, could imply a currency has topped out. Technicians look for currencies that have broken through their resistance level (on the upside). A currency that has broken through its support level (on the downside) is considered poised for further downward movement.
Advocates insist that the currency market clearly moves in a trend, and that careful charting and knowledge of history can recognize these. Whether or not technical analysis has any validity, it does provide good indicators of market movement, and on that basis alone influences currency prices.
Fundamental Analysis
An approach where an investor determines the price movement by studying a currency's history, evaluating economic conditions such as growth and interest rates, inflation, supply and demand, politics and other factors that will affect its strength and value in comparison to another currency. This approach sets fundamental analysts apart from technical analysts, who study previous trading patterns to forecast which direction (up or down) a currency or the market itself will head in the future.
Technical Analysis or Fundamental Analysis?
All traders of FX utilize a combination of both techniques to analyze price movements; technical analysis to determine immediate short-term trends and fundamental analysis to derive data about market volatility. Technical analysts will follow many currencies at one time while fundamental analysts specialize in market data of a particular currency. Technical analysis works well in strong trending markets like that of FOREX, and fundamental analysis serves as good indicators for current trend duration. Once both technical and fundamental analyses are mastered, they can be applied with equal ease at any time frame or currency traded.
TRADING FX IS EASY, IF YOU DEVELOP A WINNING ATTITUDE
The past few days have been another revelation for me. I strongly think that trading the Forex market is a piece of cake, IF YOU CAN CONTROL YOUR EMOTIONS. That is the only obstacle in front of us.
Fear and greed are the cause of losing money in this market. We fear the trade won't reach the profit level, so we close it early. We can't accept that a trade is going bad, because we're greedy, and we widen our stop loss. So we cut our profits and let the loss run. When we should do the opposite: CUT YOUR LOSSES AND LET THE PROFITS RUN!
I don't know about you, but that's why I lost money. I won over 65% of my trades in the 2 months and a half I've been trading live. But I lost money because fear and greed were stronger than my brain was. And there was also anger after I lost a trade. I jumped in with another poor trade just to get my money back or get revenge on the market. And lost again. We need to get this through our head, that the market is not our enemy. If you lose a trade, that's your fault, not the market. Accept it and go on. Stay focused, only get the good trades. Don't fear the market, stay "in the zone" (as Mark Douglas would say), watch what price is doing now, don't think about your previous trade (no matter if it's a winner or a loser; euphoria can also be devastating if you can't control it).
When you get past these obstacles, trading is like riding a bycicle. It just becomes a reflex. I haven't yet reached this goal, but I feel I am almost there. I know what my problems are, I know where I am wrong when I am wrong and I know I have to avoid the same mistakes over and over again. And I know some guys have made it. They are successful. They're not smarter, they didn't study at better schools, they just have a different attitude: the attitude of a winner.
If you act like a loser, you'll always be a loser. Take the winner attitude. A winner does not fear anything. A winner is patient, planing his moves carefuly. He does not underestimate his opponents (the human emotions). He knows his opponents very well and knows what to expect. Know your emotions, observe yourself while you are trading. Take note of what you feel. If you know you are afraid when that happens, then you can control that fear and use it in your favour.
Let the battle begin!
Fear and greed are the cause of losing money in this market. We fear the trade won't reach the profit level, so we close it early. We can't accept that a trade is going bad, because we're greedy, and we widen our stop loss. So we cut our profits and let the loss run. When we should do the opposite: CUT YOUR LOSSES AND LET THE PROFITS RUN!
I don't know about you, but that's why I lost money. I won over 65% of my trades in the 2 months and a half I've been trading live. But I lost money because fear and greed were stronger than my brain was. And there was also anger after I lost a trade. I jumped in with another poor trade just to get my money back or get revenge on the market. And lost again. We need to get this through our head, that the market is not our enemy. If you lose a trade, that's your fault, not the market. Accept it and go on. Stay focused, only get the good trades. Don't fear the market, stay "in the zone" (as Mark Douglas would say), watch what price is doing now, don't think about your previous trade (no matter if it's a winner or a loser; euphoria can also be devastating if you can't control it).
When you get past these obstacles, trading is like riding a bycicle. It just becomes a reflex. I haven't yet reached this goal, but I feel I am almost there. I know what my problems are, I know where I am wrong when I am wrong and I know I have to avoid the same mistakes over and over again. And I know some guys have made it. They are successful. They're not smarter, they didn't study at better schools, they just have a different attitude: the attitude of a winner.
If you act like a loser, you'll always be a loser. Take the winner attitude. A winner does not fear anything. A winner is patient, planing his moves carefuly. He does not underestimate his opponents (the human emotions). He knows his opponents very well and knows what to expect. Know your emotions, observe yourself while you are trading. Take note of what you feel. If you know you are afraid when that happens, then you can control that fear and use it in your favour.
Let the battle begin!
Friday, January 2, 2009
FOREX BASICS
What is FOREX?
The Foreign Exchange market, also referred to as the "FOREX" or "Forex" or "Retail forex" or "FX" or "Spot FX" or just "Spot" is the largest financial market in the world, with a volume of over $4 trillion a day. If you compare that to the $25 billion a day volume that the New York Stock Exchange trades, you can easily see how enormous the Foreign Exchange really is. It actually equates to more than three times the total amount of the stocks and futures markets combined! Forex rocks!
What is traded on the Foreign Exchange market?
The simple answer is money. Forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the euro and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY).
Because you're not buying anything physical, this kind of trading can be confusing. Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy.In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy, compared to the other countries' economies.
Unlike other financial markets like the New York Stock Exchange, the Forex spot market has neither a physical location nor a central exchange. The Forex market is considered an Over-the-Counter (OTC) or 'Interbank' market, due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.
Until the late 1990's, only the "big guys" could play this game. The initial requirement was that you could trade only if you had about ten to fifty million bucks to start with! Forex was originally intended to be used by bankers and large institutions - and not by us "little guys". However, because of the rise of the Internet, online Forex trading firms are now able to offer trading accounts to 'retail' traders like us.
All you need to get started is a computer, a high-speed Internet connection, and the information contained within this site.
What is a Spot Market?
A spot market is any market that deals in the current price of a financial instrument.
Which Currencies Are Traded?
The most popular currencies along with their symbols are shown below:
| Symbol | Country | Currency | Nickname |
| USD | United States | Dollar | Buck |
| EUR | Euro members | Euro | Fiber |
| JPY | Japan | Yen | Yen |
| GBP | Great Britain | Pound | Cable |
| CHF | Switzerland | Franc | Swissy |
| CAD | Canada | Dollar | Loonie |
| AUD | Australia | Dollar | Aussie |
| NZD | New Zealand | Dollar | Kiwi |
Forex currency symbols are always three letters, where the first two letters identify the name of the country and the third letter identifies the name of that country’s currency.
When Can Currencies Be Traded?
The spot FX market is unique within the world markets. It’s like a Super Wal-Mart where the market is open 24-hours a day. At any time, somewhere around the world a financial center is open for business, and banks and other institutions exchange currencies every hour of the day and night with generally only minor gaps on the weekend.
The foreign exchange markets follow the sun around the world, so you can trade late at night (if you’re a vampire) or in the morning (if you’re an early bird). Keep in mind though, the early bird doesn’t necessarily get the worm in this market - you might get the worm but a bigger, nastier bird of prey can sneak up and eat you too…
| Time Zone | New York | GMT |
| Tokyo Open | 7:00 pm | 0:00 |
| Tokyo Close | 4:00 am | 9:00 |
| London Open | 3:00 am | 8:00 |
| London Close | 12:00 pm | 17:00 |
| New York Open | 8:00 am | 13:00 |
| New York Close | 5:00 pm | 22:00 |
The Forex market (OTC)
The Forex OTC market is by far the biggest and most popular financial market in the world, traded globally by a large number of individuals and organizations. In the OTC market, participants determine who they want to trade with depending on trading conditions, attractiveness of prices and reputation of the trading counterpart.
The chart below shows global foreign exchange activity. The dollar is the most traded currency, being on one side of 89% of all transactions. The Euro’s share is second at 37%, while that of the yen is at 20%.
Why Trade Foreign Currencies?
There are many benefits and advantages to trading Forex. Here are just a few reasons why so many people are choosing this market:
- No commissions.
No clearing fees, no exchange fees, no government fees, no brokerage fees. Brokers are compensated for their services through something called the bid-ask spread. - No middlemen. Spot currency trading eliminates the middlemen, and allows you to trade directly with the market responsible for the pricing on a particular currency pair.
- No fixed lot size.
In the futures markets, lot or contract sizes are determined by the exchanges. A standard-size contract for silver futures is 5000 ounces. In spot Forex, you determine your own lot size. This allows traders to participate with accounts as small as $250 (although we explain later why a $250 account is a bad idea). - Low transaction costs.
The retail transaction cost (the bid/ask spread) is typically less than 0.1 percent under normal market conditions. At larger dealers, the spread could be as low as .07 percent. Of course this depends on your leverage and all will be explained later. - A 24-hour market.
There is no waiting for the opening bell - from Sunday evening to Friday afternoon EST, the Forex market never sleeps. This is awesome for those who want to trade on a part-time basis, because you can choose when you want to trade--morning, noon or night. - No one can corner the market.
The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank) can control the market price for an extended period of time. - Leverage.
In Forex trading, a small margin deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum. For example, Forex brokers offer 200 to 1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with $100,000 dollars and so on. But leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains. - High Liquidity.
Because the Forex Market is so enormous, it is also extremely liquid. This means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will. You are never "stuck" in a trade. You can even set your online trading platform to automatically close your position at your desired profit level (a limit order), and/or close a trade if a trade is going against you (a stop loss order). - Free “Demo” Accounts, News, Charts, and Analysis. Most online Forex brokers offer 'demo' accounts to practice trading, along with breaking Forex news and charting services. All free! These are very valuable resources for “poor” and SMART traders who would like to hone their trading skills with 'play' money before opening a live trading account and risking real money.
- “Mini” and “Micro” Trading:
You would think that getting started as a currency trader would cost a ton of money. The fact is, compared to trading stocks, options or futures, it doesn't. Online Forex brokers offer "mini" and “micro” trading accounts, some with a minimum account deposit of $300 or less. Now we're not saying you should open an account with the bare minimum but it does makes Forex much more accessible to the average (poorer) individual who doesn't have a lot of start-up trading capital.
What Tools Do I Need to Start Trading Forex?
A computer with a high-speed Internet connection and all the information on this site is all that is needed to begin trading currencies.
What Does It Cost to Trade Forex?
An online currency trading (a “micro account”) may be opened with a couple hundred bucks. Do not laugh – micro accounts and its bigger cousin, the mini account, are both good ways to get your feet wet without drowning. For a micro account, we'd recommend at least $1,000 to start. For a mini account, we’d recommend at least $10,000 to start.
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