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Saturday 31 July 2010
Wednesday 12 May 2010
Name : The Oversold / Overbought Exhaustion
Time frame : 15mins and above
Indicator : Stochastic Oscillator (Settings : 5, 3, 3)
Description : The stochastic oscillator is a good indicator to use to see if the market is oversold or overbought. But it cannot be used alone. To accompany it, I am showing you how you can use Exhaustion Candles to supplement this trading style.
For a Long (Buy) Trade :
- Stochastic oscillator must be in oversold territory (if its slightly above it, that's fine)
- Market should have a nice downtrend at that moment
- Exhaustion Candle should form
- Take a long (buy) at the opening of the next candle
- Stops should be placed 5 pips below the low of the exhaustion candle
- Make sure to trail your stop
For a Short (Sell) Trade :
- Stochastic oscillator must be in overbought territory (if its slightly below it, that's fine)
- Market should have a nice uptrend at that moment
- Exhaustion Candle should form
- Take a short (sell) at the opening of the next candle
- Stops should be placed 5 pips above the high of the exhaustion candle
- Make sure to trail your stops
Example : Long Position
Example 2 : Long Position
Example 3 : Short Position
10 PIPS PER DAY
Name : 10 Pips Per Day Scalping Strategy
Time Frame : 5 Minute Charts
Indicators : Bollinger Bands (20, 0, 2) and Stochastic Oscillator (5, 3, 3)
How to make 10 pips per day in Forex
First you want to setup your charts as the image above. If you want the Stochastic indicator like mine, you can find it in the forums. Now the key is not to earn 10 pips in one shot or in one trade. If the trade skyrockets and gives you 10 pips, so be it. Otherwise, take what you can get. I will post a video tutorial on this also to make it easier to understand. The risk to reward ratio on this strategy is bad but has a higher accuracy rate. So please trade at your own discretion.
Steps to look for to scalp your 10 pips
- Look only on the major pairs. (EURUSD, USDJPY, GBPUSD, USDCHF)
- A close must happen outside the Bollinger Band indicator
- Stochastic Oscillator indicator must be in a oversold (below 20) or overbought area (above 80).
- If market is in a uptrend, look for a red candle. If market is in a downtrend look for a green candle.
We will call these the "Signal Candles"
- Once you see your signal candle, enter in that same direction and scalp your pips.
- Stops are hard kept at 20 pips.
Monday 10 May 2010
TRADING STRESS
Stress is one of the most common emotional problems that traders face, and trading while under stress can (read as will) have a significant impact on a trader's profit and loss. There are many different forms of stress, but for the purposes of this discussion, we will consider stress as being either trading stress (i.e. stress caused by trading) or external stress (i.e. stress from non trading sources).
Trading Stress
Trading stress is stress that is caused by the act of trading. For example, the fear of losing money can place a trader under significant stress. Perversely, trading stress only compounds the original problem. For example, if a trader is having difficulty making a trade management decision, the stress that ensues will only make it harder to make the decision, and will almost guarantee that the decision is made badly.
The solution to trading stress is knowledge and experience. Knowledge gives a trader the ability to trade well, and experience (i.e. practice) give a trader the confidence to trust in their knowledge. When a trader knows that they have the ability to be profitable, and they also have the confidence to believe in themselves, it is much easier to overcome any stressful situations that might arise.
External Stress
External stress is stress that comes from any source other than trading. For example, a trader might be having relationship problems with their husband or wife (which happens more often than you might think due to the solitary nature of trading). External stress is the most difficult type of stress to avoid, because its cause is often out of the trader's control.
The solution to most external stress (at least from a trading perspective) is to temporarily trade in simulation instead of trading live. Trading in simulation during stressful times allows a trader to continue trading, but without risking any real money. Once the stressful situation has been resolved, the trader can go back to trading live without having to make up any stress related losses.
How Stress Affects Profit and Loss
Stress affects a trader's profit and loss in a number of different ways, and the exact manifestation will be different for each trader. For some traders, stress might cause them to trade more than usual (perhaps in a desperate attempt to make more money), while for other traders, stress might cause them to trade less than usual (perhaps because they are unable to make any decisions). However the stress is realized, the result will always be a negative impact on the trader's profit and loss. So if you suddenly find yourself trading badly, consider your emotional state and whether that might be the cause, before you decide to make any adjustments to your trading (e.g. changing your trading system, etc.).
Trading Stress
Trading stress is stress that is caused by the act of trading. For example, the fear of losing money can place a trader under significant stress. Perversely, trading stress only compounds the original problem. For example, if a trader is having difficulty making a trade management decision, the stress that ensues will only make it harder to make the decision, and will almost guarantee that the decision is made badly.
The solution to trading stress is knowledge and experience. Knowledge gives a trader the ability to trade well, and experience (i.e. practice) give a trader the confidence to trust in their knowledge. When a trader knows that they have the ability to be profitable, and they also have the confidence to believe in themselves, it is much easier to overcome any stressful situations that might arise.
External Stress
External stress is stress that comes from any source other than trading. For example, a trader might be having relationship problems with their husband or wife (which happens more often than you might think due to the solitary nature of trading). External stress is the most difficult type of stress to avoid, because its cause is often out of the trader's control.
The solution to most external stress (at least from a trading perspective) is to temporarily trade in simulation instead of trading live. Trading in simulation during stressful times allows a trader to continue trading, but without risking any real money. Once the stressful situation has been resolved, the trader can go back to trading live without having to make up any stress related losses.
How Stress Affects Profit and Loss
Stress affects a trader's profit and loss in a number of different ways, and the exact manifestation will be different for each trader. For some traders, stress might cause them to trade more than usual (perhaps in a desperate attempt to make more money), while for other traders, stress might cause them to trade less than usual (perhaps because they are unable to make any decisions). However the stress is realized, the result will always be a negative impact on the trader's profit and loss. So if you suddenly find yourself trading badly, consider your emotional state and whether that might be the cause, before you decide to make any adjustments to your trading (e.g. changing your trading system, etc.).
MISTAKE FOREX TRADERS MAKE
When getting started in forex trading, there are common mistakes to be avoided. This is a list of common forex trading mistakes.
1. Using Too Much Leverage
One of the biggest advantages of forex trading is the ability to use leverage or trading on margin. One of the most common mistakes that forex traders make is using too much leverage. Using too much leverage is when you have a small account balance, but make a big trade. If the market moves against your position by just a small amount, it can result in large losses. Commonly, the beginning forex trader will get emotional and nervous and close the trade for a sizable loss.
2. Over Trading
Over Trading occurs when traders try to look for trading opportunities that are not really there. It happens to new traders very often, because they just want to trade. The result is usually a poorly executed trade that results in an eventual loss. Over trading can also result in traders making too many trades at once and using too much margin.
3. Picking Tops and Bottoms
Many new traders attempt to try to pinpoint where a currency pair will turn around and start moving the opposite direction. This is something that is difficult even for professional traders.
1. Using Too Much Leverage
One of the biggest advantages of forex trading is the ability to use leverage or trading on margin. One of the most common mistakes that forex traders make is using too much leverage. Using too much leverage is when you have a small account balance, but make a big trade. If the market moves against your position by just a small amount, it can result in large losses. Commonly, the beginning forex trader will get emotional and nervous and close the trade for a sizable loss.
2. Over Trading
Over Trading occurs when traders try to look for trading opportunities that are not really there. It happens to new traders very often, because they just want to trade. The result is usually a poorly executed trade that results in an eventual loss. Over trading can also result in traders making too many trades at once and using too much margin.
3. Picking Tops and Bottoms
Many new traders attempt to try to pinpoint where a currency pair will turn around and start moving the opposite direction. This is something that is difficult even for professional traders.
BENEFITS OF FOREX TRADING
There are five things give trading the forex market some unique advantages.
1. 24 Hour Market
Since the forex market is worldwide, trading is continuous as long as there is a market open somewhere in the world. Trading starts when the markets open in Australia on Sunday evening, and ends after markets close in New York on Friday.
2. High Liquidity
Liquidity is the ability of an asset to be converted into cash quickly and without any price discount. In forex this means we can move large amounts of money into and out of foreign currency with minimal price movement.
3. Low Transaction Cost
In forex, typically the cost for a transaction is built into the price. It is called the spread. The spread is the difference between the buying and selling price.
4. Leverage
Forex Brokers allow traders to trade the market using leverage. Leverage is the ability to trade more money on the market than what is actually in the trader's account. If you were to trade at 50:1 leverage, you could trade $50 on the market for every $1 that was in your account. This means you could control a trade of $50,000 using only $1000 of capital.
5. Profit Potential from Rising and Falling Prices
The forex market has no restrictions for directional trading. This means, if you think a currency pair is going to increase in value; you can buy it, or go long. Similarly, if you think it could decrease in value you can sell it, or go short.
1. 24 Hour Market
Since the forex market is worldwide, trading is continuous as long as there is a market open somewhere in the world. Trading starts when the markets open in Australia on Sunday evening, and ends after markets close in New York on Friday.
2. High Liquidity
Liquidity is the ability of an asset to be converted into cash quickly and without any price discount. In forex this means we can move large amounts of money into and out of foreign currency with minimal price movement.
3. Low Transaction Cost
In forex, typically the cost for a transaction is built into the price. It is called the spread. The spread is the difference between the buying and selling price.
4. Leverage
Forex Brokers allow traders to trade the market using leverage. Leverage is the ability to trade more money on the market than what is actually in the trader's account. If you were to trade at 50:1 leverage, you could trade $50 on the market for every $1 that was in your account. This means you could control a trade of $50,000 using only $1000 of capital.
5. Profit Potential from Rising and Falling Prices
The forex market has no restrictions for directional trading. This means, if you think a currency pair is going to increase in value; you can buy it, or go long. Similarly, if you think it could decrease in value you can sell it, or go short.
HOW NOT TO LOSE MONEY IN FOREX
That's the right type of question every Forex trader should start with.
Here are the rules:
- Start with a mini account and a mini lot
Why? Every beginner Forex trader goes through the first psychological challenge of making first trades. There is a whole mix of emotions, but most importantly there is real money involved, and no one wants to lose real money.
It is very important to leave through your first experience unharmed. You should risk very little at first, this will take off the pressure of making first trades.
Important: with a mini accounts of under $500 you should trade no more than 0.01 lot. Otherwise, there is 95% chance to lose your first account!
- Have a trading system
..Not just any system, but the one which eliminates any misinterpretations and double meanings of entries, exits, stops etc. Avoid systems that call for using intuition or act upon common sense, or use own judgment according to the situation.
The best systems are the ones you make yourself, or, if you start with an adopted method, you should, at least, put an additional work into it.
Polishing a system takes months, but once perfected, it adds tons of confidence into a trade.
- Learn to be break-even on every trade
Ability to protect your starting capital is paramount. Break-even trades are great, since you lose nothing. When you learn how to be break-even, you will be able to make a so called "free trades" - a trade, where a stop loss is set to break-even and a position is allowed to run for maximum profits.
- Trade during active market hours only
Although Forex market is open and can be traded 24 hours a day, the most active market hours are from 3am EST to 5pm EST. Avoid trading during other hours, there isn't much to earn there, but there is plenty of opportunities to make losing trades.
- Avoid trading during news time
Check Forex Economic Calendar and avoid news hours. Try to avoid trading 20 min before the news and 20 min after the news. News trading is one of the riskiest adventure. Always look back at possible losses before admiring possible profits.
Not every Forex broker offers perfect trading conditions during news hours, make sure you know the policy of your broker.
- Don't over trade
Don't trade too much. You won't be able to make more money than Forex market is willing to offer.
Don't compromise your trading system. If a trading setup is not perfect, don't take a trade.
- If you start to lose - stop trading
If you begin to lose, it is better to make a pause. It is either your fault and lack of discipline, or there is a change in the market behavior and your system can no longer produce results. In any case pausing helps.
- Practice, learn, improve
Always continue researching, learning and working on your system rules, your discipline and your risk appetite.
Most importantly: don't think about quitting your day job. It is a very high goal, which may put a pressure on you to start earning money in Forex faster than you would normally do. Take you time, learn, test.
Here are the rules:
- Start with a mini account and a mini lot
Why? Every beginner Forex trader goes through the first psychological challenge of making first trades. There is a whole mix of emotions, but most importantly there is real money involved, and no one wants to lose real money.
It is very important to leave through your first experience unharmed. You should risk very little at first, this will take off the pressure of making first trades.
Important: with a mini accounts of under $500 you should trade no more than 0.01 lot. Otherwise, there is 95% chance to lose your first account!
- Have a trading system
..Not just any system, but the one which eliminates any misinterpretations and double meanings of entries, exits, stops etc. Avoid systems that call for using intuition or act upon common sense, or use own judgment according to the situation.
The best systems are the ones you make yourself, or, if you start with an adopted method, you should, at least, put an additional work into it.
Polishing a system takes months, but once perfected, it adds tons of confidence into a trade.
- Learn to be break-even on every trade
Ability to protect your starting capital is paramount. Break-even trades are great, since you lose nothing. When you learn how to be break-even, you will be able to make a so called "free trades" - a trade, where a stop loss is set to break-even and a position is allowed to run for maximum profits.
- Trade during active market hours only
Although Forex market is open and can be traded 24 hours a day, the most active market hours are from 3am EST to 5pm EST. Avoid trading during other hours, there isn't much to earn there, but there is plenty of opportunities to make losing trades.
- Avoid trading during news time
Check Forex Economic Calendar and avoid news hours. Try to avoid trading 20 min before the news and 20 min after the news. News trading is one of the riskiest adventure. Always look back at possible losses before admiring possible profits.
Not every Forex broker offers perfect trading conditions during news hours, make sure you know the policy of your broker.
- Don't over trade
Don't trade too much. You won't be able to make more money than Forex market is willing to offer.
Don't compromise your trading system. If a trading setup is not perfect, don't take a trade.
- If you start to lose - stop trading
If you begin to lose, it is better to make a pause. It is either your fault and lack of discipline, or there is a change in the market behavior and your system can no longer produce results. In any case pausing helps.
- Practice, learn, improve
Always continue researching, learning and working on your system rules, your discipline and your risk appetite.
Most importantly: don't think about quitting your day job. It is a very high goal, which may put a pressure on you to start earning money in Forex faster than you would normally do. Take you time, learn, test.
Sunday 9 May 2010
FOREX ORDERS
Forex trading can prove to be a real lucrative and fun option. But in case it is not performed in a proper way, it can even take much time than one can manage. In order to have one's Forex trades managed in the similar way that one wants them to be, one can easily set up the required Forex orders. These Forex trading orders will ask the broker buy, close or sell out the client's or investor's position at certain times that is deemed by the respective investor.
Depending on the broker that one uses to trade, there can be some slight variations of the types of Forex orders that one can use, but the basic types remains the same. They all are possessed with Limit orders, Stop losses and market orders to name a few. there are some of the additional automated Forex orders as well that can be conveniently triggered at the pre-set currency exchange rates and that can easily be positioned in order to manage the downside and consolidate on the upside. The interested Forex trading investors should be clearly and properly familiarized with the different types of orders so that they can be protected and get assured of earning more profits in the times to come. Some of the basic Forex orders used by the investors and traders include:
1. Entry Forex order: It is a Forex trading order where one can sell and buy the currency pair when it gets a specific rate target. One can set a limited entry order for a comparatively lower rate of a specific time period or even a higher amount of a certain period of time. Discussing about these orders, a large number of university students have showed that this field of Forex orders is great fun to study about in the sector of Forex education.
2. Market Forex order: It is another Forex order type where an investor can buy and sell the currency pair at the market rate. The execution of this order over the Internet is an instant process that means that the rate which is assured at the particular time of the mouse click will be provided to the respective customer.
3. Limit Forex order: It is an order that contributes in turning itself into a market Forex order when a certain rate level is perfectly reached. The buying of a limit Forex order can only be performed at the lower better while its selling can only be taken place at the higher better. Basically the limit orders are placed above the present market value of the currency. Limit orders can also be taken to be an order that is placed to sell or buy at a specific rate. This order actually contains two main variables i.e. the duration and the price. The respective traders describe the rate at which he desires to buy or sell the specific currency pair. Also, the traders specifies the period of time that this order should remain live.
4. Stop Forex order: This is an order that takes the shape of a market Forex order when a certain rate level is broken and achieved. These stop Forex orders are placed below the present market value of the currency. The primary difference between a stop order and a limit order is that while the stop Forex orders are normally utilized to limit the loss potential on the transaction, the limit Forex orders are utilized in order to enter the Forex market, add to some pre-existing condition and profit taking.
Different Forex trading brokers may utilize slightly changing terminology for the order types, they should all be similar in the manner they work. Having a strong knowledge and information about the different types of Forex orders will definitely enable the investor to utilize the accurate tools for accomplishing the investing intentions. It is imperative to be comfortable while using the Forex orders as wrong execution of these can prove to take you into a financially problematic situation.
Depending on the broker that one uses to trade, there can be some slight variations of the types of Forex orders that one can use, but the basic types remains the same. They all are possessed with Limit orders, Stop losses and market orders to name a few. there are some of the additional automated Forex orders as well that can be conveniently triggered at the pre-set currency exchange rates and that can easily be positioned in order to manage the downside and consolidate on the upside. The interested Forex trading investors should be clearly and properly familiarized with the different types of orders so that they can be protected and get assured of earning more profits in the times to come. Some of the basic Forex orders used by the investors and traders include:
1. Entry Forex order: It is a Forex trading order where one can sell and buy the currency pair when it gets a specific rate target. One can set a limited entry order for a comparatively lower rate of a specific time period or even a higher amount of a certain period of time. Discussing about these orders, a large number of university students have showed that this field of Forex orders is great fun to study about in the sector of Forex education.
2. Market Forex order: It is another Forex order type where an investor can buy and sell the currency pair at the market rate. The execution of this order over the Internet is an instant process that means that the rate which is assured at the particular time of the mouse click will be provided to the respective customer.
3. Limit Forex order: It is an order that contributes in turning itself into a market Forex order when a certain rate level is perfectly reached. The buying of a limit Forex order can only be performed at the lower better while its selling can only be taken place at the higher better. Basically the limit orders are placed above the present market value of the currency. Limit orders can also be taken to be an order that is placed to sell or buy at a specific rate. This order actually contains two main variables i.e. the duration and the price. The respective traders describe the rate at which he desires to buy or sell the specific currency pair. Also, the traders specifies the period of time that this order should remain live.
4. Stop Forex order: This is an order that takes the shape of a market Forex order when a certain rate level is broken and achieved. These stop Forex orders are placed below the present market value of the currency. The primary difference between a stop order and a limit order is that while the stop Forex orders are normally utilized to limit the loss potential on the transaction, the limit Forex orders are utilized in order to enter the Forex market, add to some pre-existing condition and profit taking.
Different Forex trading brokers may utilize slightly changing terminology for the order types, they should all be similar in the manner they work. Having a strong knowledge and information about the different types of Forex orders will definitely enable the investor to utilize the accurate tools for accomplishing the investing intentions. It is imperative to be comfortable while using the Forex orders as wrong execution of these can prove to take you into a financially problematic situation.
FOREX RULES
The following examine some rules to take into consideration when trading forex.
- Good Execution vs. Good Anticipation
- When trading it is important to keep in mind that the results of the last spefic trade made are not important. It is a waste of time to draw any conclusions over one or even a few specific trades. Anticipation skills can only be honed from experience and the overall results of many completed trades over a long period of time. When trading the only goal should be to execute trades with disciplined calculated efficiency. Losing money is usually comes as a result of poor execution rather than poor anticipation.
- Suppose you find yourself in a slump and start to experience loses. Supposing it is only temporary you continue trading and digging yourself deeper into a hole of lost money. Here are some tips to pull youself out.
- Do not let your profits run. Ensure this by cutting your loses as soon as possible.
- Do not "go on tilt" and overtrade. One extremely common mistake traders make when they are losing is trading too much or at larger sizes in order to gain back what they have lost.
- Upon losing a significant amount or all of your income, stop and search for answers about what went wrong.
- It may be helpful to conduct some research and obtain help. An seasoned expert would be able to teach you skills he has accumulated.
- In addition to giving you the skills to become more successful, a mentor could teach you how to handle bad times helping you develop your mental and emotional skills to help you with your trading.
- When comfortable it is possible to start back on your own. Seek out peers who are on even keel with you. They can be friends or co-workers but most importantly they will be there to learn from and to act as a support system with which you can talk to and compare notes with.
- While continuing to learn from mistakes it may be wise to seek out another mentor who can help you get accustomed to higher levels of trading which may require you to learn different skills that are valuable at higher more expensive levels of trading.
- Lastly it is important not to be attached to your trades.
- Good Execution vs. Good Anticipation
- When trading it is important to keep in mind that the results of the last spefic trade made are not important. It is a waste of time to draw any conclusions over one or even a few specific trades. Anticipation skills can only be honed from experience and the overall results of many completed trades over a long period of time. When trading the only goal should be to execute trades with disciplined calculated efficiency. Losing money is usually comes as a result of poor execution rather than poor anticipation.
- Suppose you find yourself in a slump and start to experience loses. Supposing it is only temporary you continue trading and digging yourself deeper into a hole of lost money. Here are some tips to pull youself out.
- Do not let your profits run. Ensure this by cutting your loses as soon as possible.
- Do not "go on tilt" and overtrade. One extremely common mistake traders make when they are losing is trading too much or at larger sizes in order to gain back what they have lost.
- Upon losing a significant amount or all of your income, stop and search for answers about what went wrong.
- It may be helpful to conduct some research and obtain help. An seasoned expert would be able to teach you skills he has accumulated.
- In addition to giving you the skills to become more successful, a mentor could teach you how to handle bad times helping you develop your mental and emotional skills to help you with your trading.
- When comfortable it is possible to start back on your own. Seek out peers who are on even keel with you. They can be friends or co-workers but most importantly they will be there to learn from and to act as a support system with which you can talk to and compare notes with.
- While continuing to learn from mistakes it may be wise to seek out another mentor who can help you get accustomed to higher levels of trading which may require you to learn different skills that are valuable at higher more expensive levels of trading.
- Lastly it is important not to be attached to your trades.
FOREX POSITION
A forex investor can basically enter the market by buying (long) and selling (short). This is to say that you do not need to own to be able to sell, which is a big advantage really because you can buy it back later at a lower price, and make a profit from the difference. Also, you do not need to wait until the trend goes up to buy or for it to decline in order to sell. Because of this, the forex market is a two way market that enable its investors to take profit regardless if the trend is moving up or down.
The difference between long and short is not important. As long as a trader sell at a high price and buy at a low price, profit is guaranteed. It really doesn't matter if the buying or selling comes first. Investopedia.com characterize short selling as "selling a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short."
Noble Drakoln, the author of the book 'Winning the Trading Game' stressed that shorting the market will not work in stock market but will thrive in markets such as foreign exchange. He also emphasized that a trader should not be afraid to short sell in order to gain the most, "anyone new to futures and forex must embrace the short sell side as easily as the long side; otherwise, you will easily cut your opportunities in half when you initiate a trade."
If the market moves up after a trader did a short sell, he will be forced to buy back at a higher price and make a loss. Author John L. Person of 'Candlestick and Pivot Point Trading Triggers observed, "theoretically, a short seller is exposed to more risk than a trader with a long position; however, through the use of stop-loss orders, traders can mitigate their risk regardless of long and short positions."
If you have enter the market and your trading is active, you are in an open position. To wrap up a cycle of buying and selling, you now need to close it. This is known as going flat or squaring up. If you did a short selling, you need to buy to go flat, and likewise, if you are long, you need to sell to close position.
When you hold your open position for more than a week, it is considered to be long term trading in forex. This is because, some forex trading involves only minutes from open to close position. A long term forex trading is not a bad idea in the event the market go the opposite direction as your open position. Long term forex trading is perfect for investors who do not have the time to keep close tab of forex movements and for those who require additional time to study fundamental and technical analysis.
The difference between long and short is not important. As long as a trader sell at a high price and buy at a low price, profit is guaranteed. It really doesn't matter if the buying or selling comes first. Investopedia.com characterize short selling as "selling a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short."
Noble Drakoln, the author of the book 'Winning the Trading Game' stressed that shorting the market will not work in stock market but will thrive in markets such as foreign exchange. He also emphasized that a trader should not be afraid to short sell in order to gain the most, "anyone new to futures and forex must embrace the short sell side as easily as the long side; otherwise, you will easily cut your opportunities in half when you initiate a trade."
If the market moves up after a trader did a short sell, he will be forced to buy back at a higher price and make a loss. Author John L. Person of 'Candlestick and Pivot Point Trading Triggers observed, "theoretically, a short seller is exposed to more risk than a trader with a long position; however, through the use of stop-loss orders, traders can mitigate their risk regardless of long and short positions."
If you have enter the market and your trading is active, you are in an open position. To wrap up a cycle of buying and selling, you now need to close it. This is known as going flat or squaring up. If you did a short selling, you need to buy to go flat, and likewise, if you are long, you need to sell to close position.
When you hold your open position for more than a week, it is considered to be long term trading in forex. This is because, some forex trading involves only minutes from open to close position. A long term forex trading is not a bad idea in the event the market go the opposite direction as your open position. Long term forex trading is perfect for investors who do not have the time to keep close tab of forex movements and for those who require additional time to study fundamental and technical analysis.
MARGIN
Margin for stocks and forex are not the same, as Noble Drakoln will agree. In his book 'Winning the Trading Game: Why 95% of Traders Lose and What You Must Do to Win', Drakoln said, "the only thing the work margin for stocks and margin for futures and forex have in common is the spelling." He proceed to stress that while margin for stocks work like a downpayment for asset ownership, margin for forex is actually 'a promise to pay'.
With forex margin trading, one can trade up to 500 times the balance of one's account. For example, if you have $500 in you your account, you can trade $250,000 worth of currencies. For forex investors, this facility can be a two-edged sword. Although one can stand to gain big time from leveraging minimal capital, one can also lose more than one's initial investment, or even more than one can afford.
Drakoln offer his insight regarding forex margin trading, "Once the everyday investors changes his attitude and begins to really respect leverage and learn how to incorporate it into his trading...an entireli different approach to trading evolves." He also said that investors should not fear margin, but respect it as a potent tool in wealth building.
Another author, John L. Person said in his book 'Candlestick and Pivot Point Trading Triggers' that, "while it contributes to the risk of a given position, leverage is necessary in the forex market because the average daily move of a major currency is about 1 percent, while a stock typically sees much more substantial moves."
This is why traders are given the typical margin of 100 times. When you do the maths, with this forex margin trading, traders control the leveraged sum while owning only 1% of it to benefit even from tiny forex movements. The rest of the 99% is a loan from the broker at no interest rate, provided the investor close his position before a stipulated delivery date. If the delivery date are not met, the loan gets rolled over and interest will be charged.
The high risk of using a maximum margin can be neutralized by using a stop-loss order, which is a pre-determined exit point chosen by you. Say for example you enter the market with $150,000 at the buying price of 1.1885 expecting the USD/EUR to soar but instead of going up, the market crashed. If you have placed a stop-loss order upon your purchase, say, at the price of 1.1850, your loss will be minimal as you are guaranteed to exit at that price point. Even if the market were to crash to 1.050, you have taken the necessary precaution to limit your risk.
With forex margin trading, one can trade up to 500 times the balance of one's account. For example, if you have $500 in you your account, you can trade $250,000 worth of currencies. For forex investors, this facility can be a two-edged sword. Although one can stand to gain big time from leveraging minimal capital, one can also lose more than one's initial investment, or even more than one can afford.
Drakoln offer his insight regarding forex margin trading, "Once the everyday investors changes his attitude and begins to really respect leverage and learn how to incorporate it into his trading...an entireli different approach to trading evolves." He also said that investors should not fear margin, but respect it as a potent tool in wealth building.
Another author, John L. Person said in his book 'Candlestick and Pivot Point Trading Triggers' that, "while it contributes to the risk of a given position, leverage is necessary in the forex market because the average daily move of a major currency is about 1 percent, while a stock typically sees much more substantial moves."
This is why traders are given the typical margin of 100 times. When you do the maths, with this forex margin trading, traders control the leveraged sum while owning only 1% of it to benefit even from tiny forex movements. The rest of the 99% is a loan from the broker at no interest rate, provided the investor close his position before a stipulated delivery date. If the delivery date are not met, the loan gets rolled over and interest will be charged.
The high risk of using a maximum margin can be neutralized by using a stop-loss order, which is a pre-determined exit point chosen by you. Say for example you enter the market with $150,000 at the buying price of 1.1885 expecting the USD/EUR to soar but instead of going up, the market crashed. If you have placed a stop-loss order upon your purchase, say, at the price of 1.1850, your loss will be minimal as you are guaranteed to exit at that price point. Even if the market were to crash to 1.050, you have taken the necessary precaution to limit your risk.
Wednesday 5 May 2010
STOP LOSS AND TAKE PROFIT
Arguably, the stop loss and take profit orders are the two most important order types for foreign exchange traders. The two orders are essentially orders on top of another order. The stop loss allows you to determine at what price you want to cut your losing trades and the take profit allows you to enter what price you’d like to close a position for a profit.
The Stop Loss
A stop loss should be entered for each and every trade you ever make on the foreign exchange market. A stop loss prevents you from runaway losers, due to the fact that it will automatically close a losing position before your account balance is depleted. It would never be recommended to trade without a stop loss as doing so is like risking your entire account balance on one trade.
If you were to buy a lot of GBP/USD but wished not to lose more than $250 on this single trade, you would set your stop loss 25 pips below the price at which you entered the trade. If you bought GBP/USD at $1.50, you’d want to enter a stop loss at $1.4975, thus preventing a loss greater than $250.
The Trailing Stop
The trailing stop is a different kind of stop loss order offered by a few brokerage accounts. Many investors, particularly momentum traders, like to use trailing stops to both limit their losses, and also to lock in gains. The trailing stop lags the current price by the amount set. For instance, if you were to buy EUR/USD at 1.3150, and wish to lose no more than 50 pips, your trailing stop would sit at 1.3100. If the price were to advance to 1.3175, your trailing stop would then move to 1.3125, lagging the market by the 50 pip differential that you set.
The trailing stop is a more advanced type of stop loss but can be used by any trader. Ultimately, the trailing stop will activate at a price that is X number of pips lower than the price you set. If the EUR/USD was to advance from 1.3150 to 1.3350 without ever dipping more than 50 pips at any given time, you would be in the position all the way to 1.3350. If it had dipped deeper than 50 pips, your stop loss would have been executed.
Take Profits
Take profit orders are the opposite of a stop loss. The take profit is a price at which you would like to close your position for a profit, above or below the current price of the currency. Just like a stop loss, you can enter this order either during your initial entry to buy a currency, or after, and it can be changed at any time.
The Stop Loss
A stop loss should be entered for each and every trade you ever make on the foreign exchange market. A stop loss prevents you from runaway losers, due to the fact that it will automatically close a losing position before your account balance is depleted. It would never be recommended to trade without a stop loss as doing so is like risking your entire account balance on one trade.
If you were to buy a lot of GBP/USD but wished not to lose more than $250 on this single trade, you would set your stop loss 25 pips below the price at which you entered the trade. If you bought GBP/USD at $1.50, you’d want to enter a stop loss at $1.4975, thus preventing a loss greater than $250.
The Trailing Stop
The trailing stop is a different kind of stop loss order offered by a few brokerage accounts. Many investors, particularly momentum traders, like to use trailing stops to both limit their losses, and also to lock in gains. The trailing stop lags the current price by the amount set. For instance, if you were to buy EUR/USD at 1.3150, and wish to lose no more than 50 pips, your trailing stop would sit at 1.3100. If the price were to advance to 1.3175, your trailing stop would then move to 1.3125, lagging the market by the 50 pip differential that you set.
The trailing stop is a more advanced type of stop loss but can be used by any trader. Ultimately, the trailing stop will activate at a price that is X number of pips lower than the price you set. If the EUR/USD was to advance from 1.3150 to 1.3350 without ever dipping more than 50 pips at any given time, you would be in the position all the way to 1.3350. If it had dipped deeper than 50 pips, your stop loss would have been executed.
Take Profits
Take profit orders are the opposite of a stop loss. The take profit is a price at which you would like to close your position for a profit, above or below the current price of the currency. Just like a stop loss, you can enter this order either during your initial entry to buy a currency, or after, and it can be changed at any time.
BASIC PRINCIPLES OF FOREX TRADING
We feel that there are a few basic forex principles that separate successful traders from those that fail:
1. Trading is an investment not an income.
It is important to have a realistic expectation of what you can achieve through forex trading. The nature of trading is such that you may make a good return on your initial capital over an annual period, but during that period you may have a number of consecutive losing months, with only a few bumper months inbetween. Therefore, even daytraders cannot claim to make a fixed amount per month which equates to a salary. You need to have another source of income to support yourself while trading forex. NEVER borrow money to trade with.
2. You can't predict the forex markets.
The forex markets are influenced by billions of traders, economic and political events. You simply cannot predict the direction and manner in which the markets will move.
Technical and fundamental analysis does much to provide a more educated guess than a simple coin toss but it is important to realise that each of these techniques will have a large failure rate. You will lose a large percentage of the time. Sometimes you will lose on more trades than you gain on. However, it is still possible to make money under these conditions by employing sound money management forex principles.
3. Let profits ride and cut your losses
The only way to make money from forex trading (or any form of trading) is by making enough money on your winning trades to cover your losses and to gain additional profit to grow your capital. This means letting your profitable trades ride and cutting your losses early. It is harder to put into practice than it sounds as psycologically it is much easier to "marry" your losing trades in the hope that the market will turn in your favour and grabbing your profit too soon when you see your hard earned gains slipping away as the market temporarily turns against you.
4. Trade according to a tried and tested system
This is one of the most important forex principles. The only way to cut out emotion in trading and adopt a more business-like and informed approach is to use a system of rules that have been developed and tested on market data. In this way, all the trade decisions have already been made before you even enter the forex market. This is a much less time consuming and less stressful way to trade for a living.
5. Employ a sound money management strategy
In our opinion, money management is the single most important aspect of any trading system and is badly neglected by forex beginners. It enables the trader to fully utilise their capital to grow their money as fast as possible while protecting them from excessive losses and final account blow out.
6. Don't ignore the fundamentals
Fundamental economic principles drive the foreign exchange rates of the world over the long term. However, they have minimal effect over the short-term and are thus not reliable to use for daytrading decisions.
Having said that, economic announcements sometimes have a profound effect on the markets, causing movements of hundreds of pips in a matter of hours. Therefore forex beginners ignore them at their peril!
7. Don't put your faith in the expert's recommendations and comments
There are literally hundreds of forex companies providing trading signals, daily commentary and trading recommendations. While it may be useful to read some of these to get an outside opinion, it can just be information overload for newcomers to the forex market, creating indecision and stress! Believe in your system and trade accordingly.
1. Trading is an investment not an income.
It is important to have a realistic expectation of what you can achieve through forex trading. The nature of trading is such that you may make a good return on your initial capital over an annual period, but during that period you may have a number of consecutive losing months, with only a few bumper months inbetween. Therefore, even daytraders cannot claim to make a fixed amount per month which equates to a salary. You need to have another source of income to support yourself while trading forex. NEVER borrow money to trade with.
2. You can't predict the forex markets.
The forex markets are influenced by billions of traders, economic and political events. You simply cannot predict the direction and manner in which the markets will move.
Technical and fundamental analysis does much to provide a more educated guess than a simple coin toss but it is important to realise that each of these techniques will have a large failure rate. You will lose a large percentage of the time. Sometimes you will lose on more trades than you gain on. However, it is still possible to make money under these conditions by employing sound money management forex principles.
3. Let profits ride and cut your losses
The only way to make money from forex trading (or any form of trading) is by making enough money on your winning trades to cover your losses and to gain additional profit to grow your capital. This means letting your profitable trades ride and cutting your losses early. It is harder to put into practice than it sounds as psycologically it is much easier to "marry" your losing trades in the hope that the market will turn in your favour and grabbing your profit too soon when you see your hard earned gains slipping away as the market temporarily turns against you.
4. Trade according to a tried and tested system
This is one of the most important forex principles. The only way to cut out emotion in trading and adopt a more business-like and informed approach is to use a system of rules that have been developed and tested on market data. In this way, all the trade decisions have already been made before you even enter the forex market. This is a much less time consuming and less stressful way to trade for a living.
5. Employ a sound money management strategy
In our opinion, money management is the single most important aspect of any trading system and is badly neglected by forex beginners. It enables the trader to fully utilise their capital to grow their money as fast as possible while protecting them from excessive losses and final account blow out.
6. Don't ignore the fundamentals
Fundamental economic principles drive the foreign exchange rates of the world over the long term. However, they have minimal effect over the short-term and are thus not reliable to use for daytrading decisions.
Having said that, economic announcements sometimes have a profound effect on the markets, causing movements of hundreds of pips in a matter of hours. Therefore forex beginners ignore them at their peril!
7. Don't put your faith in the expert's recommendations and comments
There are literally hundreds of forex companies providing trading signals, daily commentary and trading recommendations. While it may be useful to read some of these to get an outside opinion, it can just be information overload for newcomers to the forex market, creating indecision and stress! Believe in your system and trade accordingly.
TECHNICAL ANALYSIS
Charting price data is very important. Charts shows you the history of the currencies behaviour over time and therefore provides much more information than simply looking at a single quote of the present rate. Adding technical indicators to the charts allows you to view the price data in an alternative manner which yields even more information. Therefore, it is important to know at least the basics of technical analysis and the information you can gain from it.
There is a multitude of information available about technical analysis on the Internet. Therefore, it is not necessary to rush out and buy a number of books on the subject. On this web site we seek to provide an introduction to the subject only to enable readers to research the subject themselves more fully.
What is technical analysis?
Technical analysis comprises a number of different techniques:
* Price data can be represented as lines, candles, bars or point and figure (P&F) charts. Each representation yields unique information about the data.
* Trend, channel, Fibonacci, Gann and other lines can be plotted on the charts to delineate and clarify price trends, ranges or other patterns.
* Technical indicators can be calculated and plotted on or under the charts.
Trend Lines
Trend lines are drawn by joining the lows (support line) or the peaks (resistance line) of the price data. This helps to clarify existing trends and produces clear exit criteria as the trend has ended when the price breaks through a resistance or support line. The problem with trend lines is that you are only able to draw them once a trend is well established, by which time it is too late to enter a trade. Also, trend lines are very subjective, no two people will agree on exactly where they should be drawn. This allows emotion to creap into your trading.
There is a multitude of information available about technical analysis on the Internet. Therefore, it is not necessary to rush out and buy a number of books on the subject. On this web site we seek to provide an introduction to the subject only to enable readers to research the subject themselves more fully.
What is technical analysis?
Technical analysis comprises a number of different techniques:
* Price data can be represented as lines, candles, bars or point and figure (P&F) charts. Each representation yields unique information about the data.
* Trend, channel, Fibonacci, Gann and other lines can be plotted on the charts to delineate and clarify price trends, ranges or other patterns.
* Technical indicators can be calculated and plotted on or under the charts.
Trend Lines
Trend lines are drawn by joining the lows (support line) or the peaks (resistance line) of the price data. This helps to clarify existing trends and produces clear exit criteria as the trend has ended when the price breaks through a resistance or support line. The problem with trend lines is that you are only able to draw them once a trend is well established, by which time it is too late to enter a trade. Also, trend lines are very subjective, no two people will agree on exactly where they should be drawn. This allows emotion to creap into your trading.
TRADING PSYCHOLOGY
Trading, and currency trading in particular, is associated with a high level of risk. It is not uncommon to lose thousands of dollars in a matter of seconds. Therefore, success in trading largely depends on controlling your emotions and adopting the right attitude.
Trading is an emotional rollercoaster
It is a very natural human tendancy to want to stay in a losing trade in the hope that the market will turn in your favour and you can regain your losses to close your trade at a more financially acceptable level. Similarly, when you are making a profit it is very hard not to grab what you can get while you're up, instead of riding out the trend even if the market temporarily turns against you.
However, as our basic principles state, the only way to make money in forex trading is to let your profits ride and to cut your losses quickly. This is because there is a very narrow margin between making an overall profit and blowing your account since you will have a large number of losing trades, no matter how good your trading system is or how lucky you are. How you manage your losses and gains makes the difference between a successful and unsuccessful trader.
In our opinion, the only way to control your emotion is to trade according to a system or set of rules. Your system should be comprehensive enough to cover any eventuality arising in the markets so that you never need to make any decisions while in a trade. You simply follow a set of predetermined rules.
Chat Forums
Forex trading is a very lonely occupation as you sit behind a computer terminal all day, isolated from the world. This in itself is enough to make you feel very depressed and despondent. Subscribing to forex chat forums will help to alleviate some of the loneliness. At least then you get some insight into the lives of other traders around the world and you can get an opportunity to interact with them.
Trading is an emotional rollercoaster
It is a very natural human tendancy to want to stay in a losing trade in the hope that the market will turn in your favour and you can regain your losses to close your trade at a more financially acceptable level. Similarly, when you are making a profit it is very hard not to grab what you can get while you're up, instead of riding out the trend even if the market temporarily turns against you.
However, as our basic principles state, the only way to make money in forex trading is to let your profits ride and to cut your losses quickly. This is because there is a very narrow margin between making an overall profit and blowing your account since you will have a large number of losing trades, no matter how good your trading system is or how lucky you are. How you manage your losses and gains makes the difference between a successful and unsuccessful trader.
In our opinion, the only way to control your emotion is to trade according to a system or set of rules. Your system should be comprehensive enough to cover any eventuality arising in the markets so that you never need to make any decisions while in a trade. You simply follow a set of predetermined rules.
Chat Forums
Forex trading is a very lonely occupation as you sit behind a computer terminal all day, isolated from the world. This in itself is enough to make you feel very depressed and despondent. Subscribing to forex chat forums will help to alleviate some of the loneliness. At least then you get some insight into the lives of other traders around the world and you can get an opportunity to interact with them.
Tuesday 4 May 2010
EMA
Exponential Moving Average (EMA)
Although the simple moving average is a great tool, there is one major flaw associated with it. Simple moving averages are very susceptible to spikes. Let me show you an example of what I mean:
Let’s say we plot a 5 period SMA on the daily chart of the EUR/USD and the closing prices for the last 5 days are as follows:
Day 1: 1.2345
Day 2: 1.2350
Day 3: 1.2360
Day 4: 1.2365
Day 5: 1.2370
The simple moving average would be calculated as
(1.2345+1.2350+1.2360+1.2365+1.2370)/5= 1.2358
Simple enough right?
Well what if Day 2’s price was 1.2300? The result of the simple moving average would be a lot lower and it would give you the notion that the price was actually going down, when in reality, Day 2 could have just been a one time event (maybe interest rates decreasing).
The point I’m trying to make is that sometimes the simple moving average might be too simple. If only there was a way that you could filter out these spikes so that you wouldn’t get the wrong idea. Hmmmm…I wonder….Wait a minute……Yep, there is a way!
It’s called the Exponential Moving Average!
Exponential moving averages (EMA) give more weight to the most recent periods. In our example above, the EMA would put more weight on Days 3-5, which means that the spike on Day 2 would be of lesser value and wouldn’t affect the moving average as much. What this does is it puts more emphasis on what traders are doing NOW.
When trading, it is far more important to see what traders are doing now rather than what they did last week or last month.
Although the simple moving average is a great tool, there is one major flaw associated with it. Simple moving averages are very susceptible to spikes. Let me show you an example of what I mean:
Let’s say we plot a 5 period SMA on the daily chart of the EUR/USD and the closing prices for the last 5 days are as follows:
Day 1: 1.2345
Day 2: 1.2350
Day 3: 1.2360
Day 4: 1.2365
Day 5: 1.2370
The simple moving average would be calculated as
(1.2345+1.2350+1.2360+1.2365+1.2370)/5= 1.2358
Simple enough right?
Well what if Day 2’s price was 1.2300? The result of the simple moving average would be a lot lower and it would give you the notion that the price was actually going down, when in reality, Day 2 could have just been a one time event (maybe interest rates decreasing).
The point I’m trying to make is that sometimes the simple moving average might be too simple. If only there was a way that you could filter out these spikes so that you wouldn’t get the wrong idea. Hmmmm…I wonder….Wait a minute……Yep, there is a way!
It’s called the Exponential Moving Average!
Exponential moving averages (EMA) give more weight to the most recent periods. In our example above, the EMA would put more weight on Days 3-5, which means that the spike on Day 2 would be of lesser value and wouldn’t affect the moving average as much. What this does is it puts more emphasis on what traders are doing NOW.
When trading, it is far more important to see what traders are doing now rather than what they did last week or last month.
SIX STEPS
Setup Your System in Six Steps
My “So Easy It’s Ridiculous” System
In this section I will give you an idea of what a trading system should look like. This should give you an idea of what you should be looking for when you develop your system.
Trading Setup
* Trade on daily chart (swing trading)
* 5 EMA applied to the close
* 10 EMA applied to the close
* Stochastic (10,3,3)
* RSI (14)
Trading Rules
# Stop Loss = 30 pips
# Entry Rules
1. Enter long if:
* The 5 EMA crosses above the 10 EMA and both stochastic lines are heading up (do not enter if the stochastic lines are already in the overbought territory)
* RSI is greater than 50
2. Enter short if:
* The 5 EMA crosses below the 10 EMA and both stochastic lines are heading down AND (do not enter if the stochastic lines are already in oversold territory)
* RSI is less than 50
# Exit Rules
* Exit when the 5 EMA crosses the 10 EMA in the opposite direction of your trade OR if RSI crosses back to 50
Okay, let's take a look at some charts and see this baby in action...
My “So Easy It’s Ridiculous” System
In this section I will give you an idea of what a trading system should look like. This should give you an idea of what you should be looking for when you develop your system.
Trading Setup
* Trade on daily chart (swing trading)
* 5 EMA applied to the close
* 10 EMA applied to the close
* Stochastic (10,3,3)
* RSI (14)
Trading Rules
# Stop Loss = 30 pips
# Entry Rules
1. Enter long if:
* The 5 EMA crosses above the 10 EMA and both stochastic lines are heading up (do not enter if the stochastic lines are already in the overbought territory)
* RSI is greater than 50
2. Enter short if:
* The 5 EMA crosses below the 10 EMA and both stochastic lines are heading down AND (do not enter if the stochastic lines are already in oversold territory)
* RSI is less than 50
# Exit Rules
* Exit when the 5 EMA crosses the 10 EMA in the opposite direction of your trade OR if RSI crosses back to 50
Okay, let's take a look at some charts and see this baby in action...
TRADING THE NEWS
Trading the News
Trading the news is becoming a popular technique to trade the forex markets … and why shouldn’t it be? Time and time again you see currency pairs move 50 to 100 pips within minutes or even seconds after a major news release. When you see that, I bet you’re thinking, “50 to 100 pips!? That’s easy money!” Maybe it is, and maybe it isn’t. It all depends on how prepared you are to trade a news release.
The goal of this lesson isn’t to give you a specific “Trading the News” strategy. The goal is to point you in the right direction and show some of the risks involved with trading these events, because here at BabyPips.com, we want to help you help yourself in developing your own methods that fit YOU best.
Why Trade the News?
Trading news releases can be a significant tool in your trading arsenal. If you want, it can be your only weapon altogether. Economic news reports often spur strong short-term moves in the market, which are great trading opportunities for breakout traders. And with the forex being open 24 hours a day and a true worldwide market, there are plenty of opportunities almost every trading day to catch market volatility (aka a lot of pips!) kicked off by an economic news report.
Advertisement
Which Pairs Should I Trade?
Here is a list of the top currencies and countries in which you should focus on for news trading:
Symbol Country Currency Nickname
USD United States Dollar Buck
EUR European Union 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
Now, there are plenty more currencies available to trade, but this list is based on the size of each country’s economy, frequency of news releases and the trading liquidity of their currency.
When are News Releases uh Released?
The list below displays the times when the most important economic data are released for each of the countries. Make sure you know them or go broke.
Symbol Country Time (GMT)
USD United States 13:30 - 15:00
EUR Germany 07:00 - 11:00
EUR France 07:45 - 09:00
EUR Italy 08:45 - 10:00
JPY Japan 23:50 - 04:30
GBP Great Britain 07:00 - 09:30
CHF Switzerland 06:45 - 10:30
CAD Canada 12:00 - 13:30
AUD Australia 22:30 - 00:30
NZD New Zealand 21:45 - 02:00
Trading the news is becoming a popular technique to trade the forex markets … and why shouldn’t it be? Time and time again you see currency pairs move 50 to 100 pips within minutes or even seconds after a major news release. When you see that, I bet you’re thinking, “50 to 100 pips!? That’s easy money!” Maybe it is, and maybe it isn’t. It all depends on how prepared you are to trade a news release.
The goal of this lesson isn’t to give you a specific “Trading the News” strategy. The goal is to point you in the right direction and show some of the risks involved with trading these events, because here at BabyPips.com, we want to help you help yourself in developing your own methods that fit YOU best.
Why Trade the News?
Trading news releases can be a significant tool in your trading arsenal. If you want, it can be your only weapon altogether. Economic news reports often spur strong short-term moves in the market, which are great trading opportunities for breakout traders. And with the forex being open 24 hours a day and a true worldwide market, there are plenty of opportunities almost every trading day to catch market volatility (aka a lot of pips!) kicked off by an economic news report.
Advertisement
Which Pairs Should I Trade?
Here is a list of the top currencies and countries in which you should focus on for news trading:
Symbol Country Currency Nickname
USD United States Dollar Buck
EUR European Union 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
Now, there are plenty more currencies available to trade, but this list is based on the size of each country’s economy, frequency of news releases and the trading liquidity of their currency.
When are News Releases uh Released?
The list below displays the times when the most important economic data are released for each of the countries. Make sure you know them or go broke.
Symbol Country Time (GMT)
USD United States 13:30 - 15:00
EUR Germany 07:00 - 11:00
EUR France 07:45 - 09:00
EUR Italy 08:45 - 10:00
JPY Japan 23:50 - 04:30
GBP Great Britain 07:00 - 09:30
CHF Switzerland 06:45 - 10:30
CAD Canada 12:00 - 13:30
AUD Australia 22:30 - 00:30
NZD New Zealand 21:45 - 02:00
Monday 3 May 2010
THE BEST WAY TO CASH FX BENEFITS
Forex or FX is the largest currency trading market with trillions of Dollars being traded every day. What makes Forex different and unique from the other trading markets is the fact that it is a whole new future of the traditional trading system, powered by Internet. Forex may not be easy but is definitely the most beneficial trading market, and with a good course and some guidance in Forex trading, you can enjoy every trading benefit of this extensive money market.
Following are some of the benefits of Forex and Forex trading:
- Forex is operated by an electronic medium Internet, thus can be accessed anywhere and at anytime
- Forex deals with both major and minor currencies
- Forex offers various trading options like day trading and long time trading
- Forex also provides risk management keys like ‘Stop Loss’
- Forex offers you leverage to manage your trading investments
- Forex ‘brokers’ help you manage your trading
- Forex has a large sum of money being traded every second
With so many benefits, Forex is one of the profitable yet definitely not one of the easiest markets to deal in. Good training in Forex trading helps novice traders in learning the ‘strategy making’ while handling sudden ups and downs in the currency rates, as any move without a back up plan can radically effect your investment and cause you an unpredictable loss.
A good trading course in Forex can teach you all the right moves you need to make to ensure that your trading deals pay you well and more. While trading one currency with another there are various factors that should be taken into consideration and a good Forex trading course teaches you to how to trade without committing blunders, predicting future movements and foreseeing exit points when you should stop trading.
Although in Forex you have experienced brokers to rely on, but even managing a broker well and aptly assessing his need in every step of your trading takes a lot of good guidance and knowledge. With the right Forex trading course, you can not just become an expert in Forex trading but can also find new ways to get a fair deal for your investments.
The 24/7 accessibility to this money market helps you trade more, and hence earn good by performing simple buying and selling. To make you are strongly based in the Forex market, all you need is some good guidance and knowledge of the latest trading tactics as well as awareness about the past and future trading trends, and that is exactly where the Forex Trading course comes in handy.
Following are some of the benefits of Forex and Forex trading:
- Forex is operated by an electronic medium Internet, thus can be accessed anywhere and at anytime
- Forex deals with both major and minor currencies
- Forex offers various trading options like day trading and long time trading
- Forex also provides risk management keys like ‘Stop Loss’
- Forex offers you leverage to manage your trading investments
- Forex ‘brokers’ help you manage your trading
- Forex has a large sum of money being traded every second
With so many benefits, Forex is one of the profitable yet definitely not one of the easiest markets to deal in. Good training in Forex trading helps novice traders in learning the ‘strategy making’ while handling sudden ups and downs in the currency rates, as any move without a back up plan can radically effect your investment and cause you an unpredictable loss.
A good trading course in Forex can teach you all the right moves you need to make to ensure that your trading deals pay you well and more. While trading one currency with another there are various factors that should be taken into consideration and a good Forex trading course teaches you to how to trade without committing blunders, predicting future movements and foreseeing exit points when you should stop trading.
Although in Forex you have experienced brokers to rely on, but even managing a broker well and aptly assessing his need in every step of your trading takes a lot of good guidance and knowledge. With the right Forex trading course, you can not just become an expert in Forex trading but can also find new ways to get a fair deal for your investments.
The 24/7 accessibility to this money market helps you trade more, and hence earn good by performing simple buying and selling. To make you are strongly based in the Forex market, all you need is some good guidance and knowledge of the latest trading tactics as well as awareness about the past and future trading trends, and that is exactly where the Forex Trading course comes in handy.
STOP LOSS
In this article we will discuss the various ways to implement a stop loss order. Every trader who has had dealings in any of the financial markets is familiar with placing and executing a stop loss order, but many are mistaken that a stop loss order is always numerical. On the contrary, there are many traders (even professional hedge fund managers) who use what is colloquially termed a “mental stop” which stop is a stop loss point determined by factors other than the price, such as events, volatility, volume, option positioning, or any other comparable data. Such a stop is no less valid than a numerical one, and certainly no less effective, but one does need a lot more discipline to execute it successfully.
The great advantage of a non-numerical stop-loss order is its partial immunity to price swings. If the trader has confidence in his analysis, and is satisfied that standing firm in the face of market volatility is sensible and acceptable given the major dynamics and currents in the market, maintaining positions with non-numerical stop loss orders can be advisable and lucrative. In order to manage the inevitable large swings in account value, professional managers will implement hedging strategies in addition to money management methods, to control and minimize the volatility of the portfolio. Thus, even if the mental stop triggers a large drawndown in our position, we can minimize the effect on the portfolio through diversifying and distributing the risk among various currency pairs.
Let us examine the various ways of implementing a stop-loss order now.
Equity Stop
An equity stop is one where the position will be closed in case the total equity in an account falls below a certain value. A stop loss at 2 percent of total equity is generally regarded as a conservative strategy, while the maximum is 5 percent for most money management methods. Thus, to give an example, a 1000 USD account would have the stop loss for an open position at the point where to the total equity would fall below 980 USD.
Both the disadvantage, and the advantage of the equity stop is its inflexibility. The equity stop provides a very solid criterion for deciding on the success or failure of a single trade, as there’s no way of being mistaken about an account in the red. On the other hand, the same inflexibility may prevent the trade from functioning as expected. The markets are volatile, and a trade that has a perfectly valid cause behind it may yet be invalidated by the random fluctuations that are not predictable.
Another important problem with the equity stop is its inability to prevent a string of losses. For instance, when the trader closes a position at a two percent loss, there’s nothing that will prevent him from opening another position in the same direction (buy or sell) a short while later, if the causes that justified the first trade are still in place. For instance, if the trader enters a sell order when the RSI is above 80, and consequently the stop loss is triggered, and the position closed, there’s little that will prevent the same events from being repeated if the price action repeats the same movements. In order to avoid this pitfall, the trader can tie the stop loss point to a non-price factor, and the rest of this article discusses such scenarios.
Chart Stop
In a chart stop, the trader will place the stop loss order not at a price point, but at a chart point which may be static or dynamic. For instance, a stop loss order may be placed at a fibonacci level, which would be a static value. On the other hand, the trader may use an API (an automated trading system), or mentally prepare himself to close the position if a technical event, such as a crossover, a breakout, or divergence occurs, which would constitute a dynamic stop-loss point. In all these cases, technical analysis generates the triggers and determines the price where the position must be closed.
The chart stop is more flexible and reliable than a direct equity stop, because it adjusts to price action and volatility, and is therefore somewhat independent of the random movements of the price. The problem with the chart stop is twofold. First, the technical indicator used to generate the signals may fail to capture the change of the market trend, resulting in large losses. The other, and obvious problem is related to the indirect character of the stop-loss mechanism. Because the order is independent of the price, it may not be able to cut losses as effectively as a direct equity stop, and larger than expected losses may materialize as a result.
Volatility Stop
A volatility stop depends on volatility indicators, such as the VIX for determining the exit point for the trade. As such, market panics and shocks will cause the order to be executed, but mere price fluctuations in the currency market which lack their counterpart in other asset classes will be ignored for the most part. The trader who utilizes a volatility stop expresses the opinion that unless a major, unexpected shock hits the market, his position should be held regardless of the behavior of the markets. This is a more risky strategy than the equity stop, but can be profitable and valid depending on market conditions and the economic environment. In general, it is doubtful that a volatility stop can be very useful in a very nervous and volatile market. But it could be very helpful in maintaining a long-term position where risk perception is low.
The volatility stop is sensitive to prices, but only in an indirect manner, and its nature is similar to the chart stop. It is useful for eliminating very short term distortions from our analysis, and allows us greater resilience in the face of noise in the data.
Volatility may fail to react to market swings. Sometimes a large fall in the market has no equivalent rise in the various volatility gauges. Similarly, volatility can at times rise without any obvious corresponding price action. Consequently, a volatility stop (and similar stops based on non-price data) can be triggered even before a trade is in the red. All these must be kept in mind if the trader decides to use this type of stop order.
Volume Stop
When the trader expects an ongoing trend to be reversed or invalidated subsequent to a change in volume, a volume stop maybe appropriate. While volume statistics are not available for the forex market, positioning as depicted by the COT report can be used for establishing this type of stop. For utilizing the order, the trader determines a percentage value on futures positioning above or below which the position must be liquidated, depending on market conditions and the nature of the order. In the same context, other types of data can also be used to generate a stop loss trigger point. A particular put/call ratio, or option risk reversal value may all be chosen to provide the equivalent of a volume stop in the stock market.
In example, let’s consider a trader who opens a short position in a carry trader pair, confirming his trade by developments in the stock market. His expectation is that the recent rise in the stock market indexes (and the corresponding rise in the carry pairs) occurred on low volume, and will soon be reversed in the absence of new money flows. Consequently, he places his stop-loss at a volume level which, if reached in a rising market, will invalidate the starting premise, and cause the position to be liquidated. When this occurs, and volume rises above the preconceived level, the trader will close his short position in the carry trade pair.
Margin Stop
The margin stop is not really a stop loss order, but the absence of it. In this case the trader will let his account absorb the unrealized losses until a margin call is triggered, and a large part of the account is gone. The margin stop is a sign of indiscipline and lack of insight, because a diligent trader will always predetermine the conditions that will lead to the closing and liquidation of a position. Since not even the brightest analyst is capable of predicting the future with any certainty, lack of a stop loss order is an indefensible practice.
Notwithstanding the previous, the margin stop is a popular choice among many traders who are unable to remain calm in the face of the great emotional pressures of trading. It is only viable under really low leverage such as 2:1, and even then a margin stop would not be the best choice. At much higher leverage, the margin stop is completely indefensible, and should be avoided altogether
Event Stop
Fundamental analysts do make use of technical tools, if only for determining the trigger points for a trade. Take profit, and stop loss orders are used by almost every trader in the world, and its is unthinkable that a serious analyst will not have a condition, at least in mind, for closing an open position, however convinced he may be of its ultimate validity.
But fundamental analysts are not limited to technical tools and the price action for determining when to exit a trade. The event stop that we would like to discuss here is a tool that the trader can use to determine a trade’s exit point.
When using the event stop, the trader will ignore the price action for the most part (and will use low leverage), and will only close a position in the red when the scenario he had pictured in his mind becomes contradicted by events. For instance, a trader is anticipating that Bank A will be nationalized by the authorities of Nation X, and he expects that this will lead to X’s currency depreciating against its counterparts. In consequence, he shorts it. He will refuse to close the position until authorities confirm and clarify, in a solid and unmistakable fashion, that they will refuse to nationalize Bank A. In the meantime, he will be willing to put up with all the rumors, extreme swings, and short term fluctuations in the market without worrying about the unrealized profit or loss in his account.
As we mentioned at the beginning, the event stop is for those traders who know what they do, and who possess the track record, the intellectual background, and the confidence to use it. But do not take our word in order to evaluate your own skills; you should know yourself better than anybody else, and if you believe that you understand the economic dynamics of the era, and can defend your claim in your trading activities, you will be perfectly capable of using the event stop.
Conclusion
The best choice for the beginner is the equity stop. During the learning process, the trader can concentrate on bettering his understanding of the markets without worrying about excessive losses. Once the trader gains a good understanding of market dynamics, and is able to form and implement his trading plans, the equity stop will quickly lose its attractiveness.
The best method for using the non-price stop orders is combining them with a wide equity stop which will serve as a final safety precaution in case the price action becomes too dangerous. For instance, a trader can long the EUR/JPY pair and hold it indefinitely until the VIX registers a value above 35, where a v9olatility stop would be placed. At the same time he will protect himself from extreme, and unexpected swings by placing an equity stop at 5-7 percent of total equity. Thus, unless a very large price swing completely overruns the main criterion for the stop loss order, and triggers the equity stop, the trade would be maintained indefinitely.
Needless to say, every trader will have his own choices on stop loss orders. And we would like to conclude this section by noting that the key to a successful stop-loss order is a disciplined risk management strategy, and everything else is just detail.
The great advantage of a non-numerical stop-loss order is its partial immunity to price swings. If the trader has confidence in his analysis, and is satisfied that standing firm in the face of market volatility is sensible and acceptable given the major dynamics and currents in the market, maintaining positions with non-numerical stop loss orders can be advisable and lucrative. In order to manage the inevitable large swings in account value, professional managers will implement hedging strategies in addition to money management methods, to control and minimize the volatility of the portfolio. Thus, even if the mental stop triggers a large drawndown in our position, we can minimize the effect on the portfolio through diversifying and distributing the risk among various currency pairs.
Let us examine the various ways of implementing a stop-loss order now.
Equity Stop
An equity stop is one where the position will be closed in case the total equity in an account falls below a certain value. A stop loss at 2 percent of total equity is generally regarded as a conservative strategy, while the maximum is 5 percent for most money management methods. Thus, to give an example, a 1000 USD account would have the stop loss for an open position at the point where to the total equity would fall below 980 USD.
Both the disadvantage, and the advantage of the equity stop is its inflexibility. The equity stop provides a very solid criterion for deciding on the success or failure of a single trade, as there’s no way of being mistaken about an account in the red. On the other hand, the same inflexibility may prevent the trade from functioning as expected. The markets are volatile, and a trade that has a perfectly valid cause behind it may yet be invalidated by the random fluctuations that are not predictable.
Another important problem with the equity stop is its inability to prevent a string of losses. For instance, when the trader closes a position at a two percent loss, there’s nothing that will prevent him from opening another position in the same direction (buy or sell) a short while later, if the causes that justified the first trade are still in place. For instance, if the trader enters a sell order when the RSI is above 80, and consequently the stop loss is triggered, and the position closed, there’s little that will prevent the same events from being repeated if the price action repeats the same movements. In order to avoid this pitfall, the trader can tie the stop loss point to a non-price factor, and the rest of this article discusses such scenarios.
Chart Stop
In a chart stop, the trader will place the stop loss order not at a price point, but at a chart point which may be static or dynamic. For instance, a stop loss order may be placed at a fibonacci level, which would be a static value. On the other hand, the trader may use an API (an automated trading system), or mentally prepare himself to close the position if a technical event, such as a crossover, a breakout, or divergence occurs, which would constitute a dynamic stop-loss point. In all these cases, technical analysis generates the triggers and determines the price where the position must be closed.
The chart stop is more flexible and reliable than a direct equity stop, because it adjusts to price action and volatility, and is therefore somewhat independent of the random movements of the price. The problem with the chart stop is twofold. First, the technical indicator used to generate the signals may fail to capture the change of the market trend, resulting in large losses. The other, and obvious problem is related to the indirect character of the stop-loss mechanism. Because the order is independent of the price, it may not be able to cut losses as effectively as a direct equity stop, and larger than expected losses may materialize as a result.
Volatility Stop
A volatility stop depends on volatility indicators, such as the VIX for determining the exit point for the trade. As such, market panics and shocks will cause the order to be executed, but mere price fluctuations in the currency market which lack their counterpart in other asset classes will be ignored for the most part. The trader who utilizes a volatility stop expresses the opinion that unless a major, unexpected shock hits the market, his position should be held regardless of the behavior of the markets. This is a more risky strategy than the equity stop, but can be profitable and valid depending on market conditions and the economic environment. In general, it is doubtful that a volatility stop can be very useful in a very nervous and volatile market. But it could be very helpful in maintaining a long-term position where risk perception is low.
The volatility stop is sensitive to prices, but only in an indirect manner, and its nature is similar to the chart stop. It is useful for eliminating very short term distortions from our analysis, and allows us greater resilience in the face of noise in the data.
Volatility may fail to react to market swings. Sometimes a large fall in the market has no equivalent rise in the various volatility gauges. Similarly, volatility can at times rise without any obvious corresponding price action. Consequently, a volatility stop (and similar stops based on non-price data) can be triggered even before a trade is in the red. All these must be kept in mind if the trader decides to use this type of stop order.
Volume Stop
When the trader expects an ongoing trend to be reversed or invalidated subsequent to a change in volume, a volume stop maybe appropriate. While volume statistics are not available for the forex market, positioning as depicted by the COT report can be used for establishing this type of stop. For utilizing the order, the trader determines a percentage value on futures positioning above or below which the position must be liquidated, depending on market conditions and the nature of the order. In the same context, other types of data can also be used to generate a stop loss trigger point. A particular put/call ratio, or option risk reversal value may all be chosen to provide the equivalent of a volume stop in the stock market.
In example, let’s consider a trader who opens a short position in a carry trader pair, confirming his trade by developments in the stock market. His expectation is that the recent rise in the stock market indexes (and the corresponding rise in the carry pairs) occurred on low volume, and will soon be reversed in the absence of new money flows. Consequently, he places his stop-loss at a volume level which, if reached in a rising market, will invalidate the starting premise, and cause the position to be liquidated. When this occurs, and volume rises above the preconceived level, the trader will close his short position in the carry trade pair.
Margin Stop
The margin stop is not really a stop loss order, but the absence of it. In this case the trader will let his account absorb the unrealized losses until a margin call is triggered, and a large part of the account is gone. The margin stop is a sign of indiscipline and lack of insight, because a diligent trader will always predetermine the conditions that will lead to the closing and liquidation of a position. Since not even the brightest analyst is capable of predicting the future with any certainty, lack of a stop loss order is an indefensible practice.
Notwithstanding the previous, the margin stop is a popular choice among many traders who are unable to remain calm in the face of the great emotional pressures of trading. It is only viable under really low leverage such as 2:1, and even then a margin stop would not be the best choice. At much higher leverage, the margin stop is completely indefensible, and should be avoided altogether
Event Stop
Fundamental analysts do make use of technical tools, if only for determining the trigger points for a trade. Take profit, and stop loss orders are used by almost every trader in the world, and its is unthinkable that a serious analyst will not have a condition, at least in mind, for closing an open position, however convinced he may be of its ultimate validity.
But fundamental analysts are not limited to technical tools and the price action for determining when to exit a trade. The event stop that we would like to discuss here is a tool that the trader can use to determine a trade’s exit point.
When using the event stop, the trader will ignore the price action for the most part (and will use low leverage), and will only close a position in the red when the scenario he had pictured in his mind becomes contradicted by events. For instance, a trader is anticipating that Bank A will be nationalized by the authorities of Nation X, and he expects that this will lead to X’s currency depreciating against its counterparts. In consequence, he shorts it. He will refuse to close the position until authorities confirm and clarify, in a solid and unmistakable fashion, that they will refuse to nationalize Bank A. In the meantime, he will be willing to put up with all the rumors, extreme swings, and short term fluctuations in the market without worrying about the unrealized profit or loss in his account.
As we mentioned at the beginning, the event stop is for those traders who know what they do, and who possess the track record, the intellectual background, and the confidence to use it. But do not take our word in order to evaluate your own skills; you should know yourself better than anybody else, and if you believe that you understand the economic dynamics of the era, and can defend your claim in your trading activities, you will be perfectly capable of using the event stop.
Conclusion
The best choice for the beginner is the equity stop. During the learning process, the trader can concentrate on bettering his understanding of the markets without worrying about excessive losses. Once the trader gains a good understanding of market dynamics, and is able to form and implement his trading plans, the equity stop will quickly lose its attractiveness.
The best method for using the non-price stop orders is combining them with a wide equity stop which will serve as a final safety precaution in case the price action becomes too dangerous. For instance, a trader can long the EUR/JPY pair and hold it indefinitely until the VIX registers a value above 35, where a v9olatility stop would be placed. At the same time he will protect himself from extreme, and unexpected swings by placing an equity stop at 5-7 percent of total equity. Thus, unless a very large price swing completely overruns the main criterion for the stop loss order, and triggers the equity stop, the trade would be maintained indefinitely.
Needless to say, every trader will have his own choices on stop loss orders. And we would like to conclude this section by noting that the key to a successful stop-loss order is a disciplined risk management strategy, and everything else is just detail.
BUILDING A PROFITABLE TRADING ACCOUNT
Have you ever stopped to think why the trading techniques that work for the world’s best trading gurus aren’t working for you? Why can they achieve substantial gains while you’re left in the dust?
What do they know that you don’t?
In reality, they know a lot of things that you probably don’t. Let me let you in on a little secret—you don’t need to know everything they know. There is one characteristic that every highly successful trader in the world has, and if you learn to master this one detail and integrate it into your trading, it will be enough to create more profitable trades than 1,000 hours of looking and studying charts.
Are you ready for this? If you have failed to create a high-profit trading account until this point, I can all but guarantee that your trading is failing in one crucial area – you are not following a trading system you have learned, and trust. A good trading system would show you why you should be trading in the direction of the trend on the 4-hour chart, or that perhaps you are trading in time frames that are too small (1-5 min).
Trading with the trend puts the odds in your favor and makes it easier to read and follow your indicators and your entry and exit signals. If you fail to follow the trend you will never have a consistently high profitable trading account. You will waste hundreds of hours looking at charts and wonder why you never reach the profit levels you dream of.
Disagree? Consider these simple examples:
Example 1 – Johnny makes 50 trades on the one and five minute charts and never looks at the direction of the trend. He is trying to trade the news, listen to other traders, guess which way the market will move, and by how much. He lets a little move in the opposite direction grow into a big loss because he does not know which way the market is moving and does not set a stop loss because he thinks that it will come back. He closes a profitable trade when he has a little profit because he is not giving the market enough room to breath, and does not know which way the trend is going. He is hoping for the homerun, but he will never hit a homerun if he is always bunting (trading in the 1 and 5 minute time frames). He will have 25 wins and 25 losses and wonders why his account stays the same or dips a little.
Example 2 – Jane makes 20 trades on the thirty minute, one hour, and four hour charts only taking trades in the direction of the trend. She does not let the news and other traders influence her trading. If the market moves against her she has her stop loss places and knows how much she will lose on each trade. If she gets taken out at a loss it is always a small loss. She always lets the market breath and move freely without closing a profitable trade because of a little fluctuation in the market. She is not looking for a homerun. She is just looking for the market to tell her when it is time to close her trades. Jane is happy to take what the market is willing to give her at that time. She does hit a homerun now and then with little effort and emotion. Of the 20 trades, she will have 15-18 of them be successful, causing her account to grow steadily.
Why You Can Do Even Better Than Jane
The example of Jane assumes that she never increases the number of lots she trades or adds on to a winning trade as her account grows. If she is trading with 1% of her account at the beginning of a trade and then adds on to the trade as it goes in her direction, when she gets add on signals then she will multiply 3 – 5 times the profit on her account on a good trade.
Even if Johnny works twice as hard and places twice as many trades, he won’t be able to catch up. Jane will soon be getting more profits and compounding the growth each day. Why won’t Johnny be able to keep up or even catch up? Because Jane has been compounding her profits by trading with the trend and adding on to her profitable trades. When she loses, it is small; when she wins, it is big because she has been working the trade. Can Johnny realistically trade enough to keep up with Jane?
In order for you to become a consistently profitable trader you will need to trade with the trend, trade with the trend, trade with the trend.
5 Suggestions You Must Follow To Become a Profitable Trader
1. Trade in the direction of the trend
I had heard “trade in the direction of the trend” or “The trend is your friend” for years but didn’t quite get it. Then I read an article a few years ago, and it changed the way I look at charts and the market. In the article it stated that you should always trade in the direction of the trend of the four-hour chart. That seemed so long to wait for a trade. I was trying to make trades on the 1, 5, and sometimes 15-minute charts. Then I realized that I could still trade on the smaller time frames but only make trades in the direction of the four-hour chart. When I did this even if the trade went against me it seemed to always come back in my favor. This way I stopped hoping it would come back in my favor because I knew the odds were in my favor that it would come back for me.
I have also traded the 4-hour time frame successfully. This way I do not have to be in front of the computer as much and I have been making more money with less work. Try doing this on a demo account and see how it works for you.
2. Start small with each trade
When you place that first trade on a trend it can be scary. At this point in the trend you are not sure if this is a real trend or just a channel or retracement. Enter the market small, risking just a few lots until the trend confirms itself. Then you can add on to maximize the profitability of the trend.
Add to each trade when it starts to trend. We like to start out small with one lot when the trend is in question then add more lots as the trend proves itself. The add on positions are less risky than the first positions in a trend. The more the trend proves itself, the less risky it becomes. There are several add on signals in most trends, so why not add on multiple lots when the trade is headed in a direction, and then close all the positions when the trend comes to an end or when you have good exit signals? This way you can increase your profits on a trade by 3 to 5 times that of scaling out. Of the entry methods we have discussed you have two choices: start big and scale out or start small and add on.
I have heard many people say when you make a trade, you should scale out of the trade closing a portion of the trade as the trade starts to get more profitable. They usually start out with several lots. I thought this was strange to close a profitable trade when the trend was just starting to move. Also why put on several lots and expose yourself to more risk when you are not sure if this is a trend or not? I have come to the conclusion that the people who suggest a larger first position with scaling out of the trade is because they do not have any better exit signals than to just take a little profit as the trade progresses.
If you do not have a trading system that gives you exact exit signals and good add on signals then you could become a better trader if you found a system that would help you with this.
3. Trade with a stop loss
Trading with a stop loss is one of the most important parts of the trade. It falls under the category of money management. This is more important than the entry and exit points of a trade. The first loss is always the smallest and that is usually at the stop loss.
When you trade with stop losses, you have a much greater chance of being in the trading game longer than if you do not trade with a stop. On a trade system advertisement the instructor was saying he puts on his stop loss and his target take profit and goes and does something. He said he would have a profit or a loss. Most of the time he had a profit because he gave the market room to breathe. If he was stopped out, then the market usually was making a turn and changed direction. So he was stopped out at the smallest loss. Then, he would look to get back in the market the way the market wanted to go.
Successful traders have all lost money from time to time. They know this is part of the game. You just need to learn to manage the wins and losses.
4. Trust your indicators
One of the first things you should do as a trader is to become good at using some indicators of your choice, and then trust them. Your indicators will serve you well.
No indicator or even a set of indicators will be right all the time. But you need to trust them and use your stops for the complete trading program.
Most indicators have certain signals that are always right. If this is true, then why not wait for the ideal signals to present themselves and have more successful trades? You will make more money waiting for the signals to come to you rather than chasing trades and jumping in at every anticipated or hoped for signal. There will be a signal and a trigger entry point. Most mistakes are made when the trade is entered on the signal and not on the trigger entry point. DO NOT anticipate an entry signal; wait for it to come to you. The market will tell you when it is going to give you some money, usually through your indicators.
5. Follow your rules
Every trading strategy has some trading rules to follow. Every game has a set of instructions to follow to be able to win.
This is one time GUYS, that you should study the instructions and trading rules before you start to trade. There are a couple of reasons for this. One: you will not develop bad habits you have to break. Two: you will develop the habit of studying the markets, which is what you will have to do the rest of your trading career.
By learning the rules and following them you will then be able to develop a good trading plan. The trading plan is usually your way of trading the market, the way you will enter, exit, study and read the market. It will tell you the time you will trade and how much of your account you will trade. It will also show you how much of a draw down you will take and how you are going to handle your emotions.
The market does not care if you win or lose your money. The market does not have emotions. But the market will tell you what it is going to do if you will follow the rules of your trading system. Trading the Forex market is not a race with yourself or anyone else; it is an individual effort to develop your skills to be able to trade well.
LEARN THE RULES, TRADE THE MARKET, AND BE PROFITABLE.
My Overall Thoughts on Building a Highly-Profitable Trading Account
I think that quite a few of us want to be profitable traders without taking the time to become a good trader. The secret is learning and practicing a good trading strategy, being determined to follow the rules, and stick with it until you succeed.
If you trade with the trend and follow your trading strategy rules, profits are inevitable. Ask yourself if you’re willing to study and learn one strategy well rather than run with every new thing that comes along. If you’re not willing to take the time to study, practice, and follow the rules of a system, it will be really hard to become a profitable trader. If you are, you will have a very profitable account someday. That’s when you’ll know that you have made your dream come true
What do they know that you don’t?
In reality, they know a lot of things that you probably don’t. Let me let you in on a little secret—you don’t need to know everything they know. There is one characteristic that every highly successful trader in the world has, and if you learn to master this one detail and integrate it into your trading, it will be enough to create more profitable trades than 1,000 hours of looking and studying charts.
Are you ready for this? If you have failed to create a high-profit trading account until this point, I can all but guarantee that your trading is failing in one crucial area – you are not following a trading system you have learned, and trust. A good trading system would show you why you should be trading in the direction of the trend on the 4-hour chart, or that perhaps you are trading in time frames that are too small (1-5 min).
Trading with the trend puts the odds in your favor and makes it easier to read and follow your indicators and your entry and exit signals. If you fail to follow the trend you will never have a consistently high profitable trading account. You will waste hundreds of hours looking at charts and wonder why you never reach the profit levels you dream of.
Disagree? Consider these simple examples:
Example 1 – Johnny makes 50 trades on the one and five minute charts and never looks at the direction of the trend. He is trying to trade the news, listen to other traders, guess which way the market will move, and by how much. He lets a little move in the opposite direction grow into a big loss because he does not know which way the market is moving and does not set a stop loss because he thinks that it will come back. He closes a profitable trade when he has a little profit because he is not giving the market enough room to breath, and does not know which way the trend is going. He is hoping for the homerun, but he will never hit a homerun if he is always bunting (trading in the 1 and 5 minute time frames). He will have 25 wins and 25 losses and wonders why his account stays the same or dips a little.
Example 2 – Jane makes 20 trades on the thirty minute, one hour, and four hour charts only taking trades in the direction of the trend. She does not let the news and other traders influence her trading. If the market moves against her she has her stop loss places and knows how much she will lose on each trade. If she gets taken out at a loss it is always a small loss. She always lets the market breath and move freely without closing a profitable trade because of a little fluctuation in the market. She is not looking for a homerun. She is just looking for the market to tell her when it is time to close her trades. Jane is happy to take what the market is willing to give her at that time. She does hit a homerun now and then with little effort and emotion. Of the 20 trades, she will have 15-18 of them be successful, causing her account to grow steadily.
Why You Can Do Even Better Than Jane
The example of Jane assumes that she never increases the number of lots she trades or adds on to a winning trade as her account grows. If she is trading with 1% of her account at the beginning of a trade and then adds on to the trade as it goes in her direction, when she gets add on signals then she will multiply 3 – 5 times the profit on her account on a good trade.
Even if Johnny works twice as hard and places twice as many trades, he won’t be able to catch up. Jane will soon be getting more profits and compounding the growth each day. Why won’t Johnny be able to keep up or even catch up? Because Jane has been compounding her profits by trading with the trend and adding on to her profitable trades. When she loses, it is small; when she wins, it is big because she has been working the trade. Can Johnny realistically trade enough to keep up with Jane?
In order for you to become a consistently profitable trader you will need to trade with the trend, trade with the trend, trade with the trend.
5 Suggestions You Must Follow To Become a Profitable Trader
1. Trade in the direction of the trend
I had heard “trade in the direction of the trend” or “The trend is your friend” for years but didn’t quite get it. Then I read an article a few years ago, and it changed the way I look at charts and the market. In the article it stated that you should always trade in the direction of the trend of the four-hour chart. That seemed so long to wait for a trade. I was trying to make trades on the 1, 5, and sometimes 15-minute charts. Then I realized that I could still trade on the smaller time frames but only make trades in the direction of the four-hour chart. When I did this even if the trade went against me it seemed to always come back in my favor. This way I stopped hoping it would come back in my favor because I knew the odds were in my favor that it would come back for me.
I have also traded the 4-hour time frame successfully. This way I do not have to be in front of the computer as much and I have been making more money with less work. Try doing this on a demo account and see how it works for you.
2. Start small with each trade
When you place that first trade on a trend it can be scary. At this point in the trend you are not sure if this is a real trend or just a channel or retracement. Enter the market small, risking just a few lots until the trend confirms itself. Then you can add on to maximize the profitability of the trend.
Add to each trade when it starts to trend. We like to start out small with one lot when the trend is in question then add more lots as the trend proves itself. The add on positions are less risky than the first positions in a trend. The more the trend proves itself, the less risky it becomes. There are several add on signals in most trends, so why not add on multiple lots when the trade is headed in a direction, and then close all the positions when the trend comes to an end or when you have good exit signals? This way you can increase your profits on a trade by 3 to 5 times that of scaling out. Of the entry methods we have discussed you have two choices: start big and scale out or start small and add on.
I have heard many people say when you make a trade, you should scale out of the trade closing a portion of the trade as the trade starts to get more profitable. They usually start out with several lots. I thought this was strange to close a profitable trade when the trend was just starting to move. Also why put on several lots and expose yourself to more risk when you are not sure if this is a trend or not? I have come to the conclusion that the people who suggest a larger first position with scaling out of the trade is because they do not have any better exit signals than to just take a little profit as the trade progresses.
If you do not have a trading system that gives you exact exit signals and good add on signals then you could become a better trader if you found a system that would help you with this.
3. Trade with a stop loss
Trading with a stop loss is one of the most important parts of the trade. It falls under the category of money management. This is more important than the entry and exit points of a trade. The first loss is always the smallest and that is usually at the stop loss.
When you trade with stop losses, you have a much greater chance of being in the trading game longer than if you do not trade with a stop. On a trade system advertisement the instructor was saying he puts on his stop loss and his target take profit and goes and does something. He said he would have a profit or a loss. Most of the time he had a profit because he gave the market room to breathe. If he was stopped out, then the market usually was making a turn and changed direction. So he was stopped out at the smallest loss. Then, he would look to get back in the market the way the market wanted to go.
Successful traders have all lost money from time to time. They know this is part of the game. You just need to learn to manage the wins and losses.
4. Trust your indicators
One of the first things you should do as a trader is to become good at using some indicators of your choice, and then trust them. Your indicators will serve you well.
No indicator or even a set of indicators will be right all the time. But you need to trust them and use your stops for the complete trading program.
Most indicators have certain signals that are always right. If this is true, then why not wait for the ideal signals to present themselves and have more successful trades? You will make more money waiting for the signals to come to you rather than chasing trades and jumping in at every anticipated or hoped for signal. There will be a signal and a trigger entry point. Most mistakes are made when the trade is entered on the signal and not on the trigger entry point. DO NOT anticipate an entry signal; wait for it to come to you. The market will tell you when it is going to give you some money, usually through your indicators.
5. Follow your rules
Every trading strategy has some trading rules to follow. Every game has a set of instructions to follow to be able to win.
This is one time GUYS, that you should study the instructions and trading rules before you start to trade. There are a couple of reasons for this. One: you will not develop bad habits you have to break. Two: you will develop the habit of studying the markets, which is what you will have to do the rest of your trading career.
By learning the rules and following them you will then be able to develop a good trading plan. The trading plan is usually your way of trading the market, the way you will enter, exit, study and read the market. It will tell you the time you will trade and how much of your account you will trade. It will also show you how much of a draw down you will take and how you are going to handle your emotions.
The market does not care if you win or lose your money. The market does not have emotions. But the market will tell you what it is going to do if you will follow the rules of your trading system. Trading the Forex market is not a race with yourself or anyone else; it is an individual effort to develop your skills to be able to trade well.
LEARN THE RULES, TRADE THE MARKET, AND BE PROFITABLE.
My Overall Thoughts on Building a Highly-Profitable Trading Account
I think that quite a few of us want to be profitable traders without taking the time to become a good trader. The secret is learning and practicing a good trading strategy, being determined to follow the rules, and stick with it until you succeed.
If you trade with the trend and follow your trading strategy rules, profits are inevitable. Ask yourself if you’re willing to study and learn one strategy well rather than run with every new thing that comes along. If you’re not willing to take the time to study, practice, and follow the rules of a system, it will be really hard to become a profitable trader. If you are, you will have a very profitable account someday. That’s when you’ll know that you have made your dream come true
6 THINGS MUST NOT BE USED IN TRADING
There are certain things that must be kept out of your trading, such as emotion, revenge, anger, your pocketbook, and fear. Every trader should follow a set of rules or guidelines in order to be a successful trader. When you trade without rules, you are essentially trading blindfolded.
Emotion: Wanting the market to go a certain way.
Revenge: Some people think they will get even with the market if they stay in or keep on putting on losing trades one after (cost averaging). The market doesn’t care about what you want. It will show you what it is going to give so learn to only want what the market is willing to give at any given time.
Anger: People will get angry with themselves and do foolish things to try and make up for a mistake.
Pocket book: When you are getting out of the market because you can not afford to let the market move a little. You were over trading your account or did not have enough money to trade to start with. A new trader with an under funded account has a greater chance of failure because he does not have enough room to let the market move and a little loss takes a big part of his trading account. This increases his emotions and compounds the trade.
Greed: When a trade has ended expecting it to give you more. Then it turns and you lose all you just made.
Fear: Many times people have fear because they are trading with money they can not afford to lose.
The Rules: A pre-defined trading plan. How many lots, how many pips, when to trade, when to get in, how long to stay in, practicing good money management, etc. It also means keeping a journal of your trades to learn from the positive and the negative trades and make sure your rules are working. Be sure you know what your trading platform can show you and how to use it’s features to your benefit.
Emotion: Wanting the market to go a certain way.
Revenge: Some people think they will get even with the market if they stay in or keep on putting on losing trades one after (cost averaging). The market doesn’t care about what you want. It will show you what it is going to give so learn to only want what the market is willing to give at any given time.
Anger: People will get angry with themselves and do foolish things to try and make up for a mistake.
Pocket book: When you are getting out of the market because you can not afford to let the market move a little. You were over trading your account or did not have enough money to trade to start with. A new trader with an under funded account has a greater chance of failure because he does not have enough room to let the market move and a little loss takes a big part of his trading account. This increases his emotions and compounds the trade.
Greed: When a trade has ended expecting it to give you more. Then it turns and you lose all you just made.
Fear: Many times people have fear because they are trading with money they can not afford to lose.
The Rules: A pre-defined trading plan. How many lots, how many pips, when to trade, when to get in, how long to stay in, practicing good money management, etc. It also means keeping a journal of your trades to learn from the positive and the negative trades and make sure your rules are working. Be sure you know what your trading platform can show you and how to use it’s features to your benefit.
FOREX INVESTING
There are different types of investing: long, midterm, and short term investing. These trading styles can also be referred to as position trading for long term investing, swing trading for midterm investing, and day trading for short term investing.
Investing in forex is probably not the best investment for the inexperienced trader. If you go for long term trading then you need to know how to pick long term trends. If you are wrong then you will lose a great deal of your investment account. The same logic goes for midterm investing. This is one reason investing in the forex market should be done by experienced traders. But a trader can get the experience by trading a demo account, offered by most brokers for free.
We feel that the forex market is a great tool for short term investing; this is where you are in the market for a few hours up to a few days. There are traders that do very well staying in a trade for long periods of time from months to years. But the long term traders are usually experienced and seasoned traders. No Matter what the trading style the investment needs to be watched and monitored.
There are different types of ways to do forex investing. You can trade by making all of your own trading decisions. You can trade as a group, sometimes called user groups; many times the group does not trade together but they help each other to learn how to trade. You can join a club and make your investing decision together but place the trades on your own. Trading groups and clubs can be fun ways to trade in the beginning when you are trying to learn to trade. Trading can be a lonely venture and this way you have a support system to help you understand the market and learn to deal with your emotions of fear and greed.
The forex market is not for the hobby investor. You need to be serious about trading or the market will take your money quickly. You will need a trading plan and have the discipline to keep records of your trades. The successful traders will have a set of trading rules they have made up when they are not trading to be used when they are trading.
Those who get into a trade and then try and decide what to do with the trade usually lose. If a person puts in enough time and energy with the proper support system and training or coaching program they can learn forex investing. Discipline and money management are the keys.
Investing in forex is probably not the best investment for the inexperienced trader. If you go for long term trading then you need to know how to pick long term trends. If you are wrong then you will lose a great deal of your investment account. The same logic goes for midterm investing. This is one reason investing in the forex market should be done by experienced traders. But a trader can get the experience by trading a demo account, offered by most brokers for free.
We feel that the forex market is a great tool for short term investing; this is where you are in the market for a few hours up to a few days. There are traders that do very well staying in a trade for long periods of time from months to years. But the long term traders are usually experienced and seasoned traders. No Matter what the trading style the investment needs to be watched and monitored.
There are different types of ways to do forex investing. You can trade by making all of your own trading decisions. You can trade as a group, sometimes called user groups; many times the group does not trade together but they help each other to learn how to trade. You can join a club and make your investing decision together but place the trades on your own. Trading groups and clubs can be fun ways to trade in the beginning when you are trying to learn to trade. Trading can be a lonely venture and this way you have a support system to help you understand the market and learn to deal with your emotions of fear and greed.
The forex market is not for the hobby investor. You need to be serious about trading or the market will take your money quickly. You will need a trading plan and have the discipline to keep records of your trades. The successful traders will have a set of trading rules they have made up when they are not trading to be used when they are trading.
Those who get into a trade and then try and decide what to do with the trade usually lose. If a person puts in enough time and energy with the proper support system and training or coaching program they can learn forex investing. Discipline and money management are the keys.
FOREX PIPS
Do you remember the first time someone said anything about pips? If you were like me you said what are pips? They might have said it is a unit of measure for when the currency goes up or down. Or you might have heard it is the same as a point in the stock market. Well the official terminology for a forex pip is Price Interest Point.
Each currency pair has its own dollar value depending whether it is the base currency pair or the cross currency pair. The price can range between 50 cents up to about $2.00 at times depending on the currency you are talking about. The prices will change as the value of the price of the currencies in the pair go up and down.
If you want to make more profit per pip moved you just need to add the number of lots you trade. Example: If the value of a pip is $1.00 and you trade one lot the value of the trade goes up and down by $1.00 for every pip moved. If you trade with 3 lots the value you receive or lose from each pip of movement is $3.00.
We feel that going for pips in the beginning is more important than dollars. From the above example you can see that if you get enough pips then it is easy to get more money by just adding to the number of lots you trade with. By thinking in pips rather than money, the emotions a trader feels when trading real money is dampened.
Forex Pip Calculator
Many brokers have what they call pip calculators. When you go to their site you can plug in the numbers and currency pair you are working with and get the dollar value of each pip. You will notice that the pairs that end in the same cross currency pair will have the same pip value. When you place a trade whether it is a buy or a sell you will see that the trade is at a loss as soon as you place it. This is called the spread. The spread can range between 2 and 12 pips depending on the currency and the brokerage you are using.
Hope this helps you keep your pips and lots straight.
Each currency pair has its own dollar value depending whether it is the base currency pair or the cross currency pair. The price can range between 50 cents up to about $2.00 at times depending on the currency you are talking about. The prices will change as the value of the price of the currencies in the pair go up and down.
If you want to make more profit per pip moved you just need to add the number of lots you trade. Example: If the value of a pip is $1.00 and you trade one lot the value of the trade goes up and down by $1.00 for every pip moved. If you trade with 3 lots the value you receive or lose from each pip of movement is $3.00.
We feel that going for pips in the beginning is more important than dollars. From the above example you can see that if you get enough pips then it is easy to get more money by just adding to the number of lots you trade with. By thinking in pips rather than money, the emotions a trader feels when trading real money is dampened.
Forex Pip Calculator
Many brokers have what they call pip calculators. When you go to their site you can plug in the numbers and currency pair you are working with and get the dollar value of each pip. You will notice that the pairs that end in the same cross currency pair will have the same pip value. When you place a trade whether it is a buy or a sell you will see that the trade is at a loss as soon as you place it. This is called the spread. The spread can range between 2 and 12 pips depending on the currency and the brokerage you are using.
Hope this helps you keep your pips and lots straight.
FOREX MADE EASY
Forex made easy is a good catch phrase. If it were easy every one could do it. Another way of saying it would be forex made possible if you get a lot of training and education in the market. With the Forex Made Easy software you get two lines that look like moving averages but you are told that they are not moving averages but some mystical indicator that gives you the crosses and flow of the market. There are also red and green arrows to give you buying and selling strength. When several of the arrows in different time frames all turn the same color this indicates that a trade should be entered.
This all sounds good but it is only one indicator. You need at least two indicators to confirm a move to increase the chances of a high probability trade. It takes some time looking at the charts and arrows to figure out when to attempt a trade.
The two lines seem to be lagging indicators. When looking at these red and green lines they seem to lag when you look at the actual price of the market. The candle sticks and bars have made a move but the lines are just starting to cross when the price comes back against the trade. This gives a breaded pattern which is a poor place to enter a trade. When trying to construct the lines (by using two moving averages) on a candle stick chart you can get a better picture of what the market is actually doing.
When a trader can see the actual price along with the 4X Made Easy lines trading becomes much easier. Then by getting another indicator to confirm the cross and direction of the trade you start to get a better picture of where to place your orders.
Forex Made Easy is a good introduction to the currency market but only a few have ever made any real money using this system only. A complete trading system will have instructions about money management, risk management or how much to trade, when to enter a trade, when to close a trade, how to determine your win loss ratio, how to keep a trade journal, how to deal with trading emotions such as fear and greed. There is more to trading than just having one indicator with some arrows that change colors to make a successful trader.
To really become a successful trader you need to be taught by someone that has been down the road a few times and understands all that a trader is going through. It is not just about some indicators and excitement about some big event or news announcement. Trading is about the trend, the momentum of the market, and knowing how the market works. You need to know your trading style and what works best for you. You need to learn who you are and how to find your strengths and weakness and then tap into your strengths to compensate for your weaknesses.
If you take the time to learn and practice trading and you have the desire to be successful in the foreign currency market–you can do it. But it really is not easy BUT it is fun and worth the journey.
This all sounds good but it is only one indicator. You need at least two indicators to confirm a move to increase the chances of a high probability trade. It takes some time looking at the charts and arrows to figure out when to attempt a trade.
The two lines seem to be lagging indicators. When looking at these red and green lines they seem to lag when you look at the actual price of the market. The candle sticks and bars have made a move but the lines are just starting to cross when the price comes back against the trade. This gives a breaded pattern which is a poor place to enter a trade. When trying to construct the lines (by using two moving averages) on a candle stick chart you can get a better picture of what the market is actually doing.
When a trader can see the actual price along with the 4X Made Easy lines trading becomes much easier. Then by getting another indicator to confirm the cross and direction of the trade you start to get a better picture of where to place your orders.
Forex Made Easy is a good introduction to the currency market but only a few have ever made any real money using this system only. A complete trading system will have instructions about money management, risk management or how much to trade, when to enter a trade, when to close a trade, how to determine your win loss ratio, how to keep a trade journal, how to deal with trading emotions such as fear and greed. There is more to trading than just having one indicator with some arrows that change colors to make a successful trader.
To really become a successful trader you need to be taught by someone that has been down the road a few times and understands all that a trader is going through. It is not just about some indicators and excitement about some big event or news announcement. Trading is about the trend, the momentum of the market, and knowing how the market works. You need to know your trading style and what works best for you. You need to learn who you are and how to find your strengths and weakness and then tap into your strengths to compensate for your weaknesses.
If you take the time to learn and practice trading and you have the desire to be successful in the foreign currency market–you can do it. But it really is not easy BUT it is fun and worth the journey.
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