Its true and one of the most famous experiments in trading history, where a group of people were taught to trade, went on to become trading legends and make hundreds of millions of dollars. How did they do it?
Let's look at this fascinating story, as there is much to learn.
We first need to go back to the eighties, when trading legend Richard Dennis, decided to set out to prove that anyone could win at trading - with the right mindset and education.
He gathered a group of people who had never traded before, from all walks of life, all ages both sexes and various levels of academic achievement. They varied from a kid fresh from school, to a security guard and an actor and many more. He then set about teaching them to trade, in just 14 days.
He then gave them accounts and the rest has gone down in trading history.
This group made hundreds of millions of dollars and become trading legends.
So there you have it - anyone can learn to trade and do it quickly.
You maybe thinking well if its that easy, why do 95% of traders lose their equity?
The answer is its achievable and within reach of anyone - but its not easy!
You wouldn't expect it to be with the rewards on offer but you can do it if you keep these points firmly in mind:
1. You need a simple method you understand
The system these traders used was simple (it was essentially a long term trend following breakout system) and the traders had confidence in it because they knew exactly how and why it worked.
Dennis didn't tell them to blindly follow him - he taught them the system to use for themselves and the next point separates out winners from losers:
2. From Understanding Comes Discipline.
To trade successfully you must have discipline. You have heard it's important and it's vital. If you cannot follow your trading method with discipline, you simply don't have one!
Discipline comes from confidence and understanding - if you don't know how and why your system works and have the confidence to follow it, you won't have discipline.
Staying with a method when your taking loss after loss is hard, (even the best traders face this and you will to) but you must stay on track and profits eventually will come.
Sure you may not become as rich as the above group but do what they did.
Get yourself a simple robust forex long term trend following system and follow it with discipline and if you have courage and a solid forex trading strategy, you can enjoy currency trading success.
Sunday, June 29, 2008
Forex Trading - These People With Just 14 Days Training Made Millions!
Fundamental Forex Analysis Explained in Plain English
If you've been trading for a while, no doubt you know that as a smart trader, you have to be able to analyze the market and predict price movements. This is true whether you trade in commodities, stocks, bonds, currency or any other type of security.
You can do analysis in two different ways. You can utilize fundamental analysis and technical analysis.
Technical analysis studies prices. Here, you want to analyze price movement history so that you can try to predict future prices.
Fundamental analysis studies a nation's overall economic health. This can otherwise be termed as "big picture" analysis. You focus on the strength of a nation's economy and how it will affect the supply and demand of its currency. This, in turn, will affect the currency's price.
As an example, let's say that the US economy is in a major positive trend. The economy is strong, so the dollar is expected to rise, and currency traders will invest great amounts in the dollar. This can be a self-fulfilling prophecy, so that the dollar increases in value.
As a concept, that's pretty simple, but it's not so easy to judge the health of the nation's economy. In fact, you need to consider many things. Two traders may look at the same figures and come up with entirely different interpretations of the data.
Those who focus on fundamental analysis look at a variety of economic indicators to determine how strong a particular economy is. Some of the indicators they may analyze include the unemployment rate, the interest rate, gross domestic product, and the Consumer Price Index.
Various government agencies regularly release reports on these factors, as do non-government agencies. Find the latest schedule of upcoming releases and make note of them. Keep an eye on them for a few months to see what effect if any they have on currency prices.
One thing you should keep in mind is that it's often not the numbers in a report that carry the greatest impact, but the relation of the numbers to what was forecasted.
Put another way, if interest rates rise, this may not have a significant impact if forecasters were indeed expecting it. However, if they weren't expecting it, and they expected interest rates to remain steady or fall, an unexpected increase may have a significant impact on currency prices.
Fundamental analysis does have a disadvantage in that it can be a little too general, a little too "big picture." It's wonderful to predict overall economic growth and price changes that result, but you can't usually get enough detail from it to target specific exit and entry points. This is why technical analysis is just as important, so that it can help to further refine an estimate based on a "big picture" prediction with fundamental analysis.
In conclusion, successful forex traders usually develop a trading system that's based on a mix of fundamental and technical "triggers" to instigate trading orders. Some, however, have been successful with using as few indicating sources as possible to determine trades - such as price-driven variables on a certain currency pair.
Friday, June 27, 2008
Forex Day Trading - 2 Logical Assumptions Believe Them and Lose!
There are two common assumptions made by forex day traders and scalpers and if you believe them, you will simply see a 100% equity wipe out and there enclosed. These are common errors and if you want to win at forex trading equity, you need to avoid them...
Lets look at both and there in no order of importance there both important!
1. Volatility in a day is NOT random
Day traders believe that you can calculate support and resistance levels within hours and key off them, to make profits.
The problem is the data within any daily session is totally random and you cannot calculate, or see where prices may go next. This is pretty obvious if you think about it and is simply due to the way the price is made.
The price is a reflection of millions of traders, all around the world, who all have different skills, aims and are all governed by their emotions to varying degrees. It's a vast mass and what these traders decide in a few hours is anyone's guess and if you try and calculate it you will lose.
All volatility is random and technical analysis tools that work in longer time frames, don't work in these short time frames. The only way you will win is, if you are lucky but luck runs out at some point and your equity gets destroyed.
If that's not enough, consider also that forex day's traders and scalpers break the fundamental rule of investment which is:
2. Run Your Profits to cover inevitable losses
Day trading is based upon the logic of keeping stops tight and risk low.
Nothing wrong with that if the data is valid and lets you calculate the odds.
However, we know already the data isn't valid and your more than likely going to get stopped out as you have the stop within the daily range - this means you are going to lose the overwhelming amount of times.
The risk looks small but the odds of the loss are high.
So you need to get some profits to compensate.
In short term trading, you need to run your profits but this is totally against what day traders do - they bank on taking lots of small profits and NOT running them.
So the odds are going to give them losses most of the time and their going to have a minority of small profits.
The above simply means - a wipe out.
You may say - well I have seen lots of day traders who make money and yes you have; there are many vendors who produce track records, the catch is - there not real! There paper money.
Look for this warning on any day trading system sold with a track record of profit:
"CFTC RULE 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown".
So there you have it - the profits simply are made up knowing past data.
Now short term trading is a good story and sounds good in theory - but in practice the facts show it doesn't add up and all the vendors who tell you they make money only do so on paper.
So if you try day trading systems or strategies (they can be as clever as you like), but with the odds against you, your bound to lose - don't try it!
Fatal Day Trading Mistake #7 Overtrading
If you know the pitfalls of trading, you can easily avoid them. Small mistakes are inevitable, such as entering the wrong stock symbol,or incorrectly setting a buy level. But these are forgivable, and, with luck, even profitable. What you have to avoid, however, are the mistakes due to bad judgment rather than simple errors. These are the “deadly” mistakes which ruin entire trading careers instead of just one or two trades. To avoid these pitfalls, you have to watch yourself closely and stay diligent.
Think of trading mistakes like driving a car on icy roads: if you know that driving on ice is dangerous, you can avoid traveling in a sleet storm. But if you don’t know about the dangers of ice, you might drive as if there were no threat, only realizing your mistake once you’re already off the road.
Overtrading is a problem for many traders, especially inexperienced ones. Many traders think that “quantity” is better than “quality,” and they assume that if you just throw enough punches, one will eventually hit. The truth is that the only person who gets rich from this strategy is your broker, not you.
Traders overtrade for three reasons, and none of them are good:
The first is greed. Imagine that you just closed a winning trade. You followed your plan and made the profits that you were looking for. But the market keeps going up. You think, “I should have stayed in this trade,” so you jump right back in. And then you realize that YOU were the one who just bought the high of the day. Greed can cause you to overlook details like this because it makes you act without thinking. Remember that every trade you make should be based on your overall strategy, never based on a spur-of-the-moment decision.
The second reason for overtrading is revenge. Imagine that you just lost money on a trade. The market has been mean to you for several days or even weeks. “They” just took out your stop and now the market keeps moving in your direction. So you want to get back at them. You keep trading, thinking, “The next trade will make back all the money I lost so far, and that will hurt them.” Believe me: the market is ALWAYS stronger, and it will be YOU who gets the bloody nose. The desire for revenge can make you forget that the market doesn’t care about you and doesn’t even recognize you. It’s a system of anonymous forces, and there is no “they.” Don’t imagine that you’re in competition with anyone but yourself and your own self-control.
The final reason for overtrading is boredom. There are some days when the ducks simply don’t line up. You’re watching the markets and it’s like watching paint dry: nothing moves. You wait. And wait. And wait. And suddenly you just get that “itch” to trade. You think, “If I don’t trade, I won’t make any money!” and you jump into a trade immediately. Of course, the trade isn’t according to your plan, and you end up with a loss. Boredom can lead you to trade when there’s really nothing to trade. With that kind of strategy, you will lose money, guaranteed!
If you want to succeed in trading, then you must understand the concept of taking only the “high-probability trades.” Less is more. You should design a strategy that allows you to recognize when the market is in your favor and trade ONLY according to that strategy.
Follow that plan, and you will profit.
Tuesday, June 24, 2008
Forex Trading - What is a Realistic Target in Terms of Profit?
What is a realistic gain per annum for a new trader in forex trading? Most new traders either give you an blank expression, or quote a wild figure. Here I will give my views based upon the experience of having taught and been a broker to over 5,000 traders...
The best traders I have seen have managed 100% + per annum with the very best at 167% compounded per annum over 3 years but this woman was special! Other traders who did will were in the 30 - 50% bracket. Let me say though this was a very small minority.
What amuses me today in the world of online forex trading, how the myth has grown of how easy it is and the track records of some forex robots not only beats the best I have seen but are better than the top hedge fund managers. Of course all the track records quoted are not real profits just paper profits in hindsight and are no reflection of reality where the robots soon destroy equity.
The myth is there and everyone wants to be a professional forex trader and there are plenty of vendors offering untold riches with no effort - but the ratio of losers today, is the same as it was when I started trading - 95% lose and get wiped.
So don't believe all the great advice you get on making money the easy way, making money is never easy and you wouldn't expect it to be with the rewards on offer in forex trading.
If you made 50% per annum, you can consider yourself doing very well and if you do 100% + year in year out, your up there with the best.
Another myth of forex trading is you are going to get rich on a few hundred dollars.
When I started trading we didn't take retail accounts under $5,000 and they were considered small.
Today, the amounts you can invest are tiny and the leverage is higher than ever before - 200:1 is standard, with many brokers offering 400:1 - but it won't help you win, as volatility is so high and small swings wipe you out. 10 or 20:1 is a more sensible leverage to use.
Most accounts have no chance of winning because they leverage up and of course sooner rather than later, the market gives them a slap and bang goes their account.
If you made 50 - 100% per annum that will compound up into a massive figure if you do it consistently and you can do it if you are prepared to get the right forex trading education, have the right mindset and be realistic.
If you do the above currency trading success can be yours.
some secrets in forex market for success
Forex Signal Trading is one of the easiest methods for successfully entering into the world of Forex Trading. Forex Signals are basically nothing more than a pre-made order that comes complete to your inbox. In this way, you can begin earning money immediately while greatly reducing the financial risks associated with Forex trading.
When you are starting out with any program, you need to start small. Suffering that is brought about from one failure after another will only lead to discouragement and despair for most people. When you toss in the loss of large amounts of financial capital or an entire life savings in addition to that, the entire experience only gets worse. Using Forex signals allows you to begin earning money right away while putting you in touch with other traders just like yourself.
You receive one email each day. You take the signals that are given to you, sign into your online forex trading account and place your order. After that, all you have to do is go about your life as you normally would. If you want to study and learn more about Forex trading, that option is certainly open to you. However, you can still continue earning while you learn rather than chasing after poor investments with money dug ever deeper from your savings.
Even if you have absolutely no desire to attempt to master the Forex market, you can still earn money though. That is perhaps, one of the most wonderful aspects of Forex Signals trading. All of the work is done for you, all of the complex formulae and data are analyzed, broken down and all of the results are set on the proverbial silver platter for you to use and earn with. Your primary concern need only be acting on the signals in a timely manner. This will insure that you are able to enter the market before any of the major deciding (and profitable) factors have changed.
If you do have a desire to learn, that does not mean that you should learn at your own expense. With Forex Signals, you can begin earning money immediately while you get to know those other investors who are in your same circumstances. You can compare notes and learn without it costing you any real money. If you are tired of playing games with your financial future, you should learn more about trading using Forex Signals.
Saturday, June 21, 2008
Forex Raptor Vs Forex Killer
Forex Raptor is a new automated trading software for the home based user. It enjoys the endorsement of leading Forex experts and has an impressive track record. It is interesting to see how this software compares to a more well know software such as the Forex Killer program.
What are the similarities and differenced of these 2 softwares?
What do they do?
Forex Raptor can actually trade automatically for you without your active participation, or you can trade manually through it. Forex Killer is an advisory tool which means that it just tells you what to do and you need to make the transactions yourself.
Currency Pairs
Both these softwares can work in multiple currency pairs from around the world. Every major pair will work.
Location
You can use both softwares from everywhere in the world
Ease of Use
Both of these softwares take a little time to get a handle on. Expect a week or two until you get them down perfect. Overall, they aren't too complicated.
Who are they for
Both Forex Raptor and ForexKiller are perfect for new and medium traders. Veterans can also find them useful as a supporting tool.
Platform
Forex Raptor can work with any MT4 broker. Forex Killer will work with any trading platform.
How Much money can you make
The potential is impressive with both of these softwares, but it is truly up to you, how much you trade, how well you follow what the program tells you, and other factors.
Track record
Forex Killer has a longer track record than ForexRaptor. It's just been around longer.
Forex Funnel Review
Right off the bat I'm going to guarantee you've never heard of Forex Funnel. Why? Easy; because it has been a private system for years and is just recently becoming public. Yeah, you know those "secret systems" that the so-called "gurus" use that makes them elite traders? This is one of those wrapped up in a pretty package and now available to the public. The sales on this thing are going to be insane but luckily I got a review-copy; I'm sexy like that, everyone loves me.
First let's go over the concept, you know, a little overview so you understand the product. It's fully automated and does its business on autopilot so we don't have to be bothered with tinkering with settings and tweaks which is always a bonus. I love it when something is automated; I have more important things to do than sit at the PC 24/7 clickin' trades like a mad man and I'm sure you do too. As with all autopilot trading systems no experience is required which, as you know, is a beautiful thing.
Sounds like a pretty generic autopilot trading system right? Oh hold on to your hat my friend (if you don't have a hat grip your chair, or your toupee if you're rockin' one). This specific system is dedicated to work with USD/JPY (US Dollars and Japanese Yen, incase you didn't guess that) pair. So what does this mean? Well look at it this way; if someone builds a Forex trading system to work with all the popular pairs it could perform pretty decent right? Now think about an elite trader designing a system to perfect and work with one specific pair; it's madness. You can see the results of this system where the average profit was $100,000+ per year consistently over a 4 year time-frame. It's brilliant yet I'm shocked no one had thought of this earlier.
How does it perform? I've been rockin' out on the demo account (what that is and how it can help you will be mentioned later in the article) and I can say there's definitely profit to be made. Giving exact numbers seems kind of "hype-ish" or lame in my book so I won't bother. Like I said above man, they just went for one pair instead of multiple and they really nailed it; I'm going to continue using it to see what kind of results I get but I think this just might be the system for me.
Before going any further I want us all to join hands (well not really but play along) and look at this logically, I have two points the first being which do you choose; a system designed by a professional that specifically targets one single pair or one that targets all popular pairs while trying to be effective? Naturally the one targeting a single pair will be more effective; it has less to worry about. While a system that targets all popular pairs is jumbling around figuring out all those numbers the one going after a single pair can spend all the time focused on THAT pair resulting in accurate results and high returns. Thanks to well written algorithms this is possible.
The second point is about the risk when buying the trading system. There is literally none; they offer a demo account which is used to trade "play money" to test the system to see if profit is there to be made while using it, all before investing any of your actual cash. Combine this with the 60 day money back guarantee you're golden baby, there's no risk. Here's what you do and I do this with every trading system I purchase; try the system for 59 days and if you see you can make profit you keep it. If you try it for 59 days and you see there is no profit to be made you get your refund (which happens to be a "no questions asked" refund, oh yeah baby) and you're back to finding an effective trading system. See, logic rules all.
forex tracer
Forex Tracer is an autopilot program for the Forex Market. There isn't a whole lot to these programs, but basically you leave them on all day long at your house, and the program makes money for you. Sounds too good to be true? It isn't and this program is flying off store shelves
Forex Tracer is the new kid on the block when it comes to autopilot programs, and it's come in swinging. Hard. This thing has already captured much of the autopilot program market because it does a couple of things way better than the competition. I'll guide you through these differences and you can decide for yourself the best program to make money with.
First, it's algorithms are more advanced. What that means is, it's making more money than the competition. It's newer, it's leaner, and it's better essentially. It calculates risks better and is clearly a step up from the competition.
The other thing it does that no other program does? Forex Tracer has fantasy oney baby. What does that mean? You can use the program in a "virtual environment", meaning you don't have to invest to see if it makes profits. It will go about its business as if it's buying and selling with real money, and then give you a report on how much it would have made if you we're using real money.
What does that mean essentially? Combined with Forex Tracer's 60 return policy, you can't lose. If the program makes fantasy money, invest yours and make a ton. If the program isn't making money, return it for a full refund. It's hard to top that. That is why Forex Tracer is my personal program of choice.
Using Forex you can make thousands of dollars using autopilot programs. Get in before the competition does.
I'm here to share with you the power of smart forex trading. This is a terrific market place to get involved in because there is a huge potential to profit. Unlike other markets where people are forced to compete, you'll find traders aren't competing against each other, but trying to ride the waves of a currency. I think this makes this market a much more appealing place for people to make money.
The smartest thing you can do is to make sure you're up to date on all economic news and news that affects the economy. Currency is just paper, it's worthless. The foundation of what holds up a currency is the economy. Anything that affects the economy, will ultimately lead to the price of currnecy.
The most important piece of news you should be paying attention to involves the central bank. They have the challenge of regulating the supply of money to follow supply vs. demand. The problem is that it is difficult task. Since it is difficult, you can expect any move to change the price of the currency. If interest rates are cut, the price of currency will go down. If interest rates are raised, the price of currency will go up.
Other news that is important is economic outlooks and forecasts. You'll often hear these released every month. They include consumer spending, GDP, unemployment, inflation, etc. They all have an affect. If they show good signs for the economy, the currency should go up. If they show bad signs for the economy, the currency should go down.
Lastly, you'll want to follow the other stories that will have an affect on the economy. The most common will be politics and the policies of politicians. Despite your political views, economic policies that restrict economic freedom, raise taxes and increase regulations will inevitably lead to the currency going down. Economic policies that increase economic freedom, lower taxes and decrease regulations will lead to the currency going up.
Tuesday, June 17, 2008
some plus points of forex market
Foreign Exchange Market is a market where traders buy and sell currencies with the hope of making a profit when the values of the currencies change in their favor. People are making vast amounts of money from Forex trading. The Forex Market has a big potential for everyone, ranging from large corporate firms to ordinary, everyday people like you and me.
It is a very exciting trade with a huge money-making potential. Just imagine yourself sitting comfortably in your pajamas at your computer you turn on the internet and make a few quick transactions and by the time that you get up to get a cup of coffee, you are several hundred dollars rich! Would you like that? I would!!
I can hear you say, Wait a minute!! This sounds just like another one of those confusing markets like stocks, options or traditional futures, so what makes this market any different?
Aaah! Good question! So, in answer to your question, here are 10 good (if not great) reasons to enter the Forex Trade:
1. First and foremost, Forex trading allows for small investments. You do not have to be able to invest thousands of dollars to get started with this trade. You can start trading Forex with as little as $300 to $350 and could be well on your way to earning more than that on your first day.
2. The Forex markets are always open! You are able to trade anytime and from anywhere in the world. No waiting for the stock exchange to open. The market is ongoing, with generally only minor breaks on the weekends.
3. The funds that you invest are liquid; you can cash them anytime you want. No waiting for days to get your stocks converted into hard cash.
4. The value of the Forex Trading market is COLOSSAL: it is 30 times larger than all of the US equity markets combined. It is the largest market in the world with daily reported volume of 1.5 to 2.0 trillion dollars. This massive value makes it a lucrative and desirable trade to invest in.
5. It is a highly stable trade and offers greater
strength over other markets. Countries and people are ALWAYS going to need currency. Although the value of different currencies goes up and down, the fluctuations are not as dramatic as stock prices and generally follow a predictable trend.
6. You do not have to worry about commissions, exchange fees nor any hidden charges when you trade Forex. Forex brokers make only a small percentage of the bid and there are very respectable and free brokers available as well. Is that not wonderful for you?
7. You make profits no matter which way the currency is going. You will not worry about a falling currency value if you know what to do with it and make good gains.
8. Forex is a very transparent market. Unlike equity markets, where analysts have an unfair advantage over the layman because of their insider knowledge, the relevant information for Forex is equally available to every one through international news. Therefore, all Forex traders are in a position to make pertinent decisions according to the current market situations.
9. Forex market is extremely quick! It takes not more than 1 to 2 seconds to complete your transactions because it is all done electronically, online and in Real Time.
10. The final good news is that you do not need any formal education, licensing, diploma or degree to trade Forex. All you need is the know-how of how it works, trading strategies and some tips and techniques and you can be on your way to earn big profits.
Forex trading online may be the fastest path to financial freedom and an end to all your financial worries. It truly is an excellent, if not THE best home business opportunity for ordinary people. You owe it to yourself to give it a try!!! Prosperity and happiness to all!
Forex: Venturing Into Non-Dollar Currencies
Although it is highly advisable for American investors not to rely too much on the domestic market, any investments in non-dollar currencies entail exchange-rate risks. Nonetheless, these risks can be managed and even turned into opportunities. Read on to learn about how to manage the risk in foreign investments.
Essential Diversification – But At a Price
The positive side of foreign investments is that they are an important and often essential part of portfolio diversification. Making foreign investments, however, does not mean that the investor is speculating in foreign currencies, although the risk may still be substantial. After all, a low American dollar, for example, is bound to rise at some point, which will substantially reduce the value of money coming back into the U.S. On the other hand, a high U.S. dollar means the exact opposite to non-American investors because they will be looking to take their money out of the
Currency Fluctuations
For example, in early 2000, the dollar was worth 1.25 euros, but by the end of 2004, it was worth only 0.73 euros. During this period, foreigners investing in
Then there is the issue of yen loans. For years, the incredibly low Japanese interest rates encouraged people to borrow yen to invest elsewhere. However, if the yen were to rise substantially before such a loan is repaid, the borrower could be in trouble. The gains from low interest rates can rapidly be wiped out and worse. In fact, many Austrians took out yen loans in the '90s and some of them wound up with losses of up to 50%, as interest rates moved substantially over time. (
Another good example of the risks that arise in foreign investments is illustrated by what can happen to immigrants. For example, retired people on fixed incomes from South Africa living in the U.S., became very poor very fast in the '80s when the South African rand weakened and the capital they held in their home countries was devastated.
Despite the risk and volatility, however, foreign diversification remains a necessary part of the investment process. Currency fluctuations are a fundamental element of such investments. However, if investors on one side of the
Managing the Risks
Currency risk can be limited but this may also come at a price, which may come in the form of increased cost or complexity.
Foreign Funds
The simplest way to avoid currency risk is to invest in a fund that is denominated in dollars. This way, you will have the diversification advantage of a foreign fund with a reduced currency risk. This risk is instead assumed by the issuer of the fund. (
Options and Futures
A more complicated way of avoiding currency risk is though options or futures. To do this, you either need a lot of financial knowledge or a good advisor. In plain English, the basic method is to cancel out currency risk by taking out an opposing investment. For instance, if you purchase an investment in euros (effectively buying the currency), you can arrange to sell the same amount of euros at a later date, so that the gains from the one transaction will match the losses of the other. You are then left with just the investment itself and no gamble on the exchange rate. As you can imagine, this is not as straightforward in practice and some of the instruments used are very sophisticated. (
Forex: Wading Into The Currency Market
Whenever you devote money to trading, it is important to take it seriously. Many traders are getting into the forex (FX) market for the first time and are basically starting from square one. But new traders don't have to be left in the dark when it comes to learning to trade currencies; unlike with some of the other markets, there are a variety of free learning tools and resources available to light the way. You can become FX-savvy with the help of virtual demo accounts, mentoring services, online courses, print and online resources, signal services and charts. With so much to choose from, the question you're most likely to ask is, "Where do I start?" Here we cover the preliminary steps you need to take to find your footing in the FX market.
Finding a Broker
The first step is to pick a market maker with which to trade. Some are larger than others, some have tighter spreads and others offer additional bells and whistles. Each market maker has its own advantages and disadvantages, but here are some of the key questions to ask when doing your due diligence:
In order to ensure that the money you are sending will be safe and that you have a jurisdiction to appeal to in the event of a bankruptcy, you want to find a large market maker that is regulated in at least one or two major countries. Furthermore, the larger the market maker, the more resources it can put toward making sure that its trading platforms and servers remain stable and do not crash when the market becomes very active. Third, you want a market maker with a larger number of employees so that you can place a trade over the phone without having to worry about getting a busy signal. Bottom line, you want to find someone legitimate to trade with and not a bucket shop.
Checking Their Stats
In the U.S., all registered futures commission merchants(FCMs) are required to meet strict financial standards, including capital adequacy requirements, and are required to submit monthly financial reports to regulators. You can visit the website of the Commodity Futures Trading Commission (an independent agency of the U.S. government) to access the latest financial statements of all registered FCMs in the U.S.
Another advantage of dealing with a registered FCM is greater transparency of business practices. The National Futures Association keeps records of all formal proceedings against FCMs, and traders can find out if the firm has had any serious problems with clients or regulators by checking theBackground Affiliation Status Information Center NFA's (BASIC) online.
Test Drive
Once you've found a broker, the next step is to test drive its software by opening a demo account. The availability of demo or virtual trading accounts is something unique to this market and one that you want to exploit to your advantage. Your goal is to learn how to use the trading platform and, while you're doing that, to find the trading platform that suits you best. Most demo accounts have exactly the same functionalities as the live accounts, with real-time market prices. The only difference, of course, is that you are not trading with real money.
Demo trading allows you not only to make sure that you fully understand how to use the trading platform, but also to practice some trading strategies and to make money in the paper account before you move onto a live account funded with real money. In other words, it gives you a chance to get a feel for the FX market. (
Do Your Research
When you trade, you never want to trade impulsively. You need to be able to justify your trades, and the way to find justification is by doing your research. There are many books, newspapers and other publications with information about trading the FX market. When choosing a source to consult, make sure it covers:
Since the FX market is primarily a technically-driven market, the best book that you can read as a new trader is one on technical analysis. The better you get at technical analysis, the better you can trade the FX market from a speculative perspective. (
When it comes to newspapers, seasoned foreign exchange traders typically refer to the Financial Times and the Wall Street Journal simply because they contain international news. Trading FX involves looking beyond mere economics, since politics and geopolitical risks can also affect a currency's trading behavior. Therefore, it's also important to keep up with major non-financial news sources such as the International Herald Tribune and the BBC (online, on TV or on the radio) for the big stories of the day.
Forex Leverage: A Double-Edged Sword
One of the reasons why so many people are attracted to trading forex compared to other financial instruments is that with forex, you can usually get much higher than you would with stocks. While many traders have heard of the word leverage, few have a clue about what leverage is, how leverage works, and how leverage can directly impact their bottom line.
What is leverage?
Leverage involves borrowing a certain amount of the money needed to invest in something. In the case of forex, that money is usually borrowed from a broker.Forex trading does offer high leverage in the sense that for an initial margin requirement, a trader can build up - and control - a huge amount of money.
To calculate margin-based leverage, divide the total transaction value by the amount of margin you are required to put up.
Margin-Based Leverage = | Total Value of Transaction |
| Margin Required |
For example, if you are required to deposit 1% of the total transaction value as margin and you intend to trade one standard lot of USD/CHF which is equivalent to US$100,000, the margin required would be US$1,000. Thus, your margin-based leverage will be 100:1 (100,000/1,000). For a margin requirement of just 0.25%, the margin-based leverage will be 400:1, using the same formula.
| Margin-Based Leverage Expressed as Ratio | Margin Required of Total Transaction Value |
| 400:1 | 0.25% |
| 200:1 | 0.50% |
| 100:1 | 1.00% |
| 50:1 | 2.00% |
However, margin-based leverage does not necessarily affect one's risks. Whether a trader is required to put up 1% or 2% of the transaction value as margin may not influence his or her profits or losses. This is because investor can always attribute more than the required margin for any position. What you need to look at is the real leverage, not margin-based leverage.
To calculate the real leverage you are currently using, simply divide the total face value of your open positions by your trading capital.
Real Leverage = | Total Value of Transaction |
| Total Trading Capital |
For example, if you have $10,000 in your account, and you open a $100,000 position (which is equivalent to one standard lot), you will be trading with a 10 times leverage on your account (100,000/10,000). If you trade two standard lots, which is worth $200,000 in face value with $10,000 in your account, then your leverage on the account is 20 times (200,000/10,000).
This also means that the margin-based leverage is equal to the maximum real leverage a trader can use. And since most traders do not use their entire accounts as margin for each of their trades, their real leverage tends to differ from their margin-based leverage.
Leverage in Forex Trading
In trading, we monitor the currency movements in pips, which is the smallest change in currency price, and that could be in the second or fourth decimal place of a price, depending on the currency pair. However, these movements are really just fractions of a cent. For example, when a currency pair like the GBP/USD moves 100 pips from 1.9500 to 1.9600, that is just a $0.01 move of the exchange rate.
This is why currency transactions must be carried out in big amounts, allowing these minute price movements to be translated into decent profits when magnified through the use of leverage. When you deal with a large amount like $100,000, small changes in the price of the currency can result in significant profits or losses.
When trading forex, you are given the freedom and the flexibility to select your real leverage amount based on your trading style, personality and money management preferences.
Risk of Excessive Real Leverage
Real leverage has the potential to enlarge your profits or losses by the same magnitude. The greater the amount of leverage on capital you apply, the higher the risk that you will assume. Note that this risk is not necessarily related to margin-based leverage although it can influence if a trader is not careful.
Both Trader A and Trader B have a trading capital of US$10,000, and they trade with a broker that requires a 1% margin deposit. After doing some analysis, both of them agree that USD/JPY is hitting a top and should fall in value. Therefore, both of them short the USD/JPY at 120.
Trader A chooses to apply 50 times real leverage on this trade by shorting US$500,000 worth of USD/JPY (50 x $10,000) based on his $10,000 trading capital. Because USD/JPY stands at 120, one pip of USD/JPY for one standard lot is worth approximately US$8.30, so one pip of USD/JPY for five standard lots is worth approximately US$41.50. If USD/JPY rises to 121, Trader A will lose 100 pips on this trade, which is equivalent to a loss of US$4,150. This single loss will represent a whopping 41.5% of his total trading capital.
Trader B is a more careful trader and decides to apply five times real leverage on this trade by shorting US$50,000 worth of USD/JPY (5 x $10,000) based on his $10,000 trading capital. That $50,000 worth of USD/JPY equals to just one-half of 1 standard lot. If USD/JPY rises to 121, Trader B will lose 100 pips on this trade, which is equivalent to a loss of $415. This single loss represents 4.15% of his total trading capital.
Refer to the chart below to see how the trading accounts of these two traders compare after the 100-pip loss.
| - | Trader A | Trader B |
| Trading Capital | $10,000 | $10,000 |
| Real Leverage Used | 50 times | 5 times |
| Total Value of Transaction | $500,000 | $50,000 |
| In the Case of a 100-Pip Loss | -$4,150 | -$415 |
| % Loss of Trading Capital | 41.5% | 4.15% |
| % of Trading Capital Remaining | 58.5% | 95.8% |
| Figure 1: All figures in U.S. dollars | ||
Excessive Leverage Can Kill
With a smaller amount of real leverage applied on each trade, you can afford to give your trade more breathing space by setting a wider but reasonable stop and avoiding risking too much of your money. A highly leveraged trade can quickly deplete your trading account if it goes against you as you will rack up greater losses due to bigger lot sizes. Keep in mind that leverage is totally flexible and customizable to each trader's needs. Having an aim of trading profitably is not about making your millions by the end of this month or this year.
Thursday, June 12, 2008
some faq in forex
What is Foreign Exchange?
The foreign exchange market, also refered as the "foreign currency," "forex" or "fx" market, is the largest financial market in the world with daily average transactions of approximately U.S. $2 trillion. The world's currencies are on a floating exchange rate and are always traded in pairs, for example Euro/U.S. Dollar or U.S. Dollar/Yen. Foreign Exchange is simply the simultaneous purchase of one currency and selling of another.
Is there a central location for the Forex Market?
Forex trading is not managed through an exchange. Since transactions are conducted between two counterparts, the FX market is an “inter-bank,” or over the counter (OTC) market.
Who participates in the FX market?
Central, commercial and investment banks have traditionally dominated the Forex market. Other market participation is rapidly increasing, and now includes international money managers and brokers, multinational corporations, registered dealers, options and futures traders, and private investors.
When is the FX market open for trading?
Forex is a true global 24-hour marketplace. The trading day begins in Sydney, and moves around the globe as each financial center comes to life. Tokyo follows, then London, and finally New York. Investors can respond in real time to any fluctuations caused by current economic, social and political events.
Which time interval is the best for entering a trade?
There is no single time frame. The best approach is using several at one time.
What is the best time of the day to trade?
Forex is a 24/7 market from Sunday evening to the Friday close of the New York session. This does not mean that anytime is the best time to trade. The best time to trade is when the currency pair is meeting the conditions the trader has established for the trade. When a winning pattern appears, it's the best time to trade.
When does Forex trading occur?
The first session, which is the Tokyo Session, begins each week on Monday morning in the Asia-Pacific region which is Sunday evening in the Americas. Trading continues non-stop moving into the London Session and on to the New York Session until all markets close on Friday afternoon.
How fair is the Forex Market?
The Forex market is so large and is composed of so many participants that no one player, not even a large government, can completely control the long-term direction of the market. So, many experts have called Forex the “most level playing field” on earth.
What are the most common currencies in the Forex markets?
The most “liquid” currencies in the Forex market are those of countries with low inflation, stable governments, and respected central banks. Nearly 85% of daily transactions involve the major currencies, including the U.S. Dollar, Japanese Yen, the European Union Euro, British ound, Swiss Franc, and the Canadian and Australian Dollars.
What is Margin?
Forex margin is a performance bond that insures against trading losses. Margin requirements in the FX marketplace allow you to hold positions much larger than the asset value of your account. Trading with WPP includes a pre-trade check for margin availability; the trade is executed only if there are sufficient margin funds in your account. The WPP trading system calculates cash on hand necessary to cover current positions, and provides this information to you in real time. If funds in your account fall below margin requirements, the system will close all open positions. This prevents your account from falling below your available equity, which is a key protection in this volatile, fast moving marketplace.
What are “short” and “long” positions?
Short positions are taken when a trader sells currency in anticipation of a downturn in price. Making this move allows the investor to benefit from a decline. Long positions are taken when a trader buys a currency at a low price in anticipation of selling it later for more. Making these moves allows the investor to benefit from changing market prices. Remember! Since currencies are traded in pairs, every forex position inevitably requires the investor to go short in one currency and long in the other.
What is the difference between an "intraday" and "overnight position"?
Intraday positions are all positions opened anytime during the 24 hour period after the close of Fx desk of WPP normal trading hours. Overnight positions are positions that are still on at the end of normal trading hours.
How is pricing determined for certain currencies?
The full range of economic and political conditions impact currency pricing. It is generally held that interest rates, inflation rates and political stability are top among important factors. At times, governments participate in the forex market in order to influence the traded value of their currencies. These and other market factors such as very large orders can cause extreme relative volatility in currency prices. The sheer size of the forex market prevents any single factor from dominating the market for any length of time.
What are the most commonly traded currencies in the forex market?
The most often traded or "liquid" currencies are those of countries with stable governments, respected central banks and low inflation. Most forex transactions involve trading of the "major" currencies which include the US Dollar, Japanese Yen, Eurocurrency, British Pound, Swiss Franc, Canadian Dollar and the Australian Dollar.
How are currency prices determined?
Currency prices are affected by a variety of economic and political conditions, the most important of which are interest rates, inflation and political stability. Moreover, governments sometimes participate in the forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as central bank intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the forex market makes it virtually impossible for any one entity to "drive" the market for any length of time.
What is the U.S. dollar as an instrument for trading?
Everyone refers to the U.S. dollar. But what does it really refer to when a trader considers action? The U.S. dollar can be an instrument for trading through the U.S. Dollar Index (USDX) traded on the New York Board of Trade. The USDX is recognized by hedge fund traders and worldwide as the instrument reflecting sentiment on the U.S. dollar. An additional way to trade the dollar is through any of the major currency pairs. The EUR/USD, the USD/CHF and other pairs with the dollar as part of the pair allows a trader to trade for or against the dollar but relative to the other pair.
What is the name of the Chinese currency?
The Renminbi.
Which currency pair allows you to trade the British pound against the euro?
This is called a cross pair - the EUR/GBP.
How is a cross pair different than the majors?
The dollar is not part of the pair. This leads to less volume and liquidity. The spread may be wider as a result.
Which six currencies compose the U.S. Dollar Index?
The surprising aspect to the composition of the U.S. Dollar Index is that it includes obscure currencies. It is composed of:
EUR 57.6%
USD/JPY 13.6%
Pound 11.9%
Canadian dollar 9.1%
Sweden Krona 4.2%
Swiss franc 3.6%
Why is the Spot Currency Market Attractive to Investors?
Professional investors for individual accounts have dramatically increased their level of participation in the cash Forex markets in recent years. Add to this the growing use of cash Forex by individual investors and you have a rapidly growing investment arena. The following summarizes the many reasons professional investors have flocked to this market. Liquidity This market can absorb trading volumes and per trade sizes that dwarf the capacity of any other market. On the simplest level, liquidity is a powerful attraction to any investor as it suggests the freedom to open or close a position at will. Access a substantial attraction for participants in the Forex market is the 24-hour nature of the market. In Forex, a participant need not wait to react to a news event, as is the case in most markets. Flexible Settlement Many professional investment managers have a particular time horizon in mind when they establish a position. In the Forex market, a position can be established for a specific period of time which the investor desires.
What is the technical basis for locating a stop loss?
Stops should technically be where the trade no longer makes sense. If you're buying a currency pair, ask yourself at what point would you be selling it? Or if you're selling the pair, at what point would you be buying it? The answer is a good first approximation as to where the stop should be technically. Remember, also consider the risk involved and cash management.
What are the four strategies for trading a sideways pattern?
Sideways patterns at first appear to be telling us that nothing important is going on. Doing nothing is in fact a trading strategy. Yet, if you are trading sideways patterns consider the following several strategies:
a) Do nothing and wait for a breakout.
b) Play a break off resistance.
c) Play a break off support.
d) Play a bounce off support.
e) Play a bounce off resistance.
What information does a candlestick pattern provide that is not in a bar chart?
Candlestick aficionados may argue this one, but the answer is that both candlesticks and bars provide the same information. Both provide low and high and open and close price.
Which Fibonacci level is the most important?
It is generally considered that the 61.8% Fib line is the most important. But, it's important to see what the prices are doing around any Fib lines. If the 32.8% Fib line seems to be showing that it is a line of resistance or support, then it becomes important to treat seriously.
What is the most important report that affects trading the yen and when does it come out?
The Japanese quarterly survey, the Tankan report, which is released April 1. A good place to check it out is www.boj.or/jp/en.
When the Federal Reserve Open Market Committee meets, what does it decide?
This committee decides on the short-term rates that banks have to have. Long-term rates are decided by the market auctions.
When trading forex, what is the cost of the trade when there is no commission?
Remember that there is no free lunch. The trader pays the spread between the bid and the ask price.
What are the two basic trading strategies for buying or selling as applies to any time frame?
One can start shaping a trading strategy by looking to where the price may find support or resistance. Then the trading strategy can be developed on whether to trade the break or failure to break those support or resistance areas.
What's the major problem with using moving averages?
They are all lagging indicators.
What is the average duration of a profitable trade generating 20 pips?
In other words, how long should one wait to be profitable after they enter a trade and capture 20 pips? Well, perhaps it depends on one's own patience and temperament. But a 20-pip move should occur, on a well-timed trade within an hour.
When you see a parabolic pattern, what does it predict about the imminent movement of the market?
Think of the path a ball takes when thrown to another person. It follows a parabolic path. When one sees a parabolic path reach its height it's a reversal indicator.
What is the most important fundamental piece of information to track before you decide to trade a currency pair?
Make sure you know if there is an economic news report about to be released.
How do you obtain free and professional advice?
The Internet is filled with good analysis and opinions on many sites. But remember the phrase- caveat emptor: Let the buyer beware.
What pattern always precedes a break of support or resistance?
Before a price has enough energy to break a pattern it is in there are signs of hesitancy. The range narrows and then a break occurs.
What is the definition of a "false" breakout?
The concept of a false break is really misleading. When a price breaks a support or resistance line, it has either tried to or may have closed above or below it, but then returned to the previous range. So a false break is really one that is short lived.
What is the best way to spot a trend reversal?
If the currency pair has succeeded in breaking through the 61.8% Fibonacci level of a weekly or daily move a trend reversal is a serious probability.
Which indicator compares the performance of two different trading systems?
There are several, but a useful one is maximum drawdown. If two different trading systems resulted in the same total return, look to which one had a tendency to lose more. The system that had greater drawdowns is more volatile.
Which key moving average period should be watched to indicate a trend reversal?
The 50-day simple moving average acts as a confirmation of a trend change.
When are technical indicators totally useless in determining your next trade?
Right before an economic news calendar report technical indicators get set aside as the market hesitates. Also, during a sudden move such as a response to a terror attack or unexpected news. The market will need time to recalibrate and then technical indicators work.
What is the difference of Forex from Futures?
As a potential investor it is important for you to understand the differences between cash Forex and currency futures. In currency futures, the contract size is predetermined. Futures traders exercise leverage by utilizing Margin to control a futures contract. (Margin is money deposited by both the buyer and the seller to assure the integrity of the contract.) But with liquidity in mind, the futures market may seem limiting because the data flow comes to a stop at the end of the business day (just as it does with the stock market) thus disrupting your perception of the market. For some traders this could lead to a certain level of anxiety. For example, if important data comes in from England or Japan while the U.S. futures markets are closed, the next day's opening could be witness to sharp movements. In contrast to the futures market, the spot forex market is a 24-hour, continuous currency exchange that never closes. There are dealers in every major time zone, in every major dealing center (i.e., London, New York, Tokyo, Hong Kong, Sydney, etc.) willing to quote two-way markets. The size of this market, over one trillion dollars per day gives you near perfect liquidity. Because of the advantages of sheer volume and daily volatility, the excitement of this market is unparalleled.
How much money do I have to keep in my account once it is open?
Once your account is open, there is no minimum balance requirement beyond the margin rates for any positions held in your account.
What is the current interest rate difference between the 10-Year U.S. Treasury Note and bonds in Europe?
The U.S. 10-Year Treasury Note rate is 4.0% while a comparable German bond is 3.75 %. Is this 0.25% big enough to make a difference?
Reason to start trading in forex
If you have time or money, there are lots ways to earn additional income like from active involvement in multi-level marketing, website development, property investment, residential construction security, etc. Trading in Forex (foreign exchange) is also another way of making that extra income.
In the Forex currency market, you have the flexibility of trading from any location (home, hotel, etc.) and at any time as long as you have a laptop and internet connection for your portable computer.
There are no specific requirements or experience necessary in this particular online income generating trading business. Just by attending a Forex training course should be adequate enough for you commence trading in Forex. Why trade in Forex?
Below are 7 reasons why people should trade in Forex:
1. Forex trading offers monetary leverage. Meaning that you can trade with a low capital outlay to control a large currency position. You can trade a standard of $100,000 currency lot by investing with a small capital of only $1000. However, some Forex brokerage firms permit even less that that by giving you up to 200 times the leverage. That is, with only $100 capital outlay you can control a 200,000 unit currency position.
2. Online Forex trading has low transaction charges even though if you have a mini account or trade in small volumes.
3. Forex market transparency is an advantage since there are no hidden figures. You get what you see and thus there is no unexpected surprise. Therefore, it enables you to manage your risk and you can execute your order within seconds if you want to stop further losses in a particular trade.
4. You can trade by buying or selling in the Forex market in either direction, i.e. when it is going up or down.
5. Flexible time is one of the advantages in Forex trading. The Forex market never shuts as it is an incessant electronic currency exchange taking place globally. Since it is worldwide, involving in diversity of currencies of various nations that float their currencies in the world Forex market, it operates 24 hours daily, allowing you to enter or exit a trade whenever you like. In this regards, you can trade whenever you have the free time and as long as there is an internet available anywhere.
6. As you accumulate your personal experience you can earn you extra income by profiting from this sort of online trading in foreign currency. If you trade smartly with the use of technical analyzing tools, you can profit from a trade by predicting the outcome of a trade based on observing the changing trend of a currency which normally repeatedly shows up in predictable cycles.
7. There is unlimited earning potential when you participate in Forex trading for it has a daily trading volume in excess of 1.5 trillion. That makes it the largest financial market worldwide when compared with the equity and futures markets of 50 billion and 30 billion respectively.
How to Avoid Losing Money In FOREX
45 Ways to Avoid losing Trading FOREX, by Jimmy Young
1) Knowledge Deficiency – Most new FOREX traders don’t take the time to learn what drives currency rates (primarily fundamentals). When news or a statement is due out they must close out their positions and sit out the best trading opportunities. They are taught to only trade after the market calms down. So essentially they miss the whole move and then trade the random noise that follows a fundamental price move. Just think for a moment about technically trading the aftermath of a price move; there is no potential.
2) Overtrading - I believe that Currency trading often with tight stops and tiny profit targets will benefit the broker. The desire to “just” make a few hundred dollars a day by locking in tiny profits whenever possible is a losing strategy.
3) Over leveraged - Leverage is a two way street. It can magnify losses as well as gains. Traders should employ a level of leverage that is in-line with their risk tolerance.
4) Relying on Others – Real traders play a lone hand; they make their own decisions and don’t rely on others to make their trading decisions for them; there is no halfway; either trade for yourself or have someone else trade for you.
5) Stop Losses – Putting tight stop losses with retail brokers is a recipe for disaster. When you put on a trade commit to a reasonable stop loss limit that allows your trade a fair chance to develop.
6) Demo Accounts – Broker demo accounts are a shill game of sorts; they’re not as time sensitive as real accounts and therefore give the impression that time sensitive trading systems, such as short-term moving average crossovers can be consistently profitably traded; once you start dealing with real money reality is quick to set in.
7) Trading During Off Hours – Bank FX traders, option traders, and hedge funds have a huge advantage during off hours; they can push the currencies around when no volume is going through and the end game is new traders get fleeced trying to trade signals. There is only one signal during off hours – stay out.
8) Trading a Currency, Not a Pair – Being right about a currency is half a trade; success or failure depends upon being right about the second currency that makes up the pair.
9) No Trading Plan - Make money is not a currency trading plan. A trading plan is a blueprint for trading success; it spells out what you see your edge as being; if you don’t have an edge, you don’t have a plan, and likely you’ll wind up a statistic (part of the 95% of new traders that lose and quit).
10) Trading Against Prevailing Trend – There is a huge difference between buying cheaply on the way down and buying cheaply. What was a low price quickly becomes a high price when you’re trading against the trend.
11) Exiting Trades Poorly – If you put on a trade and it’s not working make sure you exit properly; don’t compound the damage. If you’re in a winning trade don’t talk yourself out of the position because you’re bored or want to relieve stress; stress is a natural part of trading; get use to it.
12) Trading Too Short-term – If you’re profit target is less than 20 points don’t do the trade; the spread you pay to enter the trade makes the odds way against you when you go for these tiny profits.
13) Picking Tops and Bottoms - Looking for bargains works well at the supermarket but not trading foreign exchange; try to trade in the direction the price is going and you’re results will improve.
14) Being Too Smart – The most successful traders I know are high school graduates. They keep it simple and don’t look beyond the obvious; their results are excellent.
15) Not Trading Around News Time – Most of the big moves occur around news time. The volume is high and the moves are real; I believe there is no better time to trade fundamentally or technically than when news is released; this is when the real money adjusts their positions and as a result the prices changes reflect serious currency flow (compared to quiet times when Bank traders rule the market with their customer order flow.
16) Ignore Technical Condition – Determining whether the market is over-extended long or over-extended short is a key determinant of near time price action. Spike moves often occur when the market is all one way.
17) Emotional Trading – When you don’t pre-plan you’re trades essentially it’s a thought and not an idea; thoughts are emotions and a very poor basis for doing trades. Do people generally say intelligent things when they are upset and emotional; I don’t think so.
18) Lack of Confidence – Confidence only comes from successful trading. If you lose money early in your trading career it’s very difficult to gain true confidence; the trick is don’t go off half-cocked; learn the business before you trade.
19) Lack of Courage to Take a Loss – There is nothing macho or gutsy about riding a loss, just stupidity and cowardice. It takes guts to accept your loss and wait for tomorrow to try again. Getting married to a bad position ruins lots of traders. The thing to remember is the market does crazy things often so don’t get married to any one trade; it’s just a trade. One good trade will not make you a trading success; rather it’s monthly and annual performance that defines a good trader.
20) Not Focusing on the Trade at Hand – There is no room for fantasizing in successful trading. Counting up and mentally spending profits you haven’t made yet is mental masturbation and does you no good. Same with worrying about a loss that hasn’t happened yet. Focus on your position and have a reasonable stop loss in place at the time you do the trade. Then be like an astronaut – sit back and enjoy the ride; no sense worrying because you have no real control; the market will do what it wants to do.
21) Interpreting FOREX News Incorrectly – Fact is the press only has a very superficial understanding of the news they are reporting and tend to focus on one element and miss the point. Learn to read the source documents and understand it for real.
22) Lucky or Good – Your account balance changes don’t tell you the whole story about your trading; fact is if your taking a lot of risk and making money you will eventually crash and burn. Look at the individual trade details; focus on your big loses and losing streaks. Ask yourself this; if I had a couple of consecutive losing streaks or a couple of consecutive big loses, how would my account balance look. Generally, traders making money without big daily loses have the best chance of sustaining positive performance. The others are accidents waiting to happen.
23) Too Many Charity Trades – When you make money on a well thought out trade don’t give back half on a whim; invest your profits from good trades on the next good trade.
24) Courage Under Fire – When a policeman breaks down the door to a drug dealers apartment he is scared but he does it anyway. When a fireman climbs onto the roof of a burning building he is scared but does it anyway; and gets the job done. Same with trading; it’s ok to be scared but you have to pull the trigger; no trigger – no trades – no profits – no trader.
25) Quality Trading Time – I suggest 3 hours a day of quality, focused trading time; that’s about all your brain allows. When your trading being 100% focused; half way is bullshit’ it doesn’t work. Don’t even think that time spent in front of the computer watching the rates has any correlation to profitability; it doesn’t. Spend less time but when your trading be 100% focused on trading.
26) Rationalizing – Killer. Absolute Killer. Put your trade on and let it run. If it hits your reasonable pre-determined stop your out. Think of yourself as a prizefighter; you just got knocked out. Moving your stop is like getting up after being crushed with a knockout blow; it’s pointless; things will only get worse. Don’t ignore the obvious; your wrong – get out. Come back the next day and try again. A small loss will not hurt you; a catastrophic loss will.
27) Mixing Apples and Oranges – Have you ever done this; you see the EURUSD trading higher so you buy GBPUSD because it “hasn’t moved yet”. That’s a mistake. Most of the time the reason the GBPUSD hasn’t moved yet is because its already overbought or some 4:30am UK news was bearish. Don’t mix apples and oranges; if EURUSD looks bid buy EURUSD.
28) Avoiding the Hard Trades – Bank FX traders have an axiom; the harder the trade is to do the better the trade. This I learned from experience; when I needed to buy EURUSD and it was hard to get them that’s when it’s necessary to pay up and get the business done. When it’s easy to get them then sit back and wait for better levels. So if your trying to get into a trade or more importantly get out of a trade don’t putz around for a few points; get your business done.
29) Too Much Detail – If your trading more than 2 indicators then you need to clean house. Having many indicators stifles trading and finds reasons not to trade. A setup and a trigger is all you need.
30) Giving Up Too Easy – Your first trade of the day may not be your best but certainly it’s no reason to quit. I have a preset daily trading limit and I use it; you can’t make money by making excuses; getting trades wrong is natural and should be expected.
31) Jumping the Gun – Don’t be penny wise and dollar foolish; wait for your trade signal to be clear; put on your trade and give it a decent size stop loss so that you don’t get knocked out by random noise. Do trades don’t’ buy lottery tickets (extremely tight stops).
32) Afraid to Take a Loss - trading is not personal; it’s business. Don’t think that a poor trade is a reflection on you. It could be your just ahead of your time or a commercial order hits the market and temporarily creates a small unexpected move. Again, place your stop beforehand and NEVER increase your pre-determined risk; if it’s going bad it will probably get worse; I think that’s Einstein “in motion stays in motion…”
33) Over-Relying on Risk Reward – If you put a 20 point stop and a 60 point profit your chances are probably 3-1 that you will lose; actually with the spread its more like 4 to 1 (from entry point if it goes down 17 points you lose or up 63 you win; 17/63 is close to 4-1).
34) Trading for Wrong Reasons – Because the EURUSD is going up is not in itself a reason to buy. Buying EURUSD because its not moving so little risk is even worse; you’re paying the toll (spread) without even a hint that you will get a directional move. If your bored don’t trade; the reason your bored is there is no trade to do in the first place.
35) Rumors – Rumors are rumors almost 100% of the time; think about where in the motion you heard the rumor; if EURUSD is up 50 points in last 15 minutes and the rumor is dollar negative, well then you missed it. Whenever you trades determine where in the motion you are entering.
36) Trading Short-term Moving Average Crossovers – This is the money sucker of the century. When the shorter term moving average cross the longer term moving average it only means that the average price in the short run is equal to the average price in the longer run. For the life of me I cannot understand why this is bullish or bearish. Easy to set up on software, complete with lights, bells and whistles, and good for the seller getting thousands for the software but in terms of creating profit it’s a zero.
37) Stochastic – Another money sucker. Personally I think this indicator is used backwards; when it first signals an overdone condition that’s when I think the big spike in the “overdone” currency pair occurs. To be overbought means strong and oversold means weak. Try buying on the first sign of overbought and selling on the first sign of oversold; you’ll be with the trend and likely have identified a move with plenty of juice left. So if %k and %d are both crossing 80; buy! (Same on sell side; sell at 20)
38) Wrong Broker – A lot of FOREX brokers are horrible; get a good one. Read forums and chats in several different places to get an unbiased opinion.
39) Simulated Results – Watch out for “black box” systems; these are trading systems that don’t divulge how the trade signals are generated. Great majority of them are absolute garbage. They show you a track record of extraordinary results but think about it; if you could build a trading system with half a dozen filters using the benefit of hindsight, couldn’t you too come up with a great system. Of course going forward is an entirely different story. High-speed number crunching capabilities allows for building great hindsight trading systems; BEWARE.
40) Inconsistency – Every business (FOREX trading included) requires a business plan (trading plan). Unless you have taken the time to write down a set of rules that you can and will follow, it’s likely your trading will remain unfocused and directionless. Make a plan, have rules, follow them set goals that are realistic and you will achieve them.
41) Master of None – Focus on one currency for technical trading; each currency has a unique way of trading and unless you get intimate with it you will never truly understand its underlying idiosyncrasies. Don’t spread yourself too thin – focus – master one currency at a time.
42) Thinking Long Term – Don’t do it. Stay in the moment. Especially if you’re a day trader. It doesn’t matter what happens next week or next month, if your trading with 30 to 50 point stops restrict your thought process to what’s happening right now. That is not to stay the long-term trend is not important; it is to say the long-term trend will not always help you when your trading a significantly shorter time frame.
43) Overconfidence – Trading is not easy; statistics show 95% failure rate. If your doing well don’t take your success for granted; always be on the lookout for ways to improve what you’re doing.
44) Getting Pumped Up – The trick is to maintain an even keel; when you are in a trade you want to think exactly as you would if you didn’t have a trade on. To do this requires a relaxed disposition; this is not a football game; don’t get psyched up; relax and try to enjoy it.
45) Staying in the Game – I don’t recommend demo trading because traders learn bad habits when trading with play money. I also don’t think “letting it all hang out” right away is wise either. Start off doing trades and taking risk that is relatively small but still makes a difference to you if you win or lose; about a quarter to a third of what you expect to reach as your trading matures is reasonable.
