Tuesday, March 31, 2015

Practical Ways to Use Moving Averages

Moving averages can be used as a tool to:
Identifying a trend
Identifying Support & Resistance levels
Identifying price breakouts
Measuring price momentum
Moving Average can be used easily as a tool to identify an uptrend market when
- The moving average is rising
- The price line tend to be above the moving average
- A shorter moving average crossed the longer moving average
Normally, a longer term map of the trend gives us much reliable perspective for the fact of
what's going on with the market. In order to identify a trend you should take a look at a
longer term chart like Weekly or Daily to see what the major direction of the price is.
Remember that this is very important to make sure you are not on the wrong side of the
market because a large number of big losers easily had too many trades against the major
trend. To identify the longer term trend you can draw 200 SMA and 144 EMA onto the chart.
Simply when the 144 EMA is above the 200 SMA and at the same time the price is above the
200 SMA while both moving averages are diverging.

Now, we have the big picture of the market and we at least know that a LONG trade is not as
risky as a SHORT trade. However, a short term trader needs a short term signal to enter the
market. A short term LONG signal would identify when:
- The 144 EMA crossed the 200 SMA on 4H chart ( you can use 1H chart but it has more
noises than a 4H chart )
- The price must be above the 200 SMA
- The MAs is diverging
- MAs and especially the 144 EMA must be in a rising form (this is a visual experience
and normally helps to avoid noises)








JAKE BERNSTEIN: PSYCHOLOGIST TURNED TRADER

Jake Bernstein, one of the futures industry's best-known traders, started trading “by accident” he told FWN.
Bernstein was a psychologist who responded to an ad in the newspaper regarding “ag futures.” A broker started calling him
and Bernstein opened an account.
“I had quick success, which turned into quick failure,” Bernstein said, acting at the time solely on his broker's
recommendations.
Then Bernstein “regrouped, did research, and started trading on my own.” An active trader now, he trades strictly according to
technicals - off the floor from a screen.
“My work has always been technically oriented, using price patterns, seasonality, and cycles.”
Bernistein initially “developed my own method and timing. I didn't have the money to trade it, so I sold advice.” Eventually,
he built up enough capital and began trading via his own method.
President of MBH Commodity Advisors, based in Winnetka, IL., Bernstein has authored more than 20
books. He is the publisher of the MBH Weekly Futures Trading Letter, which has been in continuous publication since 1972, and
he leads workshops on specific trading topics. Bernstein is also a panelist on the “All Star Traders Hotline.”
“I love the teaching. Every time I teach, I learn something new and it reinforces the belief I have in my own methods,”
Bernstein said. Also, “there is so much disinformation out there for traders, I feel good teaching something that I know works,”
he added.
Bernstein favors participation in the most active futures markets - energies, financials, and the S&P contract. However, “I
trade anything that moves in any time frame,” he said.
Very thin markets, such as palladium and orange juice futures, are markets Bernstein usually avoids. “I don't like the way the
orders are executed there.”
When asked if the value of technical analysis is eroded as more and more traders learn the same types of chart patterns,
Bernstein said, “Chart patterns are as much art as science. I try to stay with things that are crystal clear. If 10 people look at a
chart and all 10 of us come to the same conclusion - those are the types of things I am comfortable with. I like to be objective.”
Bernstein pointed to Elliott wave analysis as a type of technical analysis that tends to be more “subjective,” as the wave counts
are open to individual interpretation.
The long-time trader has established his own home page on the World Wide Web and is fairly upbeat on the impact of the
Web on the trading community.
“I think the Internet will allow for faster distribution of information and will allow more people throughout the world to take
part in the markets. It will increase the opportunities for everyone.”
On the future of the exchange trading floors, Bernstein doesn't believe electronic trading will replace open-outcry pit trading
anytime soon. “So far, I'm not impressed,” he said, regarding speculation on the eventual demise of pit trading. “I think there is
still a place for the floor trader and the pit broker, and as long as the broker is being effective there will be a need for him.”
Bernstein, however, has always been a “screen trader,” suggesting he is “much too short” to be a floor trader as “people would
take advantage of me down there,” he said. On the current state of the futures markets, Bernstein believes a new inflationary era
is on the horizon.
“I think we are in for one of the biggest inflation moves we've seen since the 1970s. We will see a big move in the precious
metals. We are already seeing rises in the grain complete ... the energies are going crazy-and that suggests more inflation. We are
going to see interest rates rise and a big bear market for interest rates,” he predicted.
Advice Bernstein has for beginning traders: “Start with enough capital; diversify; trade for the bigger moves and manage
risk.”

GEORGE ANGELL KEYS IN ON VOLATILITY AND LIQUIDITY

Volatility and liquidity are the two elements independent trader George Angell looks for in a market to trade. Currently,
Angell exclusively trades the S&P 500 futures, putting on intraday trades only, never holding positions overnight.
"Liquidity and volatility are the two things you have to have. You can't day-trade something like oats--it wouldn't work"
Angell said.
Back in the early 1970s, Angell first became interested in the commodities markets. "I bought sugar and it went limit up ...
then I bought copper and it went limit up, so I bought some more. Then it went limit down. I called my broker and told him to
sell and he said to whom?" Angell said. "That's when I realized I had more to learn,” Angell added.
In the early 1980s, Angell headed for the Chicago trading pits. He was a local trader at the MidAmerican Commodity
Exchange, focusing primarily on gold. While Angell now trades for himself, off-floor, from a screen, he called trading on the
floor "an invaluable experience.”
"People on the floor are very short-term oriented" Angell said. "It taught me to get in, capture the trend, get your money and
leave" he said.
Now, however, Angell prefers off-floor trading. "I'm alone in a room trading. When I’m on the floor there are thousands of
people. It's a social event. People want to talk about their positions, they want to have coffee. You lose your concentration... you
can't see the forest for the tress," Angell said.
Technology has revolutionized the capability of off-floor traders in the past 10 years, according to Angell. "The playing field
has been leveled," Angell said, explaining that technology has decreased the advantage the floor trader was once seen as having
over an off-floor trader. "The key beneficiary is the public trader. The public can't scalp, but they can day-trade," he explained.
Angell disregards fundamentals, relying on technicals “100%.” He has developed two proprietary trading systems: LSS and
Spyglass, which he utilizes in his day trading, along with "discretion and personal judgment.”
"Everybody needs some sort of mechanical system. It enables you to take the difficult trades you wouldn't normally take on
the seat of your pants" Angell noted.
Also, "every day I go in without an opinion ... and I let the market tell me where it wants to go ... opinions are what get you in
trouble," Angell added.
While “a lot of people don't have the discipline to trade without stops," Angell said he doesn't use them. "The problem with
stop trading is that you get out at the worst possible moment. Instead of stops, I use action points. That means when it hits that
point I'll get out, but I'll wait for the bounce (if the market is going down)" Angell explained.
Angell has traded the bond market as well. He keys m on his two key elements of volatility and liquidity when judging
markets. "Occasionally, markets die on you. For instance, in 1980 we had a big gold market. It had gone to $850 per ounce...but
volatility dried up and then liquidity dried up. At that point I went to the bonds," Angell said. When the S&P 500 contract was
launched at the Chicago Mercantile Exchange, Angell started trading that market.
However, he noted after the stock market crash of 1987, liquidity dried up in the S&Ps, and Angell moved back to the bonds
for a time.
"Big institutions are trading bonds and there are thousands to buy and sell at every tick. Nobody can play with that market.
Nobody can manipulate it. That's why orange juice goes limit up all the time-because there is nobody to sell it," he said.
When asked about GLOBEX trading, Angell said, "I don't pay any attention to it, because there's not enough liquidity there.
On Eurodollars," Angell noted, "there is huge liquidity but not enough volatility to make money."
On the differences between markets, Angell noted that "all the markets have different characteristics and you have to know
your market very well. On the floor, a guy who trades lumber isn't going to trade the S&P. And traders trade the markets
differently. People are known according to how they trade. This guy is a scalper. This guy trades back months. This guy is a
spreader. This guy is a position day-trader. The novice trader needs to know he's got to be a specialist."
When asked why many futures traders don't succeed, Angell pointed to three main factors. "One, a lack of discipline. Two,
they are underfinanced. Three, they don't know what it's all about. They don't know about paradoxical even" Angell said.
The dictionary definition of "paradox" is an apparent contradiction, which is nevertheless somehow true, Angell explained.
One example of this in the markets is that "the whole game on the floor is to run the stops" he said.
"In the market, everyone thinks it's going up, but everyone won't make money," he added.
Advice that Angell has for beginning traders? "Be well-enough financed with risk capital that you can afford to lose. Don't think
about the money, drink about the market, and the money will take care of itself," Angell concluded.

Monday, March 30, 2015

Forex Trading In 14 Days

How did they do it?

If you want to learn forex trading and be successful then their story will point you in the right direction.

The Debate

In 1984, legendary trader Richard Dennis taught a simple technical trend following system to a group of students, to prove that, trading was a skill that could be specifically learned. Dennis was settling a debate with his friend William Eckhardt, who believed successful trading was a skill that was a gift, while Dennis believed it anyone could be taught it.

Who Were The Turtles?

They were all from diverse backgrounds and the only thing they had in common was that they had never traded before. They included a boy fresh out school, a security guard, some professional card players, a bookkeeper and even an actor.

Dennis believed that anyone who wanted to be a successful trader needed to focus on three specific areas:

1. A simple technical system they could understand and have confidence in.

2. A set of money management rules to preserve equity.

3. A discipline to apply their methods through periods of losses without deviating from their system.

In the turtle trading experiment Dennis gave the turtles a simple system and taught them the RIGHT MINDSET to be successful.

A Simple system & money management rules

The system taught was simplicity itself and was designed to be easy to understand easy to apply, yet one the turtles could have complete confidence in. The system was based on breakout methodology, with just a few rules to confirm trading signals, backed up by strict money management rules to preserve equity.

If you want to learn forex trading, you need to understand that your system should be simple. One of the biggest myths of trading is that a complicated system is more likely to succeed than a simple one. In fact, most of the worlds top trading systems are simple and as a general rule, a robust simple system with just a few indicators will beat a more complicated one.

Why?

Because in the brutal world of trading, simple systems are more robust than complicated ones with less elements to break. In trading you don't earn your reward from the effort you put in, you earn it for being right about market direction. With any system you need money management rules and Dennis gave them a simple set of rules that would preserve their equity. The knowledge Dennis gave his pupils gave them confidence which is crucial, in that it leads to discipline.

Discipline

If you are confident and understand a system you will follow it with discipline. Most traders don't have discipline, because they don't have ultimate confidence in their method, as soon as a string of losses occur they throw in the towel. If you don't have the discipline to follow a method, you really have no method in the first place.

What can we learn from the turtles?

Quite simply, that anyone can learn to trade and trading success is within reach of anyone with a willingness to learn and apply what they have learned. You may not make as much money as the turtles, however if you focus on developing a robust method you understand, have confidence in and can apply with discipline, you can be a successful trader.

The turtles worked smart not hard to achieve trading success and their story is inspiring for anyone wishing to learn forex trading.

Why A Forex Trading Loss Should Be A Good Friend

If the title of this article was "Why A Forex Trading Profit Is Your Best Friend" then you'd probably feel that this was a perfectly reasonable title, but how on earth can any Forex trader view the arrival of a trading loss in the same way that he would view the arrival of a good friend? Well, I'll let you into a secret - the most successful traders do just that.
Many years ago a good friend of mine started a new job as an insurance salesman and I don't think I'd ever seen anyone so fired up and ready to go. When I saw him a month or so later though he was completely dejected and had left his new job.
The problem he had encountered was a common problem in this and many other industries - that or rejection. In order to earn his commission he had to find potential customers and that meant getting on the telephone and cold calling people in the hope of being able to make an appointment with them to discuss their insurance needs. Now this was a simple enough process (the company even gave him telephone training and a script to follow) but nine times out of ten he would fail to make an appointment and he saw the rejection of his offer as a failure on his part. After a couple of weeks of facing failure day after day, he simply couldn't face picking up the telephone.
The truth of the matter was of course that he had not failed at all and that finding one person out of ten chosen at random who was prepared to talk to a complete stranger about their insurance needs was actually pretty good going. What he had experienced was nothing more than the way the insurance industry works and the problem didn't lie in the fact that his approaches were being rejected, but in the fact that he had interpreted this as being a failure on his part.
Now you're probably asking yourself at this point just what this story has to do with Forex trading and the answer is simple. Every day people lose heart and leave the Forex market because, after several failed trades, they see themselves as having failed and, just like my insurance salesman friend, they turn what is nothing more than a normal part of trading into a personal failure.
Losses are an inevitable part of the trading game and even the most successful traders have trades that lose them money every day. They succeed however because they accept losses as a part of normal trading and deal with their losses accordingly.
Successful insurance salesmen actually like being rejected nine times out of ten because, knowing that it is an inevitable part of the job, they choose to view each rejection as bringing them one step nearer to that call when they'll make an appointment. As they receive one rejection after the next their spirits actually rise because they know they're getting closer to that successful call.
In the world of Forex trading no matter how good you are at analyzing the market you're not going to get it right every time and some trades will go against you. But each losing trade not only provides you with a valuable learning experience but also brings you one step closer to your next profitable trade.
Accepting loses as a normal part of trading and part of the dynamics of the market, rather than viewing each loss as a personal failureFind Article, is just one of the many things that separate the successful traders from those that simply scrape by or decide that perhaps Forex trading is not for them.

How to Get Faster Results from Your Forex Trading

Many new traders end upsuffering from analysis paralysis. They’ll paper trade for months only to get bored with the process andthen quit.  They won’t have lost any realmoney but they’ll have wasted their education.
I would advise putting someskin in the game right from the beginning. The best way is to put a tiny amount of your account to work in a longtrade that pays you interest, daily. When I say a tiny amount, I mean tiny – like one mini-contract. 
You can do this, TODAY,with the following trade.  (This justhappens to be my favorite, by the way.)
Pull up a monthly chart ofthe AUD/JPY using your favorite charting software or website.  You can look at the chart I’m looking at byclicking here.
You’ll see that the pairhas been in an upward trend for about 7 years. The reason for this is primarily because a) commodity prices have beenon the rise which helps the Australian economy which has prompted the RoyalBank of Australia to raise their overnight interest rate to an astounding 7.25% and b) The Bank of Japan is a net importer of commodities and is afraid toraise their overnight rate without negatively impacting their strugglingeconomy. The overnight rate of 0.5% makes the Yen an attractive currency topair with a stronger currency, such as the AUD, and initiate what is called acarry trade.
What should make the carrytrade attractive to the new trader is that you are paid a nice bit of interest(the difference between the higher overnight rate and lower overnightrate)  EVERY DAY THAT YOU HOLD THE TRADE!
The caveat is that thesetrades can unravel quickly.  So, afteropening this trade you still need to keep an eye on it.  But, remember, you are to trade a tiny amountin the beginning. And, of course, you want to have stops in place.
Now, notice from the chartthat the pair is at the bottom of the channel on this long term chart.  One would expect a bounce from thisconsidering that the overall trend still seems to be intact.
Now, take a look at thedaily chart for the pair.  Over the past9 months starting in about August of 2007, the pair has been in a downwardchannel.  This is where the opportunitylies. 
The time to open the tradewill be when it breaks out of the channel to the upside.  When it does this, you can expect the uptrendto resume.  In that caseHealth Fitness Articles, you want to bein to enjoy the ride - and add some daily ca-ching in your account!

10 Rules and Signals for Forex Trading Market

1. Do Not Settle on Minimum Deposit
You will be required to have minimum deposit to open an account. If you want to trade enough, give it some more so you can move.
2. Don’t Buy Forex Software without Performance Research
Forex software needs to meet certain requirements, so make sure yours is on it. Make research first on it.
3. Stoplosses Facility
This facility is a good help. It will automatically stop your trading if you are about getting losses. This is beneficial when you do multiple things at once.
4. Trading Log
It keeps records on your trading decision. It will remind you later on how you build a trading, and you can learn how to make the successful one then.
5. Make Trading Plan
It keeps you on the right line and helps a lot in avoiding failed trading. You need combination of actions so you must plan it.
6. Do Not Trade More Than the Level of Your Account
Your account must have level and you should trade on your size, and don’t take bigger one on it. It is too risky.
7. Don’t Pitch the Up or Bottom Point
It is always wise to be on the between position. Up and bottom points are too dangerous for newbie.
8. Losing Position Rule
If you are on losing position, you should not add the amount of money you invest on it. That is just moron. You know how it will end.
9. Over Trade
Do not force even if you do not have opportunities to make trade actions. Wait for the moment and then take actions. Just be patient on this.
10. See Bigger Picture
Study your chart every time. In new day, you must study yesterday and recent charts. It will tell you the trends and you will see the bigger picture.
Now, you will need to remember those rules all the time. You may acquire the main point when you experience it. For some people, it is too hard to understand. You should try harder and fight like hell to survive on trading. They have effects and you should know it.

What is hedging as it relates to forex trading?

When a currency trader enters into a trade with the intent of protecting an existing or anticipated position from an unwanted move in the foreign currency exchange rates, they can be said to have entered into a forex hedge. By utilizing a forex hedge properly, a trader that is long a foreign currency pair, can protect themselves from downside risk; while the trader that is short a foreign currency pair, can protect against upside risk.
The primary methods of hedging currency trades for the retail forex trader is through:
  • Spot contracts, and
  • Foreign currency options.
Spot contracts are essentially the regular type of trade that is made by a retail forex trader. Because spot contracts have a very short-term delivery date (two days), they are not the most effective currency hedging vehicle. Regular spot contracts are usually the reason that a hedge is needed, rather than used as the hedge itself.

Foreign currency options, however are one of the most popular methods of currency hedging. As with options on other types of securities, the foreign currency option gives the purchaser the right, but not the obligation, to buy or sell the currency pair at a particular exchange rate at some time in the future. Regular options strategies can be employed, such as long straddles, long strangles and bull or bear spreads, to limit the loss potential of a given trade.
 Forex hedging strategy
A forex hedging strategy is developed in four parts, including an analysis of the forex trader's risk exposure, risk tolerance and preference of strategy. These components make up the forex hedge:
  1. Analyze risk: The trader must identify what types of risk (s)he is taking in the current or proposed position. From there, the trader must identify what the implications could be of taking on this risk un-hedged, and determine whether the risk is high or low in the current forex currency market.
  2. Determine risk tolerance: In this step, the trader uses their own risk tolerance levels, to determine how much of the position's risk needs to be hedged. No trade will ever have zero risk; it is up to the trader to determine the level of risk they are willing to take, and how much they are willing to pay to remove the excess risks.
  3. Determine forex hedging strategy: If using foreign currency options to hedge the risk of the currency trade, the trader must determine which strategy is the most cost effective.
  4. Implement and monitor the strategy: By making sure that the strategy works the way it should, risk will stay minimized.
The forex currency trading market is a risky one, and hedging is just one way that a trader can help to minimize the amount of risk they take on. So much of being a trader is money and risk management, that having another tool like hedging in the arsenal is incredibly useful.

Not all retail forex brokers allow for hedging within their platforms. Be sure to research fully the broker you use before beginning to trade.

Sunday, March 29, 2015

Foreign Exchange Swaps

Let's assume that you believe that the UK Pound is going to rise against the US Dollar and that you can currently buy GBP/USD at 1.9340. Let's also assume that you are trading in standard interbank lots of 100,000 so that 100,000 UK Pounds will currently cost 193,400 US Dollars.
In essence to open a trade for a standard lot you will need to borrow 193,400 US Dollars and this amount will need to be repaid when you close out your position. We won't digress from the purpose of this article to discuss the concept of borrowing to fund Forex purchases but, suffice it to say, that the majority of trading is done using borrowed funds making use of the ability to use leverage when Forex trading.
Now let's assume that your belief that the UK Pound would rise against the US Dollar is correct and that the price moves 100 pips to a rate of 1.9440. The 100,000 UK Pounds which you purchased are now worth 194,400 US Dollars and can be sold to repay the original borrowing, leaving you with a profit of 1,000 US Dollars.
In reality it's not quite this simple because there will be costs involved in this transaction, but this does demonstrate the principle of profiting when the exchange rate moves up.
Now let's turn our attention to profiting when the exchange rate moves down.
Let's assume that you believe that the UK Pound is going to fall against the US Dollar from its present rate of GBP/USD = 1.9340. In other words, you believe that the UK Pound is going to buy fewer US Dollars.
In this case you will place an order to sell 100,000 UK Pounds at a cost of 193,400 US Dollars. In other words you will borrow 100,000 UK Pounds and sell them for 193,400 US Dollars.
Again we will assume that your belief was correct and that the rate drops by 100 pips to GBP/USD = 1.9240. At this point you close your position by buying back and repaying the 100,000 UK Pounds which you originally sold which will now cost you 192,400 US Dollars, leaving you with a profit of 1,000 US Dollars.
Again this example ignores any costs involved in the tradePsychology Articles, but nonetheless demonstrates the principle of profiting from a downward movement in exchange rates.

How To Use Leverage For Great Results With Forex

But Forex trading accounts are leveraged, which means you don't have to own that expensive lot of currency; you just have to control it, and if you do, any profit it earns is yours. To obtain the right to control a lot of currency, you put up a much smaller amount of money in a sort of rental agreement called a margin deposit. In a standard account, to control that U.S. $100,000, you must put up $1,000 of your own money; in a mini account, to control $10,000, you need to put up $100.

The leverage influences the amount of profit you earn, as well. In a standard account, one pip of a currency pair that has the U.S. dollar as the base is equal to U.S. $10; in a mini account, one pip equals to $1. This means that, should you correctly forecast the movement of the market and execute a trade that earns you two hundred pips (not an unrealistic goal), if you have a standard account, your profit will be $2,000; if you have a mini account, it's $200.

To maximize your profits in Forex trading, you don't have to trade a standard account; not every beginning trader can afford to. Instead, if you believe you have a good forecast on the market, you can trade more than one lot. To continue the above example, if your successful trade earned you two hundred pips and you had purchased five lots of that currency, in a mini account you would have put up $500 of your own money-but earned a profit of $1,000 (two hundred pips times five lots). In a standard account, you would have put up $5,000-and earned $10,000.

The number of lots you can trade depends upon the margin in your account. That's not the amount you deposited; that also includes any open trades you have running, taking into account any profits or losses you may incur.

There are two types of orders that can be placed in Forex trading. The most common type is called a market order, and it simply purchases or sells the currency pair at the going market rate. This sort of trade is quickly arranged-with some online trading platforms, one click can do it-so it's the order you want to place when the market is moving rapidly. (If you do the one-click thing, always edit the trade to put in a stop-loss; more on that in a minute.)

The other kind of order is called an entry order, and it's what you use when you want to purchase or sell a currency pair but only at a certain price. For example, say the GBP/USD is range-bound, moving sideways in a channel, going up and down but not far enough to entice you into a trade.

But there are indications that the Cable might soon break out of that channel. So you could place an entry order to purchase but only after the price rises above a certain point. If the Cable breaks out, your entry order would be triggered, and you would purchase the currency pair when the price rises above your pre-arranged point. If it doesn't, you aren't stuck with a currency pair that's going nowhere, and the still-dormant entry order would cancel after a certain length of time.

A stop, also called a stop-loss, is a pre-arranged point where you decide you would like to get out of a losing trade. A limit, also called a take-profit, is a pre-arranged point where you decide you would like to exit a winning trade. Although it may not seem so on the surface, both are important. Properly using stops and limits defines the extent of your risk and encourages disciplined trading.

Scalping

Scalping is an important aspect of forex trading. General belief is that scalping is one of the safest ways of trading. You enter the market, initialize a lot of trades and walk away once the prices rise a little and you get a reasonable profit. But scalping also involves very high risk because of leverage.
As safe as it sounds, scalping may result in a complete disaster, if you take just a single step in the wrong direction. Also, even if you earn in most of the trades, you are bound to lose in a few trades, which neutralizes your profits from those successful trades
 

Common mistakes that cause losses in Forex trading


About 90% of all traders lose money. In Forex trading this number is closer to 95%, which begs the question: Why do traders lose?

Here are the most fatal mistakes that cause traders to lose money:


Lack of a proper trading plan
Surprisingly, many Forex traders do not posses a trading plan when they trade. This is in fact a prerequisite for trading successfully in this highly volatile market. Create a proper plan with a clear definition of your trading goals. Use the appropriate tools to set your entry and exit points as well as your stop loss. This will prevent emotional and guesswork from determining your trading strategy.
Lack of discipline
Although one may have outlined a predetermined proper trading strategy, one must also have the resolve to follow it stringently. Many traders have the habit of discarding their predetermined plan and acting on the spur of the moment. For example, instead of exiting the market at a predetermined point, they decide to use their own arbitrarily determined exit point.
Lack of Money Management
Forex traders forget all too often that proper money management skills are essential for successful trading. Without proper money management, one cannot minimize the losses or maximize the profits of trades. You should trade in accordance with the risk level that is appropriate for the size of your account, since capital preservation is essential for letting one last in Forex trading.
Impatience
The Forex market often lacks a clear direction. At times, Forex traders may feel that they are missing out on opportunities in the market because they are not trading frequently enough. As such, they begin to make poor trading decisions and overtrade. It is, therefore, crucial that you keep yourself in check and be patient in awaiting a suitable trading opportunity.
Averaging Losses
In the majority of cases, one will tend to lose more when the market continuously moves against you when averaging down. To overcome this fatal strategic error, remind yourself that you should never average a losing position unless it is already accounted for in your predetermined trading plan. By using a predetermined automatic stop loss, you will be able to avoid falling into the above trap.
Summary
Trading successfully and profitably in Forex require a tremendous effort on the part of the trader to overcome the aforementioned mistakes, which are made by many Forex traders. One way to avoid these mistakes is to use automated trading systems. This method of trading will actually help traders, both novices and experienced, overcome many of the hurdles detailed above. Please refer to our education section to learn more about automated trading.

40 ways to avoid losing money trading Forex

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)      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.

3)      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.

4)      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.

5)      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.

6)      No trading plan – Everyone wants to make money from trading; that is not a 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).

7)      Trading against the 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.

8)      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.

9)      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.

10)  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.

11)  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.

12)  Not trading during news time – Most of the big moves occur around news time. The volume is high and the moves are real; 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).

13)  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.

14)  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.

15)  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.

16)  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 its monthly and annual performance that defines a good trader.

17)  Not focusing on the trade at hand – There is no room for fantasizing in successful trading. Counting up and spending profits you haven’t made yet is mental masturbation and does you no good; the same goes for 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.

18) 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.

19) Lucky or good – Your account balance changes don’t tell you the whole story about your trading; if you’re 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, 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.

20) 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.

21) Courage under fire – When a policeman breaks down the door to a drug dealer’s 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.

22) 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 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.

23) Increasing your potential loss by moving your initial stop – 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.

24) 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 it’s already overbought or some 4:30am UK news was bearish.  Don’t mix apples and oranges; if EURUSD looks strong, buy EURUSD.

25) 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 buy them (the price was increasing fast); that’s when it’s necessary to pay up and get the business done. When it’s easy to buy and the price doesn’t increase as you’re buying; that is when you sit back and wait for better levels. So if you’re trying to get into a trade or more importantly get out of a trade and as you’re trying to do it the price seems to be running away from you; take that as a clear sign that you need to get that trade done right away.

26) Too much detail – Too many indicators stifles trading and finds reasons not to trade. A set-up and a trigger is all you need.

27) Giving up too easy – Your first trade of the day may not be your best trade but it’s no reason to quit. I have a pre-set daily trading limit and I use it; you can’t make money by making excuses; getting trades wrong is natural and should be expected.

28) 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.

29)  Take a loss – Place your stop beforehand and NEVER increase your pre-determined risk; if it’s going bad it could get a lot worse.

30) Over-relying on risk reward – There is zero advantage in risk reward; if you put a 20 point stop and a 60 point profit your chances are probably 3-1 that you will lose; good traders think about risk reward in relation to their personal assessment of what they see as their probability of the trade being successful.

31) Trading for the wrong reason – Because the EURUSD is going up is not in itself a reason to buy. Buying EURUSD because it’s 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 you’re bored is there is no trade to do in the first place.

32) Trading short-term moving average crossovers – This is the money sucker of the century. It’s easy to set up on software, complete with lights, bells and whistles. Good for the seller getting thousands for the software but in terms of creating profit for you it’s a zero sum game in the short term.

33) 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)

34) Simulated results – Watch out for “black box” systems; these are trading systems that don’t divulge how the trade signals are generated. 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 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.

35) Have a plan – 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, and follow your rules. Set goals that are realistic and you will achieve them.

36) 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.

37) Thinking long term – Don’t think long term unless you are taking long term positions. If you’re a day trader focus on what’s happening right now and what may happen for the rest of today. That is not to stay the long-term trend is not important; it is to say the long-term trend will not help you when you’re trading a significantly shorter time frame.

38) Overconfidence – Trading is not easy; statistics show 95% failure rate. If you’re doing well don’t take your success for granted; always be on the lookout for ways to improve what you’re doing. If you’re trading poorly you need to come to grips with the fact you’re not getting it done.

39) Getting pumped up – Don’t pump yourself up. 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 your trading – win or lose.

40) Being real – I don’t recommend demo trading beyond learning the functionality of your broker platform. Traders learn bad habits when trading with play money. I don’t think “letting it all hang out” right away is wise either. Your initial trade size and dollar risk should be about 10% of what you anticipate you will be trading once you are knowledgeable and experienced.

The law of supply and demand

A theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply and demand defines the effect that the availability of a particular product and the desire (or demand) for that product has on price. Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be.
 The law of supply and demand is not an actual law but it is well confirmed and understood realization that if you have a lot of one item, the price for that item should go down. At the same time you need to understand the interaction; even if you have a high supply, if the demand is also high, the price could also be high. In the world of stock investing, the law of supply and demand can contribute to explaining a stocks price at any given time. It is the base to any economic understanding.

Forex Money Management

Money management is a way Forex traders control their money flow: literally IN or OUT of own pockets... Yes, it's simply the knowledge and skills on managing own Forex account.
 Forex brokers will rarely teach traders good money management skills, though almost all brokers will offer some sort of education, therefore it's important to also learn on your own.

There are several rules of good money management:

1. Risk only small percentage of a total account

Why is it so important?
 The main idea of the whole trading process is to survive!
Survival is the first task, after which comes making the money.
 One should clearly understand that good traders are, first of all, skillful survivors. Those who also have deep pockets can additionally sustain larger losses and continue trading under unfavorable conditions, because they are financially able to.
 For an ordinary trader, the skills of surviving become a vital "must know" requirement to keep own Forex trading accounts "alive" and be able to make profits on top.

 Let's take a look at the example that shows a difference between risking a small percentage of capital and risking a larger one. In the worst case scenario with ten losing trades in a row the trading account will suffer this much:

 Apparently, there is a big difference between risking 2% and 10% of the account balance per trade. A trader who has made 10 trades risking only 2%, under the worst conditions would lose only 17% of his initial investment. The same 

 trader who had been exposing 10% of the balance per trade would end up losing over 60% of his initial investment. As you can see, this simple decision — a money management approach — can have serious consequences if misjudged. 

2. Returning the lost capital is harder that it seems to

 Let's take a look at calculations where a trader has lost some part of his account. How much effort will it take to recover the original account balance?

 


Now, here is a challenge: try on your demo account to gain a return of 300% or at least 100% of your original account trading as it were the real money. Will that be easy? I don't think so. Can you prove me wrong?


3. Calculate risk / reward ratio before entering a trade 

 When chances to win in a trade are smaller than potential losses, don't trade! Remember — staying aside is a position.

 For example:
losing 40 pips versus winning 30 pips,
losing 20 pips versus winning 20 pips, 

 

both examples are showing a bad risk management. 

 Before entering a trade, reassure that risk / reward ratio is at least 1:2 (but ideally 1:3 or higher), which means that chances to lose are tree times less than promises to win. For example: 30 pips of a possible loss versus 100 pips of

 potential win is a good trade to consider taking.

 Adopting this money management rule as a must, in the long run it will dramatically increase your chances to succeed in making stable profits.

Next chart shows the risk / reward rule in practice.
10 trades with 1:3 risk / reward ratio were conducted.
A trader was losing only $100 in a trade when he was wrong, but was winning $300 in each profitable trade.


 As we can see, using 1:3 risk / reward ratio constantly and being successful only 50% of the time, anyone can make a profit in the end. The higher the reward ratio (compared to the risk ratio) the better are chances to end up in profit. 

 


4. Learn to use protective stops

Continue reading about protective stops and their importance for good money management: Learn to use Stop Loss effectively







5. A practical example of applying money management rules:




Risking no more than 2-3% of the total account per trade... How does it work in practice?
Let's use an example to understand it.

 We have opened a trading account of $1000 USD with a broker and got 20:1 leverage. So, now we have leveraged ourselves to $20 000 USD to begin trading with. 

 More money means a higher trading power. Correct. But, the higher the trading power, the higher the risks; and when we talk about risks we talk about a real account value which will decrease with every loss sustained during trading. 

 So, when we say risking no more than 2-3% of a total account value we mean the real account value — which is $1000 USD in our case.

 Now, let's start trading and do the math.
Let's say, we have decided to risk 2% of the account in each trade.
$1000 x 2% = $20 USD.
This means that when the price goes against us, we will need to be out of the trade once we are $20 dollars down. 
 Ok, time to trade. Our trading power measures $20 000 USD (thanks to our leverage).
 What will happen if we try to trade them all at once: for one $20 000 dollar trading lot order our Forex broker gives us a pip value of $2 dollars. This means that with each pip gained we will have +$2 USD in our pocket. But this also means
 that with each pip lost our real account will shrink by $2 dollars.
Since we can afford to lose only $20 dollars in one trade, we'll exiting a trade once the market makes... -10 pips! Yes, 

 only 10 pips is required this time to reach our 2% limit.
10 pips * $2 USD per 1 pip = $20 dollars, which is our 2% account limit according with the money management rule we've chosen to follow.
 Now, let's try to trade a $10 000 dollar position. The pip value for this position size will be $1 USD.
The math goes as follows:
we can stay in trade until market makes -20 pips against us. Yes, this time we can sustain a bigger market shift.
 If we decrease our trading lot to $5000 USD, our sustainability will raise to -40 pips against our trade. (The pip value for $5000 dollar lot will be $0.50 cents).
And so on.
 As you can see, with the money management rule in place our real account is under control. And even if leverage allows trading larger positions, the risks should be always under control.
 

Friday, March 27, 2015

Mindset Secrets of the Millionaire Traders

There are many forex traders who make huge profits yet many don’t have a college education and many don’t spent all day trading – what separates them from the rest is their mindset. Trading is a combination of method and mindset and this is what this article is all about.

The key to market success is:

Sound Simple Method + Executed with Discipline = Trading success

If you can’t execute a method with discipline you really have no method in the first place but it’s much harder to do than most traders think.

If you don’t think having the correct mindset is crucial to forex trading success then think about this fact.

100 years ago 90% of traders lost and this figure still remains the same today.

Think about it – this ratio has remained the same despite all the advances in forecasting, software news sources and the internet – the ratio remains the same.

The reason for this is trading success is down mostly to mindset, human nature is constant and it will remain the same in 100 years time – lets look At getting the right mindset in more detail.

2. Work Smart Not Hard

Learning a method is straightforward and anyone can do it as the following example shows.

If you read the story of the “the turtles” ( see our other articles ) you will read how a group of people who had never traded before, learnt to do so in 14 days and went on to make millions. They did this by working smart, NOT hard and only learning what they had to - no filler or information for information sake.

In many jobs you get paid for the effort you put in. When you trade FOREX you earn your reward simply for being right.

In conclusion you dont need to work hard you need to work smart

The key to trading success is to have confidence in what you are doing and your method, this leads to discipline and currency trading success.

3. Confidence

You hear traders talk a lot about discipline being a key to success in currency trading - but you don’t hear them talk so much about confidence but it’s a vital ingredient of trading success.

To have confidence, you need to understand exactly how and why a forex trading strategy works and will continue to work. If you have confidence, you can acquire the key trait that most traders lack.

4. Discipline

Discipline is the key to forex trading success - If you don’t trade your method with discipline – you don’t have a method – PERIOD.

It’s not as easy to trade in a disciplined fashion as many traders believe as when money is on the line trading a method when it suffers a period of losses is hard mentally.

Any trader can learn to trade but not many traders get the correct mindset to succeed and this has been the case throughout trading history. Success Comes From Within

The first reason is that most traders simply cannot accept responsibility for their actions so they try and buy success - but they don’t fully understand why the method works and can’t obtain confidence and discipline and fail.

If you want to become a successful forex trader you have to accept you are totally responsible for what you do and no one else.

Build a simple robust trading system you understand, have confidence in and trade with discipline. It sounds easy, but few traders are prepared to work hard in the right areas and most won’t accept responsibility for their actions.

The result of this is losses – Success comes from within and you can do it if you want to – if you don’t you will probably fail.

THE MARKET PAYS YOU TO BE DISCIPLINED.

Trading with discipline will put more money in your pocket and take less money out. The one
constant truth concerning the markets is that 
Discipline = Increased profit

Evaluating Your Trading Results

Regardless of the outcome of any trade, you want to look back
over the whole process to understand what you did right and
wrong. In particular, ask yourself the following questions

How did you identify the trade opportunity? 
 Was it
based on technical analysis, a fundamental view, or some
combination of the two? Looking at your trade this way
helps identify your strengths and weaknesses as either a
fundamental or technical trader. For example, if technical
analysis generates more of your winning trades, you’ll
probably want to devote more energy to that approach.
How well did your trade plan work out? 
Was the position
size sufficient to match the risk and reward scenarios,
or was it too large or too small? Could you have
entered at a better level? What tools might you have used
to improve your entry timing? Were you patient enough,
or did you rush in thinking you’d never have the chance
again? Was your take profit realistic or pie in the sky? Did
the market pay any respect to your choice of take-profit
levels, or did prices blow right through it? Ask yourself
the same questions about your stop-loss level. Use the
answers to refine your position size, entry level, and
order placement going forward
How well did you manage the trade after it was open?
Were you able to effectively monitor the market while
your trade was active? If so, how? If not, why not? The
answers to those questions reveal a lot about how much
time and dedication you’re able to devote to your trading.
Did you modify your trade plan along the way? Did
you adjust stop-loss orders to protect profits? Did you
take partial profit at all? Did you close out the trade
based on your trading plan, or did the market surprise
you somehow? Based on your answers, you’ll learn what
role your emotions may have played and how disciplined
a trader you are
There are no right and wrong answers in this review process;
just be as honest with yourself as you can be. No one else will
ever know your answers, and you have everything to gain by
identifying what you’re good at, what you’re not so good at,
and how you as a currency trader should best approach the
market.
Currency trading is all about getting out of it what you put
into it. Evaluating your trading results on a regular basis is an
essential step in improving your trading skills, refining your
trading styles, maximizing your trading strengths, and minimizing
your trading weaknesses.

Staying alert for news and data developments

If your trade rationale is reliant on certain data or event
expectations, you need to be especially alert for upcoming
reports on those themes.
Part of your calculus to go short EUR/USD, for instance, may
be based on the view that Eurozone inflation pressures are
receding, suggesting lower Eurozone interest rates ahead. If
the next day’s Eurozone consumer price index (CPI) report
confirms your view, the fundamental basis for maintaining the
strategy is reinforced. You may then consider whether to
increase your take-profit objective depending on the market’s
reaction. By the same token, if the CPI report comes out unexpectedly
high, the fundamental basis for your trade is seriously
undermined and serves as a clue to exit the trade
earlier than you originally planned.
Every trade strategy needs to take into account upcoming
news and data events before the position is opened. Ideally,
you should be aware of all data reports and news events
scheduled to occur during the anticipated time horizon of
your trade strategy. You should also have a good understanding
of what the market is expecting in terms of event outcomes
to anticipate how the market is likely to react.

Monitoring the Market while Your Trade Is Active

No matter which trading style you follow, it pays to keep up
with market news and price developments while your trade
is active. Unexpected news that impacts your position may
come into the market at any time. News is news; by definition,
you couldn’t have accounted for it in your trading plan, so
fresh news may require making changes to your trading plan.
When we talk about making changes to the trading plan, we’re
referring only to reducing the overall risk of the trade, by
taking profit (full or partial) or moving the stop loss in the
direction of the trade. The idea is to be fluid and dynamic in
one direction only: taking profit and reducing risk. Keep your
ultimate stop-out point where you decided it should go before
you entered the trade.

Managing the Trade

So you’ve pulled the trigger and opened up the position, and
now you’re in the market. Time to sit back and let the market
do its thing, right? Not so fast, amigo. The forex market isn’t a
roulette wheel where you place your bets, watch the wheel
spin, and simply take the results. It’s a dynamic, fluid environment
where new information and price developments create
new opportunities and alter previous expectations.
We hope you’ll take to heart our recommendations about
always trading with a plan — identifying in advance where to
enter and where to exit every trade, on both a stop-loss and
take-profit basis. Bottom line: You improve your overall
chances of trading success (and minimize the risks involved)
by thoroughly planning each trade before getting caught up in
the emotions and noise of the market.
Depending on the style of trading you’re pursuing (short-term
versus medium- to long-term) and overall market conditions
(range-bound versus trending), you’ll have either more or less
to do when managing an open position. If you’re following a
medium- to longer-term strategy, with generally wider stoploss
and take-profit parameters, you may prefer to go with the
“set it and forget it” trade plan you’ve developed. But a lot can
happen between the time you open a trade and prices hitting
one of your trade levels, so staying on top of the market is still
a good idea, even for longer-term trades.

Thursday, March 26, 2015

Long-term macroeconomic trading



Long-term trading in currencies is generally reserved for
hedge funds and other institutional types with deep pockets.
Long-term trading in currencies can involve holding positions
for weeks, months, and potentially years at a time. Holding
positions for that long necessarily involves being exposed to
significant short-term volatility that can quickly overwhelm
margin trading accounts.
With proper risk management, individual margin traders
can seek to capture longer-term trends. The key is to hold
a small enough position relative to your margin balance
that you can withstand volatility of as much as 5 percent
or more

When is a trend not a trend



When it’s a range. A trading range or a range-bound market is a
market that remains confined within a relatively narrow range
of prices. In currency pairs, a short-term (over the next few
hours) trading range may be 20 to 50 pips wide, while a
longer-term (over the next few days to weeks) range can be
200 to 400 pips wide.
For all the hype that trends get in various market literature,
the reality is that most markets trend no more than a third
of the time. The rest of the time they’re bouncing around in
ranges, consolidating, and trading sideways.
Although medium-term traders are normally looking to capture
larger relative price movements — say, 50 to 100 pips
or more — they’re also quick to take smaller profits on the
basis of short-term price behavior. For instance, if a break of
a technical resistance level suggests a targeted price move of
80 pips higher to the next resistance level, the medium-term
trader is going to be more than happy capturing 70 percent
to 80 percent of the expected price move. They’re not going
to hold on to the position looking for the exact price target to
be hit.

Capturing intraday price moves for maximum effect


The essence of medium-term trading is determining where a
currency pair is likely to go over the next several hours or
days and constructing a trading strategy to exploit that view.
Medium-term traders typically pursue one of the following
overall approaches, with plenty of room to combine strategies:
Trading a view: Having a fundamental-based opinion on
which way a currency pair is likely to move. View trades
are typically based on prevailing market themes, like
interest rate expectations or economic growth trends.
View traders still need to be aware of technical levels as
part of an overall trading plan.
Trading the technicals: Basing your market outlook on
chart patterns, trend lines, support and resistance levels,
and momentum studies. Technical traders typically spot
a trade opportunity on their charts, but they still need to
be aware of fundamental events, because they’re the catalysts
for many breaks of technical levels.
Trading events and data: Basing positions on expected
outcomes of events, like a central bank rate decision or a
G7 meeting, or individual data reports. Event/data traders
typically open positions well in advance of events and
close them when the outcome is known.
Trading with the flow: Trading based on overall market
direction (trend) or information of major buying and selling
(flows). To trade on flow information, look for a broker
that offers market flow commentary, like that found in
FOREX.com’s Forex Insider (www.forex.com/forex_
research.html). Flow traders tend to stay out of shortterm
range-bound markets and jump in only when a
market move is under way.

Medium-term directional trading

Medium-term positions are typically held for periods ranging
anywhere from a few minutes to a few hours, but usually not
much longer than a day. Just as with short-term trading, the
key distinction for medium-term trading is not the length
of time the position is open, but the amount of pips you’re
seeking/risking.
Where short-term trading looks to profit from the routine
noise of minor price fluctuations, almost without regard for
the overall direction of the market, medium-term trading
seeks to get the overall direction right and profit from more
significant currency rate moves.
Almost as many currency speculators fall into the mediumterm
category (sometimes referred to as momentum trading
and swing trading) as fall into the short-term trading category.
Medium-term trading requires many of the same skills as
short-term trading, especially when it comes to entering/
exiting positions, but it also demands a broader perspective,
greater analytical effort, and a lot more patience.

Short-term, high-frequency day trading

Short-term trading in currencies is unlike short-term trading in
most other markets. A short-term trade in stocks or commodities
usually means holding a position for a day to several days
at least. But because of the liquidity and narrow bid/offer
spreads in currencies, prices are constantly fluctuating in
small increments. The steady and fluid price action in currencies
allows for extremely short-term trading by speculators
intent on capturing just a few pips  on
each trade.
Short-term forex trading typically involves holding a position
for only a few seconds or minutes and rarely longer than an
hour. But the time element is not the defining feature of shortterm
currency trading. Instead, the pip fluctuations are what’s
important. Traders who follow a short-term trading style are
seeking to profit by repeatedly opening and closing positions
after gaining just a few pips, frequently as little as 1 or 2 pips.
In the interbank market, extremely short-term, in-and-out
trading is referred to as jobbing the market; online currency
traders call it scalping. (We use the terms interchangeably.)
Traders who follow this style have to be among the fastest
and most disciplined of traders because they’re out to capture
only a few pips on each trade. In terms of speed, rapid
reaction and instantaneous decision-making are essential to
successfully jobbing the market.
When it comes to discipline, scalpers must be absolutely ruthless
in both taking profits and losses. If you’re in it to make
only a few pips on each trade, you can’t afford to lose much
more than a few pips on each trade.
Jobbing the market requires an intuitive feel for the market.
(Some practitioners refer to it as rhythm trading.) Scalpers
don’t worry about the fundamentals too much. If you were to
ask a scalper for her opinion of a particular currency pair, she
would be likely to respond along the lines of “It feels bid” or
“It feels offered” (meaning, she senses an underlying buying
or selling bias in the market — but only at that moment). If
you ask her again a few minutes later, she may respond in the
opposite direction.
Successful scalpers have absolutely no allegiance to any
single position. They couldn’t care less if the currency pair
goes up or down. They’re strictly focused on the next few
pips. Their position is either working for them, or they’re out
of it faster than you can blink an eye. All they need is volatility
and liquidity.
Retail traders are typically faced with bid/offer spreads of
between 2 and 5 pips. Although this makes jobbing slightly
more difficult, it doesn’t mean you can’t still engage in shortterm
trading — it just means you’ll need to adjust the risk
parameters of the style. Instead of looking to make 1 to 2 pips
on each trade, you need to aim for a pip gain at least as large
as the spread you’re dealing with in each currency pair. The
other basic rules of taking only minimal losses and not hanging
on to a position for too long still apply.
Here are some other important guidelines to keep in mind
when following a short-term trading strategy:
Trade only the most liquid currency pairs, such as
EUR/USD, USD/JPY, EUR/GBP, EUR/JPY, and EUR/CHF.
The most liquid pairs have the tightest trading spreads
and fewer sudden price jumps.
Trade only during times of peak liquidity and market
interest. Consistent liquidity and fluid market interest
are essential to short-term trading strategies. Market
liquidity is deepest during the European session when
Asian and North American trading centers overlap with

European time zones — about 2 a.m. to noon Eastern
time (ET). Trading in other sessions can leave you with
far fewer and less predictable short-term price movements
to take advantage of.
Focus your trading on only one pair at a time. If you’re
aiming to capture second-by-second or minute-by-minute
price movements, you’ll need to fully concentrate on one
pair at a time. It’ll also improve your feel for the pair if
that pair is all you’re watching.
Preset your default trade size so you don’t have to keep
specifying it on each deal.
Look for a brokerage firm that offers click-and-deal
trading so you’re not subject to execution delays or
requotes.
Adjust your risk and reward expectations to reflect the
dealing spread of the currency pair you’re trading.
With 2- to 5-pip spreads on most major pairs, you probably
need to capture 3 to 10 pips per trade to offset losses
if the market moves against you.
Avoid trading around data releases. Carrying a shortterm
position into a data release is very risky because
prices can gap sharply after the release, blowing a shortterm
strategy out of the water. Markets are also prone to
quick price adjustments in the 15 to 30 minutes ahead of
major data releases as nearby orders are triggered. This
can lead to a quick shift against your position that may
not be resolved before the data comes out.


Different Strokes for Different Folks

After you’ve given some thought to the time and resources
you’re able to devote to currency trading and which approach
you favor (technical, fundamental, or a blend), the next step is
to settle on a trading style that best fits those choices.
There are as many different trading styles and market
approaches in FX as there are individuals in the market. But
most trading styles can be grouped into three main categories
that boil down to varying degrees of exposure to market risk.
The two main elements of market risk are time and relative
price movements. The longer you hold a position, the more
risk you’re exposed to. The more of a price change you’re
anticipating, the more risk you’re exposed to.
In the next few sections we detail the three main trading
styles and what they really mean for individual traders. Our
aim here is not to advocate for any particular trading style,
because styles frequently overlap, and you can adopt different
styles for different trade opportunities or different market
conditions. Instead, our goal is to give you an idea of the various
approaches used by forex market professionals so you
can understand the basis of each style.

Making time for market analysis

The key is to develop an efficient daily routine of market
analysis. Thanks to the Internet and online currency brokerages,
independent traders can access a variety of information.
Your daily regimen of market analysis should focus on:
Overnight forex market developments: Who said what,
which data came out, and how the currency pairs reacted.
Daily updates of other major market movements over
the prior 24 hours and the stories behind them: If oil
prices or U.S. Treasury yields rose or fell substantially,
find out why.
Data releases and market events (for example, the
retail sales report, Fed speeches, central bank rate
announcements) expected for that day: Ideally, you’ll
monitor data and event calendars one week in advance,
so you can be anticipating the outcomes along with the
rest of the market.
Multiple-time-frame technical analysis of major currency
pairs: There is nothing like the visual image of
price action to fill in the blanks of how data and news
affected individual currency pairs.
Current events and geopolitical themes: Stay abreast on
issues of major elections, political scandals, military conflicts,
and policy initiatives in the major currency nations.