Stock Trading

Stock Trading
1. Taking responsibility of your capital
2. Cut your losses early and let your Profits Run
3. Discipline
4. Too much information
5. Do not marry your trades
6. Do not bet the farm

1. Taking responsibility of your capital
It is interesting how many people are happy to place their savings and funds in other peoples hands, accept the losses as its easier to blame someone else than to take responsibility of those funds ourselves.

The first step as an individual is believing in yourself and your own abilities. One of the most startling discoveries when you start trading or may have observed from the stock market is how many experts get it so wrong so often. This is a real confidence booster when you begin to understand that with a solid background and knowledge, discipline and a well defined trading plan that you will often outperform many professionals.

You will be in a market place that moves several times faster than any other market and with leverage, the rewards and losses compound many times. The best way to overcome the thought of using your own money and the volumes you will be trading is to forget about money and talk in terms of points. So rather than calculate your profit and losses in terms of dollars talk in terms of gains and losses in points. If you adopt this at a very early stage it will feel the same if you are trading a demo, a mini or 10 contacts of a full account.

Every trader that any member of Team Forex knows talks in terms of gains and losses in points. We don’t refer to the money as the bench mark of our own performance. We equate to other traders in the terms or losses and gains in points, and measure our performance against this.

When trading a demo account most people do very well. They trade without fear. As soon as its real money, even on mini account they suddenly find themselves trading in a manner where they miss many opportunities and accumulate many losses. They quite simply loose their nerve and give into fear and greed. This can happen also when you may go from a mini account to a full account or from trading single contracts to trading multiple contracts.

Try and trade without the thought of how much money you may gain or loose. Trade thinking of points, no matter how many contracts you are trading or even if you are trading a demo account.

2. Cut your losses early and let your Profits Run
This simple concept is one of the most difficult to implement and is the cause of most traders demise. Most traders violate their predetermined plan and take their profits before reaching their profit target because they feel uncomfortable sitting on a profitable position. These same people will easily sit on losing positions, allowing the market to move against them for hundreds of points in hopes that the market will come back. In addition, traders who have had their stops hit a few times only to see the market go back in their favor once they are out, are quick to remove stops from their trading on the belief that this will always be the case. Stops are there to be hit, and to stop you from losing more then a predetermined amount! The mistaken belief is that every trade should be profitable. If you can get 3 out of 6 trades to be profitable then you are doing well. How then do you make money with only half of your trades being winners? You simply allow your profits on the winners to run and make sure that your losses are minimal.

Another good strategy is to move stop losses (the point the trade will be sold if it goes the wrong way) behind the trade to a level where a pull back can be accommodated but a reversal will lock in at least some profit.

3. Discipline
Trade with a disciplined Plan. The problem with many traders is that they take shopping more seriously then trading. The average shopper would not spend $400 without serious research and examination of the product he is about to purchase, yet the average trader would make a trade that could easily cost him $400 based on little more than a “feeling” or “hunch.” Be sure that you have a plan in place before you start to trade. The plan must include stop and limit levels for the trade, as your analysis should encompass the expected downside as well as the expected upside.

4. Too much information
As with many endeavors it is important to keep your trading simple. Many traders start out with a simple strategy that is successful but find themselves chopping and changing trying to find a better system. They also allow themselves to be influenced by other opinions and too much fundamentals. It is not too different from going to a race track where everyone has a sure thing or the information available becomes so confusing you can no longer see the wood from the trees. Trading the stock market is often similar in this regard. A good exercise is to teach a child or teenager a simple trading strategy or set of rules to follow and allow them to trade a demo account. Many traders who have done this have been surprised that their children can actually trade well, consistently and often with spectacular results. The lesson is that they don’t stray from the rules and are not influenced by the media or fundamentals. Many traders pay no attention to fundamentals at all and trade successfully. The rule here is to keep it simple…don’t allow yourself to become confused with too much information and if you’re not sure or not in the right emotional frame of mind, don’t trade.

5. Do not marry your trades
The reason trading with a plan is so important is because most objective analysis is done before the trade is executed. Once a trader is in a position they tend to analyze the market differently in the “hopes” that the market will move in a favorable direction rather than objectively looking at the changing factors that may have turned against your original analysis. This is especially true of losses. Traders with a losing position tend to marry their position, which causes them to disregard the fact that all signs point towards continued losses. Don’t take more trades in the hope that the market will turn in your favour; it will only accelerate your losses.

6. Do not bet the farm
Do not over trade. One of the most common mistakes that traders make is leveraging their account too high by trading much larger sizes than their account should prudently trade. Leverage is a double-edged sword. Just because one lot (100,000 units) of currency only requires $1000 as a minimum margin deposit, it does not mean that a trader with $5000 in his account should be able to trade 5 lots. One lot is $100,000 and should be treated as a $100,000 investment and not the $1000 put up as margin. Most traders analyze the charts correctly and place sensible trades, yet they tend to over leverage themselves. As a consequence of this, they are often forced to exit a position at the wrong time. A good rule of thumb is to trade with 1-10 leverage or never use more than 5% of your account at any given time. Trading currencies is not easy. (if it was, everyone would be a millionaire!)(Stock Trading)

Key to successful forex trading

Accurate information is the secret to success in many areas of our lives and a knowledgeable and informed Forex trader will have a better awareness of how currency markets move and therefore a far better chance of making a good profit from trading. If you do not have the necessary knowledge then you are going to be effectively shooting in the dark and, although you may meet with success occasionally, overall you are virtually guaranteed to lose in the longer term.

There is an almost unlimited quantity of information available on foreign currency trading with thousands of books having been published and hundreds of Internet sites providing advice. Therefore, if home-study is appealing to you, then there are numerous step-by-step guides which will take you through the minutiae of Forex trading.

However, one problem with the information and advice available though Internet sites is that it is often very patchy and may lack any real structure. There is unquestionably a wealth of advice out there, a lot of it excellent and comprehensive, but locating just what you need and following it in a logical order could prove difficult.

If you are serious about learning the finer points of Forex trading then there is little doubt that you will need to arm yourself with a good study course which presents the material in a structured and logical manner. Courses of this nature, of which there are many, vary in cost from those which are free to those costing a thousand dollars or more and, as a rule, you are likely to get just what you pay for.

There are essentially two types of course available.

First, there is an Internet course which generally permits you to follow the course at a time to suit your lifestyle and also at a pace with which your are comfortable. The chief drawback with this type of course is that you are studying alone and it is not always simple to find the assistance you require if you run across something which you do not understand.

Second, there is a old fashioned 'classroom' course. Courses of this nature are held frequently in many major cities and provided you with the advantage of studying with other people and with an instructor who can help guide you through the problem areas. Against this, you will need to travel to your classes and follow a class schedule. Missing a lesson may also present problems as it is not necessarily easy to catch up.

You can also attend typically 2 or 3 day seminars that immerse you in Forex trading and give you an extremely fast introduction to currency trading. Though there are a large number of seminars held, they tend to be aimed at more advanced traders and are only occasionally put on for the benefit of novices.

You will also see a couple of variations of the normal Internet course and these are CD ROM and video training courses. The first will often include several interactive segments and, as it is created to be run on your PC, will use several different Internet sites to help in the learning process. The principal problem with both CD ROM and video training courses is that they frequently provide little support and simply leave you in the dark when you run into a problem.

At the end of the day however and, despite the huge quantity of material available and the ease of taking a home-study course in various different formats, the unquestionable key to success in learning Forex trading is to study at the hands of an experienced trader, or Forex trading mentor.

A course, of whatever type, can certainly provide you with the technical information you need, but the true key to making significant profits from Forex trading is to be found in possessing a knowledge and insight of trading strategies which only years of experience and practice can bring. Trading alongside a master Forex trader will certainly not be cheap but, as long as you can afford it, it will pay off in the long run.

Forex Trading System which works

Summary

1. Trading systems
2. Managing your funds
3. Trader Psychology
4. Summary

There are many different methods, systems and strategies which traders, “newbies” and old “pro’s”, apply to the market to make a profit from the movements in the prices. Each trader will assert that his or her methods are the best and the most profitable, but the truth is that each trading system has its strengths and weaknesses. The real keys to making money from the Forex market are the following:

1. Having and clear and simple trading system, and applying it consistently
2. Managing the funds you are trading with tight disciplines
3. Taking control of your psychology

This article will examine each of these three keys separately and propose some simple guidelines for traders to follow to avoid being trapped by the market during the inevitable periods of volatility which occur daily.

1. Trading systems
There are essentially two types of systems which traders employ. These are:

a. Price following systems
b. Price prediction systems

Let’s examine each one briefly.

Price following systems

These are systems which rely on momentum indicators, oscillators and averaging methods to simply follow the market in the direction in which it is moving. The simplest of these is to find a suitable moving average (MA) and trade in the direction the MA is pointing, with the price on the correct side of that average.

One can add to that a whole variety of other indicators such as MACD, Stochastics, RSI and Bollinger Bands etc. One charting package I use has 29 different indicators, leading to an overload of endless possible combinations to use. Furthermore, there are about 20 different possible time frames to study. Its not hard to see why traders end up with the commonly know “paralysis of analysis” which is recognized by the comatose mouse hand and glazed eyes of someone sitting in front of the screen for 12 hours without taking a trade.

They key is to keep it simple. Decide on the time from you choose to trade from (scalpers may prefer 5 minute or 15 minute charts, whereas session/day traders may prefer 1 hour, 4 hour of day charts) and look for a very simple system which combines no more than 2 or 3 indicators. Such systems may also incorporate simple trend line studies, with the trade direction following the prevailing straight line trend.

When the signals are given by your system, take your trades confidently and consistently. Do not abandon your method and start searching for another after the first loss.

Price Prediction systems

These are systems which are generally longer term systems, applied to session, day or longer periods. They involve deciding the overall direction of the currency pair over a longer time frame and then trading a simple “buy on dips” or “sell on rallies” approach, depending on the direction you have decided on. There are various tools to help the strategy trader, such as horizontal lines, trend lines, Fibonacci retracement levels, moving averages and so on. These will help to a) identify the direction of trade, b) identify a logical entry point and c) identify a logical exit point. These trades can then be programmed into the dealing software and left to take care of themselves, allowing the trader spend his time doing other things. This form of trading requires more skill and experience, but this can be learned with time and practice.

Essentially, price following systems generally tend to be shorter term “scalping” type systems, which involve screen watching for a large part of each day. Price prediction systems tend to involve strategies lasting 8 hours up to several days and allow the trader to get away from the screen and enjoy more free time.

Everyone has their preference but I have found from my own experience and observations that intense screen watching cannot be sustained for very long by most traders, before burning out after several weeks or months. You can recognize these traders immediately by their bagged eyes, short tempers and lack of social skills.

2. Managing your funds
Whilst most traders can invent or learn a reasonable trading system to suit their styles of trading, many cannot manage their account safely enough to prevent large losses and the dreaded margin call. Even the some best traders in the World suffer from temporary lack of sanity in this area (including “yours truly”). Interesting case histories are described, for example, in Jack Schwager’s book “Market Wizards: Interviews with Top Traders”

There are three simple rules which can be applied here:

a) Never leverage over 10:1 and as your account grows larger, reduce this to below 5:1
b) Never risk more than 5% of your equity on a given day, and as your account grows, reduce this to less than 2%
c) Never take a trade where you are risking more than 50% of the projected gains from the trade with your stop loss. In other words, the Win/Lose ratio (profit target in pips/stop loss in pips) should be 2:1 or higher.

Following these simple rules, even with a half baked trading system, will ensure that you can lose 2 out of every 3 trades and still break even on your account.

3. Trader Psychology
All humans are subject to two (often opposing) forces – the mind and the emotions. The key to successful trading psychology is to prevent your emotions from dominating your mind.

The emotions you will experience will fluctuate wildly from fear to greed, to self-doubt and elation. These are all the enemy of the trader and need to be tempered by clear, objective and logical thinking.

Work out your trading strategy based on your previously defined system. Apply the system with safe account management rules, and shut out the emotional noise which will attempt to convince you to close early, over leverage, risk too much, risk too little etc.

4. Summary
It is clear that the best traders aim for small and consistent gains without seeking “the latest” system to produce enormous profits. There simply are no such systems which work reliably day in and day out. Keep your money management tight and keep your emotions in check and you should succeed.

Finally – it is well worth the money spent on good education. Attend a seminar by a truly active trader and teacher, and buy lots of books on the subject. Do not think you can go from “zero to hero” in the FX market without investing time, effort and money in learning from experienced players. The money you might save initially will probably be lost many times over as the market works you over later.

Objectives of forex traders

A difficult lesson for Forex traders to learn is that within the currency market almost anything can happen at any time. Because new traders spend a considerable amount of time learning the mechanics of the market and focusing their attention on finding a method for predicting movements in the market, it is only natural that they also come to believe that there are rules which govern the movement of the market. This is not the case and this catches many traders out.

Forex traders use a number of tools to judge when the time is right to open or to close a position, but the majority of traders will also have one particular tool which is their favorite and which they will rely on more than any other. So, once they have opened a position, they will watch their favorite indicator and base their trading decisions to a large extent on what this single indicator tells them.

This is fine until this indicator begins to tell them one thing while the other indicators are telling them something else. They are now in an open position and their favorite tool is telling them for example to hold that position while everything else is indicating that they should close their position and get out of the market. More often than not the trader will hold his ground and will end up in a losing trade.

The problem is quite simply that the trader has created an expectation in his own mind about the market and is not looking at the market objectively. He is using his favorite tool to reinforce this expectation rather than stepping back and looking at the wider picture. He is also probably being encouraged in this view by the thought that he must be right and by the profit in this trade which is being forecast by his favorite indicator. He is in effect seeing the money rather than the market.

The foreign currency market is, by its very nature, unpredictable and, were it not so, the market would soon collapse as we all made a profit on every trade we opened. Of course there are numerous tools to help us to predict the direction of the market and thankfully they do a pretty good job most of the time. Occasionally however even the best of tools in the hands of the best traders come up against an unexpected turn in the market.

Getting it wrong is a feature of Forex trading and traders need to learn to accept losses as an inevitable part of foreign currency trading. More importantly traders need to learn how to avoid getting into a position where they can be proved right or wrong. To do this you need to understand and accept that the market has a will of its own and have to remain objective and follow market movements, rather than try to get the market to go in the direction you want it to, if you are going to succeed.

Forex Trading Plans

Forex Trading Plans

The following situation happens quite often to many traders. Look it over and see if it has been happening to you:

You have been faithfully following your trading plan and the rules you’ve set for trading. By following them you are now in a trade that doesn’t look so good. At the same time, by following your trading plan, you see that you’ve missed a beautiful move in a different market, one that could have made you a lot of money.

You are in a bad trade and you’ve missed out on a great trade. You become disgruntled. You think to yourself that your trading plan must not be so great. You think there must be a better methodology that you should use that will prevent this from happening. You think to yourself, "Yes! That’s it, I’ll change the way I do things." So you create a new rule or modify an old one so that such a rule would have let you capture the trade you missed and avoid the one you took. Have you been making this mistake?

Here’s another way it can happen: You are in a trade, and your rules cause you to be stopped out with little or no profit. Shortly after you exit the trade according to plan, prices take off and move to where, had you stayed in, you would have made substantial profits. The move leaves you sitting there thinking you are stupid. You reason that there must be something wrong with the way you do things.

Your rules, your plan, or both must not be right. So you change what you are doing, or make a new rule so that the next time this happens, you won’t be left behind.

You have just abandoned all of the hard work you’ve previously done that enabled you to successfully trade futures. You’ve abandoned your education and learning. You’ve abandoned the wisdom that will enable you to be consistently successful as a trader. You’ve just started trading history, and you are supposed to be trading on the future movement of prices. You are trading what happened, not what will happen. By not being willing to be left behind, you are setting yourself up for being left out.

If you’ve been having thoughts, or have been acting as we’ve just described, you have a terrible problem with greed. Why? Because greed can never get enough. You can’t satisfy greed. Greed wants more, and yet more.

Not every trade is your trade. Not every trade has to work out for you. You have to be satisfied with getting a reasonable share of trades that fit your description of a good trade. Some of those trades will turn out to be great trades, others are good trades, and a certain percentage of your trades will be bad. There’s no way around it.

Not every good trade will turn into a great trade. When you enter a trade according to your rules and trading plan, you have no idea whether or not it will turn out to be a good trade, much less a great trade. The reality of trading is that, try as you might, you cannot know the future.

Whenever we miss a big move and then try to find some pattern, indicator, rationale, or modification to make to what we are doing so that the next time we will not miss the "big" move, it is a part of the hunt for something magic ¾ a continuation of our quest for the holy grail of trading.

What a terrible mistake to allow yourself to make. Winning as a trader consists of making some small profits and some larger profits on a regular basis. Obviously, there will be some losses. We regularly want to keep losses small, but there are times when a loss will get away from us and turn out to be bigger than desired.

If adversity causes you to become disgruntled, then you really need to examine your thinking and your approach to trading. Your trading plan must allow for disappointment and loss.

You’ve got to believe in what you are doing and be able to trade from the knowledge that when you follow your rules and your plan, you will make money from your trading.
When you become disgruntled and begin to change your plan, your rules, or both, you are setting yourself up for almost certain failure and the worst thing that can happen to a trader ¾ you will lose the courage of your convictions. Without it you cannot trade with any level of confidence.

This is why we encourage you to write out the reasons and rationale for every trade you make, even if you have to do it after you have completed the trade. You must develop a keen recognition of the trades that are your trades. Write out your trading plan every day and for every trade you intend to make. If you did not have time to plan every trade, be sure to review those you did make without pre-planning. Then you can go back over your trading and be able to see why and when you are successful.

Reminder: Here are some steps to take before the market opens.

· View major formations on the charts of those futures you intend to trade. View potential congestion areas, get the big picture from the longer term charts.

· Write down all potential entries as you see them on the chart.

You need to go through this exercise every day that you trade. This takes discipline. However, doing so will help you develop the kinds of habits that will mold you into a great trader.

If you are too busy to be disciplined, then you are too busy to trade. If you don’t discipline yourself, you will soon disappear from the trading scene.

Forex Trading Strategies

Ask most NEW traders, and they will tell you about some moving average or combination of indicators or a chart pattern that they use. This is, as the more experienced trader knows, an entry point and not a strategy.

Any trader who is more experienced will say a strategy should also include money management, risk control, perhaps stop losses and of course, an exit point. They might also say that you must let your profits run and cut your losses short. A well-read trader will also tell you that your strategy should fit with your trading personality.

BUT there is one other vital ingredient that many traders forget - and that is to fully understand the "personality" of what you trade. Some traders specialise in say, gold or Brent crude or currencies or they might specialise in a particular index such as the FTSE 100 or the Dow but many traders choose to trade shares. Indeed some traders dabble in a bit of everything. I think this is the area that causes many traders to fail or at least not reach their full potential.

In my view: You absolutely MUST specialise.

I am sure that on the surface most people would say that sounds sensible but here is why it is a MUST!

Superficially, many charts look the same. I bet if you had not seen the charts for some time and someone where to show you a chart of Brent Crude over 6 months and then a chart of Barclays PLC over the same 6 months you would be hard pushed to say which was which purely on the look of the chart.

However, I bet that if you found a trader who trades ONLY Barclays day in and day out and also found someone who trades ONLY Brent Crude day in and day out, both of them would easily identify which was which. WHY?

Because every share, index or commodity has it’s own "personality".

Some will be volatile intra-day, some will follow their sector or the main index (market followers), some will do their own thing, some will spike up and down regularly, some will stop at key moving averages and some will just plough through. Some will move by 5% on average before they retrace and some by 2%. Some will gap up or down regularly, some will not. You get the idea!

Therefore, no matter how good you are at analysing indicators, moving averages, trends and patterns, the same strategy WILL NOT work for everything. I would go so far as to say that a strategy that works well for Bovis Homes, for example, is likely NOT to work for BT Group - they have very different "personalities".

So let’s return to our question: What makes a good trading strategy? Let me answer with a series of ten questions that you need to find answers to, in order to build a REALLY GOOD strategy.

1. What do you want to trade (share, index, commodity, currency, etc)? If your answer is shares (plural) I would urge you to pick one typical share at this stage to really specialise. You can add more later.
2. What "personality" does that share, index etc have?
3. What entry system is the most reliable for that share?
4. What stop loss system is the most effective for that share?
5. What average risk will a typical trade carry?
6. What exit system works well for that share?
7. What is your trading personality (attitude to risk, losses, discipline, how much do you worry etc) and can you trade that strategy without overriding it?
8. What timescale do you want to trade? (Using intra-day or end of day data)
9. How much data do you keep on past trades to help identify strategy weaknesses?
10. How does all this fit with your trading objectives?

Once you have an answer to each question you need to do one final thing. Make sure all those things fit together and complement each other. For example, if the ideal stop loss position represents a big average risk and conflicts with your own attitude to risk, you need to start again. If you will override your exit point because greed makes you hang in for more, you need to think again. Perhaps you shouldn’t trade that stock in the first place - look for one with a different "personality" which will lead to a strategy you can trade comfortably.

It is a long and sometimes painful iterative journey. You might need to go round and round in ever decreasing circles over a long time. Testing and refining, testing and refining before you can truly have a reliable and repeatable strategy that REALLY WORKS for you.

THEN, you can look for other things to trade that have the same "personality" as your specialist stock, index, commodity or currency.

Money conversion

Money conversion

World currency trading is no longer just a matter of banks exchanging currencies amongst themselves and now involves a variety of different players, including specialist Forex brokerage firms, with very diverse reasons for trading in currencies. For example, some players will have to exchange currencies to buy goods and services overseas, while others will simply wish to earn short term profits from exchange rate movements or to influence currency exchange rates for one reason or another.

Whatever reason a player has for being in the market, this diverse group of traders influences supply and demand within the market and so alters the exchange rates at any given moment in time. It is important therefore to understand who the key players are and here we are going to look at one of the most important players - the commercial and investment banks.

Commercial and investment banks operate within what is known as the InterBank market which accounts for by far the greatest proportion of all trading, whether commercial or speculative in nature.

The InterBank market is composed solely of commercial and investment banks buying and selling currencies between themselves. Strict trading relationships are established between the InterBank member banks and lines of credit are established between individual banks before they are permitted to trade.

How Do Banks Trade The Forex?

The commercial and investment banks form the cornerstone of the foreign exchange market because, in addition to trading on behalf of their customers, they also provide the channel through which all other participants have to trade. In effect they are the main sellers within the foreign currency exchange market.

Another important point to remember is that the commercial and investment banks do not simply trade on behalf of their customers, but also trade in their own right through proprietary desks with the objective of realizing a profit for the bank. Commercial and investment banks possess a unique knowledge of the marketplace and have the ability to monitor the activities of other participants such as the central banks and investment funds.

The commercial banks have been at the very hub of the Forex market for many years and their role has remained basically the same throughout this time. However, the introduction of electronic brokering systems such as Reuter's 'Monitor Dealing Service' during the early 1980s and Reuter's 'Dealing 2000-1' in 1989 market the beginning of far reaching changes in the foreign exchange market. However the introduction of Reuter's 'Dealing 2000-3' system in 1992, followed a year later by the launch of 'Electronic Brokering Services (EBS)', brought the ability to automatically match buy and sell quotes from dealers and this changed the very nature of the market.

Electronic trading systems allow dealers today to conduct several trades simultaneously and to trade with far greater efficiency, tighter spreads, lower costs and, most importantly, much greater transparency than was seen previously in telephone dealing systems.

Perhaps the major advantage of electronic dealing however is that the accessibility of the system allows many more players to join the market alongside the commercial and investment banks.

Forex Traders Come In Various Shapes

Forex Traders Come In Various Shapes

Although there is no centralized Forex market and trading involves many different market makers rather than just a few specialists, there in nonetheless both a structure and a hierarchy to the foreign currency exchange market.

The foreign currency market is dominated by the InterBank market which represents the greatest volume of trading and mainly involves the currencies of the G8 countries. Together, these represent approximately 65 percent of the world economy. In the InterBank market major banks trade with each other on a credit-approved basis with lines of credit clearly established between individual banks. Trading is conducted through InterBank brokers and electronic brokerage systems or Reuters and the rates at which trading takes place are visible to all of the participants.

Below the InterBank market participants, such as smaller banks and corporations, have to trade through commercial banks. In this case however there are not normally any established lines of credit and this means that traders frequently trade at less competitive rates and are usually tied to using a single bank for all their foreign exchange dealings.

Until just a few years ago the foreign exchange market was not simply dominated by the major banks but was also very much an 'old boys club' which it was very extremely difficult to gain entry to. Today however technology has altered the market considerably and smaller investors can now get into the market and take advantage of the opportunities which were at one time only available to the members of 'the club'.

Access to the market has also been eased considerably in recent years by the changing nature of the market itself. Previously foreign exchange dealing was very much an activity associated with international trade and was seen as simply servicing the import and export markets. Now however investment plays a major part in the market and substantial capital sums flow between countries through participants such as mutual funds, institutional investors, insurance companies and others.

The size and extraordinarily diverse nature of the market nowadays, along with the ease of trading brought about by advances in technology, brings both high liquidity and price stability to the market and, unlike many other markets, the Forex market always boasts a large number of both sellers and buyers who together create an orderly market Forex Traders Come In Various Shapes.

Forex Pivot Point

Forex Pivot Point

Those of you who have been trading for a while will be familiar with Pivot Points. During this lesson I want to go over how to find a Pivot Point and also a slightly different method of using them. First let’s look at how you calculate a Pivot Point.

Using a bar chart you will observe that each bar has an Open, High, Low and Close. This information represents all price activity during that particular period.

In the case of the following example, we shall use a daily bar. To calculate the pivot point all you need to do is add the High, Low and Close. Once this has been done you next divide the total by three, e.g. the cash FTSE on the 2nd May 02 had a High of 5192.70, a low of 5125.50, and a close of 5174.10. If you add the three together, you get 15492.3. You then divide that total by three to get a Pivot Point of 5164.10.

OK, so far so good, but what do you do with this information? Well, one technique I like to use intra day is to use the pivot point as a trend indicator. We already know that the Pivot Point for the 2nd May was 5164.10 and we will use this the next day as an intra day trend indicator.

If the price is above 5164.10, then I would only be long and if it were below 5164.10, I would only be short.

As price can fluctuate around any given point I also add a further proviso. If I have support close to 5164.10, I will first wait for the price to pass through 5164.10 and support before entering short. If I have resistance close to 5164.10, I will first wait for the price to move through the Pivot Point and resistance before entering long.

This method becomes even more powerful when the Pivot Point is close to the opening price. If, for example, the opening price is 5174.10, the Pivot Point is 5164.10, and I eventually go short at 5155, I can stay short the whole day as long as it does not go above the Pivot Point.

Once in a position I normally have a very tight stop to begin with and then will follow the market with a trailing stop to lock in profits.

Another way I like to add Pivot Points to my analysis is for more long-term projections. I will use the Pivot Point of a Yearly, Monthly and Weekly chart. In this case it would be the High, Low and Close of the previous Year, Month and Week.

I like to think of the weekly Pivot Point as the short-term trend, the monthly as the medium term trend and the Yearly as the long-term trend. I find this particularly useful in Spot Forex. If I am below the yearly, monthly and weekly Pivot Point, I know I am in a strong down trend and I can scale into multiple positions over time. The same holds true for long positions.

The point is there are many ways to determine trend. You can also use Pivot Point to find potential Support and Resistance, which we will cover in later lessons.

Experiment with Pivot Points and see if it suits your trading style. At the very least it is always handy to know where they are and it may help you decide which side of the market you should be trading from.

currency electronic trading

currency electronic trading

Investors can get an idea of when the market may reverse when the 10 Day Moving Average (MA) of the Volatility Index (VIX) becomes significantly stretched away from its 10 Day Moving Average (MA). A simple example is shown below which compares the 10 Day MA of the VIX to the S&P 500.

Notice when the VIX got stretched significantly away from its 10 Day MA (blue line) to the upside (points A) that the S&P 500 made a bottom (points B) and then reversed to the upside.This page is about online currency electronic trading

Learn Forex

Learn Forex:

1. The best advice on how to learn to trade profitably is to learn from experts with proven track records. Many learning styles are available to beginners at all levels: books, CDs, online courses, group seminars, even one-on-one mentors who will come right your home for a few days. We outline our Forex-Trader picks in Learning Forex Trading. Learning to trade from experts is worth every penny and has saved us untold thousands in mistakes.We would not recommend starting forex trading without any training. It is not hard to learn, nor difficult to trade successfully, but you must first provide yourself with a basic functioning knowledge of ’the game you’re in’.

2. While you are learning you will need charting software to practice reading the Market. Charting is an indispensable tool that shows you in real-time data what the market is doing moment by moment and also what the market has done in the past. As you learn to analyze these charts you can determine what trades to enter and exit, where to set your stop losses, limits etc. There are several good charting software services that you can subscribe to online monthly. See our Forex-Trader tested Charting Software picks in Tools of The Trade.

3. Then, to perform your actual trades online you need a real-time ’trading platform’ to execute your ’buys’ and ’sells’ directly in the Foreign Currency Market. You obtain a trading platform from a Forex Clearinghouse that is connected real-time to the interbank market. There are many good Clearinghouses (also confusingly called Brokerage Firms, Market Makers, etc.) that provide you with the trading platform to trade the funds in the account you have opened with them. Before you begin trading your ’real’ money, while you are learning, you will practice on your own ’demo account’ with play-money in it, which will be provided to you by the clearinghouse you plan to trade through. The contractual relationship you enter into with your Clearinghouse is a very important one because the Clearinghouse you choose determines many trading features and financial advantages to you both as a trader and as an investor. Forex-Trader tested Clearinghouses are reviewed in Tools of The Trade.

We have outlined a Getting Started path with uncomplicated steps. This is the path that we would take if we were beginning trading over again today with ’what we know now’. The products and services we mention in these steps are all ones that we have personally used for some time with consistent success. As always you are free to forge your own path, and if you do, happy hiking. There is a mountain of products and services try out, and if you find ones you like better we would love to compare notes with you.

Explain More About Charting Services

To trade successfully you also must have good charting software and instantaneous data feeds critical to helping you analysis and interpret the movement of currencies moment to moment so you know when/why to buy or sell — this you subscribe to monthly. You can get a 2 week or more demo to familiarize yourself with one that has the features you like. The costs also vary, and some companies require a year commitment. There are some free charting services offered through the clearinghouses, but they tend to lack the tools to be truly useful. There are also some costly proprietary Specialty Software charting ’hybrids’ which are market forecasters tools that look more like video games than charts.

Explain More About How Clearinghouses Work

A good clearinghouse (i.e.. your computer access/link to the live Forex Exchange Market) is the partner with which you trade the money you have deposited with them in your trading account. After trying and demo-ing many we have found a small handful that are truly excellent for the beginner (and continue to be excellent as you grow) — meaning user friendly, legally accountable to regulatory bodies, and offering fair costs (spreads) for their services/trading software platforms. There still are many worrisome ones practicing in this closing era of unregulated forex trading (new Commodities laws are imminent).

The topic of matching the right clearinghouse for your needs is discussed more in Tools of the Trade, because it depends on a number of factors — how much you can open an account with, how much the clearinghouse profit spread, what your liquidity needs are, your minimum/maximum stop loss and margin requirements, even where you live and how much time you have to give to trading in a 24 hr. day.

How Much Does it Cost to Begin to Trade?

Learning to trade will entail the cost of books and whatever traiining method you choose. It will also include a reliable computer with a minimum 128 Mb of memory to run the charting software and trading platform. Ongoing ’costs of operation’ include the monthly costs of high-speed internet, charting software, the email forecasting subscriptions — plan on spending $150./mo. up for ongoing costs.

What about Pooled Clearinghouse Accounts to Trade with More Leverage?

We strongly do not recommend pooled accounts in any circumstance. Perhaps you are considering self-trading a pooled- together family account because it would give you a perceived advantage of more leveraged funds to trade (50:1 up to 100:1 leverage) — any risks of loss represent a potential risk to family relationships, and for this reason alone we do not recommend aggregating with family or friends.

However much worse are the too-numerous negative experiences of people allowing their investment funds to leave their control to become part of a ’managed’ pooled account. Not only is it a very risky investment idea, it is illegal for anyone to ’pool’ accounts without compliance with SEC (a USA Securities Exchange Commission) or international equivalent license. Never relinquish direct control over your money/trading account to anyone (i.e.. the ability to make withdrawals, deposits etc. directly by your own authority into your own account).

A good fund manager, if you do choose to go the (legitimate) Managed Account route rather than the Self-Trader route, will make certain you have your own ’segregated account’ in your own name in a bank or brokerage firm. These individual segregated accounts can still be traded together as though they were in a single account by a designated trader as long as the clearing house uses a trading platform that allows it. You, as the investor/account holder, have direct access online to your account activity at all times, and direct control over your own account in your own name (just like a bank account). The importance of this, for the safety of your funds, cannot be over emphasized.

Traders Bankrupt

Traders Bankrupt

I was thinking about an article I read some time ago that 90% of traders who ever trade lose their account and that 10% actually go bankrupt. If the first number doesn’t scare you then the second definitely should.

Why is it then that there is such a large number of traders failing? It is not because they are stupid; in fact most traders have an above average IQ and are above average in most categories such as education and income. So why do they fail?

Lack of trading education!

By education I don’t just mean learning how RSI works or drawing lines on a chart. I mean thoroughly educating yourself in all aspects of your chosen profession. Educating yourself on the correct psychological approach to the market! Educating yourself in the correct risk management techniques relative to your account size. Educating yourself in the correct entry and exit methods for the trading style that suits you.

This, my friend, is where I hope to be of some help. I don’t have all the answers nor do I profess to be some kind of guru but I will do my best to point you in the right direction.

Common Misconceptions Of New Traders

They think they can trade consistently with an 80% accuracy.
They think they can turn $1000 into $100,000 in six months.
They think they can predict turning points in their given markets to within minutes.
They think they can buy a system that is 100% accurate.
They think they will quit their jobs and make a living full time after a few months of trading.

What’s the reason that so many new traders believe that trading is an easy way to make big profits? Propaganda!

We are continually bombarded in magazines, emails and the general media with claims of making astronomical amounts, just by applying the vendor’s latest method or system.

Don’t get me wrong, there is good stuff out there but the vast majority is not worth the price you pay. At www.surefire-trading.com I also recommend products but I have at least read the ebooks or courses and think they have some value to my subscribers and they all have a refund guarantee.

Fundamentals Of Trading

Trading is not an exact science. You can’t do X and get Y every time. It is as much an art as it is anything else. There is no magic formula. Trading is all about probability. It is the art of correctly applying a set of carefully thought out rules and allocating the probability of that event to result in success.

Each trade is an independent event. The market does not remember if you lost or made dollars the last time you traded.

The way you approach the market psychologically has as much to do with your success as any trading plan.

Risk management is crucial if you want to have any hope of becoming a successful trader.

Matching a method of trading with your personality is the only way you will ever feel comfortable in the markets.

An adequately funded account is necessary - not only to be able to take the trades you want, but also so you don’t feel every trade is a live or die situation.

The journey to the road of successful trading will make you confront your deepest fears. Your armor on this journey will be confidence, knowledge and belief in yourself that you can achieve your dreams.

Never, equate your success or failure in the markets with who you are as a person!

The Flaw In Our Emotions

As humans we have a natural tendency to try and influence our surroundings and events we take part in. This is one reason we, as a species, have succeeded but it is also one of the fundamental flaws we all have when trying to achieve success as a traders.

As traders we have to realize we have no control over the market and if we accept that then we have to accept that we can not influence the direction of the market.

The problem of course is we have a tendency to try and succeed and when inevitable losses come, it is easy to let those losses effect us emotionally. Becoming euphoric when you hit a winning streak is almost as detrimental as becoming depressed when you have a string of losses.

We as traders have to try and achieve the state of impartiality. We have to accept that we will have losses as readily as we will have wins. Reaching the stage where you can comfortably accept loss in the knowledge that your method of trading will produce profits in the longer term is the state we have to aspire to.

Risk Management

Whenever I think of risk management I always think of an article I read on 925 CTA programs between 1974-1995. It essentially confirmed what I have long held to be true. To summarize the report, of all the CTA’s who managed funds, the most consistently profitable were the ones with the best risk management systems.

To trade successfully you have to take a long look at yourself. Ask and answer the following questions.

How much equity do I need to start? How much should I risk on any one trade? Am I undercapitalized?

During the course of these lessons I will do my best to help answer these and other questions.

Entry And Exit

As a trader you will probably fall into two main categories, traders who like to trade the breakout and traders who like to join the trend once established. We could also add congestion traders, reversal type traders and mechanical signal traders but for the vast majority of traders you are going to fall into one of the two categories.

If you are a trend trader, you like to define a trend and then find a way in. This may be with the aid of fibonacci retracement levels, moving averages, Gann or one of the other many indicators available today. Your goal is to enter the trend as early as possible with the least amount of risk.

Breakout traders like to enter the market on the breakout of a previously identified range. This may be support/resistance areas, rectangles, triangles or one of the many other chart patterns. The secret to this type of trading is to determine a valid break.

In future lessons we shall begin to look at the more technical side of trading and how you can apply technical analysis to the markets to increase your probability of success.

Conclusion

During this lesson I have tried to give you a glimpse into the world of trading. I have also taken a slightly negative stance, as I don’t want you to get unrealistic expectations of what to expect.

On the more positive side, trading is a fascinating world, which will allow you to really exercise your brain. There is no other arena where you get to play with some of the best minds in the world on a level playing field.

Once mastered, if you can ever use that term then the possibilities are endless. Hopefully I can help you achieve your goals

Master yourself in forex trading

behaviour we need to identify the reason, the underlying objective, and examine it. We need to examine it to determine whether this objective, this assumption, supports us in what we want to do now.

Most of the beliefs, or rules, that govern our behaviour now, were formed in early childhood. They have become predominantly unconscious beliefs and their effect is to dictate the way we respond. Most of these beliefs continue to support us well, but some have long outgrown their value.

My baby son Arthur, does not yet know that touching a hot stove is painful. At some point he will burn himself and he will start to form a set of beliefs about hot things that will, by governing his behaviour, protect him from getting burnt. He won’t necessarily remember these early experiences with heat, but his new beliefs will continue to guide him for the rest of his life.

When it comes to trading, most of what we have learnt to date and the beliefs that we have formed about success are inappropriate.

When we are trading we need to be:

· Quick to cut a loss
· Flexible to the ever-changing flow of information
· Take the lead from the market rather than try to control it
· Comfortable with uncertainty and risk

What are we taught about success?

· Not to be a quitter
· To be decisive, not fickle
· To take charge/control
· To dictate
· To stamp out uncertainty

It is not difficult to see that what we believe about success in all other areas of life will work against us as traders. Lets look at some particular behaviours in trading.

Not cutting losses, what is the likely thinking that would result in this behaviour?

· Losing is bad (If I lose then I am a loser)
· Being wrong is bad (we all learn this at school!)
· To take charge/control
· I want to be right all the time i.e. perfectionist
· And snatching profits:

Fear of losing what we have (losing is bad again)
Need to feel good (I am not good enough)
Ultimately I thing we struggle as traders because we want and need to feel good about ourselves and we are looking to the market for this affirmation. We are reluctant to take a loss because we think a loss is bad and that it underlines our fear that we are bad (a loser). We snatch profits because we are desperate for information that supports the idea that we are good.

If I have an unshakeable belief that I am good, then I would not look to the market for approval; we only look for something we think we don’t have. To resolve this problem we need to simultaneously work on and build the belief that we are already perfect and we need to shift our neediness away from the market and seek affirmation from another source.

Successfull forex traders

Would you like to enjoy the lifestyle of successful forex traders? If you were to split foreign exchange traders into two groups – the successful and the less than successful – could you identify those characteristics which separate the two groups?

It does not really matter what we do in life, which includes foreign exchange trading, but, whatever we do, one thing that will have more affect on our success than anything else we do will be setting goals.

It is a simple fact that the human mind works best when it is given a roadmap to follow and, by setting a goal, you start building your roadmap by clearly defining the end point of your journey. However fixing a destination is not sufficient and you will also need to define the route which you are going to follow to get to your destination. Here is an example.

Suppose you decide you want to build a fortune as a foreign exchange trader, and who doesn't after all! This in itself is not however much help as any goal which you set needs to be measurable, otherwise you have no way of knowing whether you have reached it. So, at this point, you need to be clear about exactly what you mean by a 'fortune'.

Let us assume therefore you set a goal of making $1,000,000 in the next twelve months. Now you have a clearly defined destination. The next problem however is that, since you are almost certainly new to the world of foreign exchange trading, are still learning the ropes and possibly have limited capital to invest at this point, making $1,000,000 in the next twelve months is possibly an unrealistic goal.

As well as being measurable, goals also have to be realistic. It does not matter what goal you set for yourself in foreign exchange trading, but it must be within your reach. There is no point in deciding that you are going to win Wimbledon if you have never even picked up a tennis racket.

So, instead of aiming for $1,000,000 let us set a far more realistic target of say $120,000. Having done this, we then need to split this figure up into marker posts which we can put onto our roadmap and we can do this by looking at our target on a monthly instead of a yearly basis. This gives us a dozen $10,000 markers. However, if we continue along these lines we can then break our goal down further into weekly markers of $2,500.

At this point we have got something which we are able to examine against our current and recent experience and it is a fairly simple matter to see whether or not this figure is possible. Is it possible, against the background of your current experience, to make $2,500 trading foreign currencies in the coming week?

Your goals must be measurable and realistic, but they must also be attainable. It is one thing to set a realistic goal, but you also need to have the right tools, in the right place at the right time if you are going to reach that goal. If you are currently making $750 a week then you probably won't convert this into $2,500 overnight so, in this instance, your goal is unattainable and you will need to go back to the beginning and start all over again.

But, if $2,500 is feasible, then there is one additional step that needs to be taken before you are ready to head off on your journey. This final step is to paint a picture in your mind's eye of your destination.

Although you have set a goal of making $120,000 in the next twelve months, the money itself is of course not really what you are aiming for, but it is what you can do with the money which is important. So, having got your $120,000 what do you intend to do with it? If you want to buy yourself a new sports car then paint a picture in your mind's eye of driving into the sunset with the roof down and then you really have got a goal.

If you want to achieve success in foreign exchange trading then you have to set yourself a goal which is measurable, realistic and attainable and than paint a picture of your goal in your mind's eye. If you do this you will be amazed at how easy a matter it is to get to your destination.

Trading best market

The Forex market never stands still and even though it may move quite slowly at times it is nevertheless always on the move. It is of curse this movement which provides the opportunity to make money buying and selling global currencies, but it can also make it difficult to decide when to open a trade, close a trade or simply stay out of the market altogether.

Probably the greatest problem with the fast moving foreign currency market however is that it plays on our natural sense of greed and this can present traders with a very real danger.

We all like to make a profit, but what level of profit is acceptable? If you are in a trade which is showing a profit of $2,000 should you close your position and take your profit or hang on in there for $2,500? You are trading to make money and so, when the market is moving in your favor, it is only natural to want to ride the wave all the way to the beach. The difficulty however often lies in knowing when you have hit the beach and in not waiting for the undertow to start dragging you back out to sea again. Once the undertow catches you it can drag you back out to sea again very quickly.

Most Forex traders enter foreign currency trading with a clear picture in their mind's eye of just what they intend to do with all the money they are going to make and that is no bad thing. It is extremely important for you to have a goal, as well as a plan of action to allow you to reach that goal, and it certainly helps if you create a visual image in your mind of something concrete you are aiming for.

The problem however is that you could well find that you are tempted to try to reach your goal sooner than you had planned or that you create a bigger and better goal as you go along, allowing your natural tendency towards greed creep in and to start taking control of your trading.

Another commonly seen problem is that of failing to understand that it is not money which drives the market.

Think about this for a minute. It doesn't matter if you have $10,000 or $100,000 in your trading account because whatever sum you're looking at it is not going to make the slightest difference to the way in which the market moves. By the same token, it doesn't matter if you are looking at a $750 profit or a $750 loss in an open trading position because this again will not make any difference at all as far as the market rising or falling is concerned.

The fact that you are doing well in a trade and have made a profit of $750 does not mean that this profit will turn into $900 or $1,000 if you wait a bit longer. It is of course human nature to find yourself caught up in your 'winning streak' and to convince yourself that there is more profit to come.

It is also human nature to find that, having already lost $750 in an open trade, you will try to convince yourself that things will turn around if you keep your nerve and just hold on a little longer.

It is essential that you set a goal and have a plan to reach that goal but your trading decisions must be based on what is happening in the market and not on your goal.

Money should have no influence on whether or not you enter or exit a trade, or stay out of the market altogether, and these decisions should be based solely on what your analysis of the market tell you.

Dangers Of Forex Trading

Dangers Of Forex Trading

Anyone who has seen the film Wall Street will undoubtedly remember Michael Douglas telling Martin Sheen not to get emotional about a stock. This is good advice for people trading in the stock market, but it is absolutely vital for people involved in Forex trading.

It is very easy to find yourself caught up in a trade. You open a position because you feel good about it and then you hang in there even if the market starts to move against you because you just know that the market is going to turn back in your favor. From time to time of course it does but, as a general rule, it doesn't.

The problem here is that you allow yourself to become attached to a trade and your decision to stay with it is very much an emotional decision. Also, because you are emotionally attached to a trade you view closing your position as an admission that you were wrong to have opened it in the first place.

Trading within the Forex market has to be driven by the market indicators and your trading decisions must be based on what these indictors are telling you and not on how you are feeling. If you are going to be a successful trader then you have to be ruled by your head and not by your heart.

There will be times when you find that you have an emotional attachment to a specific currency and that the majority of your trading tends to be in that currency. There's nothing wrong with this. You may even feel sometimes that the time is right to buy a particular currency. That's okay too. The mistake is not to follow a feeling about a particular currency but to open a position purely on the basis of this feeling.

If you have a feeling about a currency then begin by checking it out and take a look at the market numbers. If the numbers tell you that the time is right to open a position then do so but, if they tell you that it's not a favorable market then, no matter how you feel about it, you should not get into the market.

Similarly, if you have opened a position and the indicators tell you that the market is moving against you and that it is time to close your position then do so. Your heart may well tell you to 'hang in there' but it is the market and not your heart which pays your bills

In Forex trading you will win on some trades and will lose on others and that's nothing more than the way the market works. It is not a question of whether you are right or you are wrong. The market will frequently move unexpectedly and catch out even the most experienced of traders.

The secret lies in following the market indicators, recognizing that you are going to lose in a trade and getting out as quickly as you can to minimize your loss. You can then move on to your next, hopefully profitable, trade.

Foreign Exchange Market

There are various different ways in which traders can place orders to buy and sell currencies and this gives foreign exchange traders considerable flexibility in planning their trading strategies and allows them to both maximize their profits and minimize their losses.

Market Order

The simplest form of order is the market order in which the trader simply buys or sells a currency pair at the current market price. Because of the enormous size of the market and its high liquidity there is little if any delay or slippage in the market and market orders are in essence guaranteed.

Limit Order

A limit order allows the trader to set the price at which he wants to take his profit and close out his position. For example, where a trader has bought GBP/USD at 1.9450 he might place a limit order at 1.9465 so that, if the price rises to this level, his position would automatically be closed and he will take his profit.

Stop Loss Order

A stop loss order is another form of limit order but in this case it indicates the maximum loss which a trader is prepared to take. In our example above the trader could place a stop loss order at 1.9430 so that he would limit his losses to 20 pips if the market turned against him.

Entry Order

An entry orders is an order which is only filled when the market meets certain conditions which are specified in the order. An entry order can take the form of either a limit entry order or a stop entry order.

Limit Entry Order

Let's start by assuming that the market price for the GBP/USD is 1.9740-45. This means that a trader can enter the market to sell at 1.9740 or buy at 1.9745. A trader could place a limit entry order to sell above the current market price at a level of say 1.9750 and this order would then only be executed if the market price reached this point. Similarly, he could place an order to buy at a price below the current market price - in this case below the buying price of 1.9745. So, were the trader to place a limit entry order to buy at 1.9730 this order would only come into effect if the price dropped to this point.

A limit entry order is commonly used where a trader believes that a currency is trading within an upper and lower range and is expecting a reversal in the currency's price movement.

Stop Entry Order

A stop entry order is frequently used when a trader believes that a currency which has been trading within an upper and lower range is about to break out of that range and he wants to either buy at a price above the present market price or to sell at a price below the current market price.

Our GBP/USD trader above, who can enter the market to buy at 1.9740 or to sell at 1.9745, might place an order to sell at say 1.9735. In this case the trader believes that the currency will reach this level and then continue to fall. Alternatively, he might place an order to buy at say 1.9750 again believing that the market will reach this level and continue to move in the same direction.

A stop entry order is commonly brought into play when a trader foresees large movements in the market.

How to analysis forex

How to analysis forex

Like many other markets the Forex market is driven by supply and demand. When there is a demand for a currency its price rises and when there is an excessive supply of a currency its price falls. This may seem simple enough but unfortunately predicting movements in currency prices can be extremely difficult.

Today there are two main methods used to predict movements in the Forex market:

Fundamental Analysis

Fundamental analysis was the dominant predictive tool in the Forex market until the mid 1980s, although it has since declined in popularity. Fundamental analysis focuses its attention on the political, social and economic factors which drive supply and demand and is based upon such things as interest rates, inflation, unemployment and economic growth rates. All of these different indicators are used to assess a currency's present performance and then to predict its future movement.

The problem with fundamental analysis is that the trader has to keep up with events and to analyze a huge amount of data. Additionally, there is a great deal of debate about just what data needs to be included in any fundamental analysis and how much weight should be put upon each of the different indicators.

On thing about which there is general agreement is that a country's balance of payments is key to fundamental analysis as it shows the flow of money in and out of the country. In theory, a balance of payments of zero will produce a stable price while a balance of payments deficit or surplus will cause the currency to fall or rise.

Technical Analysis

Technical analysis is based simply upon movements in currency prices and uses historical price data to predict future prices.

The main principle behind technical analysis is that history repeats itself and that price movements today merely follow well established patterns. The second principle is that it is not necessary to study current market information to predict movements in the market as this is already reflected in currency prices. It is simply the movement in prices themselves that needs to be studied in order to predict the direction in which prices are moving.

Technical analysis uses charts to provide a graphical representation of the market over time and allows the trader to identify trends in the pattern of price movements. There are various different charting techniques used today including such things as moving averages, oscillators, candlestick charts, Fibonacci retracement levels, Bollinger bands and others.

How To Analyze Forex Market

How To Analyze Forex Market

Like many other markets the Forex market is driven by supply and demand. When there is a demand for a currency its price rises and when there is an excessive supply of a currency its price falls. This may seem simple enough but unfortunately predicting movements in currency prices can be extremely difficult.

Today there are two main methods used to predict movements in the Forex market:

Fundamental Analysis

Fundamental analysis was the dominant predictive tool in the Forex market until the mid 1980s, although it has since declined in popularity. Fundamental analysis focuses its attention on the political, social and economic factors which drive supply and demand and is based upon such things as interest rates, inflation, unemployment and economic growth rates. All of these different indicators are used to assess a currency's present performance and then to predict its future movement.

The problem with fundamental analysis is that the trader has to keep up with events and to analyze a huge amount of data. Additionally, there is a great deal of debate about just what data needs to be included in any fundamental analysis and how much weight should be put upon each of the different indicators.

On thing about which there is general agreement is that a country's balance of payments is key to fundamental analysis as it shows the flow of money in and out of the country. In theory, a balance of payments of zero will produce a stable price while a balance of payments deficit or surplus will cause the currency to fall or rise.

Technical Analysis

Technical analysis is based simply upon movements in currency prices and uses historical price data to predict future prices.

The main principle behind technical analysis is that history repeats itself and that price movements today merely follow well established patterns. The second principle is that it is not necessary to study current market information to predict movements in the market as this is already reflected in currency prices. It is simply the movement in prices themselves that needs to be studied in order to predict the direction in which prices are moving.

Technical analysis uses charts to provide a graphical representation of the market over time and allows the trader to identify trends in the pattern of price movements. There are various different charting techniques used today including such things as moving averages, oscillators, candlestick charts, Fibonacci retracement levels, Bollinger bands and others.

How to calculate interest rate on forex

One of the great things about Forex trading is your ability to trade using leverage, effectively borrowing sometimes as much as 1,000 times your capital to make a trade. But borrowing money for currency trading is exactly the same as borrowing money for any other purpose and you will have to pay interest on your loan.

Currency transactions involve both buying and selling currencies however and this means that interest payments due on money which you borrow to fund a sale can be offset by interest earned on the currency you buy. If this seems a bit confusing we will take a look at an example in a minute but, first, let's take a moment to look at the subject of interest rates in general to see the wider picture as it affects the foreign exchange market.

Central banks set interest rates to meet a country's monetary policy and interest rates raise or lower the cost of a currency. High interest rates will make it expensive to buy a currency and low interest rates will make a currency more affordable.

As an example of how interest rates are used imagine the government of a country with high inflation. With the price of goods and services rising rapidly, the government might decide to raise interest rates. This would increase the cost of the country's currency making borrowing more expensive and both demand and consumption fall. As demand begins to fall, so the rate at which prices rise will also begin to fall and inflation will come down.

In a similar fashion, a country experiencing recession might decide to lower interest rates in an effort to stimulate the economy into growth. As the cost of the currency falls, so too will the cost of borrowing and investors, companies and individuals will be enticed to borrow and thus spend more, increasing demand and stimulating supply to meet that increased demand.

The interest rates which are set by central banks also determine the rate at which the commercial banks can borrow from the government and the rate at which they lend to their customers, which of course includes foreign currency traders.

So how do interest rates impact Forex trades?

Imagine a trader who buys GBP/USD. In this case he needs to borrow US Dollars to buy UK Pounds and will both pay interest on the US Dollars he borrows and earn interest on the UK Pounds he buys.

As long as the Bank of England interest rate is higher for the UK Pound than the interest rate set for the US Dollar by the Federal Reserve, the trader has the opportunity to earn more in interest on his holding of UK Pounds that he is paying on the US Dollars he had borrowed.

In general however, unless the difference between the two interest rates is significant, any net gain or loss will usually be quite small. It also has to be remembered that interest rates are set at an annual rate and that most trading position are held open for only a short, or very short, period of time. This acts to lower any interest gained or paid significantly.

Principle of profiting in excgange rates

The easiest way to demonstrate the ability to profit from Forex trading as the exchange rate rises and falls is to look at some examples. Let's start by looking at how you might profit when exchange rates rise.

Let's assume that you believe that the UK Pound is going to rise against the US Dollar and that you can buy GBP/USD at 1.8730. We'll also assume that you are trading a standard InterBank lot of 100,000 so that 100,000 UK Pounds will cost 187,300 US Dollars.

To open a trade you start by borrowing 187,300 US Dollars, which you will have to repay when you close out your position.

[Note: We will not discuss the idea of borrowing to fund your Forex trading at this point but will simply note that the majority of trading is done using borrowed funds making use of leverage.]

Assuming that you are correct and that the UK Pound rises against the US Dollar and that the price moves 100 pips to a rate of 1.8830, the 100,000 UK Pounds which you purchased are now worth 188,300 US Dollars and you can close out your position and repay the original borrowing, leaving you with a profit of 1,000 US Dollars.

In real life of course it is not quite as simple as this because there will be transaction costs to pay. However, this does demonstrate the principle of profiting when exchange rate rise.

Now let's turn our attention to profiting when the exchange rate falls.

Assume this time that you believe that the UK Pound will fall against the US Dollar from its present rate of GBP/USD = 1.8730. In simple terms, you believe that the UK Pound is going to buy fewer US Dollars.

This time you will need to place a sell order for 100,000 UK Pounds at a cost of 187,300 US Dollars. In other words, you borrow 100,000 UK Pounds and sell them for 187,300 US Dollars.

Assuming once more that you are right and that the rate falls by 100 pips to GBP/USD = 1.8630, you can now close your position by buying back and repaying the 100,000 UK Pounds which you originally sold. In this case this will now cost you 186,300 US Dollars and you will once more make a profit of 1,000 US Dollars.

Again we have ignored any transaction costs to simply demonstrate the principle of profiting from a fall in exchange rates.

Calculating the pip value of forex

Perhaps the first question we need to ask is what does pip mean in forex trading? A pip is the smallest movement that is possible in the price of one currency against another and it is vital to be able to calculate pip values quickly and easily as it is the movement in prices which results in your profit or loss when trading.

A pip is normally, but not always, 0.0001 or 0.01%. In other words, if a currency moves from a price of 1.7650 to 1.7655 it is said to move 5 pips.

The easiest way to understand how to calculate pip values is to start by considering currency pairs which involve the US Dollar and we start by considering the situation when the US Dollar is the quote currency as in the case of JPY/USD, GBP/USD or CHF/USD.

Here calculating a pip value is very easy as a pip will always have a value of $10. So, if while trading JPY/USD the market moves in your favor by 10 pips you will make a profit of $100. Let's see how this works.

Consider a quote of GBP/USD is 1.9730. This means that 1 UK Pound is worth 1.9730 US Dollars. A standard InterBank lot size is 100,000 and which means that 100,000 UK Pounds are worth 197,300 US Dollars. If the market moves 1 pip so that GBP/USD is 1.9731 then 100,000 UK Pounds will now be worth 197,310 US Dollars - a rise of $10.

Now let's turn our attention to what happens when the US Dollar is the base currency and consider a quote of USD/GBP = 0.6439. Here 1 US Dollar is worth 0.6439 UK Pounds and 100,000 US Dollars are worth 64,390 UK Pounds.

If the price moves up 1 pip then USD/GBP = 0.6440 and 1 US Dollar is worth 0.6440 UK Pounds and 100,000 US Dollars is worth 64,400 UK Pounds.

In this case a movement of 1 pip represents a value of 10 UK Pounds which, in US Dollars, gives a pip value of 15.53 US Dollars (10 ÷ 0.6440).

For a standard trading lot with the US Dollar as the quote or counter currency a pip has a value of $10 but, when the US Dollar is the base currency, the pip value will vary with the market price.

foreign currency conversions

For the Forex currency trading beginner a trade can be a little confusing until you break it down and come to grips with some of the trading terminology.

The purpose of any Forex trade is to swap one currency for another in the belief that the market will move and prices change such that the currency that you buy rises in value in relation to the currency which you sell.

The first important point is that each trade involves two currencies - the currency which you buy and the currency you sell. This gives us our first two important trading terms - the long position and the short position.

You take a long position when you buy a currency in the belief that it will rise in value and that you will able to sell at a profit.

If you sell a currency in the belief that it will fall in value you take a short position and hope to make a profit by buying it back again once the price has fallen.

The next important concept is that of the open and closed position. When you take a long position and buy a currency in the expectation that it will rise in value you open a position. When you later sell that currency to take you profit you close the position. The same is true when you take a short position and open that position by selling a currency in the expectation that it will fall in price and later close the position when you buy the currency back at the lower price.

Note: How does day trading work? You will often hear the term 'day trading' used and this confuses a lot of newcomers to the world of investing. When applied to forex trading, day trading simply means short-term trading effected by opening and closing trading positions within the same trading day, rather than running a trade over an extended period of time.

In Forex trading currencies are referred to by codes (developed by the International Organization for Standardization and known as ISO codes) such as USD for the US Dollar and GBP for the UK Pound. Prices for these currencies are quoted as either USD/GBP or GBP/USD with the first currency appearing in the quote being the base currency and the second currency being the counter or quote currency.

Here's an example quote to make things a bit easier to understand:

USD/GBP = 0.5260

In this case the US Dollar is the base currency and the UK Pound is the counter or quote currency. The base currency is always read as a single unit and so this quote means that it will cost 0.5260 UK Pounds to buy 1 US Dollar. Here's another quote:

GBP/USD = 1.9150

In this case it will cost 1.9150 US Dollars to buy 1 UK Pound.

In real world trading it's a bit more complicated as the market maker needs to add in his profit for selling you a currency or for buying currency from you. In reality therefore a quote might look more like this:

GBP/USD = 1.9238 1.9243

In this case the first figure is the 'sell' or 'ask' figure and the second is the 'buy' or 'bid' figure. The first figure is price at which a trader will sell the currency pair and the second is the price at which he will buy the pair. The difference between the two prices is known as the spread.

Prices are normally quoted to four decimal places and the fourth decimal place, which represents the smallest amount by which one currency can move against the other, is known as a 'pip'. In this case therefore the spread is 5 pips.

In our example therefore, if you wish to sell UK Pounds, the market maker will buy them from you at 1.9243 US Dollars per UK Pound and, if you wish to buy UK Pounds, 1 UK Pound will cost you 1.9238 US Dollars.

If you are just starting to learn Forex currency trading then this probably seems a little bit complicated but it represents the basis on which the Forex market operates and will quickly become second nature.

5 Reasons For Currency Trader

5 Reasons For Currency Trader

The foreign currency exchange market offers today's investor many advantages and here are just reasons why you might want to become a world currency trader.

A Market Which Never Closes

Many of the trading markets around the world are situated in fixed locations and operate within strict trading hours, often limited to just five or six hours a day between Monday and Friday. The Forex market however is open 24 hours a day.

This means that traders can not only take advantage of international events and react literally as they happen, but they also have the ability set their own trading hours. If you prefer to work in the mornings then that's fine but, if this doesn't suit you, then you can choose to trade during the afternoon, late evening or even in the middle of the night if you want to.

Low Trading Costs

In many markets, like the equity market, traders not only have to pay a spread (the difference in price between buying and selling a stock) but also have to pay a commission to the broker. On small trades this commission can typically be about $20 and this can rise rapidly to over $100 for larger trades.

Because the foreign currency exchange market is a wholly electronic market many of the traditional trading costs are eliminated and you are in affect reduced to paying nothing more than the spread. In addition, the extremely liquid nature of the global currency exchange market means that spreads are normally much tighter than those seen in other markets.

The Ability To Trade On High Leverage

In most markets where a trader has an opportunity to trade on leverage the leverage offered is often quite low. In the case of equity markets, for example, professional equity day traders will normally operate on a leverage of about ten times their capital. In the Forex market by contrast it is quite common to find that traders are permitted to trade at one hundred to two hundred times their capital.

A downside of high leverage is that it can of course lead to high losses as well as high gains. However, within the foreign currency market, risk management is extremely tightly controlled.

Limited Slippage

In currency trading trades are executed immediately using real-time prices at which firms will buy or sell the currencies quoted. In almost all cases this means that the price you see and the price you pay are the same.

This is not often the case in other markets where there can be often considerable delays between placing an order and that order being executed during which time the price will often move against you.

The Chance To Profit In Both Rising And Falling Markets.

Equity markets follow rising and falling trends (cycling between Bull and Bear markets), but the Forex market does not suffer this cycling which comes from structural bias in the market.

World currency trading always involves two currencies so that if you are down on one currency then you are up on the other. There is therefore always the potential for making a profit whether the market is rising or falling.

Good Trading using 4 elements

Good Trading using 4 elements

The foreign exchange market (forex market or fx market) is the world's largest market and consists largely of the forex spot market (spot foreign exchange market) and the currency futures market. Today however the majority of smaller traders tend to confine themselves to trading spot forex.

There are four elements which must be present in any good financial market, whether you are trading in the stock, bond, futures, currency market or any other market. These four elements are liquidity, transparency, low trading costs and market trends.

Liquidity

There are always two sides to a trade, a purchase and a sale, and in its simplest form liquidity refers to the ease with which traders can buy and sell. To be truly liquid traders must also be able to trade in substantial volume without this having any marked effect on prices.

If a market lacks liquidity then traders will often encounter delays in meeting orders to buy, frequently leading to a significant variation between the price when an order is placed and when it is executed. In addition, it may be hard to sell in a market that is not sufficiently liquid.

Fortunately the currency exchange market (especially when trading in major world currencies such as the USD and GBP) is extremely liquid and a huge number of trades are conducted each day on the Forex money market with a trading volume that far exceeds that of other markets.

Transparency

A market is said to possess transparency when traders can access accurate information at all stages of the trading process.

Information is the key to many things in life and the world's various markets are no exception. There are many examples, especially in the world stock markets, of companies and individuals which have run into difficulty because the parties to a trade did not have access to accurate information.

The foreign currency exchange market is without doubt the world's most transparent market and this is especially true when it comes to pricing.

Low Trading Costs

Markets carry trading costs which inevitably lower a trader's profits or increase his losses. However, when a market can keep its trading costs low it becomes attractive to traders and encourages both an increased number of trades and an greater trading volume.

The absence of commission and other usual trading costs, together with the tight spread of prices, in currency trading mean that trading costs in the Forex market are kept very low.

Market Trends

In many markets it can be difficult to know just when to enter the market and when to exit it (when to 'buy' and when to 'sell'). As a result, it is important to have some way of assessing the present state of a market and to predict its future direction.

In the foreign currency exchange market this is achieved by employing various forms of technical analysis which examine the past performance of the market and identify trends which can then be used to predict its future.

Most markets display trends of one form or another, but in some markets these are far more clearly defined than in others, making it far easier for traders to enter and exit the market. The foreign currency market displays a particularly strong trending characteristic Good Trading using 4 elements

History of forex trading

Currency trading can trace its history back to the middle ages when international merchant banker devised the system of using bills of exchange. It is however changes which have occurred during the twentieth century which have really shaped trading in the global currency market we see today.

In the 1930s the British pound was considered to be the world's principle trading currency and was the currency held by many countries as their main 'reserve' currency. London was also seen as the world's leading foreign exchange center.

Following the Second World War however the British economy was all but destroyed and so the United States dollar took over as the world's major trading and reserve currency - a position which it still holds today. This said however there are now a number of other currencies, including the Japanese Yen and the Euro, which are also beginning to be seen as major reserve currencies.

It was also following the Second World War that a number of events took place which have been instrumental in shaping today's Forex market.

The first of these was the conclusion of the Bretton Woods Accord in 1944 in which the United States, Britain and France agreed that they would stabilize world currency markets by pegging the major world trading currencies to the US dollar (which was itself pegged to the price of gold). This accord held that when the price of a currency fluctuated by more than one percent against the US dollar then the central bank of the country in question had to step in and buy or sell the currency to bring it back into its one percent bracket.

The Accord also spawned the establishment of the International Monetary Fund (IMF) which was designed to produce a stable system for the sale and purchase of currencies and to ensure that international currency transactions were conducted smoothly and in a timely fashion.

The IMF also created a consultative forum aimed at both promoting international co-operation and facilitating the growth of world trade. At the same time it also broke down many of the exchange restrictions which were hindering international trade.

The IMF was also tasked with making financial resources available to member states on a temporary basis where this was felt to be necessary in furtherance of the aims of the IMF. Loans were normally only made only on condition that the government of the country to which a loan was made undertook to make substantial changes to rectify the situation which had given rise to the need for the loan.

Without any doubt however the most significant events as far as the Forex market is concerned was seen when the IMF proposed that currencies should become 'free-floating' in 1978. This allowed currencies to be traded at a price which was determined solely by the law of supply and demand and that there was no longer any requirement for currencies to be pegged to the dollar or for central banks to intervene in currency trading. Central banks could of course continue to intervene if they wished to do so, but any intervention would be entirely a matter of choice and would no longer be a requirement as it had been under the Bretton Woods Accord.

The next significant event in the history of Forex trading was the birth of the European Monetary System which effectively came into being in 1979. The European Monetary System got off to something of a shaky start when Britain did not join the system, although she did later participate to a degree by joining the European Monetary System's exchange mechanism in 1990.

The final major event to affect the Forex market was the establishment of the Euro as the European Union's single currency in 1998 with eleven member states replacing their national currency with the Euro.

Above all else however it was the free-floating of currencies in 1978 which accelerated the growth of the foreign currency market. Back in 1978 Forex trading displayed a daily turnover of around 5 billion US dollars but, by the turn of this century, that figure had risen to 1.5 trillion US dollars.