forex for all

FREE Forex Fap turbo download

2009-03-03T14:30:00.000-08:00

Join our contact list to get Real Money Doubling Forex Robot Fap Turbo 100% free

Why Traders Come To Forex Market ?

2008-06-18T07:39:00.000-07:00

Jillions of people are attracted to the Forex because it is the greatest business mart in the group. Currency trading is the hottest, fastest maturation type of investing today. Spell the Forex is titled a 'mart' it is not what you would traditionally believe of. The trading is done via telecommunicate or on connector with computers. Botuliform in 1971, when the floating commercialism rates came ammo, there is no one primal position for trading in any acknowledged region in the world. It is an inter-bank or inter-dealer method. With over 3.5 1e+12 levels state exchanged each and every day, it is understandably ontogeny in worldwide popularity.

Availability
One of the most personable features of the Forex to investors is the fact that it never closes. It is unsettled all day, every day of the assemblage. People all over the reality are honorable ready to exchange. If you feat that you cannot period, you can change. You don't pauperization to act until the next day. And you wouldn't be unequalled. It doesn't matter what abstraction it is, trading give be occurring congested steam ascending. This availability is real catchy to a lot of grouping because you can do it in your refrain instant or when you get plate from transform. The conclude the activity

The excitement
The excitement of twenty-four period trading is added real cunning characteristic of the Forex to numerous traders. If you are choice to fulfill up all period stretch, the Forex instrument change you. The marketplace is so largish it offers nigh orotund liquidly, in fact, any were between $1.5 and $3.5 trillions dollars are forthcoming every day. It can be an Adeline locomote for traders who are victimized to exclusive trading figure to figure, Weekday thru Friday object for study holidays. There are no anxieties that descend with the concluding of the stock

It's For Everyone
In present expended by, the capital markets were exclusive for the moneyed and not detected affluent. Typically, a exchange matter of at smallest one meg dollars would know to be presumption to the array to symmetric ajar an story to merchandise with. As you can see, this made it really baffling for the 'excavation man' to movableness the mart. However, today, we bang the Forex, which is unsealed to small investors as fit. Most of the fill who equip in Forex are doing so from home

Because the Forex offers upheaval, availability and chance, it really is for everyone. It may be something that, once donated a try, you may not impoverishment to cater up. Forex is such a favorite theme in mercantilism schools today because of the seemingly interminable opportunities. Stoppage with your localised group training tract if you are interested in acquisition author virtually the Forex activity. Erst you are alert of the rules and regulations, you can susceptible an ground on distinction and play trading honorable inaccurate.

Section I: Introduction

2008-06-14T17:03:00.000-07:00

Section I: Introduction
In this lesson, we will review the most important major candlestick reversal patterns and chart patterns used to trade the Forex market.
In each one of them you will learn the psychology behind each pattern, what’s the balance between the demand and supply.
It is important that you study and practice with them, as soon as you learn or review one pattern try to find the same pattern in your charting package. This way you will learn them faster and will recognize them much more easily. At first it might seem a little difficult to find those patterns but as you get more experienced you will find them more often and will know how to deal with each one of them.
Later in the course, we will see how to combine them with other technical tools to generate high probability trades. In this lesson just focus on learning each pattern and its probable outcome so that in future lessons it will be easier to digest when combining them with other technical tools.
In this lesson we will cover the following topics:
Section II: Major Candlestick Reversal Patterns - In this section, we will review the most important candlestick patterns used to trade the Forex market.
Section III: Important Candlestick Considerations - We must not forget about these considerations, they will help us generate better results.
Section IV: Chart Patterns - Some traders use pure chart patterns to trade the Forex market consistently.
Section V: Reversal Chart Patterns – We will review three patterns that are amongst the most reliable when used with price action.
Section VI: Continuation Patterns - We will review some of the most popular continuation patterns.
Section VII: Important Chart Patterns Considerations - We must not forget about these important considerations as they could help us generate better results.

Lesson 4: Technical Analysis Part I

2008-06-14T16:58:00.000-07:00

Section I: Introduction
Section II: Types of Charts
Section III: Support and Resistance
Section III: Support and Resistance FAQ’s
Section IV: Trends and Range bound Conditions
Section VI: Introduction to Candlesticks

Summary Report

Summary Report

2008-06-14T16:56:00.000-07:00

Summary Report
Ok, now that you have read the lesson material and taken the quiz, please make sure you completely understand and/or do the following:
This chapter is a simple introduction to technical analysis, for advanced students it should not have taken much time to read and understand all concepts covered in this lesson.
For novice students, re-read all sections, especially both sections about support and resistance (you will be using them a lot).
Make sure you understand the following:
- Support and resistance, these two concepts are amongst the most important subjects of trading so you need to pay special attention to section 3. What happens to supply and demand around these levels?
- Understand what each candlestick reviewed in this chapter suggests.
Ok, here are the answers to the Brain Feeders:
Brain Feeder 1 – We were asked: how do we think the market behaves when the supply for one currency meets the demand for it?
It simply goes sideways. That’s right, it doesn’t go up or down, it moves as a straight line because there won’t be incentives either to sell it lower or buy it higher.
Brain Feeder 2 – We were asked what would happen if the market breaks a support zone with the demand curve?
It will have a shift to the left; here is how the chart would look like:

[Image 12]
What was considered “low”, its now considered “high”.

Section VI: Introduction to Candlesticks

2008-06-14T16:42:00.000-07:00

Section VI: Introduction to Candlesticks
Japanese candlesticks give us a better understanding of value, or more precisely, the interpretation of value given to any instrument by investors and traders than any other type of chart. They also help us have a better understanding of the psychology of traders and investors driven by fear, greed and hope, since all these characteristics are represented in price movements.
Before going through candlesticks patterns and how to trade based on them, we should first understand what different candlesticks represent by themselves.
Long candlesticks
Long candlesticks describe strong buying/selling pressure. Price had a sharp advance/decline from the open price (traders were aggressive).
When we talk about “long” candlesticks, we are referring to the body of the candlestick.

[Image 1]
But, long compared to what?
We know it is long when we compare the action of any candlestick with the length of previous candlesticks. A “long” candlestick must be clearly identified in order to be a valid pattern, should there be any doubt, it is probable that the candlestick is not long “enough”.
Short candlesticks
Short candlesticks could represent two things: not much volume or periods of indecision (demand meets supply.)

[Image 2]
Short candlesticks are also compared to previous action to assess the validity of the candlestick.
Marubozu
Marubozu candlesticks are strong candles. They have no shadows, this means that the open price equals the low/high of the period and the closing price equals the high/low of the period.

[Image 3]
The interpretation of this kind of candlesticks varies depending on where it was formed. If a bullish marubozu appears in a downtrend, it could signal a short-term reversal (bulls took control of the situation from the first minute to the last.) If a bullish marubozu appears at the top the range, it could signal a final push up, it all depends on preceding candlesticks. The same is true for a bearish marubozu.
If the marubozu breaks through an important support or resistance level, the market is likely to continue on the way of the “break through”.
Doji candlesticks
Doji candlesticks represent periods of indecision, or fierce battle between bulls and bears.

[Image 4]
Doji candlesticks are formed when the open price and the close price are virtually the same (or very close). Ideally, the open and close prices should be equal, but remember, the important thing to capture here is the essence of the candlestick.
For instance, when the close and open price is similar, it shows us that as the price went up, sellers took control of the situation, and when prices went down, the buyers the control of prices.
Doji candlesticks alone are considered neutral, but should be a warning. If for instance, in a downtrend a doji candlestick is preceded by a long bull candlestick, then it could mean a possible reversal.
Spinning tops/bottoms
Spinning tops and bottoms have small bodies and long shadows usually larger than its body.

[Image 5]
Spinning tops/bottoms, as dojis, represent periods of indecision and intensive action between bulls and bears, with no clear domination.
Spinning tops/bottoms are considered neutral until a long bull/bear candlestick appears after them.
Long-legged doji
Long upper and lower shadows, open and close prices are virtually the same.
These candlesticks also represent intensive action between bulls and bears, and no one was being able to take control over prices.
Dragonfly and Gravestone doji´s are Long-legged doji´s.
Dragonfly doji

[Image 6]
Long lower shadow with open and closing prices near the top of the range. Bears took control first, but then bulls were attracted by cheaper prices then taking control of prices.
This candlestick is more bullish than bearish since the bears were not able to drive prices lower because bulls took control over prices, pushing them up.
Gravestone doji

[Image 7]
Long upper shadow with open and closing prices near the bottom of the range. Bulls took control of prices at the beginning, but then bears resurfaced gaining control taking the price near the low (and open) of the range.
This candlestick is slightly more bearish than bullish since bulls tried to take control over prices driving them higher first, but then the bears took control over them driving them back down.

Section IV: Trends and Range bound Conditions

2008-06-14T16:37:00.000-07:00

Section IV: Trends and Range bound Conditions
Trend
One of the basic principles of technical analysis, as we have already discussed, is that the price (or market) trends. But what exactly does that mean? Or more importantly, when is the market trending?
It is said that the market is trending when price action reaches –
UPTRENDING - successive higher highs and higher lows on its way up
DOWNTRENDING - lower lows and lower highs on its way down.
Here is a chart trending up

[Chart 9]
And here is a chart trending down

[Chart 10]
Chart 1 and 2 are clear examples of trending markets.
Another important question traders should answer is, when is the market not considered to be trending?
That leads us to the next concept...
Range Bound and Ranging Markets
The market is not trending when it is not following a clear direction (up or down). This is condition is also called as sideways or trendless markets.
Now, the market could be ranging in two different ways: when there are well defined extreme levels (support and resistance zones are well established) or when the market has no defined extreme levels.
Here is a sideway market with no well defined extremes.

[Chart 11]
As you can see, the market is not following any direction. It keeps ranging back and forth, making higher highs but also lower lows with no consistent pattern. When the market is ranging like this it is very difficult to trade.
Here is a ranging market with well defined extremes:

[Chart 12]
When the market is ranging this way, trading it is relatively easier, traders tend to buy around the support zone and sell around the resistance zone.
Trendlines
Trendlines are very important tools for trend identification, confirmation and to measure the intensity of the trend.
Trendlines are lines connecting two or more important points when price has bottomed or topped and then it is extended to the future where it is expected to act again as a support or resistance zone. So we can say trendlines are support and resistance lines with either and upward (uptrends) or downward (downtrends) slope.
Let’s take a look at some charts.
Uptrend trendline: two or more higher lows connected (upward slope), identifying an uptrend.

[Chart 13]
There are four points (higher lows) connecting this up-trendline. As long as the market keeps trading above the trendline the uptrend is intact. If a sustained break below the trendline happened, a reversal, a correction or a consolidation period (range) is plausible.
Downtrend trendline: two or more lower highs connected (downward slope).

[Chart 14]
Here we have a downtrend trendline; it suggests that the demand for the given instrument is decreasing even when the prices are falling. Four points (lower highs) connect the trendline indicating a downtrend. As long as the price stays below the trendline, the trend stays intact. But as we see, the trendline is violated indicating that the market will reverse, consolidate or have a correction.
Two more points:
- The intensity of the trend is measured by the slope of the trendline. The steeper the trendline the stronger the trend is and the more likely prices are to react at extreme levels.
- The significance of trendlines depends on how many times price has bounced off from it: the more times the price has bounced from the trendline, the more significance the trendline has and the more likely it is to hold the price from breaking it.
At the beginning of this section we mentioned trendlines are like support and resistance zones, and it’s true because the same rules apply for both of them:
- A sustained break above/below the trendline need to happen before the trendline gets violated.
- When the market approaches to the trendline, we should think the market will get rejected from it.
- Once a trendline gets violated, it could become a resistance if it was a support and vice versa.
- Some times it can be difficult to find a trendline even when the markets are trending
- Trendlines should be part of the analysis and not the tool to make the final decision to get in or out the market. It will produce better results when used in combination with other technical tools.

Section III: Support and Resistance FAQ’s

2008-06-14T16:31:00.000-07:00

Section III: Support and Resistance FAQ’s
Establishing well-defined support and resistance zones is a key element that will help us have better trading results. Here are a few questions and answers that will help you gain a better understanding of the use of support and resistance zones.
Is there an exact level where support and resistance levels should be placed?
No, as we have already seen, support and resistance are more like “zones” rather than “levels”. It is common however to place resistance zones just above price action and support zones just below price action, but some traders put them at or near price action. At times, it is difficult to find the exact level of support or resistance; in these cases it is valid to place support and resistance zones near price action (like we did in charts 1 and 2).
What different methods exist to define support and resistance zones?
Based on Previous highs or lows – When ever the market approaches to previous highs or lows it has the potential to act as a resistance or support (you will see this in the next lesson on chart patterns).
Round Numbers – Many experts and bank traders put their orders at round numbers (entry orders or take profit orders) because there are so many orders around these levels that the market sometimes has some trouble getting through them. These levels tend to have a psychological support and resistance zones. Round numbers are 1.4500 or 1.0000, etc.
Based on Moving Averages – A moving average is a technical indicator that could be useful to determine support and resistance areas (we will see MA in more detail in the following lessons).
Based on other technical indicators – Other technical indicators can also be used to determine possible support or resistance areas, en example would be Fibonacci Retracements.
From the methods above, which one is more effective?
There is no correct answer for that question. Sometimes one methodology forecast support and resistance levels better than the other ones. What I recommend you is to see what is the market’s feel each day of trading, and see what is working for that particular day (i.e. there is no case to use round numbers as support or resistance if the market is not taking them in consideration).
What are false breaks?
Take a look at the chart below:

[Chart 8]
This chart is the same one as Chart 2, take a close look at what happen in the red oval, the market actually traded above the support zone but it bounced back. This is what we call a false break: the market fails to trade consistently above/below a resistance or support zone.
Whenever the market approaches to a support or resistance zone, what should I do?
That depends in your situation. Here are a few scenarios:
- If you have no open positions and intend to go long, if the market approaches to a support zone, try to find a long signal.
- If you have no open positions and intend to go short, if the market approaches to a resistance zone, try to find a short signal.
- If you have a long position and the market approaches a resistance level, try to find an exit signal.
- If you have a short position and the market approaches to a support level, try to find an exit signal.

Section III: Support and Resistance

2008-06-14T16:24:00.000-07:00

Section III: Support and Resistance
These two are probably the most important concepts in technical analysis. Basically, support and resistance are points or levels where forces of supply and demand meet.
As the prices go down, the demand for one given instrument tends to increase, because it attracts buyers interested in cheaper prices. At some point, the demand for the given instrument will outperform the supply for it, making the price bounce back up from certain zone (support). This makes the price go up again, but there is again a certain zone in which the price is so high that it attracts more sellers interested in selling high. At this point, the supply for that instrument will outperform the demand for it, making prices to bounce back down again (resistance).
Every one of us (at least must of us) have seen a demand curve back in our school and college days, so it will probably be a good idea to illustrate these two concepts with the famous curve.
Take a look at the following image.

[Image 3]
Imagine that curve is the demand for EURUSD, as the price goes down it will attract:
- Buyers interested in low prices (buying low to sell high), and
- Traders already short looking to take profits on their short positions.
Those two forces will make the market to go back up again because the demand for it will increase, that zone is what we call “support”.
As the prices go up again, it will attract:
- More sellers interested in high prices (to sell high and buy back at low prices), and
- Traders already long looking to take profits on their long positions.
Those two forces will make the price go down again, that zone is what we call “resistance”.
And what happens when the market breaks one support or resistance? Ahh Sharp eye... we will get to that. But for now, here is a brain feeder for you.
Brain Feeder 1 - How do you think the market behaves when the supply for one currency meets the demand for it over a considerable period of time?
Remember, support and resistance are more like “zones” rather than “levels”. So even if we refer to “support and resistance levels”, from now on they are really zones.
Now let’s get to some real life examples.
Support Zone
A support is a price level or zone in which the demand for one given instrument outperforms its supply, preventing prices from falling below this zone. It “supports” the price from falling below it.

[Chart 4]
In this chart, the support zone is marked by the black line. There were several points where the market was stopped from falling below. At this level, the buyers (bulls) outperformed the sellers (bears) and the buying becomes so strong that it prevents the price from falling further.
Resistance Zone
A resistance is a price zone in which the supply for a given instrument is greater than the demand for it. This prevents prices from going above this level. The price “resists” going higher.

[Chart 5]
In the chart above, the level at which the bears outperformed the bulls is clearly seen and it’s market with a black line. At this level, the selling (product of traders attracted by the high prices and traders closing long positions thus selling back their trade) is so strong that it prevents the price from reaching higher levels. At this zone bears outperform bulls.
NOTE: Support and resistance levels are only considered to be broken when there is a sustained break, otherwise the level is considered intact, so when prices break through any important level and bounces back quickly (like the third peak on chart 2), the important level is still considered valid.
This takes us to our next concept...
Sustained Breaks
A sustained break happens when the prices are traded above the resistance or below the support zone for several periods. Should this happen, the old resistance now becomes an important support (in the case of a break “up”) or the old support becomes an important resistance (in a break “down”).
Below are two examples that picture these scenarios
Support zone becomes a resistance.

[Chart 6]
The support zone is clearly seen at the left hand side of the chart, the price is rejected from that zone at least two times. Once the market breaks the support zone and continues to trade below the support zone it is considered a sustained break. The market goes down and retraces again to the support zone which is now a resistance zone. The price action gets rejected once, and on the last part of the chart, the market approached again to the resistance zone and it should be rejected again as it is now a resistance zone.
In the next chart, a resistance zone becomes a support.

[Chart 7]
Here the sustained break happened when the market traded continuously above the resistance zone, as we can see the resistance zone became a support zone preventing the market from falling below it. This creates a possible buying opportunity.
When the price of a certain market breaks the support or resistance level, the balance between supply and demand has changed. When the price breaks an important support level, what investors thought to be a low price, now becomes a high price. When the price breaks an important resistance level, what was thought to be a high price, becomes a low price.
In terms of the demand curve this is what happens when there is a break of a resistance zone:

[Image 4]
There is a shift to the right in the demand curve when there is a break of an important level. “The balance between demand and supply changes”, what was once considered “high”, is now considered “low”.
Brain Feeder 2 – We just saw what would happen to the demand curve once the market breaks a resistance zone, but what would happen if the market breaks a support zone?

Section II: Types of Charts

2008-06-14T16:16:00.002-07:00

Section II: Types of Charts
Charts are prices, plotted over one specific timeframe. Vertical axes represent the price of one given instrument, while the horizontal axis represents the time horizon.
The most common types of charts used by technical analysts are:
Line chart
Bar chart
Candlestick chart
Line Chart
The line chart consists of dots connected by a line. These dots usually record the closing prices of currencies on one determined timeframe.

[Chart 1]
The line charts are commonly used by traders whose main focus is to study only closing prices.
Bar Chart
The bar chart gives us more information regarding price at any given moment. It records the high, low, open and close price of one security during any given period.

[Image 1]
The high and the low are represented by the top (high) and the bottom (low) of the vertical line. The open price is represented by the short horizontal line on the left, while the close price is represented by the short horizontal line on the right.

[Chart 2]
On the chart above, every bar represents 30 minutes of price action. The top and bottom of each bar represent the highest and the lowest price of every period (30 minutes). The horizontal lines represent the open and the close of each 30 minutes bar
Candlestick Charts
Candlestick charts are very similar to the bar charts, they also record the open, close, high and low price of every period. The only difference is that candlesticks have a body on each bar.

[Image 2]
Every “white” (or hollow) candlestick indicates that the price closed higher than where it opened. Thus the open price is the bottom of the body (not the whole candlestick), and the close price is the top of the body. In contrast, every black candlestick indicates that the price closed lower than where it opened. Thus the open price is the top of the body and the close price is at the bottom of the body.
The wicks above and below the body of the candlestick are called “shadows” or “wicks”, they represent the highest (upper wick) and the lowest (lower wick) price printed for each period.

[Chart 3]
Candlestick charting has become very popular for traders. The main reason for this is because it is easier to read and study the relationship of prices (and investor’s psychology) on this type of charting.
Later in our courses we will see more about candlesticks, we will learn what each one of them represent as well as other patterns that could help us make a better trading decision. We will get to that!

Section I: Introduction

2008-06-14T16:16:00.001-07:00

Section I: Introduction
As we have already stated in the previous lesson, technical analysis tries to determine the future performance of any financial instrument based in the study of historic prices (price behavior).
By studying the price behavior and technical analysis we are actually analyzing the behavior of all traders involved in a certain market. Traders and investors are behind every price movement; after all, they all drove the price to a certain level. The price moves based on traders’ expectations; on what they think the future price of any given instrument should be.
Most of the time traders are driven by their emotions (fear, greed, hope, etc.) and these emotions are visible on the charts as repetitive price patterns. The outcome of these specific patterns is what technical analysis tries to forecast.
Technical analysis is based on the Dow Theory which has three main principles:
Price Discounts Everything - All information available is already reflected in price, it reflects the knowledge of everyone involved, including fundamentalists.
Price Behavior is not Random - Although there are periods of trendless or random behavior, the price tends to trend. Our job as technicians is to identify those periods where the price is trending and profit from them.
The “What” (or “Where”) Question is more Important than “Why” - The “What question” refers to where is price and what is its historical behavior. Those questions are to be answered by technical analysts. Why is price at certain level? This one is of concern of fundamental analysts; they look for reasons behind certain price movements.
And here we go with Technical Analysis...
This Lesson is structured in the following way:
Section II: Types of Charts - We will review the most common types of charts used by technical analysts.
Section III: Support and Resistance - We will review one of the most important concepts of trading; we will see what makes support and resistance and how to identify them.
Section IV: Support and Resistance FAQ’s – Here you will find common questions about support and resistance zones.
Section V: Trends and Range Bound Conditions - How to identify a trend and a range market. We will also see how to measure its intensity through trendlines.
Section VI: Candlesticks Intro - We will review the most popular type of charting used by technical analysts

Lesson 3: Fundamental Analysis

2008-06-14T16:11:00.000-07:00

Section I: Introduction
Section II: What moves the Forex Market?
Section III: Important Economic Indicators by Country
Section IV: Other Economic Indicators and Events
Section V: Other Factors that Influence the Forex Market
Section VI: Gold and Oil
Section VII: Common Practices Used by Fundamentalists
Section VIII: Some Thought on News and Event Trading
Summary Report

Summary Report

2008-06-14T16:08:00.000-07:00

Summary Report
Ok, now that you have read the lesson material please make sure you completely understand and/or do the following:
Even when we forex traders don’t trade fundamental announcements, we always get questioned about economic aspects, so we always need to be prepared to answer those questions accurately. But this is not the main reason why we should study fundamentals, the main reason is to really understand what kind of indicators there are and the effect that each one of them could have on any currency pair we are involved with, as well as other relationships with commodities such as gold and oil.
This lesson is important for novice and advanced students alike with no prior economic studies.
Make sure you understand the following:
- What each economic indicator measures and the effect on currency pairs
- Difference between political issues and crisis as well as what could be the impact in the currency market of social factors and statements of important people
- These days the oil price has become very important to currency traders so it is important to understand the effects of oil price changes in the currency market.
- Risks involved while trading during important news announcements
- Techniques used by fundamental traders (or news and event traders).
Here are the Brain Feeders:
Brain Feeder 1 – We were asked about what is a good or/and a bad figure or number in fundamental releases?
What we mean by “good” or “bad” number is how close or apart is the actual figure from the consensus or expected figure. For instance, if we expect the US economy to have created 50,000 jobs in November and the actual figure is 45,000, it is a bad number because it was worst than expected although 45,000 is still a positive numbers and it means the economy has created that amount of new jobs. On the other side if the actual figure is 60,000 then it is a good number because it was better than expected.
Brain Feeder 2 – In the second Brain Feeder we were asked how is the European HCPI different from what other countries use as a measurement of inflation (like the US uses CPI)?
Yeah I know, this Brain Feeder has nothing to do with thinking, its more like a research thing, anyway here is the answer:
According to WikiPedia the HCPI differs from the CPI in two aspects:
The HCPI incorporates rural consumers (as well as urban consumers) while the CPI focuses only on urban consumers.
The HCPI excludes “owner-occupied” from its scope while the CPI incorporates it.
Which one is better? Who knows...
Brain Feeder 3 – Is there a good Inflation number for all countries?
No, the effect of this announcement varies depending on the given circumstances. Most of the time: when a country suffers from high inflation, a high CPI number could have a negative impact on its currency value (this is the case for most developed countries). On the other hand, when a country suffers from low inflation or deflation (such as Japan), a low CPI number could have a negative impact on its currency value. Extreme values are no good for any economy; it is more likely that central banks try to find equilibrium in between.
Brain Feeder 4 – We were asked what do we think could happen to the USD if oil producer countries price their oil barrels in Euros instead of US dollars?
Excellent! You got this one right! The USD will plummet! That’s the only answer and of course the demand for Euros will increase.
Good luck!

Section VIII: Some Thought on News and Event Trading

2008-06-14T16:07:00.000-07:00

Section VIII: Some Thought on News and Event Trading
News and event trading has become a very popular trading style in these days. The reason behind it lies in the huge profit potential made in just a few minutes - with no effort at all.
Take for instance the first Friday of the month, when the non-farm payrolls report is released. The price of the EUR/USD can move around 150 pips in less than 10 minutes. That is US$1,500 (trade based in only one standard lot).
What traders fail to realize are all the risks involved in such practices. What if those 150 pips go against you? Even with a stop loss order, sometimes your broker won’t be able to honor it, because the price gaps (values between prices are not printed). In these cases, your broker won’t take the loss, so he will give you the closest printed price, meaning 70, 100, or 150 pips against you. That amount of pips could mean a margin call or a huge loss. In how much time again? …10 minutes.
The important thing here is that your job as a trader is to make sure you are going to be able to trade the next day, week, and years to come. Taking these kinds of risks won’t help much.
Other traders instead of using market orders to get in the market use stop and limit orders. But the same happens there, it is too risky, the market could again gap and your broker won’t be able to honor your stop. Traders that use this kind of strategy are taking uncalculated risks, risks that could cost them their trading account, and probably their trading careers.
Also, price movements are not always steady in one direction. It could go up and trigger some orders just to go back to the other extreme, then trigger the other side orders and then come back to where it all started.
The truth is, there is no possible way to forecast price movements in such circumstances. As we already know, the price moves based on traders and investors expectations. This is the combination of all traders perceptions on where price should be. To possibly know where the price is heading we need to ask every single trader and investor around the world what their intentions are during such announcements (something impossible to do). To go a little further, sometimes as the news report comes out, nothing happens, or worse, the price goes against the fundamentals.
Take for instance a day of interest rate announcement. It is rumored that there will be an interest rate cut. In this case, the currency will go short before the actual decision. Once the interest cut is announced, it is possible that the currency will be bought back, as all traders that could have shorted the currency, had already been short days or weeks ago. So there is no one else to short the currency. In this case, the price could be pushed up, against the fundamentals.
The point I want to make here is, trading itself is risky, and there are risks that you just cannot avoid, like the possibility to lose one trade. There are however some other risks that traders must avoid, as in event trading. The more you control your risks, the better results you will have. Take care of your risks; your profits will take care of themselves.
We consider trading the news announcements to be very risky.
Is there a system based solely on fundamental trading?
I am sure there is. But as with every system, it should have rules and setups that have to be present in order to get in the market, as well as money management controls etc.

Section VII: Common Practices Used by Fundamentalists

2008-06-14T16:06:00.000-07:00

Section VII: Common Practices Used by Fundamentalists
Important note: This section is not intended to show fundamental systems, but a part of a given strategy.
Figure Deviation
A common practice used by short term fundamental traders (or more accurately news and event traders) is trading based on the deviation of an economic indicator actual figure vs. the expected figure.
When economic figures are to be announced, usually 3 numbers are shown:
Previous, expected (also called consensus or forecast) and actual figures.
Previous Figure: The actual figure of the previous period (usually the previous month).
Expected Figure: What experts think the figure should come out as. Usually and average is made between say forecasts of 20 experts on the field.
Actual Figure: The actual number of the figure.
What news and event traders focus on is on the last two figures: the expected and the actual figure. The more the deviation the actual figure has from the expected value the more the impact it should have in the exchange rate.
Carry Trades
Most fundamentalists trade the currency market for the long term. This is because most of the time changes in supply and demand take longer to be reflected in the charts.
Carry Trades or Rolling over is a common practice that consists of taking advantage of the interest rate differentials between two currency pairs. Most of these trades have a long-term span. Aside from taking advantage in the currency pair movements, they also benefit from buying a high yield currency and simultaneously selling a low yield currency or selling a low yield currency and simultaneously buying a high yield currency. This way, traders are paid an interest or roll over.
The pairs and cross-pairs most commonly used for this practice are:
(INCLUDE LONG OR SHORT)
[Table 1]
Equity Market Correlation
When a given equity market offers greater returns than other equity markets, it is common that fundamentalists buy the currency of the equity market that offers greater returns.
This is because investors around the world will see benefits by investing in that country. As the sentiment gets better, that currency will increase its demand, pushing its price up.

Section VI: Gold and Oil

2008-06-14T16:02:00.000-07:00

Section VI: Gold and Oil
Gold and Oil have an important relationship with the Forex market. Often these two commodities are used as a leading indicator in making trading decisions in the Forex market.
Gold
Ok, before going through some analysis let’s take a look at the following table:
Gold Production by Country

[Table 2]
Source: http://www.goldsheetlinks.com/production.htm
Why would gold have a negative or inverse relationship with the USD if United States is the second larger producer of Gold (out-placed Australia in 2006)?
The answer is simple (or maybe not)...
The obvious reason behind this inverse relationship is that gold is always priced against the USD: naturally a strong dollar will buy more ounces of gold (and a weak dollar will buy less ounces of gold).
But there is also another less evident reason of this inverse relationship: decades ago, during periods of uncertainty investors tend to migrate away their capital from USD to gold as a safe-haven.
Ok, to check some numbers: The USD has fallen to historic lows against some currencies including: EUR, CHF and CAD while gold (XAUUSD) has reached all time highs.
Majors that have a positive or direct relationship with gold are the Canadian dollar and the Australian dollar.
AUD - Australia is the third largest producer of gold in the world and as a result, the correlation coefficient of the AUD and Gold prices is close to 80%. So the AUD always benefits from rising gold prices and it also decreases when gold prices decline.
CAD - Canada is the third world largest exporter of the commodity. This makes the CAD and Gold move in the same direction, although its correlation coefficient isn’t as large as the AUD and Gold.
What would be the case for the EUR or other major currencies where there is no relationship (at least not a clear one)?
Other majors will have a direct relationship with gold because both of them (majors and gold) are priced in USD.
Oil Prices
Generally speaking an increase in the price of oil results in increasing costs of transportation, utility and heating costs as well as the cost of practically every finished product (particularly in oil-dependent economies such as the US, China India and other developed countries).
Arguments in favor of an indirect relationship between oil and the USD:
US accounts for only 5% of the world’s population but it consumes 25% of the world's fossil fuel-based energy.
US imports about 75% of its oil, but owns only 2 percent of world reserves.
Because of this dependency on both oil and foreign suppliers, any increases in price or supply disruptions will negatively influence the US economy (hence the USD) to a greater degree than any other nation.
Canada is one of the few developed countries who are net exporters of energy (i.e. oil). Canada has the second largest oil reserves in the world (only behind Saudi Arabia). For this reason the Canadian dollar has a very tight positive relationship with oil prices.
Where is oil heading?
Oil experts adopted Hubbert’s Curve to forecast oil production for the following decades:

[Image 1]
Source: Nick Barisheff
According to their prediction, world oil production was to peak sometime around the second half between 2000 and 2010 (like now?). Right now the oil barrel is pretty close to US$100, but what could happen to if this prediction is true? It will probably keep going that way for a few more hundreds...
Brain Feeder 4 – Recently a few presidents from large oil producer countries have announced their concerns about the weak US dollar and have declared they would be willing to change the oil pricing in Euros instead of US dollars. What to you think could happen to the USD if they price their oil barrels in Euros instead of US dollars?

Section V: Other Factors that Influence the Forex Market

2008-06-14T15:54:00.000-07:00

Section V: Other Factors that Influence the Forex Market
Many other factors have an important impact on a country’s currency.
These include ---
Political issues, political crises, social factors and statements of important people.
Political issues are discounted as the time passes by. It means that the nature of this problems are known to everyone, so little by little investors and traders take the appropriate actions (i.e. selling their positions as the issue gets worse and worse). Impacts of these factors are not violent in the Forex market.
On the other hand, political crises are not known until they happen. They can have violent and significant impact over the exchange rates.
Social factors can have important effects in the Forex market, especially if they are unexpected. Major strikes or terrorists attacks are example of social factors.
Statements of important people like monetary and treasury officials are also important factors. They can have significant impact on currencies.
Amongst the most influential people are:
Ben Bernanke, Chairman of the Federal Reserve

[Image 1]
Henry Paulson, US Secretary of Treasury

[Image 2]
Jean-Claude Trichet, President of the European Central Bank

[Image 3]
Peer Steinbrück, Finance Minister of Germany

[Image 4]
Toshihiko Fukui, Governor of the Bank of Japan

[Image 5]
Fukushiro Nukaga, Finance Minister of Japan

[Image 6]
Mervyn King, Governor of the Bank of England

Images: WikiPedia
All information correct as of early 2008

Section IV: Other Economic Indicators and Events

2008-06-14T15:53:00.001-07:00

Section IV: Other Economic Indicators and Events
This is a list of other economic indicators or events that normally don’t have a great impact in the forex market but under some circumstances the market could react to these indicators.
For instance, in the US with the recently mortgage crisis (Q3 2007) construction indicators could turn into very important indicators and therefore have a major impact in the market.
Another example would be oil prices, as they are near the all time high (and have been reaching new highs in the past months) investors and traders tend to focus on oil prices.
Economic Data
Industrial production (world) - This report consists of the total (and change in) production of factories, mines and utilities within one nation. This indicator is commonly used as a proxy variable for economic growth.
Producer price index (world) - Index designed to measure the change in price (as the CPI) from the seller perspective. Goods and services producers use for production.
Capacity utilization (world) - Refers to the total industrial output divided by the total production capability, measures the degree to which all factories are being used.
Business inventories (world) - This report consists of all items produced over a specific period of time, but were never sold and are held for future sales.
UBS Consumption Indicator (Switzerland) – This index measures the domestic demand in Switzerland. This index is calculated using other economic indicators such as: new car sales, overnight hotel stays, credit card transactions and others.
Durable goods (US) - Total sales of goods that have a greater life than 3 years. This indicator shows the propensity to spend and the consumer confidence over a period of time.
Productivity (world) - Measures the change of goods and services produced per unit of input. This indicator is an important component of growth.
Factory orders (US) - This report refers to the total orders of durable goods and non-durable goods. This report shows the pace of factories for the coming months.
Employment cost index (US) - Measures the changes in wages, salaries and inflation, as well as other benefits in non-agricultural industries.
Construction and housing indicators (world) - All indicators related to the construction area. These indicators are seen as an important catalyst for any economy as well as an overall growth indication:
Housing starts and building permits
Construction spending
New home sales
Leading economic indicator index (world) - This index consists of 10 different indicators, including: vendor performance, change in sensitive material prices, average work week, weekly jobless claims, new orders for consumer goods and materials, business permits and others. All indicators are equally weighted since all of them are relevant to the economy.
Jobless claims (US) - An indicator that shows the number of unemployment claims reported. This indicator is released every Thursday of the week.
Tertiary Industry Index (Japan) – Measures the performance of the service sector in Japan’s economy. The Service sector is more indicative of the domestic economic activity than the manufacturing industry as the later are mainly exports.
TIC Data (US) - Amount of US treasuries and USD denominations foreigners are holding.
G7 meeting (world) - Is a meeting in which the 7 most important economies in the world (plus other important economies) discuss global issues including currency issues, such as Yuan revaluation.
Oil prices (world) - This economic indicator has a strong negative correlation with the USD and has become very popular in the Forex market. As the oil prices go up, the USD usually go down, the opposite is also true.
Surveys
Michigan consumer sentiment index (US) - Survey conducted by the University of Michigan on consumers. It gives investors and traders a general idea of the feeling of consumers.
Empire State Manufacturing Survey (US) – This is a survey conducted on New York manufacturing executives. Although NY is a pretty small sample is has shown to be of good correlation to the overall manufacturing industry in the US.
Philadelphia FED Survey (US) - Regional index that measures changes in the business growth of the manufacturing industry. When this index is above zero it indicates expansion, when at zero indicates no change, and below zero indicates contraction.
GFK consumer confidence (GER & UK) - Survey conducted on consumers on their assessment of current market conditions

Section III: Important Economic Indicators by Country

2008-06-14T15:49:00.002-07:00

Section III: Important Economic Indicators by Country
In this section we will give you a quick overview of the economy of each of the Major currency pairs and the most important fundamentals releases for each one of them.
Note however, that this list is provided “as is” and may not reflect what happens in the real world. Use this only for informational purposes and on your own risk.
European Economy and Monetary Union (EMU) – EUR
EMU Quick Economic Facts
- The EMU (European Economic and Monetary Union) consists of 16 member countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, Netherlands, Portugal, Slovenia, Spain, Sweden, Norway and The United Kingdom. However, Sweden, Norway and The United Kingdom have not entered the last stage of the EMU where they adopt the Euro as their currency; they still use their own currency.
- Eurozone is a common term used for those countries that have adopted the Euro as their Currency.
Eurozone Countries and their GDP

[Table 1]
Source: International Monetary Fund (2006)
- According to the International Monetary Fund, if the European Union (EU) was a country, it would be the only one in the world with a largest GDP than the US with 14.5 trillion USD.
- Aside from a common currency, Eurozone countries share a single monetary policy dictated by the European Central Bank (ECB). The ECB has established strict rules for every member country which main focus are:
- Stability of Prices
- Low Inflation per country (below 1.5% of the average of the best three performing countries)
- Low deficit
- Growth
- The importance of the EUR has grown considerably as more and more countries in the world switch their reserves from USD to EUR.
Important Economic Indicators for the EMU
Here is a list of the most important economic indicators for the Eurozone:
European Interest Rate Announcement
Interest rates are a measurement of “the cost of money. The European Central Bank uses Interest rates as a tool to accomplish their most important goals: inflation, growth and stability of prices.
When the ECB lower (tightens up) their interest rates, the Euro tends to depreciate against other currencies as it yields lower returns (i.e. investors sell their Euros to buy other currencies with higher returns, increasing the offer of Euros thus prices go down).
When the ECB hikes their interest rates, the Euro tends to appreciate against other currencies as it yields higher returns (i.e. investors sell their local currency to buy increasing its demand thus prices go up).
News Source: http://www.ecb.int/press/pressconf/2006/html/index.en.html
NOTE: As we already know the EU consists of various countries and each one of them has its own figure, although its important to have an idea of the overall performance, for the following economic indicators it’s more important to monitor the performance of the top three or four countries of the EU (refer to the GDP per country in the Eurozone above).
Gross Domestic Product (GDP) from Germany and the Eurozone
The GDP of the EU is the value of services and Products produced within the borders of the EU. A good GDP reflects a healthy economy.
A good GDP figure indicates the economy is growing and the Euro tends to appreciate against other currencies.
In a bad GDP figure, the Euro tends to lose value against other currencies.
News Source: http://ec.europa.eu/comm/eurostat
Brain Feeder 1 – What is a good or/and a bad or good figure or number? In the GDP we saw (as we will see in future economic indicators) a good GDP tends to appreciate the value of the Euro, what does “good” mean? A value above zero? Or perhaps a number larger than 50? Think on it and try to come to an answer. Once you think you have got it please go to the Summary Report where you will find the answer to this feeder.
Harmonised Consumer Price Index (HCPI) from Europe
HCPI is what the EU uses as a measurement for inflation and stability of prices. As we already explained above, the ECB has some rules for its members and one of the most important is that each country’s inflation should not deviate more than 1.5% of the average of the best three performing members.
Usually for the EU:
When a low HIPC number is released the Euro tends to gain value against other currencies.
When a high HIPC number is released the Euro tends to lose value against other currencies.
News Source: http://www.ecb.int/stats/prices/hicp/html/index.en.html
Brain Feeder 2 – How is the European HCPI different from what other countries use as a measurement of inflation (like the US uses CPI)?
Unemployment Data from Germany and Europe
Employment is always a good indicator of the shape of the economy of all countries. Usually when unemployment numbers are low it reflects an economy in good shape (and vice versa).
Usually for the EU:
A low unemployment number tends to appreciate the value of the Euro against other currencies
A high unemployment data tends to depreciate the value of the Euro against other currencies.
News Source: http://ec.europa.eu/comm/eurostat
Trade Balance from Europe
The Trade Balance in the Eurozone measures the amount of services and products purchased (imports) against those sold to other countries (exports). Trade Balance of each country of the Eurozone is divided in two: Intra-Eurozone and Extra-Eurozone. Intra-Eurozone is the balance of each country of the Eurozone against the Eurozone and Extra-Eurozone is the balance between each country of the Eurozone against non-Eurozone countries.
Usually Intra-Eurozone data does not affect the currency market while Extra-Eurozone tends to affect the currency market.
A good trade balance number usually appreciates the value of the Euro against other currencies.
A bad trade balance number usually depreciates the value of the Euro against other currencies.
Most investors focus on the Trade Balance of Germany as it is the leading economy of the Eurozone.
News Source: http://ec.europa.eu/comm/eurostat
Industrial Production (German and European)
Industrial production of the Eurozone measures the total output of the manufacturing and energy sector. Sometimes the Industrial Production is used as a proxy variable to measure the GDP of any country.
Usually:
With a good number the Euro will gain value against other currencies
With a bad number the Euro will lose value against other currencies.
Most investors focus on Industrial Production of Germany as it is the leading economy of the Eurozone.
News Source: http://ec.europa.eu/comm/eurostat
ANOTHER NOTE: For the following economic indicators its ok to focus on the performance of Germany as it is the leading economy of the Eurozone.
IFO Business Climate Survey (Germany)
The IFO Survey is one of the most important sentiment indicators for the Euro Zone. This survey is conducted on over 7,000 enterprises of Germany and it is divided into two main areas: their current assessment of business climate and their expectations for the future business conditions. It is an index where 100 is the centerline between good and bad conditions.
Usually:
A good number (above 100) tends to appreciate the Euro against other currencies.
A bad number (below 100) tends to depreciate the Euro against other currencies.
This survey is conducted monthly.
News Source: http://www.cesifo-group.de/pls/portal/url/page/IFOHOME/A-WINFO/D1INDEX/10INDEXGSK
ZEW Survey (Germany)
This is survey is conducted by experts throughout Europe on their assessment about Germany’s economic expectation: inflation, growth, stock market and exchange rate over a medium term period (6 months) and their assessment of the current conditions.
With a good number, the Euro tends to gain value against other currencies.
With a bad number, the Euro tends to lose value against other currencies.
News Source: http://www.zew.de/en/publikationen/Konjunkturerwartungen/Konjunkturerwartungen.php3
What is the difference between the IFO and ZEW surveys?
The IFO survey is conducted by enterprises and business owners while the ZEW survey is conducted by experts in the area.
10-Year German Bund
Long term securities (governmental) are always a good indicator for future performance of any country. In fact, if you do some research, you will see that very few under-development countries have in fact 10-Year securities (because very few investors would invest in any long term security due to its uncertainty).
In this case, the 10-year Bund is a good indicator for the future performance of the Euro. When compared to the US 10-Year Bond:
If the Bund rates are higher and the differential increases: bull Euro sentiment
If the Bund rates are higher and the differential decreases: bear Euro sentiment
United States - USD
US Quick Economic Facts
Currently United States is the leading economic power in the world with a nominal GDP of 13.25 trillion USD, 3 times greater than Japan (which is the second in the world).
US has a very large trade deficit (the US is the largest trading partner for most countries in the world).
According to the Bank of International Settlements the USD is involved in 89% of all currency deals
The Federal Reserve (Central Bank of US) has two main economic goals: Price stability and Sustainable growth
The USD is perceived as one of the strongest and most stable currencies in the world and as a result many countries (mostly under-developed) peg their local currencies to the USD.
Important Economic Indicators for the USD
Non-farm Payrolls Report – “NFP” (US)
The NFP report is probably in the top three market movers in today’s markets.
The NFP shows the number of jobs created for a given month outside the agricultural industry and government agencies. It is a major indicator of the labor market strength, and the labor market is commonly tracked as an important domestic economy diagnosis.
A strong number indicates a healthy economy. Resultantly the USD could appreciate against other currencies
A weaker number indicates a lesser level of health in the economy. Resultantly the USD could depreciate against other currencies.
This report comes along with other data such as: the unemployment rate, which is the percentage of people actively looking for a job, but were not able to find one.
This report is commonly released on the first Friday of every month.
News Source: http://www.bls.gov/news.release/empsit.toc.htm
Interest Rate Decision (US FED)
Interest rates are a measure of “the cost of money”. Central banks use interest rates as a tool to accomplish certain goals and objectives- such as inflation, growth, etc.
An increase in US interest rates (hike) will typically increase the demand for the US Dollar, as foreign entities will sell their local currency and buy the USD to take advantage of the higher interest rate, pushing up the value of the USD.
Tightening interest rates (cut) will decrease the demand for USD, as foreign entities will buy back their local currency and sell USD, bringing back down its value.
Unchanged Interest rates could be bearish or bullish for the USD depending on the circumstances, unchanged interest rates after a period of tightening is perceived as USD bearishness and after a hiking cycle it could be perceived as USD bullishness.
This report is released 8 times a year.
News Source: http://federalreserve.gov/fomc/fundsrate.htm
Trade Balance from US
This measures the net exports and imports of goods and services of the US. This is the trade flows component of the balance of payments, which measures the demand and supply of one currency as explained before.
US has a negative trade balance against almost all countries in the world.
With a good number the USD is more likely to appreciate.
With a bad number the USD is more likely to depreciate
This report is released every two months (middle of the month following the reporting period.)
News Source: http://www.bea.gov/bea/di/home/trade.htm
US Consumer Price Index
It is an index designed to measure the change in price of a fixed basket of basic goods and services (inflation). It is intended to measure pure price changes while leaving out the changes in quality of goods and services.
If the CPI increases, the purchasing power of the currency decreases.
If the CPI decreases, the purchasing power of the currency increases.
This report is commonly released the second week of each month.
Core CPI excludes food and energy which are two of the most volatile components in the CPI measurement. This indicator shows a more stable version of price changes.
News Source: http://www.bls.gov/cpi/
Brain Feeder 3 – Is there a good Inflation number for all countries?
Consumer Confidence Index from US
The CCI is a survey conducted over 5000 consumers. They are asked questions about how they perceive the economy, current business conditions, what they expect for the future, etc. It measures how confident the consumers are in a given month.
A good CCI number indicates that the economy is in good shape, and the USD appreciates.
A bad number indicates something is wrong with the domestic economy, therefore USD depreciates.
In a CCI release day, the average range for the EUR/USD is 129 pips.
Release date: close to the end of each month.
News Source: http://www.bls.gov/cpi/
US Retail Sales
Retail Sales is an indicator of consumer expenditure. It measures the sales of retail stores (including durable and non-durable goods), and excludes services (major weakness of this indicator).
A high number indicates favorable economic conditions, and the currency tends to increase its value.
A low number indicates non favorable economic conditions, and the currency tends to decrease its value.
Release date: near the middle of each month.
News Source: http://www.census.gov/svsd/www/advtable.html
Gross Domestic Product from US
Measures the value of goods and services (total production) produced within the borders of the United States. GDP includes: consumption, private investments, government expenditure and exports less imports.
The most important component of this announcement is the change (in GDP) between the actual month and the same month of the previous year.
A good number indicates a strong economy, currency tends to increase its value.
A bad number indicates a weak economy, currency tends to decrease its value.
News Source: http://www.bea.gov/bea/dn/home/gdp.htm
ISM Manufacturing Index from US
ISM stands for “Institute of Management Suppliers”. It is a survey conducted over business executives on their assessment for future business conditions. This indicator it’s important because the ISM is usually the first indicator that turns around after a period of recession or constant growth.
The ISM values range around 50, where values above 50 mean an “expansion” or good expectation; and values below 20 mean “contraction” or bad expectations for the near future.
News Source: http://www.ism.ws/ISMReport/index.cfm
Minutes of FOMC (FED)
Minutes of the Federal Open Market Committee (FOMC) give some insight about the monetary policy decision (three weeks after their actual monetary policy decision).
Usually investors and traders focus on key elements of how the Federal Reserve see current economic conditions, what they expect for the future and general commentaries on market indicators such as inflation.
The market reaction to the FOMC Minutes varies as the information is already priced, but when they give evidence of a “Hawkish” outlook interest rates hikes are more likely, on the other hand if they give evidence of a “Dovish” outlook, interest rates cuts are most likely.
Japan - JPY
Japan Quick Economic Facts
Japan is the world’s second largest economy by nominal GDP with 4.4 trillion USD.
Japan is one of the Worlds largest exporters in the world. A good percentage of their GDP accounts for exports (close to 15%).
The Bank of Japan is the responsible for handling the monetary policy of Japan. The Bank of Japan is very active in the Forex markets. It is known that when the USDJPY approaches to 100.00 the B of J tends to intervene in the market pushing the prices up. It’s important to remember that Japan is a net exporter so it is in their best interests to have a cheaper currency than other majors; this way foreigners can buy more Japanese goods and services for less of their local currency.
From the Major Currencies, the JPY is the currency with the lowest interest rate. This makes JPY crosses (such as GBPJPY or EURJPY) interesting for carry traders (those who look to profit from interest rate differentials via rollover).
Although the Minister of Finance no longer officially dictates monetary policy, they still have some influence in exchange rates and monetary policy.
Important Economic Indicators for the JPY
Japanese Interest Rate Announcement
The Bank of Japan is responsible for the monetary policy of Japan. Currently, Japan is the country with the lowest interest rates (from the majors). The BoJ meets once per month to announce possible changes in their current monetary policy and economic outlook.
An increase in Japan’s interest rates might lead to JPY appreciation
A decrease in interest rates might lead to JPY depreciation.
News Source: http://www.boj.or.jp/en/theme/seisaku/kettei/index.htm
Gross Domestic Product - GDP from Japan
GDP is the sum of all goods and services produced within the borders of Japan. Consumption, private investments, government expenditure and exports less imports are the elements of GDP or growth.
With a good number the JPY might gain value
With a bad number the JPY might lose value
News Source: http://www.esri.cao.go.jp/en/sna/menu.html#93sna
Tankan Survey (Japan)
As other sentiment indexes, the Tankan survey is conducted on companies which are queried about their overall economic outlook (including business conditions).
This report is very important for both foreign investors and the Bank of Japan as it gives a picture of the current and the near future economic conditions. This helps investors allocate their capital or the BoJ to determine its policy.
A positive number means a good outlook while a negative number means a negative outlook.
A better than expected number usually helps the JPY gain value.
A worse than expected number usually makes the JPY lose value.
News Source: http://www.boj.or.jp/en/theme/research/stat/tk/index.htm#r
Trade Balance (and Merchandise Trade Balance) from Japan
The trade balance measures the difference between exports vs. Imports. Japan is widely known as a net exporter country so the bigger this number the better for its economy.
A positive number indicates a surplus while a negative number indicates a deficit.
A better than expected number tends to appreciate the JPY
A worse than expected number tends to depreciate the JPY.
News Source: http://www.customs.go.jp/toukei/shinbun/happyou_e.htm
Merchandise Trade Balance is a similar economic indicator but only takes into accounts tangible goods such as those of the car and electronic industries (two of the most important industries for Japan).
Japan’s Employment Situation
This report is an analysis of the current and future conditions for the labor market in Japan. As always, the labor conditions are a very good indicator for the overall economy health and activity.
Japan’s Employment Situation Report unusually incorporates other important data such as consumer consumption data, increase/decrease of wages, inflationary pressures, etc.
With a good number the JPY tends to gain value
With a bad number the JPY tends to lose value
News Source: http://www.stat.go.jp/english/data
National Consumer Price Index (NCPI) from Japan
The NCPI is the most important indicator for inflation in Japan.
Unusually, Japan suffers from deflation (indicative of slow domestic activity) so a low number might not be good for the JPY.
On the other hand, a high number might be good for the JPY as it indicates a more dynamic period for its domestic economy.
News Source: http://www.stat.go.jp/english/index.htm
BoJ Policy Minutes (BoJ)
This report usually comes a month later after the actual monetary policy decision. It clearly explains the reasons or why the BoJ hiked interest rates, cut interest rates, left them unchanged or other decisions.
Traders and investors try to focus on key elements that will give them evidence about how the policy makers see the economy in the near future to make their trading decision.
United Kingdom - GBP
UK Quick Economic Facts
The United Kingdom has the 5th largest economy in the world with a nominal GDP valued at over 2.3 trillion USD.
As with other leading economies in the world, the UK is a service oriented economy (mostly financial services: insurance and banking).
The UK has a very strong relationship with the Eurozone as imports and exports between both of them are around 50% of all UK’s trade balance.
The Bank of England (BoE) is responsible for the monetary policy in the UK. Bank of England’s main concern is to keep inflation at comfortable levels.
There has been an ongoing debate on whether or not the UK should join the Eurozone (countries adopting the Euro as their currency). Argument against: currently UK’s policies are doing well in the new global economy, they will no longer have control over their monetary policies and arguments in favor are: the power of the European Central Bank will increase dramatically.
The GBP is amongst the most liquid currencies in the world and due its high interest, traders and investors are interested in this currency to perform carry trades even when other currencies have higher interest rates.
Important Economic Indicators for the GBP
UK’s Interest Rate Announcement
The Bank of England meets monthly to announce their interest rate decision. Currently, the GBP is the best choice for carry traders (even when there are other majors with higher interest rates) because of its liquidity (the most important being the GBP/JPY and the GBP/USD). For this reason traders and investors watch closely Bank of England’s decision.
An increase in interest rates tends to appreciate the GBP value
A decrease in interest rates tends to depreciate the GBP value
Unchanged interest rates can be bullish or bearish depending on the circumstances.
News Source: http://www.bankofengland.co.uk/monetarypolicy/decisions.htm
Gross Domestic Product (GDP) of the UK
The GDP shows the overall growth of the economy of United Kingdom.
With a good number the GBP tends to gain value.
With a bad number the GBP tends to lose value.
Sometimes excessive growth can lead to periods of high inflation which can lead to further interest rates hikes.
News Source: http://www.statistics.gov.uk/instantfigures.asp
UK’s Trade Balance
Trade balance measures the difference from exports and imports of the United Kingdom. The first trading partner for the UK is the Eurozone, but still on an individual basis, US remains the first one.
With a good number the GBP tends to gain value
With a bad number the GBP tends to gain value.
Another important trade balance announcement is the NON-EU Trade balance which measures the difference between exports and imports of non European countries.
Consumer Price Index (CPI) from the UK
Consumer Price Index is the key element of inflation. This is how most investors and traders measure inflation and thus the increase/decrease of their purchasing power.
For the UK commonly:
A low number tends to increase the value of the GBP
A high number tends to decrease the value of the GBP
Another measure of the CPI for the UK is the Core CPI which excludes food and energy, two of its most volatile components.
Minutes of BoE Meeting (BoE)
In the Minutes of the BoE Meeting policy makers share their views and the reasons why they made any change to the interest rate or indeed left it unchanged.
Most of the times traders and investors focus on the outlook for the future as the rate decision was already occurred. They try to find evidence as to whether or not a future increase/decrease is likely to happen in the next interest rate announcement.
For instance: if they mention “the housing market is in a clear expansion” it might create inflationary pressure which might lead policy makers to increase interest rates.
Canada - CAD
Canada Quick Economic Facts
Canada is currently the 8th largest economy in the world with a nominal GDP valued at 1.3 trillion USD.
Canada’s economy is highly dependant on its trade balance especially with the US who imports around three quarters of Canadian exports.
The Canadian Dollar has a very tight relationship (positive correlation) with commodities such as gold and oil.
The Bank of Canada is responsible for the monetary policy. BoC primary objective is price stability. Changes in policies can be made at any time as their councils meet almost every day.
Important Economic Indicators for the CAD
Interest Rate Decision of Canada
As in other countries rate decisions, it is of major importance to its exchange rate.
Typically an increase in interest rates might increase the demand for CAD increasing its value. Whilst an interest rate cut will reduce the demand for CAD decreasing its value.
Because of the interest rate announcement is a highly expected and anticipated announcement, traders and investors are more focused on the wording policy makers use to collect evidence about future economic conditions.
News Source: http://www.bankofcanada.ca/en/monetary/target.html
Canada’s International Merchandise Trade
This indicator measures the difference between exports and imports (excluding services). Canada’s major trade partner is the US which imports about 75% of Canada Exports.
Typically in a good number the CAD will gain value
And in a bad number the CAD will lose value against other majors.
News source: http://www.statcan.ca/english/Release/index.htm
Gross Domestic Product (GDP) of Canada
The Canadian GDP measures the total production (and consumption) of goods and services produced within the Canadian borders.
A good number usually makes the CAD gain value
A bad number usually makes the CAD lose some value
GDP includes: Private consumption and investments, government expenditure and exports less imports.
News source: http://www.statcan.ca/english/Release/index.htm
Ivey Purchasing Managers Index (PMI)
175 corporate executives across Canada are queried about their purchases for the current month comparing them to the one previously.
With a good number the CAD might gain value
With a bad number the CAD might lose value against other majors.
A PMI value above 50 indicates expansion (better outlook) while a value below 50 indicates contraction (worse outlook).
News Source: http://iveypmi.uwo.ca/english/historic_data.htm
Consumer Price Index (CPI) of Canada
As with other countries, the CPI measures price stability among a basket of goods and services. It intends to measure inflation for a given period. An increase of inflation reduces the purchasing power of the CAD while a decrease of it increases its purchasing power.
A good number tends to appreciate the CAD
A bad number tends to appreciate the CAD
News Source: http://www.statcan.ca/english/Subjects/Cpi/cpi-en.htm
Change in Canada’s Employment
Employment data is always a good measurement of the health of the economy. This announcement is the net change in the number of people employed from one period to another.
A good number could make the CAD gain some value
A bad number could make the CAD lose some value.
News Source: http://www.statcan.ca/english/Subjects/Labour/LFS/lfs-en.htm
Australia - AUD
Australia Quick Economic Facts
Around 80% of Australia’s GDP come from services industries such as insurance, financial services and real state
The Reserve Bank of Australia (RBA) is responsible for the monetary policy. RBA main objectives are to: control inflation, stability of the exchange rate and low unemployment. Each month its members meet to discuss possible changes to the monetary policy.
The AUD has a very strong relationship (positive correlated) to commodities, especially gold prices.
Currently amongst the Majors, Australia has the highest interest rate at 6.75% (as of late 2007) making this currency interesting for carry traders.
Important Economic Indicators for the AUD
Interest Rate Decision of Australia
The Reserve Bank of Australia (RBA) is Australia’s Central Bank and is responsible for changes in monetary policy including interest rates.
From the major currencies Australia is the country with the highest interest rate valued at 6.75% (as of late 2007). The RBA normally meets nine times a year to discuss monetary policy and make possible changes.
An interest rate hike generally increases the demand for AUD increasing its value
An interest rate cut generally decreases the demand for AUD decreasing its value.
News Source: http://www.rba.gov.au/Statistics/cashrate_target.html
Australian Gross Domestic Product (GDP)
The GDP measures the final value of all goods and services produced within Australia’s borders during a specific period of time. GDP includes: private consumption, private investment, government expenditure and exports less imports.
During periods of constant growth inflation might become a problem for Australia’s economy.
With a good number, the AUD tends to gain value
With a bad number, the AUD tends to lose value.
News Source: http://www.abs.gov.au/ausstats/abs%40.nsf/mf/5206.0
Employment Change for Australia
This figure is the change of employment over a specified period of time. Usually traders and investors track employment data as a measure of the overall economy.
With a good number the AUD tends to appreciate
With a bad number the AUD tends to depreciate.
News Source: http://www.abs.gov.au/ausstats/abs%40.nsf/mf/6202.0
Consumer Price Index (CPI) of Australia
The CPI is the key element of inflation measurement. Basically inflation is the change in the purchasing power of one currency. Extreme inflation levels are no good for any economy, usually Central Banks tend to target values in-between.
A good CPI number tends to appreciate the AUD
A bad CPI number tends to depreciate the AUD
News Source: http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0
Trade Balance of Australia
The Trade Balance of Australia measures the difference between exports and imports of Australia and their foreign trading partners. When this number is on the negative side, it means that imports are greater than exports, conversely when this figure is in the positive side, it means that exports are greater than exports.
With a good number the AUD tends to gain value against other currencies.
With a bad number the AUD tends to lose value against other currencies.
News Source: http://www.abs.gov.au/ausstats/abs%40.nsf/mf/5368.0
Switzerland - CHF
Switzerland Quick Economic Facts
Switzerland is the 19th largest economic power of the world with a GDP valued at over 380 USD billion. But on a per-capita basis, Switzerland is the 5th wealthiest country in the world.
The service industry, specially the banking, insurance and investment industries are very well developed and employ more than 60% of its population. These industries represent around 70% of the total GDP.
The Swiss National Bank (SNB) is responsible for the monetary policy in Switzerland. As other Central Banks, all decisions taken by the SNB are voted.
One difference between the SNB and other central banks is that monetary policy changes can be done at anytime. The SNB inflation target is below 3%.
Another difference is that the SNB doesn’t set an official interest rate target but a range target (i.e. 2.5%-3.00%) for their 3-month LIBOR rate.
The USDCHF has a very strong negative correlation (close to -1.0) with the EURUSD. So they both act as a mirror, when the EURUSD goes up, the USDCHF goes down and vice versa.
- Switzerland is considered a safe-heaven.
Important Economic Indicators for the CHF
Interest Rate Announcement
As we already mentioned, the SNB doesn’t have a target rate but a target range for their 3-month LIBOR rate. The SNB mainly changes its target range to have some influence over inflationary pressure.
When the interest rate range is increased, the CHF tends to gain value.
When the interest rate range is decreased, the CHF tends to lose value.
News Source: http://www.snb.ch/e/geldpolitik/geldpol.html
Gross Domestic Product (GDP) of Switzerland
Swiss GDP refers to all final goods and services produced within the national borders. The GDP growth in any economy is used to measure the overall health of the economy.
As a result of a good number the CHF might gain some value.
As a result of a bad number the CHF might lose some value.
It’s important to mention that if growth rates are high and consistent it might create inflationary pressure that can lead the SNB to increase the interest rate range. If GDP growth rates are low in the other hand, the SNB might respond lowering their target range.
News Source: http://www.bfs.admin.ch/bfs/portal/en/index/themen/systemes_d_indicateurs/economic_and_financial/data.html
Trade Balance
The Swiss trade balance measures exports less imports. When the country’s exports are larger than its imports the trade balance has a positive value. The first trading partner for Switzerland is the Eurozone followed by United States.
As a result of a good number, the CHF tends to gain value.
As a result of a bad number, the CHF tends to lose value.
News Source: http://www.snb.ch/e/publikationen/monatsheft/aktuelle_publikation/html/matrix_lists/e/statmon_I3.html
CPI
The CPI is the key element of inflation. Basically when the inflation rate grows the purchasing power of the CHF decreases and vice versa.
The SNB inflation target is below 3%
As a result of a good number the CHF tends to appreciate against other currencies.
As a result of a bad number the CHF tends to depreciate against other currencies.
News Source: http://www.bfs.admin.ch/bfs/portal/en/index/themen/systemes_d_indicateurs/economic_and_financial/data.html
Monetary Policy Assessment
Members of the SNB share their views of the current and future economic conditions.
Traders and investors tend to focus on key elements such as possible increases or decreases in the interest range target, inflation or growth.
News Source: http://www.snb.ch/e/publikationen/publi.html

Section II: What moves the Forex Market?

2008-06-14T15:49:00.001-07:00

Section II: What moves the Forex Market?
Currency movements, as in any other market, are driven by two main forces: supply and demand.
Think for instance of the car selling business in a small village. At first there will be just a few car vendors. As the village grows, more and more people will need cars to satisfy their needs, pushing up the demand for cars. At this point the demand for cars is greater than the quantity supplied, pushing prices up. As people realize selling cars is such a great business opportunity, more people will be attracted the car business and will start selling cars. As this happens, more and more cars will be available, pushing up the supply of cars. At some point, the supply will be greater than the demand of cars. If car vendors don't lower their prices, they won’t be able to sell their cars, so they are forced to lower them.
The same goes for currencies, when a currency increases its value, the demand is greater than its supply. When a currency decreases its value, its supply is greater than its demand.
What factors influence the supply and demand of one currency?
The two main factors that influence the movements in one exchange rate are:
1. The capital flows
2. The trade flows
These two components constitute what economics call balance of payments. The main purpose of the balance of payments is to quantify the demand and supply for a currency of one country, over a period of time.
Balance of Payments = Capital Flows + Trade Flows
A negative balance of payments indicates that the capital leaving the country is greater than the capital entering the country (not much demand)
A positive balance of payments means that the capital entering the economy is greater than the capital leaving the economy (increasing demand of the domestic currency)
Theoretically, a balance of payments equal to zero indicates the right value of one currency.
Capital Flows
Capital flows is the net quantity of currency traded (bought or sold) through capital investments.
The capital flow can be divided into: physical flows and portfolio investments.
Physical Flows - They happen when foreign entities sell their local currency and buy foreign currency to make foreign direct investments (for joint ventures, acquisitions, etc.) When the volume of this kind of investment increases, it reflects the good shape and health of the economy where it is invested.
Portfolio investments - These are investments made on global markets, variable and fixed income market investments (Forex, stocks, T-bills, etc.) An example of portfolio investments is when a hedge fund in Japan invests in the US equity markets.
Trade Flows
Trade flows measure the net exports and imports of a given country. These two components (exports and imports) constitute what economists call the current account.
Countries that have a positive current account (exports greater than imports) are more likely to depreciate their currency; this way the consumer abroad will perceive the foreign currency to be cheaper (and can purchase more goods and services). A good example is Japan.
On the other hand, countries that have a negative current account (imports greater than exports) are more likely to appreciate their currency since they need to sell the local currency and buy foreign currency in order to purchase goods and services. United States is an example of a net importer country.
Purchasing Power Parity (PPP)
This theory states that exchange rates are determined by the relative prices of a similar basket of goods in different countries. In other words, the ratio of prices of a basket with similar goods of two countries should be similar to the exchange rate.
If a Personal Computer in Australia costs AU$1,500, and the same PC in United States costs US$1,200. According to the PPP, the exchange rate AUD/USD would be 1.2500 (1,500/1,200).
If the exchange rate was at 1.3000 (or above 1.2500) it states that in the long run it will decrease its value until 1.2500 is reached. On the other hand, if the exchange rate was at 1.0500 (or below 1.2500) the exchange rate in the long run will increase its value until 1.2500 is reached.
This example is just illustrative, in the real world it is not just one good, but a basket of goods.
The major weakness of this theory is that it assumes that there are no costs related to the trade of goods (tariffs, taxes, etc). Another weakness is that it does not consider other factors that might influence the exchange rate (i.e. interest rates etc)
Modern monetary theories include the capital markets to the PPP theory arguing that capital markets have less costs of trading.
Interest Rate Theory
This theory states that interest rates differentials neutralize the increase or decrease of any currency against another currency. Therefore there are no arbitrage opportunities.
For instance if the interest rate of Australia is 6.25% and the interest rate of United States is 3.5%, then the AUD should depreciate against the USD, so that there are no arbitrage opportunities.
There are also other theories that try to explain the value of a currency pair. But as with every theory, they are based on assumptions that may or may not be present in the real world.

Section I: Introduction

2008-06-14T15:47:00.001-07:00

Section I: Introduction
There are basically two ways to approach the markets: technical and fundamental analysis.
Technical Analysis: studies the past behavior of price of any given instrument as an attempt to forecast its future behavior.
Fundamental Analysis: the focus of which is to study the economic, social and political forces that drive the supply and demand of currencies.
Which one is the best approach?
There has been an ongoing debate on which approach is better. Sometimes technicals nail it down, but for some others the fundamentals do it. The truth is, there is no clear answer to this question. And I would say that the answer lies within each one of us. That is, use the one that fits you, the one that works better for you.
If you are a short term trader, you will probably prefer the technical approach, since it concentrates on price behavior. On the other hand, fundamental changes take longer to be visible in the charts so it will be better to adopt a fundamental approach.
Today, many traders and investors use both approaches, so they can have a clearer picture of any given situation.
In this lesson we will go through Fundamental Analysis.
The topics covered in this lesson are:
Section II: What Moves the Forex Market: We will try to explain what makes currency pairs fluctuate; we will see several theories about how currency pairs are valued.
Section III: Fundamentals by Country: A list of the important news announcements for each country (majors), how important they are to the market, effects they produce on some currency pairs etc.
Section IV: Other Economic Indicators: In this section we will review other (not so important) economic indicators that under some circumstances can have a larger than usual impact to the Forex market.
Section V: Other Fundamental Factors that Influence the FX Market: We will explain the role of political and social crisis, and the statements of important people in the FX Market.
Section VI: Gold and Oil and their Relationship to the Forex Market: Getting to know how each of these two commodities are related to the Forex market can help you make better decisions.
Section VII: Common Practices Used by Fundamentalists: We will mention some practices used fairly often by fundamental traders.
Section VIII: Some Thought on News and Event Trading: “Trading the news” has become a very popular style of trading in the last few years; we will analyze its advantages and disadvantages.

Lesson 2: Currency Trading Basic Concepts

2008-06-14T15:42:00.000-07:00

Section I: Introduction

Section II: The Very Basics

Section III: Direct/Indirect Quotes and Base/Counter Currency Pairs

Section IV: Lots, Pips and Spreads

Section V: Margin (Leverage)

Section VI: Rollover

Section VII: Type of Orders

Summary Report

Summary Report

2008-06-14T15:40:00.002-07:00

Summary Report
Thank goodness (dunno if anyone religious would be offended if we put in “Thank God”?) we finished this lesson; it could turn tedious at times but we finally understood every important aspect of trading the forex markets.
Make sure you clearly understood the following before taking the quiz:
- How to calculate the pip value for each currency pair and crosses
- The difference between the bid and ask, where do we buy and where do we sell
- What is margin and how is it calculated
- Why margin can lead to substantial profits, but also substantial losses
- What is rollover, when do we pay and when do we collect interest
Ok, we got a few brain feeders this lessons, here are the answers:
Brain Feeder 1 - In our example where the trader went long EUR/USD at 1.4530 we were asked the amount of USD we used to buy 234,644 Euros (variable lot size). To get to the answer we simply need to do the following calculation:
234,644 x 1.4530 and this equals to 340937.73,
So we bought 234,644 Euros at US$340937.73
Brain Feeder 2 – In the second brain feeder of this lesson, we were asked at what price we bought USD/JPY so that each pip has a value of 10 USD per pip.
We usually calculate the pip value using two variables: how much is one pip worth in the USD/JPY pair (0.01) and the actual quote (i.e. 116.47), in this case however, we already know the pip value which is US$10 and how much is one pip worth and we need to calculate the quote, so the equation would be:
0.01/X = 0.0001, solving for X we get:
0.01/0.0001 = X, and X = 100
So the answer is: in order to get a pip value of US$10 in the USD/JPY, the USD/JPY quote must be 100.00
Brain Feeder 3 – In this Brain Feeder we were asked to give a reason why different crosses and currency pairs have different spreads? Wouldn’t it be easier to have the same spreads on all of them?
Because the forex market works just as any other market, remember the example we used on Lesson 1 about the used car markets? Well, the same happens to the Forex market, currency pairs that are traded heavily tend to have the tighter spreads and those that are barely traded have larger spreads. And as a result, those that are heavily traded tend to have smoother moves than those that are barely traded hence, it’s riskier to trade exotics or some crosses than the majors because of their low volume.
Brain Feeder 4- In the 4th Brain Feeder we had to calculate what would had happened to the trader for different levels of leverage with the following details: Trading account of US$4,000, she bought 2 standard lots of EUR/USD at 1.2318 and she had an adverse movement of 113 pips (US$1130 per lot).
What would have happened if she used different leverage levels?
400:1 – At this leverage level, the maintenance margin is US$615.9 (246,360 x 0.25%). So there was enough capital to support the adverse movement.
200:1 - At this leverage level, the maintenance margin is US$1231.8 (246,360 x 0.50%). So she had left 2768.2 to support possible losses and guess what, she made it! The adverse movement accounted for US$2260, so there was enough capital to support the adverse movement.
100:1 – We saw this in the material and she got margin called.
50:1 - She is not able to open such trade as the maintenance margin is larger than what she had in her trading account: Maintenance Margin: US$4927.2 vs. US$4,000 in her trading account.
25:1 – She is not able to open such trade as the maintenance margin is larger than what she had in her trading account: Maintenance Margin: US$9854.4 vs. US$4,000 in her trading account.
Wait a minute... Are you saying using higher leverage levels is actually safer than using lower levels of leverage? No, absolutely not. Higher leverage levels are ALWAYS equivalent to larger risks. Think of it this way, Imagine she had two accounts using 100:1 in one of them and 200:1 in the other. Instead of a 113 pip movement we got a 150 pip movement, so she got margin called on both of them.
In the account she used 200:1 she ended up with US$1,231.8 (the maintenance margin). While in her other account where she used 100:1 she had US$2,463.60 left. So, the larger the leverage used, the more of your “risk capital” is at risk.
Also, yes, margin helps us open larger position with only a fraction of the transaction size and because of the larger transaction size profits are larger, but when the market goes against us, losses are also larger!!! Never forget about this!

Section VII: Type of Orders

2008-06-14T15:40:00.001-07:00

Section VII: Type of Orders
Orders
There are several ways in which a trader can get in and out the market. Different approaches (or trading strategies) require different ways to get in and out the market.
Entry Orders
Market order - Is an order to buy or sell a currency pair at the current market price. For instance, if the EUR/USD quote is 1.2538/41, using a market order will get you long at 1.2541 or short at 1.2538.
Limit order - This order allows us to get in the market below the current price (if we intend to go long), or above the market price (if we intend to go short.) This kind of market order is commonly used for a range bound strategy or by retracement traders.
Range-bound strategies: Buy at the bottom and sell at the top of a given price channel.
Retracement strategy: Waiting for a pull back (when trying to get long) or for a rally (when trying to get short) before entering the market.
Stop entry order - A stop entry order gets you in the market above the current price if you are trying to buy, or below the current price if you intent to sell. This kind of order is commonly used by breakout traders.
Breakout strategy: Waiting for the market to reach new highs/lows or break an important level before entering a trade.
Exit Orders
Limit order - A limit order (or take profit order) specifies at what rate you will exit the market to take profits. If a trader is long, the limit order must be above the entry price. If the trader is short, the limit order must be below his/her entry level.
Stop order - A stop order (or stop loss order) specifies the maximum loss you are willing to take on any given trade in terms of pips. If you are long, the stop loss order must be below the entry level; on the other hand, if you are short, the stop loss order must be above the current price.
Duration of Orders
GTC (Good till cancelled)
This order remains active (“good”) until reached (filled) by the market action or cancelled by the trader.
GTN (Good till N, where “N” is a time period such as 1 hour, 1 day, 1 week, etc.)
Some brokers allow you to define how much time an order can be active until cancelled.
This order remains active (“good”) until reached (filled) by the market action or until the end of the defined time period (1 hour, 1 day, etc).
OCO (Order cancels the other)
An OCO order is a combination of two limit and/or stop orders. One order is placed below the market action and the other is place above the market action (doesn’t matter whether they are buy or sell orders), when the market fills one order the other gets cancelled.

Section VI: Rollover

2008-06-14T15:34:00.000-07:00

Section VI: Rollover
Rollover
icalThe Forex market is traded on a 2-day business value date. A new value date usually happens after 17:00 EST. So the rollover occurs when the settlement of one trade is rolled forward to the next value date (position or transaction is held overnight), with the cost of the interest rate differential between the two currencies.
For instance, if a trader opens one position on Monday and holds it until Tuesday, the value date will be Thursday.
Triple Rollover
However, if one trader opens a position on Wednesday and holds it until Thursday, the value date would of be Saturday, but since there are no markets on Saturday, the position is rolled forward to Monday. Gaining or paying three times the interest rate, this is called triple roll over.
Paying and Gaining Interes

[Table 4]
Example on rollover
A trader goes long USD/JPY at 111.50 (two standard lots, position opened before 17:00 EST). The position is closed the next day.
If Interest rates are:
US – 3.5%
Japan - 0.15%
Rollover calculated in USD
US$200,000[(.035-.0015)/360] = US$18.61
We use US$200,000 because we traded 2 contracts: 100,000 x 2 = 200,000
360 because the interest rate shown is paid over a daily basis. Since our trader only kept the position one day, we have to divide it by 360 (financial transactions are rounded off to 360 days per year).
Rollover calculated in JPY
US$100,000 = 11,150,000 JPY per lot; 11,150,000 x 2 lots = 22,300,000
360 because the interest rate shown is paid over a daily basis. Since our trader only kept the position one day, we have to divide it by 360 (financial transactions are rounded off to 360 days per year).
Interest rates by currency pairs as of November 2007

[Table 5]

Section V: Margin (Leverage)

2008-06-14T15:31:00.000-07:00

Section V: Margin (Leverage)
Ok, if you are feeling tired by now, too much material, etc. take a rest; you are going to need it in this lesson.
Margin Trading
In contrast to other financial markets where you require the full deposit of the amount traded, in the Forex market you only require a margin deposit. The rest of the amount will be granted by your broker (you will borrow it from your broker).
The leverage could go as high as 400:1 depending on your risk profile and the broker chosen. 400:1 means that you will only need 1/400 in balance to open one position (plus the floating losses). Under this scheme, you only need .25% of the total amount traded.
For example, if you were to trade one standard lot using 400:1 (which equals 100,000 units of the base currency) you would only need $250 ($100,000/400 = $250) for indirect currency pairs [USD quoted as the base currency].
But be careful, HIGH LEVERAGE CAN LEAD TO SUBSTANTIAL LOSSES AS WELL AS SUBSTANTIAL PROFITS. We will get in to detail later on.
Leverage Comparison

[Table 3]
There are two things to be considered about margin trading:
1 - Margin trading allows us to keep our risk capital at the minimum since a small amount of money is used to conduct a bigger transaction.
2 - The greater the leverage used, the more risk capital you have at risk, and this takes us to the next concept…
Margin Call
A margin call is the traders’ worst enemy. Unfortunately, this happens to too many traders, some because the use of poor money management techniques (or no usage at all) and some others because they are not even aware of it.
A margin call arises when the balance of the account falls below the maintenance margin (capital required to open one position, for example $250 when using 400:1 or $1,000 when using 100:1 on one standard lot). See the above table.
In a margin call your broker sells off (or buys back in the case of short positions) all your trades.
How so? Let’s dig in a little deeper and try to calculate the maintenance margin...
How to calculate the maintenance margin
Again, most brokers calculate this value automatically but it is good to know how this number is calculated.
A trader goes long EUR/USD at 1.2318 on one standard lot. He is using 100:1 or 1% of margin.
He bought 100,000 Euros at 123,180 USD, so the maintenance margin in USD is 1231.80 USD (123,180 x 1%).
If this trader had used 200:1 or 0.5%, the margin would be at 615.9 USD (123,180 x 0.5%)
For direct currencies (or currency pairs where the USD is the base currency) this calculation is simpler:
Since the transaction is in USD, we only need to obtain its percentage in the following way:
If we go long USD/CHF on one standard lot at 1.1445, we are using 100:1
We bought 100,000 USD and paid 114,450 CHF for them, so the maintenance margin in USD is US$1,000 (100,000 x 1%).
Let’s take a concrete example on a margin call:
One trader has opened an account to trade the Forex market. She has made an initial deposit of US$4,000 to her trading account. The next morning she decides to go long EUR (EUR/USD) at 1.2318 on two standard lots (the position equals to US$246,360 = 2 x US$123,180).
She is using 100:1, so the maintenance margin would be US$2,463.6 (US$246,360/100=US$2,463.6).
The next morning, as she wakes up and opens up the charts, dang!!! The EUR has fallen like a rock. When she opens her trading platform, the balance is at US$2,463.60. The adverse price action got her margin called.
When she entered the trade with two standard lots, the maintenance margin raised at US$2,463.60; she only had left the other $1,536 to support her losses. A 100 pip movement on the EUR in two standard lots accounts for US$2,000. That night, the EUR fell 113 pips, and all positions were closed by the broker.
Brain Feeder 4- What would have happened if she used different leverage levels?
400:1 - ?200:1 - ?100:1 – She got margin called50:1 - ?25:1 - ?
This illustrates the perils as well as the advantages of high leverage!

Section IV: Lots, Pips and Spreads

2008-06-14T15:30:00.000-07:00

Section IV: Lots, Pips and Spreads
Lot sizes
Transactions can be conducted via standard, mini, micro or variable lot sizes:
Standard lot sizes: The standard lot sizes accounts for a 100,000 units of the base currency. (The amount of margin required to open a standard lot varies depending on the leveraged (margin) used, we will get to that in a moment).
Mini lot sizes: The mini lot size accounts for 10,000 units of the base currency (ten times smaller than the standard lot size).
Micro lot sizes: The micro lot size accounts for 1,000 units of the base currency (ten times smaller than the mini lot size and a hundred times smaller than the standard lot size).
Variable lot sizes: Some brokers allow you to fix the position size based on your needs as a trader. For instance you could trade a position size of 234,644 or 5,869 units of the base currency.
Let’s see some numbers...
A trader goes long EUR/USD at 1.4530
Standard lots: the trader is buying 100,000 Euros at 145,300 US Dollars
Mini lots: our trader is buying 10,000 Euros at 14,530 US Dollars
Micro lots: our trader is buying 1,000 Euros at 1,453 US Dollars
Variable lots: the trader is buying 234,644 Euros at ??? (See answer below)
Brain Feeder 1 – How many US Dollars our trader used to buy 234,644 Euros when she used variable lots?
Pips
A pip is the minimum incremental move a currency pair can make. Pip stands for “price interest point.” For most currencies a pip is one 10,000th of the rate (1/10,000). The only exception of the seven majors is the USD/JPY (and other currency pairs where the JPY is involved, EUR/JPY, GBP/JPY, etc.) where the value of one pips is one 100th (1/100).
In the EUR/USD a move from 1.2532 to 1.2553 is equivalent to 21 pips while in the USD/JPY a move from 110.05 to 111.10 is equivalent to 105 pips
Calculating pip values
Although most trading platforms calculate the pip value automatically, it is important to know how it is obtained.
In the case of the USD/JPY the calculation is as follows:
In the yen, .01 equals to 1 pip.
USD/JPY rate = 116.87
.01/116.87 = .000086 *
*This result is the value of one pip in a contract size of 1, if we traded standard lots, then .000086 x 100,000 = 8.6 USD per pip.
In the case of the EUR/USD the calculation is as follows:
In the Euro, .0001 equals to 1 pip.
EUR/USD rate = 1.2316
.0001/1.2316 = .000081*
*This is the value per pip if we traded a contract size of 1.
NOTE: This is the pip value in Euros, (always in terms of the base currency). To convert it to USD we need to add one more step:
.000081 times the exchange rate. This would be:
.000081 x 1.2316 = .000099 rounds to .0001* (as we left out some decimals in our prior calculation).
*Again, this is the value for a contract size of 1, if we traded mini lots, then .0001 x 10,000 = 1 USD per pip. (For standard lots it would be 10 USD per pip).
Hey, did you notice we first divided .0001/1.2316 = .000081 and then we multiplied the result this way: 0.000081 x 1.2316 = .000099. So, would it be correct to avoid both calculations as they cancel each other? Absolutely, so you only need to multiply the pip value times the contract size to get the value of each pip! Hey, but remember, this is only good for currency pairs where the USD is the counter currency.
HINT: When trading any pair where the USD is the counter currency (direct currency pairs) such as: EUR/USD, GBP/USD, NZD/USD, etc. Each pip always has a value of US$10 for standard lots and US$1 for mini lots.
Brain Feeder 2 – Just to make sure you understood the mechanics of this correctly, here is a tough one: At what price did we buy USD/JPY to have a pip value of 10 USD per pip?
Bid/Ask spread
Currency prices are quoted with a spread. The spread is the difference between the buy and sell prices (the cost for traders to make a trade)
Bid is the price a dealer (our broker) is prepared to buy at, the trader (we) is to sell at this price.
Ask (or offer) is the price a dealer is prepared to sell at, and the trader (we) is to buy at this price.
Currency prices are commonly quoted in the following way:
EUR/USD 1.2528/31 spread = 3 pips
The bid quote is 1.2528.
Replace the last two digits (31) in the left quote (28) to obtain the ask quote:
The ask quote is 1.2531
For currency pairs and crosses where the JPY is involved it changes a bit:
USD/JPY 116.45/48 spread = 3 pips
Bid: 116.45
Ask: 116.48
Now, spreads can be fixed or variable. Most of the time and under normal market conditions the spreads are fixed (i.e. constant 3 pip spread). But when volatility increases (i.e. when important fundamental announcements are released) the spread can be increased (i.e. going from 3 pip spread to a 15 pip spread).
Ok, now that we understand these three concepts let’s go through a typical trading scenario.
Brain Feeder 3 – Why do you think different currency pairs and crosses have different spreads, for instance, the EUR/USD usually has a spread of 2-3 pips, while the GBP/JPY is commonly quoted with a 5-7 pip spread? Or exotics currencies such as the USD/MXN which is quoted with a 40 pip spread?
Typical Trading Scenario
The Euro quote is EUR/USD: 1.2315/18
This means that we can buy one euro at 1.2318 USD or sell one euro at 1.2315 USD. But we are not going to buy only one Euro, we need more, let’s buy say 100,000 Euros.
We decide the EUR is undervalued so we go long EUR/USD (buying EUR and selling USD) on one standard lot (100,000 Euros). We bought 100,000 Euros and paid 123,180 USD for them (we used the ask quote).
As we expected, the EUR/USD goes up and we decide to close our position.
The current quote is now quoted at 1.2360/63. Now we need to sell back our 100,000 Euros to realize our profits. We sell 100,000 Euros at 1.2360 (now we use the bid quote) and receive 123,600 US dollars.
We bought at 1.2318 (123,180) and sold back at 1.2360 (123,600). That is a gain of 42 pips and in dollar terms 123,600 – 123,180 = US$420 in profits J

Section III: Direct/Indirect Quotes and Base/Counter Currency Pairs

2008-06-14T15:26:00.000-07:00

Direct and Indirect Quotes
Every local currency can be quoted directly or indirectly against other currencies (most of the time the US Dollar):
Direct quotation: Amount of local currency that is needed to buy one unit of the foreign currency (most commonly the USD)
And,
Indirect Quotation: Amount of local currency that is to be received when one unit of the foreign currency is sold.
Ok, now imagine your local currency is the EUR, in this case the quotation scheme against the US Dollar would be:
Direct Quotation: USD/EUR – How many Euros to get one US Dollar
And,
Indirect Quotation: EUR/USD – How many US Dollars to get one Euro
For the sake of simplicity, sometimes the US Dollar is called the “Foreign Currency”, so for the majors we have the following:
Direct Currencies
- USD/JPY
- USD/CAD
- USD/CHF
Indirect Currencies
- EUR/USD
- GBP/USD
- AUD/USD
Counter and base (or quote) currency
The first currency of the pair is always called base currency. The second currency is called counter currency (or quote currency). Currency pair quotes are always expressed in units of the counter currency to get one unit of the base currency.
EUR/USD = Base Currency/Counter Currency
This is how many USD are required to get one EUR
If the EUR/USD quote is 1.2520, then it requires 1.2520 USD to get one EUR…and the same goes for other currency pairs:
If the USD/JPY quote is at 110.05, it requires 110.05 JPY to get one USD
TIP: The EUR is always the dominant base currency against all other currencies. All currency pairs against the EUR are identified as EUR/USD, EUR/JPY, EUR/CHF...The next in the hierarchy is the GBP, which is always the base currency, but against the EUR (EUR/GBP).

Section II: The Very Basics

2008-06-14T15:20:00.000-07:00

ISO Codes
Currencies, as stocks, are not referred by their full name; they are standardized for easier reference.
The International Standardization Organization (ISO) developed what is called ISO Codes for Currencies. The ISO currency codes are made of three letters:
The first two letters represent the abbreviation of the country of each currency, and,
The last one represents the first letter of the country’s currency (dollar, franc, etc.)
Currencies can also be called by their nickname.
ISO Codes for the Majors

[Table 1]
* CHF, CH stands for Confederatio Helvetica, the Latin translation. This avoids choosing one of the four official languages in Switzerland.
The seven major currencies
Form all the transactions involved (volume) in the Forex market, 85% is produced by the seven majors (see table below).
Trading volume by currency*

[Table 2]
Source: Bank of International Settlements (BIS)
*Since 2 currencies are involved in each transaction it totals 200%
Currency Pairs as Instruments
It is easier to consider currency pairs as main instruments. For instance, you are expecting the EUR to appreciate; you go long EUR (EUR/USD). What you are doing here is buying the EUR and selling the USD. But it is not practical to view it that way. It is easier to consider the EUR as the main instrument, so that you will only say “I am long Euro”.
On the other side, if you are expecting the dollar to appreciate. You will go short EUR (EUR/USD) here you are selling the EUR and buying the USD. You would say here, “I am short EUR”.

Section I: Introduction

2008-06-14T15:19:00.000-07:00

Section I: Introduction
It is important to clearly understand how the Forex market works. In this lesson we will review all basic concepts about trading in the Forex market and you will learn, inside-out at what price point we buy and sell, how leverage works, when do you pay interest, how currency pairs are commonly quoted and much more.
This lesson is structured in the following way:
Section II: The Very Basics - Basic stuff about the Forex market.
Section III: Direct/Indirect and Base/Counter Currency Pairs - Have you ever wondered why the USD is sometimes the first quoted currency and why sometimes it is the second?
Section IV: Lots, Pips and Spreads - An easy way to calculate the pip value for every currency pair, why currencies have a spread and what is it there for as well as different trading sizes available for traders.
Section V: Margin (Leverage) - This is one of the most important advantages of the forex market, you can’t afford not to know how it works.
Section VI: Rollover - Planning on taking trades for the long term? Read this section, you will learn which currency pair’s pay you interest on a daily basis (while your trade is open).
Section VII: Type of Orders - A must for all traders, different strategies require different ways to enter the market; here you will learn which type of order its better for different trading styles.
Good luck my friends!

Lesson 1: Introduction to The Forex Market

2008-06-14T15:15:00.000-07:00

Section I: Introduction
Section II: The Forex Market
Section III: Benefits of Trading Forex
Section IV: Main Forex Participants

Summary Report

Summary Report

2008-06-14T15:13:00.000-07:00

Summary Report
This is one of those lessons that nobody wants to go through, “just blah blah” and it is understandable, but if you came so far and are actually reading this congratulations! You definitely know how things are done! First things first! Congratulations again and good luck in your journey.
This lesson mostly talks about theory of the forex market, how it was formed, how it works, who participates in it so, I’m not going to send you back to give it another read. Probably the most important part in this lesson was the difference between brokers (so if you skip it go back to the participants section and scroll down to the brokers section).
Now, we have got a couple brain feeders in this lesson, here are the answers:
Brain Feeder 1 – About the volume, if you have a very complex answer and a new theory of how the volume can be calculated, scratch it! It just can’t be calculated, there is no exchange. We can have rough estimates through the futures market, data from different brokers, etc. but they are only estimates.
Brain Feeder 2 – About overlapping sessions, yep, you got this one right, didn’t you? When sessions overlap, the market tends to have more liquidity and volume thus the market has (on average) larger moves and its better for us traders (when those moves are in our favor of course).
Hope you enjoyed this lesson! Now lets move on to the next one.

Section IV: Main Forex Participants

2008-06-14T15:10:00.000-07:00

Section IV: Main Forex Participants
A few decades ago, the main participants in the Forex market were the commercial banks that would take positions against other banks for a wide variety of reason (speculation, hedging, etc.), and firms (exporters and importers of goods and services) that would use banks for their foreign exchange transactions. All this activity accounted for about 70% of the overall volume generated in the Forex market.
These days however, the market has changed, with technological development and the ability to conduct transactions overseas with more ease, other financial / non-financial institutions are able to participate in the foreign exchange market, as well as individual investors and traders.
These days speculation accounts for more than 80% of the overall daily activity. These transactions are conducted from commercial banks to individual traders.
The main participants in the Forex market are: banks, central banks, commercial companies, individual investors and traders and brokers and the main reasons they participate in the Forex market are:
Profit from fluctuations in currency pairs, speculating (close to 80% of the volume)
Protection from fluctuating currency pairs, derived from trading goods and services, hedging
Profit from the rollover generated by differences on interest rates
Banks
Banks are the greatest participant of the Forex market. Large transactions are conducted by these banks (billions on a daily basis), both on their customer’s behalf and on their own. Speculative transactions made by banks accounts for around 70% of the volume generated by banks.
Largest Traders in the Spot Market

[Table 5]
Source: Wikipedia
Central banks
Central banks are mayor players in the Forex market, although the main reason they get in the market is not for speculative reasons. The main goal of central banks is to control the money supply of a nation, so an economy can achieve its economic goals. A central bank could intervene in the Forex market for the following reasons:
To regain price stability of an exchange rate
To protect certain levels of price in an exchange rate
When economic goals need to be achieved (inflation, growth, etc.)
Some central banks are less conservative than others, some of them intervene regularly (like the Japanese Central Bank*) and some of them not very often (Federal Reserve) - at least visually.
The most important central banks are:
The Federal Reserve (US central bank)
The Bank of Japan
The Bank of England
The Bank of Canada
The Swiss National Bank
The European Central Bank
The Reserve Bank of Australia
*The Japanese Central Bank used to intervene a great deal in the past. However, recently there has not been a lot of intervention.
Commercial companies
These are corporations that participate in the Forex market trading goods and services abroad. Most companies like to be paid in their home currencies or US dollars, so in order to complete the transactions they need to acquire foreign currency through commercial banks.
Other reason a commercial company may participate in the Forex market is to hedge their exposure. For instance, a company is to receive payments in the future in its home currency. The home currency has been depreciating and it is expected to continue that way until next year. In this case, the company might go short (sell) in its home currency and long (buy) the other currency in the same amount of the payment to be received. This way the price fluctuation will not affect the company.
Investment funds
These are companies represented by pension and mutual funds, international investments and arbitrage funds that invest in other countries securities.
Today, more and more funds are participating in the Forex market to speculate and hedge themselves.
Brokers
Broker companies’ main objective is to bring together buyers and sellers of foreign currency. Most Forex brokers charge no commissions. Brokers get their fee from the spread.
There are two types of brokers:
Money Maker (with dealing desk) – The broker is the counterpart of every transaction made by the trader. When a trader opens a transaction the broker opens the same transaction in the opposite direction, if the trader longs one currency pair, the broker shorts the same currency pair. This is the way for Money Makers to hedge themselves.
Non dealing desk – The broker only connects the trader to banks through an ECN (Electronic Communication Network). No trade is taken by the broker. These are the type of brokers that usually charge a commission plus the spread, but as we said before, transaction costs can fall below what Money Makers charge just for the spread.
Individuals including traders
Individuals that conduct transactions for a wide variety of reasons including: speculating, a tourist wanting foreign currency, etc.

Section III: Benefits of Trading Forex

2008-06-14T14:53:00.000-07:00

Section III: Benefits of Trading Forex
Trading the Forex market has several advantages over other financial markets. Amongst the most important are: liquidity, it’s a 24hr market, leverage trading (margin), low transaction costs, low minimum investment, specialized trading, you can trade from anywhere and others.
Liquidity - Forex market is by far the most liquid financial market in the world with nearly 2 trillion dollars traded every day according to the Bank of International Settlements.
Why is the liquidity so important to us? Because it helps us in several ways:
- The most important of all is that superior liquidity ensures price stability. With such a big market, there will be always someone willing to buy or sell any currency at the quoted price, making it easy to open and close trades or transactions at any time of the day. However, there are periods of high volatility during which it might be not easy to get a good fill.
- Because of the great amount of liquidity, most of the time we are able to get in and out the market fast with consistent executions. But as any other market, during periods of instability slippage is always a possibility.
- Higher liquidity also makes it hard to manipulate the market in an extended manner. If some of its participants try to manipulate it, the participants would require enormous amounts of money (tens of billions) making it practically impossible.
Volume Generated by कोउन्ट्री

[Table 1]
Source: Bank of International Settlements (BIS) 2006 Survey
In the table above we see that the UK and US account for around 50% of the total turnover, and as a rule of thumb, the more liquidity the more the market moves. We will talk about this later on.
24hr Market - The Forex market is an around the clock market. This means that you could open or close any position at any time from Sunday 5:00 pm EST (Eastern Standard Time) when New Zealand begins operations to Friday 5:00 pm EST, when San Francisco terminates operations. The main reason for this is that there is no physical location where all transactions take place (OTC).
Most Important Session Time Zones

[Table 2]
Here you have a more comprehensible table:
Session Time Zones Table

[Image 1]
Brain Feeder – As you can see in the image above, there are 4 hours in which the London and the New York sessions overlap, what could this mean in terms of volume and liquidity?
In case you are looking for a map zone, we created this for you:
World Map Zone
(Click on image to enlarge)

[Image 2]
Leveraged Trading - Forex trading gives much more buying/selling power than many other financial markets. This allows us to control greater transactions with a small margin deposit. Some brokers offer up to 400:1 leverage, meaning that you can control for instance a 100,000 US dollar transaction with just .25% or US$250. This also allows us to keep our risk capital at the minimum.
However, beware as this is a double-edged sword. If the leverage is not properly used, this could also be a disadvantage. The more leverage you use, the more of your account is at risk.
Imagine this scenario: Two traders with the same capital using different leverage:
Trader A: using 400:1 with a US$2,000 trading account
Trader B: using 100:1 with a US$2,000 trading account
If both of them open a standard trade (100,000 units) trader A will have at risk US$1,750 (2,000 – 250 = 1750) while trader B will only have at risk US$1,000 (2000 – 1000 = 1000)*.
*Of course there are risk management techniques that allow traders to reduce that amount of risk such as stop loss orders. We will go deeper in to this in the following lesson...
For this reason, using leverage greater than 100:1 is not advised.
Remember: the margin is used as a deposit; everything else is also at risk.
Low Transaction costs - The Forex market is considered one of the markets with the lowest costs of trading. Most brokers collect their fees based on two schemes:
Spread – Brokers collect their fees by charging a different price for long and short positions. The difference is what is collected by the broker.
Spread and Commissions – Most brokers under this scheme charge a commission but usually the spread is tighter and transaction costs can even fall below brokers under the spread “only” scheme.
Low minimum investment - The Forex market requires less capital to start trading than any other markets. Some brokers allow traders to open trading accounts with an investment that could go as low as US$1 (yes, you read that right, that is one US dollar.) On average however, brokers allow traders to open accounts with around US$250.
Of course, you can’t expect to make a fortune with that investment but it will get your feet wet before you start risking a larger amount of capital or you can try to slowly start growing your account from there.
Specialized trading - The liquidity of the market allows us to focus on just a few instruments (or currency pairs) as our main investments (85% of all trading transactions are made on the previously mentioned seven major currencies). This allows us to keep track of, monitor and get to know each instrument better.
Trading from anywhere - Not having a physical location where all transactions take place (OTC), allows us to trade from anywhere in the world. We only need either a phone line (where you can have direct access to the brokers dealing desk) or an internet connection (through an online platform).
Below, comparative tables between the Forex market and other financial markets.
Forex vs. Equities

[Table 3]
Forex vs. Futures

[Table 4]

Section II: The Forex Market

2008-06-14T14:52:00.000-07:00

Section II: The Forex Market
What is The Forex Market?
The Forex market is an acronym of The Foreign Exchange Market also called The Currency Market.
What is traded in the Forex Market?
Money, as simple as that!
Currencies are bought and sold freely. This is the simultaneous buying of one currency and the selling of another.
For instance, you have some inside information that leads you to think that the Euro will go up, you want to buy the Euro pair (or EUR/USD). When you buy the EUR/USD pair you are actually buying the EUR and selling the US dollar. When you buy the EUR it is also said that you are “long” the EUR. When you sell the EUR it is also said that you are “short” the EUR.
More than 80% of the volume is generated by what we call the seven major currencies:
The US dollar (USD)
The Euro (EUR)
The British Pound (GBP)
The Swiss Franc (CHF)
The Canadian dollar (CAD)
The Australian dollar (AUD)
The Japanese Yen (JPY)
When did it at all start?
You could not say it all started after a sole event. A series of events happened and in the end it resulted in the Forex market, as we know it today.
It all started when the Bretton Woods agreement was finally abandoned around 1971.
In this agreement, participating countries had their currency pegged to either the gold or the US dollar. By 1973 the most powerful countries around the globe introduced a free exchange rate regime where they let their currencies fluctuate driven by the market or more precisely by the forces of supply and demand. It was then when the Forex market was available to speculate, hedge as well as other reasons.
It was not until 1997 when the Forex market became available to individual investors and traders through online trading capabilities and leverage (margin trading), offering traders around the world great opportunities to profit from the Forex market.
The Forex market is now the most liquid financial market of the world, with a generated volume of nearly 2 trillion US dollars (source: BIS) on a daily basis (more than all other US financial markets combined).
Where do all trades take place?
Unlike other financial markets, there is no physical location where all trades take place in the Forex market. All transactions are conducted via telecommunications (phone, online platforms, etc.) between banks, large institutions, investors, trader, etc. This is called an Over the Counter market or OTC.
Brain Feeder - How do you think the volume of all transactions is measured in the Forex market? Let’s put the Stock market in perspective, all transactions in the NYSE (New York Stock Exchange) are placed through the same NYSE, so they are able to measure how many short and long positions are placed at any point in time. But since there are no physical locations where all transactions are placed in the forex market, how is the volume measured? Or is it even possible to measure the volume of all transactions in the Forex Market?

Section I: Introduction

2008-06-14T14:49:00.000-07:00

Section I: Introduction
Welcome to this, your first lesson in our Free Forex Course. We hope you find the content interesting, informative and helpful to your trading future. In this first lesson you will learn about all the basic information regarding the Forex market. While these following lessons will cover a large number of concepts and ideas in great depth, more detail and advanced trading ideas are available in the Advanced Training available at
In any kind of business, from selling used cars to trading the Forex market, it is important to understand every aspect of the market, from the very essentials to the most complex issues that affect it.
Picture this scenario, if you were to adventure into the used cars business, would you just buy a car lot and try to sell them without any planning? I don’t think so, if you do this you will probably end up with a different car to use each day of the week. What would you do then? You will probably want to do some research on the market in which you are about to venture: Who are my possible clients? Check out strategies and prices of competitors, do some analysis of advantages and disadvantages of the used car market, and much more…
The same goes for trading. I’ve seen many traders getting a margin call (MC) without being aware what kind of leverage was being used when the MC happened and some other traders without even knowing what a margin call was!! (If you are not familiar with these terms, don’t worry about it, we will go through them in the following lesson).
In this lesson, we will analyze every aspect of Forex trading, from how it was formed, the main participants, advantages and disadvantages of trading the Forex market, how the Forex market compares to futures and equity markets and all concepts related to Forex trading.

Why You Need To Develop Your Own Trading System

2008-06-14T13:31:00.000-07:00

Why You Need To Develop Your Own Trading System
There are many trading systems and strategies out there. There are many free ones printed in trading articles, journals, books and on trading-related websites. You can buy them as software or you can subscribe to them periodically.
Novice traders say they do not have the time, the aptitude, the talent nor the brains to work out how to trade properly. They would rather purchase a program or subscribe to a trading system for hundreds — or in some cases — thousands of dollars. They say they do not have to do anything except be told what to buy, when to buy and how much of it you need to buy. Some ask me if this strategy or approach is advisable for trading the financial markets. To answer this question, I am then forced to consider the advantages and disadvantages of using such an approach to trading.
There are reasons why a trader would use a system or strategy that someone else developed and tested:
1. It is easy. A novice trader does not need to study how the market works and how he interacts with that market. He does not need to educate himself: he does not need to bother with books and seminars. He does not need to test the system, since the seller has already done that for him and reported promising hypothetical or actual results.
2. A novice trader hopes to get a trading system at a 'bargain' price: sometimes even for free.
Hazards of trading a system or strategy developed and tested by someone else are the following:
1. Faulty Systems
There are many faulty systems out there. They may be faulty because their assumptions and their mechanisms may no longer be true, accurate or valid. As a novice trader, how can you distinguish between the good systems and the bad systems if you don't know how trading systems are built?
2. Discipline and confidence
All systems have drawdown periods. Some good systems may not make money for six months or an entire year. Even if it was a good system, can you continue to follow it even if it gives you a loss after a loss after a loss? How can you follow it if you do not have confidence in it? How can you be confident if you do not know the ins and outs of the system and if you have not tested it yourself?
I do not believe that people would blindly follow a system even if they were told that it would bring them riches. I can give someone a trading system, I can supply him with exceptional hypothetical or actual results and still, he would not be able to follow it.
I remember giving my dad a fully-mechanical trading system I developed. I told him a few simple rules and I told him not to question them. All he had to do was to follow them. We both traded it for two months, I grew my small account by roughly 50% (it happened to be a good two months), but he was losing. He wondered why. I asked to see his trading records. When I looked at his trading records, I found that he kept disobeying the rules. When I asked him why he disobeyed them, he wanted to improve the results after it had a couple of losing trades. He was trying to improve the results. According to him, the system asked him to do what he thought was not right during certain market conditions, so he did not follow it. I found simple errors too, including opening trades at market price instead of waiting for buy and sell stop orders at support and resistance levels to get triggered. I also asked that he executes trades at the close, but oftentimes he traded two hours before or after the close at his discretion. There were many more rules he breached. He is a smart man: a former civil engineer and now a manager for a big organisation. Why could he not follow instructions? It is simple. He did not know the reasons behind the rules I had set and so he did not appreciate them. His money was on the line and after a series of losses, he lost faith in the system easier than I did because he did not develop and test it himself.
To overcome the hazards above, I see no way except for a trader to learn how to develop his own trading methodology. This is the only way a trader can know if a particular system or strategy is good or not.
Once a trader learns how to develop systems and strategies, he can then be better equipped to test them as well. By this point he might even find that he is better off using the system he created, because it becomes increasingly difficult to find another system more suited to his profit objectives while operating within his risk tolerance levels. It is likely that once he develops this level of competence, he will simply acquire other systems only to dissect them, grab the parts he likes and add them to his own system. To me, the irony is that for a trader to know which system to purchase, he must first learn how to create a system. And after knowing how to create a system, he will no longer have the need to buy one.
In conclusion then, I would have to say that if you are not inclined to learn how to develop your own trading methodology, then perhaps you should consider giving your money for someone else to invest. Give it to someone who is trading a system that he developed and tested himself because he is more likely to have the confidence and courage to follow his own set of rules.
About The Author:
Marquez Comelab is the author of the book: The Part-Time Currency Trader. It is a guide for men and women interested in trading currencies in the forex market. Discusses analysis, tools, indicators, trading systems, strategies, discipline and psychology. See: http://marquezcomelab.com. His other articles are also published at http://thefreedomtochoose.com along with other helpful articles.
Start Trading with the Best.

Forex Trading Systems: Mechanical Vs. Discretionary Systems

2008-06-14T13:30:00.000-07:00

Forex Trading Systems: Mechanical Vs. Discretionary Systems
There are basically two types of Forex trading systems, mechanical and discretionary systems. The trading signals that come out of mechanical systems are mainly based off technical analysis applied in a systematic way. On the other hand, discretionary systems use experience, intuition or judgment on entries and exits. But which one produces better results? Or more importantly, which one fits better your trading style? These are the answers we will try to answer on this article.
We will first analyze the pros and cons about each system approach.
Mechanical systems
Advantages
This kind of system can be automated and backtested efficiently.
It has very rigid rules. Either, there is a trade or there isn't.
Mechanical traders are less susceptible to emotions than discretionary traders.
Disadvantages
Most traders backtest Forex trading systems incorrectly. In order to produce accurate results you need tick data.
The Forex market is always changing. The Forex market (and all markets) has a random component. The market conditions may look similar, but they are never the same.
A system that worked successfully the past year doesn't necessary mean it will work this year.
Discretionary systems
Advantages
Discretionary systems are easily adaptable to new market conditions.
Trading decisions are based on experience. Traders learn to see which trading signals have higher probability of success.
Disadvantages
They cannot be backtested or automated, since there is always a thought decision to be made.
It takes time to develop the experience required to trade successfully and track trades in a discretionary way. At early stages this can be dangerous.
Now, which approach is better for Forex traders? The one that fits better your personality. For instance, if you are a trader that finds it hard to follow your trading signals, then you are better off using a mechanical system, where your judgment won't play an important role in your system. You only take the trades that your system signals.
If the psychological barriers that affect every trader (fear, greed, anger, etc.) puts you in unwanted scenarios, you are also better off trading mechanical systems, because you only need to follow what your system is telling you, go short, go long, close a trade. No other decision has to be made.
On the other hand, if you are a disciplined trader, then you are better off using a discretionary system, because discretionary systems adapt to the market conditions and you are able to change your trading conditions as the market changes. For instance, you have a target of 60 pips on a long trade. But the market suddenly starts trending up pretty strongly, then you could move your target to say 100 pips.
Does it mean that trading a discretionary system has no rules? This is absolutely incorrect. Trading discretionary systems means that once a trader finds his/her setup, the trader then decides what to do. But every trader still needs certain rules that need to be followed, such as the size of the position, conditions that have to be met before thinking to get in the market, and so on.
I am a discretionary trader. The main reason I chose a discretionary system is that my trades are based on price behavior, and as you already know, the price behaves similar to the past, but it is never identical, therefore the outcome of every trade is unknown. However, I do have rigid rules on my system, certain conditions have to be met before I even think in getting in a trade. This keeps me out of trouble, once my setup is present and in accordance with the rules I have set, then I closely watch the price behavior and finally decide whether it is a good opportunity or not.
Whether you choose to be a discretionary or a mechanical trader there are some important points you should take in consideration:
1. You need to make sure the Forex trading system you are using totally fits your personality. Otherwise you will find yourself outguessing your system.
2. You also need to have some rules and most importantly have the discipline to follow them.
3. Take your time to build the perfect system for you. It's not easy and requires time and hard work, but at the end, if done correctly, it will give you consistent profitable results.
4. Before going live, try it on a demo account or even on a small account (I will go for the second option, since psychological barriers will be present.)
by Raul Lopez

Profitable Forex Strategies and Techniques

2008-06-14T13:29:00.000-07:00

Profitable Forex Strategies and Techniques
This article is mostly for people that already know what the Forex market is and at least know the basic concepts. If you have no clue about what this market is or you have never heard about it, I will give you a very brief explanation bellow.
Forex is the acronym for Foreign Exchange Market. This is the biggest and most liquid market of the entire world today. One to three trillion dollars exchange hands at Forex every day. That's a huge amount of money. No stock market exchange of any country come close to this.
This market is huge. It is a sea of money full of sharks and dangerous waters, but it is also the only market where you at least hypothetically can make $1,000,000 in two weeks starting with only $1,000.
I say hypothetically because what happens often is that people blindly gamble their money at Forex without knowing anything about it and they lose their shirt. That's why I say to you: be careful! This market is profitable, but you need to learn the basics well, do your homework and demo trade a lot.
Just remember that 95% of traders lose money, 5% make it and less than 1% become rich at Forex. The nice thing about this market is that you can make money without creating any product or service, selling anything, nor advertising. You just trade some cash and get paid depending on your knowledge and expertise.
This is the market where banks, transnational corporations and individual traders exchange one currency for another. I am talking about the spot Forex market. You can trade at huge leverage as much as 400 to 1, meaning that for every dollar that you have for trading you can trade 400. For example if you have $1,000 on your account you can trade as much as $400,000.
This is dangerous. Most experienced traders won't use such a high leverage. In the other hand, high leverage can be good if you learn how to use it in your favor. Anyway, that's enough for the basics. If you want to learn more about how this market emerged, its history and so, then read my other articles.
Now let's talk about the strategies and how some traders make money at Forex. Let's start by saying that what works for me may not necessary work for you. Trading currencies is risky. That's a fact. But ultimately I discovered a few strategies that could give novice traders a winning edge.
Trading Forex is not as easy as most people think. Today you may be earning a lot and tomorrow you are losing 40% of your starting capital. Novice traders often make the same mistakes over and over again. I will enumerate a few of them bellow.
1. Do not look for a holly grail of trading.
This is for people who are afraid to lose or are too greedy and want to get rich quick. Even when it seems so, The Forex Market is not the place to get rich quick. Yes, you can make a lot of money over time and yes you don't have to sell anything, nor create or advertise any products. Still you have to learn a whole lot about what makes this market tick and what moves the price of the currencies plus how to manage your money effectively so you don't lose your shirt.
Many novice traders spend a LOT of time searching a perfect strategy that will allow them to always win-win and never lose. They want to have guaranteed profits because they can't stand to lose and/or they want to make too much (millions) quick so they can retire fast and buy a mansion in a far distant beautiful tropical island. It doesn't happen.
Don't waist your time. A trading strategy that allows you to have guaranteed profits do not exist. Trading is very risky. That's why it is so profitable. Remember: "no risk, no reward." So, do not try to always win on every trade. It is simply not possible. There is no way to get rid of the fact of uncertainty. What I mean is that no matter how effective your trading strategy may be, sometimes it will fail and you have to be ready to face this fact.
By not trying to find a perfect strategy that turns you into a millionaire fast, you will just save a ton of your own time and efforts. It doesn't exist. If you find it, please don't tell me about it. First I won't believe you. Second I don't need it. You will find out bellow why I say that I won't need it.
2. Use technical analysis and fundamental analysis.
When I started trading I didn't believe in this. I wanted to find a strategy which consisted of money management alone (which I explain bellow). This is not good! Money management is important but you still need the other two. You define ("predict") where the market is heading to depending on how effective your technical and fundamental strategies are.
Mastering technical analysis is the ability to predict future price movements by analyzing past price data and graphical patterns. You get a graphic of certain currencies. Check the data that you observe and based on your knowledge of technical analysis you "predict" with certain degree of accuracy where the market is going.
Many brokers allow you to add technical indicators to the graphs while you are trading. You can try this on a demo account and see how well you are able to define the future price movement of the currencies you plan to trade. One of those brokers is www.oanda.com.
There are many technical indicators. I can't tell which one will be more effective for you. Every trader is different. This is something that you will have to discover by yourself. There is not a hidden secret or magic formula for trading Forex. It is what you do every minute when you are in front of the graphics and checking the news what really counts.
The secret is in your overall knowledge and your decisions. This comes with experience and practice. If you open an account with one of these online brokers you can trade on paper before you trade with real money, so you can learn and practice before you risk any capital.
Let me tell you about a few technical indicators that you can use. You can use the MACD (Moving average convergence divergence), the Bollinger Bands, Pivot Points, RSI, Stochastic, Fibonacci, EMA, Elliot Waves and many others. There are in fact many technical indicators but these are among the most widely known and used.
When you add technical indicators to the graphic the brokers software will automatically perform mathematical calculations to reveal interesting facts and patterns about the graphics that you can't readily see without said indicators. You can use the technical indicators to create your own technical systems.
These systems will never work 100% of the time, but if they work 70% — 80% it may be enough. That's because you can control your risks with money management techniques as I describe bellow.
To further increase your probability of winning and reduce your probability of losing on every trade you can use fundamental analysis. I think that most traders choose one or the other but many traders use both.
Fundamental analysis is to trade the news. What is going on with the countries's economies of the currencies that you are trading? What is the unemployment index? Did something suddenly happen that could drastically affect the price of the currencies?
Trading the news is another effective way to "predict" where the market is going. Many online brokers offer you a link with important financial news. For example www.oanda.com has this feature. You can also find financial news on the following websites:
a) www.bloomberg.com
b) www.businessweek.com
c) www.economist.com
d) money.cnn.com
e) markets.ft.com
f) www.reuters.com
g) www.fxstreet.com
3. Use money management strategies.
You need money management techniques. This is what makes you or breaks you. Put it this way, most traders invest far too much of their trading capital on every trade. It is as follows . . . "Expect to make too much and you will make too little, expect to make little and you will make a lot."
What does it mean? It means that if you try to make a fortune on every trade you will lose your shirt. If you expect to make a little on every trade and you compound your profits, you may make a lot of money over the long run.
The first rule of money management says that you should not risk more than 1% of the money that you have on your account. You control this risk with stop loss and limit orders. When you start trading this may seem as little profits specially if you start with little trading capital. In the other hand if you compound some or all of your profits you may increase your account exponentially over time.
The magic of compound interest is amazing! This is the way that most fortunes are created on the financial markets, little by little. If you gamble your money you may lose it fast.
Many traders do exactly the opposite. Imagine that you open an account with $5,000 and you enter a trade for $1,000. Let's say that the market moves against you and you lose those $1,000. Now you have $4,000 on your account. You think that the price for the currencies is too low, so it should recover. In fact you are pretty sure that it will come back.
Then you invest $1,500 to recover from the previous loss plus realize a $500 profit. The market moves again against you. It kept going in the same direction, something that you didn't expected. What happens? Now you have $2,500 on your account. That's 50% of your initial trading capital. It will be very hard for you to recover from that loss.
In the other hand, if you risk 1% of your money on every trade, you will have $4,900 on your account after that initial loss. It will be much easier for you to recover from those trades.
The second rule of money management is to expect always to receive more profits than the money that you risk to lose. This can be accomplished through limit and stop orders as well as trailing stops.
For example if you expect to make a 25 pips profits on every trade, then you put the stop order at 15 pips bellow or above your entry price. A better way to have a greater expectancy ratio is to use trailing stops as I describe above. A trailing stop allows you to cut the loses short and let your winners ride.
These are the basic techniques that a successful trader should use to generate consistent profits at the Forex Market. This is basic information, but I realize that many people out there don't even know what Forex is, so I didn't want to get into more complex strategies here. You will find information about complex and advanced Forex strategies on my website.
by Nathaniel Tabares la

Moving The Forex Market With Trading And Intervention Techniques

2008-06-14T13:28:00.002-07:00

Moving The Forex Market With Trading And Intervention Techniques
Trading and intervention techniques can offer traders benefits When trading on the foreign currency exchange market, or the Forex. Traders look to intervention as a means of seeing where the Forex is heading, indicating that some currencies should be higher or lower depending on what is going on in that country.
Intervention of the Forex is not unusual. When there is a big tragedy or large debt in a country, the value of that nation's currency will drop. There was a time when the budget deficit of the United States caused the value of the dollar to decline very rapidly in relation to the Japanese yen. This caused the Japanese yen to rise very quickly. When this happens, brokers and Forex traders can forecast, or speculate that an intervention is likely. Intervention makes the value of a currency either rise or fall depending on how the government wants it to move, even if it is for the short term.
Experienced brokers and Forex traders understand when an intervention is likely, thus creating an opportunity for the trader to profit by acting quickly. Using the intervention technique as a means of trading on the Forex necessitates that a trader must be up to date on current events from around the world and must be able to act upon these events and trends very quickly. It can be very risky to trade on intervention trends. The potential is there for the trader to lose a large amount of capital in a very short amount of time.
It is necessary to understand economics from around the world In order to completely understand the foreign exchange market and the way currency moves. The Forex solely revolves around currency and its value in relation to each other. The value of the currency plays a major role in both domestic and global economics.
The intervention technique is also directly related to the value of the currency and to the central banks. Currency obtains the value by supply and demand and by the government, or the central bank. When a currency is subjected to being valued it is called floating. When a government sets the rates of the currency, it is called fixing. This means that a country's currency is compared against another major currency, usually the US dollar.
Intervention in the Forex usually happens during times of economic instability. As currencies are always traded in pairs, a large and significant movement of the rates in one direction or the other will directly impact the other currency. Any time a nation experiences instability due to inflation, speculation, disasters or growing national debt, the other country will feel the affects as well. The results of this are not always felt immediately, but over a long period of time. This time lapse allows the government or central banks to act accordingly and allows them time to intervene if necessary.
When looking at charts of the way the foreign currency market performs, interventions are usually noticeable on graphs and charts. The intervention may not be made public, but an experience trader can look at these graphs over a period of time and tell when a government has chosen to intervene with the currency rates.
Knowing when an intervention is going to occur is not easy and it is even more difficult for the untrained trader to know when an intervention is going to happen. For those who have experience trading on the Forex, predicting an intervention can be as easy as looking at key indicators. Typically, interventions occur when the same price levels occur as previous with interventions. This is not always the case as some central banks may choose not to intervene, but on the whole it is a good indicator. Another indicator of when the Forex might undergo intervention is the verbal clue. A government might talk about intervening, and yet the intervention may not happen for a long time. Other times, interventions will happen with no warning.
Trading on the Forex involves mking well informed decisions that will ultimatley benefit you. If you are inexperienced in trading on the foreign currency exchange look for a good broker who is backed by a well-known financial institution.
by David Mclauchlan

My FOREX Trading Strategy

2008-06-14T13:28:00.001-07:00

My FOREX Trading Strategy
I ventured into the Forex market a little more than 1 year ago. I have tried and tested many different types of trading techniques and styles. Most were failures and some were successful. From my experience, traders making money in Forex will not reveal their trading system, simply because somebody has to lose money in order for you to make money.
Currently I have two strategies working for me. I started with a demo account a little more than one year ago and used the obvious techniques such as technical analysis and fundamentals. Technical analysis seemed to be the easiest method for an inexperienced trader since it only required looking at charts as opposed to watching the news. I used indicators such as MACD, Fibonacci, and RSI to help assess the market and make a prediction on price movement. Needless to say I was successful in my demo account, however when I went live, fear set in and I could not trade using the same techniques I had developed over 4 months of trading with a demo account.
The stress was too much and like a lot of people, I started looking for a Forex signals provider to minimize the time spent and stress. After some due diligence on quite a few Forex signals providers, I did find a reliable Forex charting software package that provided excellent signals. To my surprise, the signals worked. The only difficult part was to discipline myself to take each signal whether I agreed with it or not. After all, the company I chose had a winning track record for 3 consecutive years.
Now that I had a positive flow of income from a Forex signals provider, I decided to open a second account using my own trading system. This is where I discovered what I feel is a full proof system when it comes to making a fast 30 to 50 pips in Forex.
Trading now for a little more than 1 year, I noticed that the market moved on speculation. Speculation based on fear and news events, such as the CPI and retail sales. I noticed that between the times of 4:30 am eastern and 8:30 am there was a lot of critical news in majors such as the Euro and the British Pound. The market would move at the exact moment these major news events were released. If a news event was due out at 4:30 am on the British Pound, more than likely the market spiked at that exact moment 30 to sometimes 50 pips up or down. What I started to do was trade on these news events. I would wait until that exact moment the news was due out and execute a trade when the market moved more than 7 pips from its current price 15 seconds before the news is released. A stop-loss should be set at 10 pips above or below the current price.
The trick to this method is executing the trade at the right time and discipline yourself to keep your stop-loss very tight, setting it to no more than 10 pips after you got into the trade. The reason being, this works all of the time, but if you click too soon or too late you could fail to predict the direction of the market. However, when you are right, your winning trades will outweigh your losing traders significantly since you are looking to make a gain of 30-50 pips and if you a wrong a loss of only 10 pips. I have used this method for 5 months and it works.
by Timothy Rohrer

An Overview Of Forex Investing Strategies

2008-06-14T13:26:00.000-07:00

An Overview Of Forex Investing Strategies
Forex trading refers to an international, 24/7, over the counter, exchange market where currencies of different nations are bought and sold. Trading is always done in pairs assuming the price of currency bought to go up and that sold to fall down. It is the largest liquid financial market making it impossible for any single investor to influence the prices of currencies.
There are two kinds of Forex investing strategies:
TECHNICAL ANALYSIS FUNDAMENTAL ANALYSIS
TECHNICAL ANALYSIS:
Technical analysis is mostly undertaken by small and medium size investors. A technical analysis considers factors that are actually affecting the market rather than factors that can affect it. Thus the price quoted reflects all the factors that have influenced it. Only market generated facts and figures are taken into account and factors like fear, hope, expectations or other changes are not considered. Thus the analysis is generally based on these suppositions:
* Price reflects all actual market movements. That means price includes everything known to the market like supply and demand of foreign exchange, political factors, trade agreements etc. It is not concerned with what resulted in change rather deals with actual changes. It works on the assumption that price can take only one of the three directions:
Upward, downward and sideward
* It rest on those market patterns that have been identified as significant. That means those factors which are repetitive in nature or will produce desired results.
* History always repeats itself as human psychology changes very slowly with time. That is market movements are predictable.
VARIOUS TECHNICAL INDICATORS ARE:
1. RELATIVE STRENGTH INDEX:
It takes into account the ratio of upward and downward movements in index and expresses it in the range of zero to hundred.
2.CHARTS:
Charts include various hills, slopes, curves that develop on a chart over a time and reflect some major and minor changes in pattern. Some of the chart formations include:
* TRIANGLE * RECTANGLE * HEAD AND SHOULDERS * DOUBLE TOP AND BOTTOM * SAUCERS * V
3.GAPS:
A gap represents area on a bar chart where no trading took place.
* UPGAP: it is formed when the lowest price on a particular day is more than the highest price of previous day.
* DOWNGAP: it is formed when highest price of a certain day is less than the lowest price on previous day.
NUMBERS:
Various number theories are used in technical analysis like:
* Fibonacci theory * GANN
STOCHASTIC OSCILLATOR:
This indicates the overbought or/and undersold condition. It uses a scale of zero to hundred percent.
FUNDAMENTAL ANALYSIS:
It is the one where current economic, political, financial situation of the country of currency is studied. A country's economical and political condition depends upon many factors like the interest rate, unemployment level, exports and imports, per capita income, percentage of population living above and below the poverty line, inflation, trade relations with other countries, tax policies etc.
A fundamental analyst studies and evaluates all these factors before coming to any decision. Thus it helps in long tem decision making and making profits in short term by extra ordinary developments.
Some of the indicators that help in fundamental analysis include:
1. GROSS DOMESTIC PRODUCT:
It reflects total market value of all the goods and services produced in a country during a given year.
2. RETAIL SALES:
This reflects total receipts by all the retail stores in a country.
3. CONSUMER PRICE INDEX:
It reflects change in prices of consumer goods.
4. BUSINESS CYCLE:
It reflects various phases through which a business passes. These phases include:
* EXPANSION * PEAK * RECESSION * DEPRESSION
5. MONETRY POLICY:
It controls the supply of money in an economy.
Trading successfully needs knowledge, time and understanding of a market. You cannot earn continuously in a Forex market due to its volatile nature. Thus as a trader you should try to consider both technical and fundamental strategies of forex trading and make decision based on market expectations and trends. Try trading with money that you can afford to loose without any regrets. Trade with logic and if you are not sure quit and take rest for some time.
by Willie Reynolds

Forex Forecasts — You Never Know What You Will Benefit From

2008-06-14T13:25:00.000-07:00

Forex Forecasts — You Never Know What You Will Benefit From
Possible risks and profits to be made can always be predicted if traders would only have more accurate Forex forecast to base their trade and decisions upon. Forex forecasts are only one way of keeping up with the volatile Forex market. Success will depend the most in knowing what and who will affect the rate changes.
The Forex market has already been through a lot of ups and downs that even fortune tellers would have difficulty guessing what will be its next movement. Making a Forex forecast can be helpful but can also be too risky. Besides, doing it is not that easy also.
In Forex forecasts, nothing specific is given. The traders are not made to hope high and expect more. If you have seen or heard a Forex forecast, be sure to check on some projected rate fluctuations whenever and wherever possible so you would have an idea it the Forex forecast shows a likely possibility to be true or not.
Staying in touch and up-to-date with the latest news and happenings around the globe and information about the Forex currency can help traders determine when is the best time to buy, sell and stay away from a particular market. All these things are important in the performance of your trade. Take note of some Forex forecasts if only to serve as guide whenever you are in a situation that you find hard to make a decision upon.
How can one benefit from Forex forecasts?
There are some companies that are offering Forex forecast information as a subscription that traders can avail of. For those who do not have enough patience and browse for information in the internet, this Forex forecast information would be their alternative.
No one said that there is a 100% accuracy in these Forex forecasts. And no one told traders that they should also believe them 100%. If you want to have more degree of accuracy in the Forex forecast, you could always find one with the most accurate percentage rate.
You could look for something or someone that offers free information or a trail period for you to test the degree of their ability to give accurate forecast about the Forex market. There are also some sites that send out Forex forecast to emails that you may want to try out just so you will choice to choose from if you decide to avail the services of some of them.
Relying only on one Forex forecast is not the thing to do. You should at least have some more choices in the process of making an investment decision. Try to get more Forex forecast from sources that are rampant online and offline so you would not stick to just one.
The thing to remember is that your investments are your future and you have already worked too hard to just let it all down the drain. Do not put the future of your Forex trade into the hands of only person. Try to get several Forex forecast and choose the best one that you think has great ounces of accuracy up their sleeves.
Before putting the future of your investments into the hands of those offering Forex forecasts, make it a point to check out the latest that is happening in the Forex trading and see if the trend is likely to go with what the predictions are telling about.
If you think more about it, people doing Forex forecasts would not be out there giving bad forecasts because their reputation is the one at stake there. They surely would not want to ruin the image they have by giving false predictions about things that they know people will listen to, would they?
Like they say, traders should not believe all that is written in Forex forecasts. Some but not all. There are still decisions to be made that will be based upon the trader itself and no amount or accuracy of Forex forecasts can make that decision for them.
Just to be on the right side of things, always make sure and do your own research that will back up the Forex forecast you actually think is going to work. You never know what it will lead to...
by Kevin Anderson

5 EMAs FOREX SYSTEM, Exponential Moving Averages Full Potential

2008-06-14T13:24:00.000-07:00

5 EMAs FOREX SYSTEM, Exponential Moving Averages Full Potential
Among one of the important concepts a new forex trader should know is what a Moving Average means, how it's calculated and what its use as a trading indicator is.
Moving Average is defined as a technical indicator that shows the average value of a particular currency pair over a previously determined amount of time. This means, for example, that prices are averaged over 20 or 50 days, or 10 and 50 min depending on the time frame you are using at the moment of your trading activity.
As an averaged quantity, MA's can bee seen as a smoothed representation of the current market activity and an indicator of the major trend influencing the market behavior.
The basic mechanics of how Moving Averages can tell you where the forex market is moving (up or down), at the moment of your analysis is by considering two different time frame Moving Averages and plotting them on the forex chart. It is very important that one of these MA is over a shorter time period than the other one; let's say one will be over a 15 days period and the other over a 50 days period. Most trading station software available by a number of brokers will let you do this plotting and much more.
Recently there has been the realese of a new forex trading system called "The 5 EMAs FOREX SYSTEM". This system will allow you to identify both entry and exit points with incredible accuracy. He even claims you can convert $1000 into $1000 000 in just 24 months. He may be exaggerating a bit on this, but his plan of action and use of moving averages is quite outstanding and accurate.
Depending upon the exit strategy selected, the system generates monthly returns of between 30% and 55%. Which is more tha enough to make a living trading the forex markets with the 5 EMAs Forex System.
by Adrian Pablo

Automated Trading Systems for Financial Markets and Recommendations for Their Usage

2008-06-14T13:23:00.000-07:00

Automated Trading Systems for Financial Markets and Recommendations for Their Usage
1. Introductions
Today, using information and trading platforms has become a de facto requirement for successful trading in the financial markets. Their advantages as compared to conventional trading schemes include, for example, an unprecedented speed of processing and delivery of information to end users, the level of integration with data providers, and a wide array of built-in technical analysis instruments.
At the same time, an investor opening an account with a brokerage firm simply cannot simultaneously manage the real-time analysis and trade in more than 4-6 financial instruments in several markets 24 hours 7 days a week. This brings about the need to employ automatic trading systems in the form of runtime environment with client and server parts and the programs to control these systems (scripts).
2. Comparative Analysis of the Problem Area
Various software components embrace the entire target sector of the market-from analytics and forecasting to complex trade and administration. The components of a trading platform provide its clients-brokers, dealers, traders, financial analysts and advisors-just the service they need at the very moment they need it, from immediate round-the-clock access to information of concern by means of mobile devices, to multi-move trading operations in the major client terminal.
The software market offers a great many of information and trading platforms that differ, first of all, in the functionality of the client and server parts, and the list of services provided by the financial company once an account has been opened. However, only a relatively small number of software solutions include the components that automate trading.
2.1. MetaTrader4-based Solutions
One of the world's most widely used trade platform products is apparently MetaTrader4, developed by MetaQuotes Software Corporat?on for Forex market trading. The platform includes an integrated development environment (IDE) MetaEd?tor, intended for writing scripts in a programming language called MetaQuotes Language, or MQL4 for short. The language's syntax is based on the classic C language syntax, and the flow logic has not been significantly changed since the previous version of the platform that used MQL II as the programming language. The new automated trade framework is, undoubtedly, an evolution of the previous one. Both languages feature good functionality, with an optimum set of built-in trading and utility functions which is quite sufficient to implement the basic operations, and a facility to define custom functions to help implement non-standard ideas.
From the programming point of view, MQL4 is much more convenient that its predecessor; this language is more oriented at professional programmers, while MQL II, in my opinion, will rather suit financial experts wishing to build trading programs (or trading advisors, in the MetaQuotes terminology) of their own.
2.2. Omega Research-based Solutions
In the New World, the vast majority of companies use the Omega Research platform developed by TradeStation Securities, Inc. This platform has long ago proven its worth at the worldwide market, and to date experts consider it to be the best system for technical analysis. The provided IDE called Omega Research PowerEditor is intended to create control programs in EasyLanguage (EL).
The language's major advantage that strikes the eye is the easiness (hence is the name) of placing opening and closing orders. The corresponding program instructions can be written such as if we were formulating an order to our broker in the plain human language. In MQL4, for example, placing an order to open a position would involve specifying about a dozen of various parameters. In EasyLanguage, the same can be expressed in a short statement using a few words. Working with technical indicators is about that simple, too. But don't fall under an illusion: when creating these simple commands, language developers sacrificed the functionality and limited the possible ways of using a particular function, therefore effectively depriving the IDE users of the opportunity to accurately implement their own algorithms.
TradeStation decided not to create extensive libraries of built-in trading and utility functions but to limit to only an essential set. As the platform advanced, the number of functions written by both in-house and third-party developers grew, and TradeStation simply included them as user-defined functions into the repository of its scripts. As a result, the functionality offered to users is not in the least scarcer than that of MetaQuotes product.
PowerEditor provides a built-in dictionary that lets user search and get help on the available functions. Another handy tool worth mentioning is the strategy builder. Using the strategy builder, the user can easily create a basic algorithm for his or her trading program, and then modify and adjust it as necessary.
EasyLanguage is an old-timer and pioneer in the field of creating automated trading systems for the stock market. It was the basis for the development of MQL II. EasyLanguage will be a good choice for programmers, but still a better one for financial experts more oriented at analyzing the market than trading.
2.3. ProTrader-based Solutions
Professional financial experts can choose the ProTrader2 or ProTraderFX platform as their working tool, depending on the type of the financial market-stock or Forex, respectively. The two platforms are developed and supported by PFSoft LLC. While featuring the specially developed ProTrader Language (PTL), the provided IDE named PTL Builder offers also the opportunity to create scripts in MQLII, MQL4 and EasyLanguage. For this, the text of the program is translated to a language-independent code. Therefore, at runtime it does not matter in which language the script was written. This technology does not only enable creating new scripts, but makes it possible to use freely the entire accumulated collection of scripts that many experienced traders possess.
The main idea put into the new scripting language was to ensure maximum reliability and predictability of the scripts being run. The PTL language is built so as to minimize the possibility of making a mistake in the text of a user's script-the potentially dangerous points will be detected even before the script is tested or launched.
Regardless of the programming language chosen, the platform works with verified managed code while running the script. This Microsoft-developed technology enables proper handling of errors that cannot be detected before the script is run. This means the program will not fail and will not perform any unwanted operations that might be due to critical errors or damage caused by another program, for which the account holder would eventually have to pay.
The PTL Builder IDE will serve well both financial experts and programmers thanks to its support of different programming languages and provided tools such as tester and debugger.
2.4. Solution Comparison
The above IDEs have their specific feature sets. The table below provides a summary comparison of the capabilities offered by each.
3. Approaches for Creating Automated Trading Systems and Recommendations for Using Them
It hardly needs mentioning that choosing an information and trading platform should be taken with all seriousness. For those who plan to use an automated trading system in their business, below are some points I would recommend considering, based on my personal experience.
3.1. Choosing a Working Environment
First of all, define the type of tasks the automated trading system is to perform. These could be:
Actual trading: opening and closing positions in selected instrument(s).
Secondary support-type functions. These could include placing protective orders, creating and sending out reports of notifications.
Analyzing the market with different technical analysis tools using your own algorithm.
Now, after you have studied user comments on the Internet and perhaps consulted your broker, proceed to getting the feel of the products offered. I strongly encourage you not to just have a cursory look, but to test the system for a day of two, thankfully, most of the large companies will let you sign up for a demo account for testing. Pay attention to both the convenience of the IDE and the tools that go with it, and to reliability and security of the control programs created with the IDE.
3.2. Creating a Control Program
If you are planning to create your own scripts, take the time to study the documentation for the programming language and the IDE. Naturally, for an automated trading system to be expertly organized, the scripts should be written by qualified professionals in the field of programming and finance. In case you wish to use one of the classic programs, remember that most of them are of trial, demonstration nature. They are good for testing the automated trading system or to be used as a basis for your own programs, but as self-sustaining, ready-to-use solutions they are of little avail.
If you decide to use programs written by third-party developers, keep in mind that good solutions will have to be paid for. The cost of one innovative strategy varies between $300 and $500, but the price for fine-tuned strategies that use advanced mathematical and economic techniques and especially for winners and runners-up of automated trading championships may exceed $1,000.
3.3. Testing Scripts
When using an automated trading system, always test your scripts. The procedure can be as follows:
1. Test the program in a script tester (if such facility is available in your IDE) several times, varying the chart period, the instrument being traded, and the program settings. Try to model the conditions close to the actual state of the market.
2. Test the script in a demo account (if such an opportunity is available). At this stage, it is important to let the program run for a sufficiently long time (it is defined by the period of the chart). Do not stop the test if the program has at once produced a big gain or a big loss. The usefulness of the script can only be estimated after it has worked for a significant amount of time.
3. Run the script in the live account. At this stage, it is not advisable to interfere with the script-for example, close the positions it has opened or modify their settings-or you can upset the internal logic of the program.
3.4. How Not to Fall Prey to Tricks When Choosing a Script
Remember that there are no absolutely perfect advisers. So, do not let them sell you the Brooklyn Bridge-if you had a system that brings in fabulous profits, would you sell it? There is only one advice-a rigorous comprehensive testing will help you get the right impression about the script offered.
Usually, script vendors describe their products with the results of their own testing. In most cases, however, such results are very slanted. Remember that testing should always be performed on several histories, or you can simply adjust to one history fragment and show sky-high results. Based on the NFL theorem, it is fair to say that it is impossible to create a script that would the best of all those existing, in all instruments.
Some professional programmers use sophisticated mathematical tools to endow their programs with artificial intelligence-neural networks, forecasting and evolutionary algorithms are no longer surprising. I would not recommend overestimating such systems-complex forecasting algorithms are very sensitive to errors and parameter settings, while simple schemes are not of much help to the advisor when it comes to generating trade signals, and can only be used to raise the price of the script.
4. Conclusion
In this article, I neither discuss any programming rules for creating the advisors, nor the specifics of writing scripts in a particular language. On these subjects, there are whole books written as well as a number of articles. My aim was to present several points which I think to be quite important but which have not been sufficiently covered in existing publications.
So, are automated trading systems your ally or enemy? When used carefully and without hasty judgments, an automated trading system can facilitate the financial expert's work and bring in certain profits. But when used incorrectly, incompletely tested, or having settings changed frequently, the automated trading system can lose the money you entrust to it.
Remember that an automated trading system is not going to do your job for you without any effort on your part. Use it to solve your existing problems and not add new ones.
5. References
1. MetaQuotes — developer of MetaTrader, MQL2 and MQL4
2. TradeStation — developers of TradeStation and EasyLanguage
3. PFSoft — developers of ProTraderFX, ProTrader2 and ProTraderLanguage
by Nikita Laukhin wwz

100% Hedging Strategies

2008-06-14T13:22:00.000-07:00

100% Hedging Strategies
Hedging is defined as holding two or more positions at the same time, where the purpose is to offset the losses in the first position by the gains received from the other position.
Usual hedging is to open a position for a currency A, then opening a reverse for this position on the same currency A. This type of hedging protects the trader from getting a margin call, as the second position will gain if the first loses, and vice versa.
However, traders developed more hedging techniques in order to try to benefit form hedging and make profits instead of just to offset losses.
In this page, we will discuss, some of the hedging techniques.
1. 100% Hedging.
This technique is the safest ever, and the most profitable of all hedging techniques while keeping minimal risks. This technique uses the arbitrage of interest rates (roll over rates) between brokers. In this type of hedging you will need to use two brokers. One broker which pays or charges interest at end of day, and the other should not charge or pay interest. However, in such cases the trader should try to maximize your profits, or in other words to benefit the utmost of this type of hedging.
The main idea about this type of hedging is to open a position of currency X at a broker which will pay you a high interest for every night the position is carried, and to open a reverse of that position for the same currency X with the broker that does not charge interest for carrying the trade. This way you will gain the interest or rollover that is credited to your account.
However there are many factors that you should take into consideration.
a. The currency to use. The best pair to use is the GBPJPY, because at the time of writing this article, the interest credited to your account will be 24 usd for every 1 regular long lot you have. However you should check with your broker because each broker credits a different amount. The range can be from $10 to $26.
b. The interest free broker. This is the hardest part. Before you open your account with such a broker, you should check the following: i. Does the broker allow opening the position for an unlimited time? ii. Does the broker charge commissions?
Some brokers charge $5 flat every night for each lot held, this is a good thing, although it seems not. Because, when the broker charges you money for keeping your position, the your broker will likely let you hold your position indefinitely.
c. Equity of your account. Hedging requires lots of money. For example, if you want to use the GBPJPY, you will need 20,000USD in each account. This is very necessary because the max monthly range for GBPJPY in the last few years was 2000 pips. You do not want one of your accounts to get a margin call. Do not forget that when you open your 2 positions at the 2 brokers, you will pay the spread, which is around 16 pips together. If you are using 1 regular lot, then this is around 145 usd. So you will enter the trades, losing 145 usd. So you will need the first 6 days just to cover the spread cost. Thus if you get a margin call again, you will need to close your other position, and then transfer money to your other account, and then re-open the positions. Every time this happens, you will lose 145 usd!
It is very important not to get a margin call. This can be maintained by a large equity, or a fast efficient way to transfer money between brokers.
d. Money management. One of the best ways to manage such an account is to monthly withdraw profits and balancing your positions. This can be done by withdrawing the excess from one account, take out the profits, and depositing the excess into the losing account to balance them. However, this can be costly. You should also check with your broker if he allows withdrawals while your position is still open. One efficient way of doing this is using the brokerage service withdrawals which is provided by third party companies.
by Yannis Karamanakis

How I became a successful part time trader

2008-06-14T13:20:00.000-07:00

How I became a successful part time trader
Introduction
I am Joe Chalhoub, a computer engineer, Forex trader and strategy builder. I began trading currencies 3 years ago. The first 3 months trading were complete failure, I remember I lost all my money and I was about to quit, but I couldn't, I felt if I quit now maybe I am missing the chance of having my own business. So I stopped trading and began observing, studying, analyzing and practicing.
Observing: I began observing the market, what causes movement, reaction, ranging and trading.
Analyzing: I began working with technical and fundamental analysis; how each analysis can predict and redirect the market and how I can use them both for my own benefit. I will talk about these analyses in the following paragraph.
Reading: I bought Forex Trading Books and read them, books explaining different strategies and tactics used by experienced traders.
Practicing: I created free accounts and began trading virtually and each technique I invent I tried it and monitored its performance and validity.
After one year of studies, analysis and practicing trading techniques and after many failure and frustration I reached my own strategy and it is working very well and each month my profit is positive.
Implementation
I reached my targets and I built a successful strategy, but that's not enough; to make profit I must not miss any opportunity and forex market is full of opportunities because it is the most active market in the world, for that reason I must sit all time and watch and detect opportunities all day long from Monday to Friday.
How to resolve this problem, I can't sit and observe the market hours and hours, I have my career and my family, so I thought I must program my strategy, let the Information Technology do the hard work for me, and nobody is discipline as a software, so I created an artificial intelligent software which collects data from the market and implement my strategy on this data and detect opportunities 24/24.
This program analyses fundamental and technical data and generates forex signals which are forwarded automatically to my broker platform where the signals are executed automatically and forwarded also to my website members. All this is done without my interfering, I just run the program, it analyses and makes its decisions (Buying, Selling or stay aside).
How to succeed in Forex Trading
Five over hundred traders succeed in this business, what differentiate those five successful from the 95 others is one thing, it is the HARD WORK. Forex trading is not an easy business, and who tells you that he can make you rich in one night is one of those 95. Only one thing can make you a successful trader, HARD WORK, and nothing else. Don't rely on other traders or advisors to help you, rely and have confidence on yourself.
Don't begin trading quickly, the forex market will not go anywhere, it will stay forever, give yourself 6 to 12 months of studies, analysis, readings, practice and build your own strategy before begin real trading, it will take a lot of time and dedication but at the end you will reach your target.
Strategy
I will not reveal my full strategy but I will reveal some techniques I use which help traders in their trades.
My strategy follows the following tips and techniques:
1 — Discipline: Put criteria for your trades, watch the market and only trade when criteria are met, if they are not met do not trade. My program is the most disciplined trader, it takes care of all of this, it monitors the market and only trade if only criteria are met, and the second advantage of this is the elimination of the fear factor, it enters a trade when it sees it is good to enter and fear nothing.
2 — Money management: It's the main key for good trading, I exit all trades and stop trading for a specific day if I lost -60 pips, in the other hand I put stop loss for my trades if I reached +25 pips profit, in that case profit will not get under +25 pips and it has open target, and all I have to do is go out and have fun.
3 — No trades for now: The most important thing in trading is sometime not to trade, I take this decision after looking to my charts and see that there is not enough volatility or there is no enough reports will be released for today and it is better to wait until market is more volatile. I advise traders not to trade during the first days of the month, personally I begin trading at the first Friday of the month when the "NonFarm payroll" report will be released.
4 — Analysis: I use fundamental and technical analysis while trading. Fundamental defines the trend of the market and the technical analysis is used after the definition of the trend. I trade the news by analyzing programmatically the released data for a specific report and generate signals which are executed immediately on the trading platform and forwarded simultaneously to my members.
Fundamental and technical analysis must be used together, if one is used without the other this will lead to failure.
5 — Technical indicators: In the forex market there is a lot of indicators which are used by many traders. I use ADX, Bollinger Bands to identify trends and volatility; RSI to identify an over bought or sold and Moving Average to identify a signal. And the most important technique is FIBONACCI, I advise traders to implement this technique and use it to confirm trades.
Finally, I must say that Forex is not easy, and many times we feel that someone is doing a conspiracy on us to take our money, but the truth is nothing is impossible, and others successful traders are not more intelligent than us and they are not genius from other planet, the fact is the more you work the more you become closer to become good trader. Do not quit quickly because this business deserves hard work and dedication.
By Joe Chalhoub

Scalping The Forex Market For Profits Every Day

2008-06-14T13:19:00.000-07:00

Scalping The Forex Market For Profits Every Day
Scalping the forex market is something that all new traders aspire to do. It is however not easy and requires allot of concentration and discipline.
Once you decide on a set you are going to use you will need to spend a few months religiously for a couple of hours a day trading on demo until you get to know your setup and a feel for scalping it.
A popular way to scalp the forex on M1 charts is to use hull moving averages. Plot the following WMA's (Weighted Moving Averages) on your chart: 10, 20, 30, 40, 50, 60, 70, 80, 90, 100, 110, 120, 130, 140, 150, 160, 170, 180, 190, 200, 210, 220, 240. Now set price to a line on Average or, if you don't have that, set it to line on Close. Set all the WMA's to one color that is different to price.
This will create a pretty chart. Using these WMA's you can easily see the strength of a trend, you will notice that price tends to retrace back and forth from the moving averages.
What we are looking for is resistance in a up trend or support in a down trend in the form of double top or something similar. Once you find this area wait for a convincing break of it following the trend and then enter to scalp part of the move.
This method takes practice, don't expect to be able to pull it off straight away, open a demo account with a broker that offers spreads of a pip or less and trade every day at the same time for at least two months. I guarantee you will see great improvements as you become familiar with the setup and the flow of the market.
by Dean Saunders

The Opportunities of Trading the Forex Hedged Grid System

2008-06-14T13:18:00.000-07:00

The Opportunities of Trading the Forex Hedged Grid System
I have seen the hedged grid system been used successfully (and highly unsuccessfully) over the last few years. Unfortunately the failures tend to discourage traders from taking advantage of this great system. I have found that the failures are mainly due to ignorance, impatience and greed (common reasons for trading failure).
In a nutshell the grid system uses the following methodology. You start by buying and selling a currency. When the price moves a predetermined distance (grid leg) you cash in the positive leg, leave the negative leg and buy and sell again. Sooner or later the system goes positive and you would then cash in when it is positive.
This is a brief summary of the content of our free hedged grid trading course available on expert-4x.com. Please refer to this course for more details of how money is made. The attraction is that the system is reasonably mechanical, can be programmed and does not take much supervision as exclusively entry orders are used.
Money is made when the price retraces 100%, 50%, 33% at various levels. This starts looking like a strategy that supports the Fibonacci concept. The grid system is also based on the nature of the market to trade sideways 80% of the time and to trend 20% of the time.
The dangers are that what if the price does not retrace and continues to trend. The Grid system can not make money in a trending market — full stop. One has to realize that. You therefore need Strategies to minimize damage during these periods:-
Firstly I have found that the biggest mistake made by traders is that they select a very small grid leg sizes e.g. 20 to 30 pips. This is a recipe for disaster. The trick is to use big leg sizes between 150 and 300 pips. What this does is that it sometimes turns a trending phase into movement in a sideways market. I would typically use 300 pips for the GBPJPY and 150 pips for the EURUSD for instance.
Secondly there is no rule that says that the legs have to be the same size. So I change my leg sizes in trending markets to be even bigger. If I started with 150 for the 1st leg I would go to 200 for the 2nd leg and 250 for the 3rd leg etc. This makes sure that I am carrying less loss making transactions in a trend.
Thirdly — sometimes it is wise to increase the number of lots with the trend compared to the numbers against the trend in a good trend. However be aware of having the same number of sell and buy transactions. All you will have done was lock in your current status in a 100% hedge.
Fourthly — This is the biggest change and most important one that I personally have made in my grid trading strategy. Always cash in all your transactions when your system is positive and when the price reaches the end of one of your grid legs. By cashing in you are reducing the risk of carrying negative lots in a trending market. This also gives you an opportunity to re-assess the market conditions.
Fifthly:- Cash in a start again is always an option. One of my strategies is to cash in all my open positions when the 3rd leg of my grid is reached and start again. Experience has taught me that this is a short term pain that goes away very quickly and is soon forgotten.
People that have traded the grid system will immediately see how the above approaches will reduce the risks of exponential losses building up in a strongly trending market. Please feel free to contact Mary McArthur at marymcarthur@expert4x.com for clarification on any items discussed above. She has numerous examples of successful applications of grid trading
This article is part of a series and many more will follow on Grid trading, money management and Forex Trading Strategies.
by Mary McArthur

Forex Profits by Buying and Selling at the Same Time

2008-06-14T13:15:00.000-07:00

Forex Profits by Buying and Selling at the Same Time
This article is one of a series which looks at the advantages and weaknesses of trading using the hedged, grid trading system to trade volatile markets.
We will look at how money can be made by breaking a number of trading truths or principles; * cut your losses and let your profit run and * there is nothing to gained by entering into buy and sell deals at the same time.
The hedged grid trading system uses the principle that one should be able to cash in at a gain no matter which way the market moves. No stops are therefore required at all. The only way this is logically possible is that one would have a buy and sell active at the same time. Most traders will say that that is trading suicide but let's take some to look at this more closely.
Let's say that a trader enters the market with a buy and sell active when a currency is at a level of say 100. The price then moves to 200. The buy will then be positive by 100 and the sell will be negative by 100. At this point we start breaking trading rules. We cash in our positive buy and the gain of 100 goes to our account. The sell is now carrying a loss of -100.
The grid system requires one to make sure that cash in on any movement in the market. To do this one would again enter into a buy and a sell transaction. Now, for convenience, let's assume that the price moves back to level 100.
The second sell has now gone positive by 100 and the second buy is carrying a loss of -100. According to the rules one would cash the sell in and another 100 will be added to your account. That brings the total cashed in at this point to 200.
Now the first sell that remained active has moved from level 200 where it was -100 to level 100 where it is now breaking even.
The 4 transactions added together now magically show a gain:- 1st buy cashed in +100, 2nd sell cashed in +100, 1st sell now breaking even and the 2nd buy is -100. This gives an overall a gain of 100 in total. We can liquidate all the transactions and have some champagne.
There are many, many other market movements that turn this strange "buy and sell at the same time" activity into gains. These will be covered in future articles and are covered in a free grid trading course which is available at the expert-4x.com website for those traders whose curiosity has been aroused.
by Mary McArthur

The Properties Of Price Movement

2008-06-14T13:14:00.002-07:00

The Properties Of Price Movement
You might look at the stock prices at the bottom of your television screen or, if you are trading currencies in the forex market, you might look at the exchange rates go up and down your computer screen. Prices move and you wonder whether their behaviour means something. Could the market be sending out signals that you can use to make your decisions? How, exactly, are you going to study the market?
For anybody to make money from the market, they must have a way of studying it. There are predominantly two approaches: fundamental and technical. Fundamental analysis focuses on value but this is the subject of another article. Technical analysis, on the other hand, focuses on price and its movement.
The movement of price has the following properties which traders can study to aid in their decisions:
1. Trend — its persistence to move in one direction,
2. Volatility — the magnitude of its fluctuations on a periodic basis,
3. Momentum — the rate of its acceleration and deceleration,
4. Cycle — its tendency to move in cyclical patterns, most especially in the futures market,
5. Market Strength — the number of transactions supporting its movements,
6. Support and Resistance — its tendency to rise or fall to a certain level and then reverse, repeatedly.
Analysts, using the technical approach of analysing the markets, have developed their own set of indicators, different to those used by fundamental analysts. These indicators are used to measure the properties of price movement. Fortunately for modern-day traders like you, you do not have to devise your own tools. You just need to learn how they work and how to use them.

Option Arbitrage in the Forex Market

2008-06-14T13:14:00.001-07:00

Option Arbitrage in the Forex Market
What is arbitrage? Arbitrage is the simultaneous buying and selling of identical financial instruments taking advantage of price discrepancies between different brokers, exchanges, clearing firms, etc. and thus looking in a profit. On paper, arbitrage is a risk-less trading strategy. In the real world however, risks abound.
So why trade arbitrage? Well, if the risks can be managed, arbitrage can be extremely profitable if you can find the opportunities and take advantage of the opportunities before they disappear. After all, the arbitrage opportunity is present because one side is slow to react to market news, momentum, etc. When it corrects the opportunity is gone.
Why arbitrage forex options? Well, because the opportunity exists if you look far it. The forex market is a cash inter-bank / inter-dealer market. In simplest terms, this means the foreign currencies traded in the forex market are traded directly between banks, foreign currency dealers and forex investors wishing either to diversify, speculate or to hedge foreign currency risk. The forex market is not a "market" in the traditional sense due to the fact that there is no centralized location for forex trading activity and, therefore, trades placed in the forex market are considered over-the-counter (OTC). Forex trading between parties occurs through computer terminals, exchanges and over telephones at thousands of locations worldwide. Therefore the forex market is not as efficient as the NYSE for example. Price discrepancies exist between trading platforms, clearing firms, banks, etc if only for a small period of time. Options pricing is also affected for the same reasons but since there are other components involved in pricing an option than just the price of underlying currency, they tend to exist for longer periods of time.
One of the most common causes of option pricing differences is the calculation of volatility. Volatility is generally the standard deviation measured over a period of time. Sounds simple enough right? Well, if compare the volatility measure across different forex option providers, you'll likely find differences as large as 2%. When you find this you have also probably found an arbitrage opportunity.
Now that you've found an arbitrage opportunity, how do you trade it? Well, that's a bit trickier and this article cannot possibly cover all the risks associated with pulling off the trade but I will list some issues you should consider.
First of all, are the options really the same? Are the contract sizes, expiration dates and times the same? American or European style?
You also need to consider execution risk. Will there be slippage. Will there be a time delay in getting filled. Is the market moving too fast?
Exit strategy, how are you going to exit the trade and still capture the profit? What happens if the options expire in-the money? Out-of-the-money? What if you get assigned a position on one option but not the other?
These are just a few of the issues one must consider when trying to profit from option arbitrage. The key to option arbitrage is not unlike any other trade -- planning and risk management. Plan the trade, manage the risks, and execute the plan and you will be successful.
by John Nobile

Forex Profits

2008-06-14T13:11:00.000-07:00

Forex Profits
Forex, FX and the Forex market are some common abbreviations for the Foreign Exchange market. Actually it is the largest financial market in the world, where money is sold and bought freely. In its present condition the Forex market was launched in the seventies, when free exchange rates were introduced, and only the participants of the market determine the price of one currency against the other proceeding from demand and supply. As far as the freedom from any external control and free competition are concerned, the Forex market is a perfect market.
With a daily turnover of over trillions of dollars, the Foreign Exchange market conducts more than three times the aggregate amount volume of the United States Equity and Treasury markets combined. The Forex market is an over-the-counter market where buyers and sellers conduct foreign exchange business using different means of communication.
Unlike other financial markets, the Forex market has no physical location or central exchange. Since the Forex market lacks a physical exchange, the market trades continuously on a 24-hour basis, moving from one time zone to the next, across each of the world's major financial centers every day. Trillions of dollars of foreign exchange activity takes place every day. From 1997 to the end of 2000, daily forex trading volume surged approximately from US$5 billion to US$1.5 trillion and more (according to various recent studies it has touched $1.7 trillion per day and dwarfs all other markets for trading in size and volume). It is really difficult, if not impossible; to determine an absolutely exact number because trading is not centralized on an exchange. But one thing is for sure that the Forex market continues to grow at a phenomenal rate.
Before the advent of Internet and ecommerce, only big corporations, multinational banks and wealthy individuals could trade currencies in the Forex market through the use of the proprietary trading systems of banks. These systems required as much as US$1 million to open an account. Thanks to advancements in online technology, today investors with only a few thousand dollars can have access to the Forex market 24 hours a day and around 5 ? days of a week.
The Forex market is a nonstop cash market where currencies of nations are traded, typically via brokers called forex brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets while traders increase or decrease value of an investment upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events so it is also considered to be a highly volatile and fragile market too. Conditions of the Forex market never remain the same they changes every second.
The foreign exchange market dwarfs the combined operations of the New York, London, and Tokyo futures and stock exchanges. According to its size and scope it is many times larger than all other markets. Stats shows that spot transactions and forward outright Forex trading take place in the inter-bank market. 51% of the market is in spot Forex transactions, followed by 32% in currency swap transactions. Forward outright Forex transactions represent another 5% of this daily turnover, with options on 'interbank' Forex transactions making up another 8%. Therefore the inter-bank market accounts for 96% of the global foreign exchange market, with the remaining 4% being divided among all the global futures exchanges.
For traders, Forex trading provides an alternative to stock market trading. While there are thousands of stocks to choose from, there are only a few major currencies to trade (the Dollar, Yen, British Pound, Swiss Franc, and the Euro are the most popular). Forex trading also provides a lot more leverage than stock trading, and the minimum investment to get started is a lot lower. Add to that the ability to choose flexible trading hours (forex trading goes on 24 hours a day) and you have the reason why so many stock traders have flocked to day trade currencies.
by Anthony Trister

FOREX Trading Philosophy

2008-06-14T13:10:00.000-07:00

FOREX Trading Philosophy
Keen on starting Forex trading? Why would you not be: Many beginning Forex traders are captivated by the allure of easy money. Forex websites offer 'risk-free' trading, 'high returns' and 'low investment' — these claims have a grain of truth in them, but the reality of Forex is a bit more complex. As with anything in life, what you put in will determine what you get out.
There are two common mistakes that many beginner traders make — trading without a strategy and letting emotions rule their decisions. After opening a Forex account it may be tempting to dive right in and start trading. Watching the movements of EUR/USD for example, you may feel that you are letting an opportunity pass you by if you don't enter the market immediately. You buy and watch the market move against you. You panic and sell, only to see the market recover.
This kind of undisciplined approach to Forex is guaranteed to lose you money, and have you waste your time. Forex traders need to have a rational trading strategy and not allow emotions to rule their trading decisions.
The two emotions prevalent in the above example is greed (entering the market immediately) and fear (selling when the market temporarily moves against you). Investing and these two emotions do not gel at all. Keep them out of your trading and you will see results.
To make rational trading decisions the Forex trader must be well-educated in market movements. He must be able to apply technical studies to charts and plot out entry and exit points. He must take advantage of the various types of orders to minimize his risk and maximize his profit.
The first step in becoming a successful Forex trader is to understand the market and the forces behind it. Who trades Forex and why? Who is successful and why are they successful? This knowledge will allow you to identify successful trading strategies and use them as models for your own.
There are 5 major groups of investors who participate in Forex — Governments, Banks, Corporations, Investment Funds, and traders. Each group has varying objectives, but the one thing that all the groups (except traders) have in common is external control. Every organization has rules and guidelines for trading currencies and can be held accountable for their trading decisions. Individual traders, on the other hand, are accountable only to themselves.
If you do not keep yourself in check, nobody else will. Why should they worry if you aimlessly waste your money?
This means that the trader who lacks rules and guidelines is playing a losing game. Large organizations and educated traders approach the Forex with strategies, and if you hope to succeed as a Forex trader you must play by the same rules. That is studying these strategies and rules before starting to trade is so important.
Forex Trading Philosophy — Money Management
Money management is part and parcel of any trading strategy. Besides knowing which currencies to trade and recognizing entry and exit signals, the successful trader has to manage his resources and integrate money management into his trading plan. Position size, margin, recent profits and losses, and contingency plans all need to be considered before entering the market.
This may sound like Greek now! If it does, you have more reason to get to know these terms. Knowledge will empower you on any investment market, including Forex.
There are various strategies for approaching money management. Many of them rely on the calculation of core equity. Core equity is your starting balance minus the money used in open positions. If the starting balance is $10,000 and you have $1000 in open positions your core equity is $9000.
When entering a position try to limit risk to 1% to 3% of each trade. This means that if you are trading a standard Forex lot of $100,000 you should limit your risk to $1000 to $3000 — preferably $1000. You do this by placing a stop loss order 100 pips (when 1 pip = $10) above or below your entry position.
As your core equity rises or falls you can adjust the dollar amount of your risk. With a starting balance of $10,000 and one open position your core equity is $9000. If you wish to add a second open position, your core equity would fall to $8000 and you should limit your risk to $900. Risk in a third position should be limited to $800.
By the same principal you can also raise your risk level as your core equity rises. If you have been trading successfully and made a $5000 profit, your core equity is now $15,000. You could raise your risk to $1500 per transaction. Alternatively, you could risk more from the profit than from the original starting balance. Some traders may risk up to 5% against their realized profits ($5,000 on a $100,000 lot) for greater profit potential.
As you can see, the novice needs to get through quite a bit of education, understanding and planning before those 'risk-free' trading, 'high returns' and 'low investment' promises will come into play. What are you waiting for? Get yourself a decent Forex Trading Education.

Where to Get Forex Training

2008-06-14T13:09:00.001-07:00

Where to Get Forex Training
For those of you who are interested in forex trading, you may want to start off by getting some good forex training. Forex training is a necessity for anyone with this interest. This is because a lot of money is involved in forex trading. If you don't get some forex training, you are bound to lose a lot of money.
Some of you may not even know what forex trading is. If you don't know this, you defiantly need some forex training. Forex stands for foreign exchange. Forex trading is basically the exchange of one countries currency for another countries currency. This is done simultaneously in hopes of gaining a profit.
You can get forex training from several different places. The first place you should get forex training from is online. There are many websites that offer free forex training. The forex training these websites offer is both reliable and accurate. The forex training on these websites often offers a free demo account to teach you how to trade without actually using any real money.
A second place to get Forex training is at your local college campus. Forex training courses at college are usually inexpensive and very thorough. The forex training courses offered should also include hands on experience with trading, to help you get the edge. You can also get some books on forex training or research forex training at your local library. The best place to get forex training is from someone who is already involved in forex trading. The forex training these individuals provide will be more realistic for you and give you different aspects of the forex trading game.
The forex training you get should first start with learning how the foreign trade market works. The trade market is always changing, so you need to understand it first. The second part of your forex training should be about risk control. You never want to invest more than you can afford. The right forex training should teach you how to cut your losses and have less risks of failure. Next, your forex training should teach you how to open and manage a forex trading account. But this should be done with a demo account. All forex training should be done this way first, before you try the real thing.
With all of this in mind, you should be able to find some good forex training. Learn the ropes of forex trading and take the time to learn it well. Be sure to try a demo forex trading account before you start a real account. With the right forex training, you will soon be on your way to a profitable way to supplement your income.
by Jay Moncilff

Getting a Forex Trading Education

2008-06-14T13:07:00.002-07:00

Getting a Forex Trading Education
Many Americans are interested in getting involved in forex trading. Before doing this, you should get a forex trading education. You should never get into forex trading without forex trading education. With the proper forex trading education, you can be on your way to making a tidy profit.
First you need to understand what forex trading is. Forex is short for foreign exchange. Forex trading is the simultaneous exchange of one countries currency for another countries currency. By doing so at the right times, you can gain a profit. A forex trading education can teach you how to do this.
The first part of a forex trading education is to learn the market background. The foreign exchange market is always changing. With forex trading education, you will learn how to monitor these changes to be beneficial for you.
The next part of your forex trading education is to learn about risk control and risk management. You learn to control yourself and not over invest at the thrill of the chance of making money. You will also learn how to cut your losses (how to exit losing trades before your losses exceed your limits). You will always lose money when you first begin forex trading. This part of your forex trading education is absolutely crucial to whether you will make it big or end up in a hole.
Another important part of your forex trading education is to learn how to open and manage your forex trading account. Your forex trading education should first have you practice with a demo account. This way you learn the ropes by practicing forex trades with play money. There is no risk involved, but it is just as realistic as the real thing. Your forex trading education should also let you know when you are ready for the real thing. You should then, and only then, open up a live forex trading account.
There are many ways to get a forex trading education. The best place to get a forex trading education is online. There are many free websites available that let you open free demo accounts to practice your forex trading. There are also free seminars that are avaiable at random times. The best thing to do is to get some advice from someone who is a current forex trader. They can give you some down to earth insight on the subject of forex trading.
Now that you know a little bit about forex trading it is time for you to go out and get a good forex trading education. Don't rush into it and take your time. There is a lot of money involved with forex trading. It is best not to get ahead of yourself.
by Jay Moncliff

Managing The Forex Accounts For You

2008-06-14T13:07:00.001-07:00

Managing The Forex Accounts For You
Managed forex accounts are a boon for those who don't have the time to devote to the foreign exchange dealing. It's also for those who don't have the expertise to deal in the foreign exchange markets. Professionals are there for managing forex accounts. Management of these forex accounts is a very serious and a competitive business. Many investors like to allocate a portion their funds to forex accounts managed professionally. It helps them to diversify their risks and also mitigate any losses that may arise from other portfolios such as stock and bond market. Since forex transactions is a ball game separate from that of the stock markets, their profits and losses are also separate.
Therefore these currency-trading accounts can enhance one's portfolios in a great way. The forex exchange accounts that are managed professionally must be able to provide the following, irrespective of which forex trading manager or account that you choose
A currency trading account not tied to the stock market operations
The forex managed account should be able to provide a better return than the treasury bonds and other such money market instruments
Professional expertise is a must. The firm should have good standing in the market and have professionals who have experience in dealing in foreign exchange accounts. Most foreign banks and transnational firms employ the best and have constantly out performed others. It's not necessary that your forex account manager should be a Harvard Grad but in most cases it, they are better trained.
The firms that professionally handle forex accounts and forex trading must be able to leverage to give maximum profits.
The forex trading manager must be able to book profits in both the falling and rising currency markets.
Should provide for monthly / weekly reporting of the forex transactions as well as real time reporting if need be.
The forex accounts should be such that they are liquid in nature. They should give ease of withdrawal (of money) to the investors at particular time intervals and in cases of emergency too.
Depending on the firms that one chooses, there are various kinds of currency trading accounts that one can invest under. They may be called by several names such as Global forex accounts, aggressive forex accounts, and high value forex accounts etc.
For example the Global forex accounts might deal in many foreign currencies, many of which may not be the liquid currencies such as the Soviet Rouble or The Indian Rupee. Other accounts such as the aggressive forex accounts may deal in the most liquid of the accounts such as the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
The forex trading accounts also differ on another account, that of the initial investment that is required. Some forex trading accounts may need an initial investment of US$ 10,000, others US$ 50,000, still others might require an initial investment of US $100,000.
Being professionally managed, the forex trading account managers make use of various statistical analysis tools to give the optimum and maximum results and profit. Therefore considering the factors as given, choose the currency-trading fund best suited for your needs.
by Gary Berg

Forex Day Trading: How To Create Massive Wealth From Forex Day Trading

2008-06-14T13:06:00.000-07:00

Forex Day Trading: How To Create Massive Wealth From Forex Day Trading
Hello, how do you do?
Until now, you may have never known how easy it is to make fast money from forex day trading, because nobody has ever given you the correct information, as I will in this article.
Most people from middle class make their money from investments in real estate, stock trading, bond trading, mutual funds, CDs, auction programs and various internet programs and other small businesses.
They may have never heard about day forex trading, which is where multi-millionaires and billionaires make their money.
Forex day trading is the most profitable and attractive investment opportunity because you can do it from home or office and from any country in the world.
In forex day trading, you don't need to do any marketing or selling or internet promotion to succeed.
In forex day trading, you don't need to spend thousands of dollars to do any internet promotion.
In forex day trading, you don't need any stocks or warehousing.
In forex day trading , all that you've to do is open an account with one of the brokers with as little as $300 or $2000.
Then follow simple instructions to buy and sell the currencies.
When the price of the currency is low, you buy.
In a few seconds or minutes, the price will go up, and you sell it and make a profit.
By so doing , in a day, you can easily make $500-$1000 by just buying, selling and trading these foreign currencies for about 3 or 4 hrs!
The more money you put in your forex day trading account, the more money you can make.
You can use $1 to control $200 investment in foreign currencies. $200 to control $50,000 investment. And $1000 to control $200,000 cash.
And get this:
You don't even have to be stuck sitting behind your computer buying and selling these foreign currencies.
You can enter all your buy trades and specify the sell prices you desire and then log off.
Whenever the values of these foreign currencies rise and your selling prices reach, the currencies will be automatically sold for you and you make money!
If you put $300 in your LIVE "Forex day trading", you can generate a minimum of "$10 in 10 mins." or about "$50" minimum daily, 6 days/wk!
If you put $1000 in your LIVE "Forex day trading", you can generate "$100 in 10 mins." or about "$400" minimum daily, 6 days/wk!!
If you put $10,000 in your LIVE "Forex day trading", you can generate "$300 in 10 mins." or "$1000" minimum daily, 6 days/wk"!!!
If you are very ambitious build your live account to $50,000-$100,000 account, you may possibly rake in $1,000,000 in 1 year!
You can do forex day trading and at the same time keep your day job, because in forex day trading, there is no work to do.
In the future when you have made hundreds of thousands of dollars, you may then quit your job and just keep doing forex day trading forever and go on permanent vacation!
To understand the beauty of forex day trading Picture this:
In the morning, you get up from sleep at 6 am.
You go to your bathroom and have your shower.
At 7am, you hurry and eat your breakfast.
At 7.20 am, you login into your forex day trading account on the internet and spend 10 minutes to buy about 3 or 4 different currencies, [for example British Pound, Euro, CHF (Swiss Currency) and Yen (Japanese currency).]
You can specify the price at which you wish to sell each currency.
Then you can log off.
By 9 am, you're at work in your office or business place.
You do your job as usual and by 5 pm, you're finished and heading home.
When you get back home around 6.30 pm, you login into your forex day trading account to see how much money you've made.
Holy Molly, there in your account it says you have made $750!
"Is this for real?", you wonder:
Yes, it is. (Your eyes are not deceiving you:)
$750 in a day for just clicking your mouse twice and doing no work?
(Whereas at your job, you work 8 hrs, but make only probably $150..)
This is how easy it is to make money from forex day trading.
But before you use real money to open a live forex day trading account, you have to open a free trial (demo) forex day trading account and practice first, to understand how it works and to acquire the right skills.
This free demo (trial) forex day trading account (forex simulation trading) will help you to reduce a lot of risks that can lead to loss.
In forex day trading, you can choose how much money to invest, how much money to make and when to make it.
You can make money daily, 365 days all year from forex day trading.
Your computer can be transformed into a personal, home "ATM" machine that cranks out cash for you daily (without large investment or hassles) from forex day trading.
In forex day trading, you can choose what type of risk you can manage, when to invest and when not to invest.
In forex day trading, you're the boss. You may do as you please.
When forex day trading is compared to other investment programs such as stock trading, bond trading, mutual funds, real estate and regular business, it is evident that forex day trading is the fastest and greatest way to make money in the world.
Forex day trading is a 2.5 trillion dollars daily business and it is larger than all the stock trading in the world combined.
These are some of the reasons why I believe that forex trading is the fastest and best way to create fantastic wealth.
Perhaps from reading this article you'll now come to know why forex day trading is the secret behind the greatest wealth on earth and why it has been kept hidden from the average people of the world and therefore little known to the masses.
May these forex day trading insights open your eyes to the possibility of infinite wealth and success that can be yours from forex day trading.
Please feel free to print or publish this article anywhere and read and also send to your friends and well wishers and please preserve the author's resource box below.
by I-key Benney, CEO

Are These Simple Trading Mistakes Costing You Money In The Forex Market

2008-06-14T13:04:00.002-07:00

Are These Simple Trading Mistakes Costing You Money In The Forex Market
The 2% rule is a powerful tool in Forex trading. By adopting this rule you`re using a strategy that decreases the size of your losses during losing streaks, an important consideration. There is, however one small caveat that you need to be aware of when using the 2% rule to calculate how many Forex shares you are going to buy. As you know, the number of shares you can purchase is determined by your maximum loss and the size of your stop. This means that by increasing your risk, you can also increase the dollar value of the position you open. By simply shrinking your stop size, that is by setting a tighter stop loss, you can increase the dollar value of the position you open.
To avoid a situation where you could end up with excessively large positions that may put your Forex trading float at risk, you can choose to introduce an extra rule. This rule would limit the dollar value of a position to be no more than a set percentage of your entire Forex trading float.
For example, you might decide that you`ll never open a position that has a dollar value of more than 25% of your entire Forex trading float. This rule would only be executed if, after calculating the formula that determines how many shares you buy, you find the dollar value of that position would greater than 25% of your float. If this happened, you would scale down the position to make sure it did not exceed that 25%.
The percentage that you decide upon will depend on the type of system you`re trading, the size of your float, and your personal tolerance for risk. Generally, smaller Forex trading floats might use 25%, and larger Forex trading floats might use as little as 10% or even 5%. There are no definitive numbers, and the percentage that you choose will depend on your personal circumstances.
Once this tendency is corrected for you will have all your money management rules in place, ready to control your risk in the Forex market. Now you need to take the next step. Test your system to find out which of the variables best suit you, remembering always that position sizing is the most significant part of any system design. It is the lynchpin of money management. Once you`ve tested your system, and fine-tuned your rules, you will be well on your way to becoming a successful Forex trader.
by David Jenyns

Revealed — Million Dollar Forex Investing Mistakes

2008-06-14T13:04:00.001-07:00

Revealed — Million Dollar Forex Investing Mistakes
Anytime that you are investing in the Forex market, you are going into the Market blind. You don't know what point of the investing trend you are entering in at. You might be investing in a Forex stock just before the trend changes. Smart investing means you need to protect your trading float and set up a stop loss. This needs to be done before you enter a trade, so that there is no room for error, or last minute indecision. A stop loss is simply a predefined point at which you exit the stock.
Effectively, it's like drawing a line in the sand underneath the share price, saying, "If the share price falls below this line, then the stock hasn't done what I thought it was going to do, and I'll exit the position."
This allows you to protect your investing trading plan, because it cuts your losses short, and guards against an all too human tendency to want to believe you must be right.
95% of investing in an entry Forex position means you are expecting to profit from the trade. If, however, the share-investing price goes against you, you might feel the need to justify why you bought the stock by holding onto it until it turns a profit. You might have heard the idea that all big investing losses once started as small losses. Well, while the share price continues to go in the wrong direction, those losses grow in lockstep. This is why you need to have a stop loss in place — it's like having an ejector seat that tells you when to abort the mission.
One of the most common question I'm asked when traders are introduced to a stop loss is "How wide should I set my stop?"
In other words, how much room should I give the stock to move? There are no definitive answers to this question because it depends on what time frame you're investing in. If you're a shorter-term investing trader, you're going to have a stop loss that's set closer to the share price. If you're a longer-term investing trader, you'll give the share price a little bit more room to move and set your stop loss lower.
Once you've identified what time frame you're looking at trading, you need to be able to remove the normal market noise (volatility) in that particular time frame. You don't want to have to close out of an investing position just because a share price moved a little bit due to its normal trading volatility.
In fact, there are some serious drawbacks to setting tight stops.
First, you'll decrease the reliability of your system because you get stopped out more often.
Second, and probably a little bit more importantly, you dramatically increase your transaction costs, because you're trading transaction costs make up a major proportion of your business expenses.
To give yourself a fighting chance, you want to trade a system that doesn't chew through excessive brokerage fees. This is one of the major reasons I steer my clients into developing a trading system that runs over a slightly longer time frame. With the correct system in place, and your investing risk minimized, you are well positioned to maximize your trading profits.
by David Jenyns

Your FOREX Trading Philosophy

2008-06-14T13:03:00.002-07:00

Your FOREX Trading Philosophy
"Easy money" is the allure that captivates many beginning Forex traders. Forex websites offer "risk-free" trading, "high returns", "low investment." These claims have a grain of truth in them, but the reality of Forex is a bit more complex.
Mistakes Of The Beginning Trader
There are 2 common mistakes that many beginner traders make: trading without a strategy and letting emotions rule their decisions. After opening a Forex account it may be tempting to dive right in and start trading. Watching the movements of EUR/USD for example, you may feel that you are letting an opportunity pass you by if you don't enter the market immediately. You buy and watch the market move against you. You panic and sell, only to see the market recover.
This kind of undisciplined approach to Forex is guaranteed to lose money. Forex traders must have a rational trading strategy and not make trading decisions in the heat of the moment.
Understanding Market Movements
To make rational trading decisions, the Forex trader must be well educated in market movements. He must be able to apply technical studies to charts and plot out entry and exit points. He must take advantage of the various types of orders to minimize his risk and maximize his profit.
The first step in becoming a successful Forex trader is to understand the market and the forces behind it. Who trades Forex and why? This will allow you to identify successful trading strategies and use them.
Accountability
There are 5 major groups of investors who participate in Forex: governments, banks, corporations, investment funds, and traders. Each group has its own objectives, but 1 thing all groups except traders have in common is external control. Every organization has rules and guidelines for trading currencies and can be held accountable for their trading decisions. Individual traders, on the other hand, are accountable only to themselves.
Large organizations and educated traders approach the Forex with strategies, and if you hope to succeed as a Forex trader you must follow suit.
Money Management
Money management is an integral part of any trading strategy. Besides knowing which currencies to trade and how to recognize entry and exit signals, the successful trader has to manage his resources and integrate money management into his trading plan.
There are various strategies for money management. Many rely on the calculation of core equity -- your starting balance minus the money used in open positions.
Core Equity And Limited Risk
When entering a position try to limit your risk to 1% to 3% of each trade. This means that if you are trading a standard Forex lot of $100,000 you should limit your risk to $1,000 to $3,000. You do this with a stop loss order 100 pips (1 pip = $10) above or below your entry position.
As your core equity rises or falls, adjust the dollar amount of your risk. With a starting balance of $10,000 and 1 open position, your core equity is $9000. If you wish to add a second open position, your core equity would fall to $8000 and you should limit your risk to $900. Risk in a third position should be limited to $800.
Greater Profit, Greater Risk
You should also raise your risk level as your core equity rises. After $5,000 profit, your core equity is now $15,000. You could raise your risk to $1,500 per transaction. Alternatively, you could risk more from the profit than from the original starting balance. Some traders may risk up to 5% against their realized profits ($5,000 on a $100,000 lot) for greater profit potential.
These are the kinds of strategic tactics that allow a beginner to get a foothold on profitable trading in Forex.
by Ron King

Forex Training: What to Look for in a Forex Training Program

2008-06-14T13:03:00.001-07:00

Forex Training: What to Look for in a Forex Training Program
Should new Forex traders take Forex trading courses or join a Forex training program? Definitely yes; by now you have probably heard that only 5% of traders achieve consistent profitable results when trading the Forex market. The main reason for this is the lack of education. Don't get me wrong here, taking a Forex training program or a Forex trading course won't guarantee profitable results, nothing can, but choosing the right Forex training program or Forex trading course will definitely put the odds in your favor.
Before spending any amount of money on any Forex trading course or Forex training program there are some important aspects you need to take in consideration. There are many training programs available, but not every one of them suits the needs of every trader.
The first thing you should be looking in a Forex training program is the content of the material. Unfortunately, most courses or training programs focus or spend most of the time on basic concepts. Though these basic concepts are important, spending most of the course on them won't help the trader to make consistent results.
The following subjects are what I consider the most important aspects of trading and every training program or trading course should address:
Forex trading basics.
Review basic concepts such as: margin, type of orders, a little background, bid/ask, rollover, etc. You need to make sure you understand every single concept to perfection.
Main drawbacks of Forex traders.
Being aware of the common mistakes made by Forex traders and knowing how to handle them will prevent new traders from making those mistakes.
Technical and fundamental analysis.
These are the two main approaches adopted by Forex traders. Knowing how to properly apply each concept will definitely put the odds in your favor.
The three pillars of Forex trading. I consider that these three subjects have the most impact on every trader trading account.
Forex trading system development.
Having the right system is a must if you want to have consistent profitable results. Having a system that doesn't fit you will cause a series of problems that will make your trading account vanish away (second guessing the system, not following your system, etc.)
Money management.
This is considered by many successful traders to be the most important single aspect of trading. Money management helps to increase your profits geometrically and at the same time limit your losses (i.e. a good risk reward ratio of about 2:1 will make you money in a Forex trading system that is right only 38% of the time.)
Trading psychology.
Being aware and knowing hot to handle the psychological barriers that affect every trader decision will put the odds in your favor.
Other important aspects every training program should include are:
Developing habits for success (such as discipline patience, taking responsibility of every action, commitment, etc.,) understanding and taking our trading as a business, risk and trade management.
Another important aspect you should take into consideration when choosing a Forex training program is the mechanics of it, getting to know how the training program works.
A good course will have the following:
A live conference room, where you can apply everything learned under live market conditions.
One-on-one feedback, every trader has different needs and requires special attention. For instance a trader wanting to improve the system and requires individual feedback from the instructor about it.
Online trading course, a course that could be accessible through internet. A plus is a course where you are able to access the course at the convenient time for you, so you don't have to change your lifestyle.
A forum, where members can talk just about everything related to the Forex market and the Forex training program.
Trading the Forex market is no easy task. It requires a lot of hard work. Making the right decision will definitely put the odds in your favor. Take your time when doing your diligence because it is a big and important step in a trader's trading career.
by Raul Lopez

Trading In The Forex Requires Some Caution

2008-06-14T13:02:00.001-07:00

Trading In The Forex Requires Some Caution
Whether it is in the millions or thousands, trading in the Forex is a bit risky. There are a lot of players involved and if you don't arm yourself properly with knowledge about the Forex you may just get swamped.
The Forex is the largest most vibrant market in the whole wide world. The financial world has never had a market that involves so much transaction. Over a trillion dollars worth of different currencies exchange hands everyday. Some losing in the trade, while some hit the jackpot and make tons of money. The Forex is characterized by its unpredictability and the liquidity because it deals with foreign currencies and each one's value influenced by their own country. That's why anyone who is greatly considering joining the Forex trade should think twice, thrice and maybe even ten times before doing so. This is not an arena for the weak and nervous.
The Forex is a very complex financial arena and only those with enough knowledge, experience and financial capability can join the foray. Managing the risk factors is a priority task for those professionals who do this everyday. They direct and manage accounts from their investors, full confidence is placed on them and their client's success is also their success. Some professional Forex brokers have placed high-value on their credibility. The more clients they have the more they earn as well. They make a profit by eating a slice of their client's profit. If they have made a name for themselves in the Forex trade, they don't need to go look for clients; the clients will look for them and invest.
There are those however who wants to manage their own portfolios. A word of caution though, educate yourself first about the trade. Learn the ropes and tricks of the game before throwing your hat in the ring. Try to gain access to many self learn and self study websites that can impart their knowledge with you. Try out the website of the federal Commodities Futures Trading Commission (CFTC), there they offer consumer reports as well as articles about applicable laws in Forex trading. Many Forex management firms maintain a website that offers free online tutorials and brochures. You may need all the educational information about the Forex that you can get your hands on.
They may not outright say it, but the best and the finest and most skilled Forex traders have learned all the secrets of the game. From trading signals technical indicators, and theories that could explain about the market behavior. When you have mastered these skills, you can have a more accurate prediction of the direction of the market resulting to lower risks and higher profits. Even when dealing with money managers they have to be knowledgeable about the trade so they can be on top of their investments. Have a constant conversation with your broker and be updated about your account.
For the self-traders, some of them are very admirable to have the courage to act as their own money managers. As with any business, success will come only after hard work and diligent research. With Forex trading you should always be on your toes for developments. A wise Forex trader knows that that learning and educating about Forex trading never ceases.
by Sara Jenkins

Forex Trading Education: Things You Should Know About Forex Trading

2008-06-14T13:01:00.000-07:00

Forex Trading Education: Things You Should Know About Forex Trading
How difficult is it to make money trading the Forex market? How much time does it take to actually be able to make a living trading the Forex market? These and other important aspects of trading are to be discussed in this article.
Trading the Forex market has many benefits over other financial markets, among the most important are: superior liquidity, 24hrs market, better execution, and others. Traders and investor see the Forex market as a new speculation or diversifying opportunity because of these benefits. Does this mean that it is easy to make money trading the Forex Market? Not at all.
Forex brokers agree that 90% of traders end up losing money, 5% of traders end up at break even and only 5% of them achieve consistent profitable results. With these statistics shown, I don't consider trading to be an easy task. But, is it harder to master any other endeavor? I don't think so, consider musicians, writers, or even other businesses, the success rates are about the same, there are a whole bunch of them who never got to the top.
Now that we know it is not easy to achieve consistent profitable results, a must question would be, Why is it that some traders succeed while others fail to trade successfully in the Forex market? There is no hard answer to this question, or a recipe to follow to achieve consistent profitable results. What we do know is that traders that reach the top think different. That's right, they don't follow the crowd, they are an independent part of the crowd.
A few things that separate the top traders from the rest are:
Education: They are very well educated in the matter; they have chosen to learn every single and important aspect of trading. The best traders know that every trade is a learning experience. They approach the Forex market with humility, otherwise the market will prove them wrong.
Forex trading system: Top traders have a Forex trading system. They have the discipline to follow it rigorously, because they know that only the trades that are signaled by their system have a greater rate of success.
Price behavior: They have incorporated price behavior into their trading systems. They know price action has the last word.
Money management: Avoiding the risk of ruin is a primary subject to the best traders. After all, you cannot succeed without funds in your trading account.
Trading psychology: They are aware of every psychological issue that affects the decisions made by traders. They have accepted the fact that every individual trade has two probable outcomes, not just the winning side.
These are, among others, the most important factors that influence the success rate of Forex traders.
We know now that it is not easy to make money trading the Forex market, but it is possible. We also discussed the most important factors that influence the rate of success of Forex traders. But, how much time does it take to have consistent profitable results? It is different from trader to trader. For some, it could take a life time, and still don't get the desired results, for some others, a few years are enough to get consistent profitable results. The answer to this question may vary, but what I want to make clear here is that trading successfully is a process, it's not something you can do in a short period of time.
Trading successfully is no easy task; it is a process and could take years to achieve the desired results. There are a few things though every trader should take in consideration that could accelerate the process: having a trading system, using money management, education, being aware of psychological issues, discipline to follow your trading system and your trading plan, and others.
by Raul Lopez

Day Trading Forex Market Behaviour

2008-06-14T12:59:00.001-07:00

Day Trading Forex Market Behaviour
Technology advances like the internet have spawned a new craze, where anyone with a secure internet connection prepared to undertake a small amount of training can engage in trading foreign exchange on the forex market.
Just as a day trader will closely track stock price movements on the Dow Jones Industrial Average, all over the world forex traders monitor currency fluctuations in a similar fashion.
Forex traders have the aim of using the smallest amount of one currency, say the US dollar, to purchase another currency like the British Pound. If supply of the pound lessens in a busy market, it will cost more dollars to buy pounds, and the forex trader hopes to sell their pounds at a higher than their purchase price. In many respects, this type of trading behaviour is very similar to trading in stocks, where the aim of nearly all traders is to buy low and sell high.
The trading process works under a bid/ask system. In the above example, a forex trader might bid 10 dollars in return for 5.7 British pounds, and the seller of the pounds could be asking 11 dollars for the same amount of pounds. If the seller accepts the bid, the trader then hopes the pound continues to increase in price, so that when time comes to sell, they can get in excess of the 10 dollars initially paid.
As only registered traders have access to this auction process, most online speculators will trade through a bank or broking house. Such brokerages charge a commission for facilitating the trades, and forex traders should consider these transaction costs when calculating their selling offer when time comes to exit their position, as this will influence their profit margin.
The global foreign exchange market can trade in excess of a trillion dollars a day. Sheer market size means there is considerable money to be made, and lost, through miscalculation. It is neither a guaranteed, nor easy path to riches, so traders should be educated in how to play the market. Instructional packages are available, and should be carefully reviewed as they can easily range in quality and price.
by Jay Moncliff

Forex Trading Tips

2008-06-14T12:58:00.000-07:00

Forex Trading Tips
Why do hundreds of thousands online traders and investors trade the forex market every day, and how do they make money doing it?
This two-part report clearly and simply details essential tips on how to avoid typical pitfalls and start making more money in your forex trading.
Trade pairs, not currencies — Like any relationship, you have to know both sides. Success or failure in forex trading depends upon being right about both currencies and how they impact one another, not just one.
Knowledge is Power — When starting out trading forex online, it is essential that you understand the basics of this market if you want to make the most of your investments.
The main forex influencer is global news and events. For example, say an ECB statement is released on European interest rates which typically will cause a flurry of activity. Most newcomers react violently to news like this and close their positions and subsequently miss out on some of the best trading opportunities by waiting until the market calms down. The potential in the forex market is in the volatility, not in its tranquility.
Unambitious trading — Many new traders will place very tight orders in order to take very small profits. This is not a sustainable approach because although you may be profitable in the short run (if you are lucky), you risk losing in the longer term as you have to recover the difference between the bid and the ask price before you can make any profit and this is much more difficult when you make small trades than when you make larger ones.
Over-cautious trading — Like the trader who tries to take small incremental profits all the time, the trader who places tight stop losses with a retail forex broker is doomed. As we stated above, you have to give your position a fair chance to demonstrate its ability to produce. If you don't place reasonable stop losses that allow your trade to do so, you will always end up undercutting yourself and losing a small piece of your deposit with every trade.
Independence — If you are new to forex, you will either decide to trade your own money or to have a broker trade it for you. So far, so good. But your risk of losing increases exponentially if you either of these two things:
Interfere with what your broker is doing on your behalf (as his strategy might require a long gestation period);
Seek advice from too many sources — multiple input will only result in multiple losses. Take a position, ride with it and then analyse the outcome — by yourself, for yourself.
Tiny margins — Margin trading is one of the biggest advantages in trading forex as it allows you to trade amounts far larger than the total of your deposits. However, it can also be dangerous to novice traders as it can appeal to the greed factor that destroys many forex traders. The best guideline is to increase your leverage in line with your experience and success.
No strategy — The aim of making money is not a trading strategy. A strategy is your map for how you plan to make money. Your strategy details the approach you are going to take, which currencies you are going to trade and how you will manage your risk. Without a strategy, you may become one of the 90% of new traders that lose their money.
Trading Off-Peak Hours — Professional FX traders, option traders, and hedge funds posses a huge advantage over small retail traders during off-peak hours (between 2200 CET and 1000 CET) as they can hedge their positions and move them around when there is far small trade volume is going through (meaning their risk is smaller). The best advice for trading during off peak hours is simple — don't.
The only way is up/down — When the market is on its way up, the market is on its way up. When the market is going down, the market is going down. That's it. There are many systems which analyse past trends, but none that can accurately predict the future. But if you acknowledge to yourself that all that is happening at any time is that the market is simply moving, you'll be amazed at how hard it is to blame anyone else.
Trade on the news — Most of the really big market moves occur around news time. Trading volume is high and the moves are significant; this means there is no better time to trade than when news is released. This is when the big players adjust their positions and prices change resulting in a serious currency flow.
Exiting Trades — If you place a trade and it's not working out for you, get out. Don't compound your mistake by staying in and hoping for a reversal. If you're in a winning trade, don't talk yourself out of the position because you're bored or want to relieve stress; stress is a natural part of trading; get used to it.
Don't trade too short-term — If you are aiming to make less than 20 points profit, don't undertake the trade. The spread you are trading on will make the odds against you far too high.
Don't be smart — The most successful traders I know keep their trading simple. They don't analyse all day or research historical trends and track web logs and their results are excellent.
Tops and Bottoms — There are no real "bargains" in trading foreign exchange. Trade in the direction the price is going in and you're results will be almost guaranteed to improve.
Ignoring the technicals- Understanding whether the market is over-extended long or short is a key indicator of price action. Spikes occur in the market when it is moving all one way.
Emotional Trading — Without that all-important strategy, you're trades essentially are thoughts only and thoughts are emotions and a very poor foundation for trading. When most of us are upset and emotional, we don't tend to make the wisest decisions. Don't let your emotions sway you.
Confidence — Confidence comes from successful trading. If you lose money early in your trading career it's very difficult to regain it; the trick is not to go off half-cocked; learn the business before you trade. Remember, knowledge is power.
The second and final part of this report clearly and simply details more essential tips on how to avoid the pitfalls and start making more money in your forex trading.
Take it like a man — If you decide to ride a loss, you are simply displaying stupidity and cowardice. It takes guts to accept your loss and wait for tomorrow to try again. Sticking to a bad position ruins lots of traders — permanently. Try to remember that the market often behaves illogically, so don't get commit to any one trade; it's just a trade. One good trade will not make you a trading success; it's ongoing regular performance over months and years that makes a good trader.
Focus — Fantasising about possible profits and then "spending" them before you have realised them is no good. Focus on your current position(s) and place reasonable stop losses at the time you do the trade. Then sit back and enjoy the ride — you have no real control from now on, the market will do what it wants to do.
Don't trust demos — Demo trading often causes new traders to learn bad habits. These bad habits, which can be very dangerous in the long run, come about because you are playing with virtual money. Once you know how your broker's system works, start trading small amounts and only take the risk you can afford to win or lose.
Stick to the strategy — When you make money on a well thought-out strategic trade, don't go and lose half of it next time on a fancy; stick to your strategy and invest profits on the next trade that matches your long-term goals.
Trade today — Most successful day traders are highly focused on what's happening in the short-term, not what may happen over the next month. If you're trading with 40 to 60-point stops focus on what's happening today as the market will probably move too quickly to consider the long-term future. However, the long-term trends are not unimportant; they will not always help you though if you're trading intraday.
The clues are in the details — The bottom line on your account balance doesn't tell the whole story. Consider individual trade details; analyse your losses and the telling losing streaks. Generally, traders that make money without suffering significant daily losses have the best chance of sustaining positive performance in the long term.
Simulated Results — Be very careful and wary about infamous "black box" systems. These so-called trading signal systems do not often explain exactly how the trade signals they generate are produced. Typically, these systems only show their track record of extraordinary results — historical results. Successfully predicting future trade scenarios is altogether more complex. The high-speed algorithmic capabilities of these systems provide significant retrospective trading systems, not ones which will help you trade effectively in the future.
Get to know one cross at a time — Each currency pair is unique, and has a unique way of moving in the marketplace. The forces which cause the pair to move up and down are individual to each cross, so study them and learn from your experience and apply your learning to one cross at a time.
Risk Reward — If you put a 20 point stop and a 50 point profit your chances of winning are probably about 1-3 against you. In fact, given the spread you're trading on, it's more likely to be 1-4. Play the odds the market gives you.
Trading for Wrong Reasons — Don't trade if you are bored, unsure or reacting on a whim. The reason that you are bored in the first place is probably because there is no trade to make in the first place. If you are unsure, it's probably because you can't see the trade to make, so don't make one.
Zen Trading- Even when you have taken a position in the markets, you should try and think as you would if you hadn't taken one. This level of detachment is essential if you want to retain your clarity of mind and avoid succumbing to emotional impulses and therefore increasing the likelihood of incurring losses. To achieve this, you need to cultivate a calm and relaxed outlook. Trade in brief periods of no more than a few hours at a time and accept that once the trade has been made, it's out of your hands.
Determination — Once you have decided to place a trade, stick to it and let it run its course. This means that if your stop loss is close to being triggered, let it trigger. If you move your stop midway through a trade's life, you are more than likely to suffer worse moves against you. Your determination must be show itself when you acknowledge that you got it wrong, so get out.
Short-term Moving Average Crossovers — This is one of the most dangerous trade scenarios for non professional traders. When the short-term moving average crosses the longer-term moving average it only means that the average price in the short run is equal to the average price in the longer run. This is neither a bullish nor bearish indication, so don't fall into the trap of believing it is one.
Stochastic — Another dangerous scenario. When it first signals an exhausted condition that's when the big spike in the "exhausted" currency cross tends to occur. My advice is to buy on the first sign of an overbought cross and then sell on the first sign of an oversold one. This approach means that you'll be with the trend and have successfully identified a positive move that still has some way to go. So if percentage K and percentage D are both crossing 80, then buy! (This is the same on sell side, where you sell at 20).
One cross is all that counts — EURUSD seems to be trading higher, so you buy GBPUSD because it appears not to have moved yet. This is dangerous. Focus on one cross at a time — if EURUSD looks good to you, then just buy EURUSD.
Wrong Broker — A lot of FOREX brokers are in business only to make money from yours. Read forums, blogs and chats around the net to get an unbiased opinion before you choose your broker.
Too bullish — Trading statistics show that 90% of most traders will fail at some point. Being too bullish about your trading aptitude can be fatal to your long-term success. You can always learn more about trading the markets, even if you are currently successful in your trades. Stay modest, and keep your eyes open for new ideas and bad habits you might be falling in to.
Interpret forex news yourself — Learn to read the source documents of forex news and events — don't rely on the interpretations of news media or others.
by Fiorenzo Fontana

Forex Course: A Quick Forex Guide for Traders

2008-06-14T12:57:00.000-07:00

Forex Course: A Quick Forex Guide for Traders
In this Forex course we will review some steps you need to take care before you venture into your trading journey. Most traders venture into the Forex market with little or no experience in the Forex market. This results in painful experiences like loosing most of the risk capital, frustration because it seemed so easy to make money, etc.
The first thing you need to realize is that, it is not easy to make money. As every other endeavor in life, where important rewards are to come after mastering it, you need to work hard. You need to get very well educated and experienced before having the possibility to receive important rewards on it. The key on mastering the Forex market relies on commitment, patience and discipline.
Ok, you have decided you are going to trade the Forex market, you have seen several advertisings featuring how easy is to make money in the Forex market. You might think this is your opportunity to reach your financial freedom, right away, time is money, why waiting any longer if you have the opportunity to make money now. I know, I've been there, but you have a chance now, I didn't, no body told me what I am going to tell you.
We, Forex traders, make transactions based on a set of rules. These sets of rules are what we call a Trading System. Our systems tell us the exact time where we need to get in the market and out the market in order to make a profit (i.e. buy low sell high.)
Creating a system is the first big step you need to take care first. Why is this so important? Because you need to build a system that suits your personality, otherwise you are going to find hard to follow it, thus hard to profit from. A system can be based on technical indicators or what we called a mechanical system or based on experience and intuition or what we call discretionary systems. I highly recommend using and trying first a mechanical system, because discretionary systems are dangerous during the early stages of a Forex trader (can lead to indiscipline.) With experience, on later stages, you will find out which signals work better and which ones to avoid.
The next step in this Forex course is to try your system on a demo account. Most Forex brokers offer a demo account, an account with virtual money. This is an excellent choice to test your trading system as there is no money at risk. In this step you will figure out if the strategy works for you. If you feel comfortable trading it, then it is most likely to produce good results. How much time should you stay in this step? It varies, but you shouldn't go one step further until your system gets consistent profitable results over a period of time. It can take many months, but remember, you need to be patient.
You must be honest to yourself; you need to take every single signal generated by your system, not only the signals you thought were going to work, otherwise, you are going to have problems in the next two steps.
Ok, by know you had consistent profitable results on your demo account. You might think its time to go full. Nope, nope, nope. There is a big difference between trading a demo and a real account. The most important difference lies on emotions (fear, greed, anger, etc.) These are psychological barriers that affect every single decision made by traders regardless of what he/she is trading (stocks, bonds, Forex, futures, grains, etc.) These emotional factors, in my opinion, are the most determinant factor that separates profitable traders from the others.
The next step in this Forex course is specially designed to deal with emotions and to confirm the results obtained in the prior step (consistent results in a demo account.) At this step you need to trade in a real account with limited funds. Some brokers offer fractional lot trading. Meaning you are able to trade any desired amount (even cents.) The important thing here is that these emotions we've been talking about are present only when there is real money at risk. At this stage, you are going to see if you are really comfortable trading your system and if you are able to trade with such system, remember different systems produce different emotions. If you are able to produce similar results than those obtained in a demo account, then ready for the next step. If you didn't, then you might need to create another system, there is chance your system never fit you. If you created consistent profitable results on this stage, you have a chance to produce similar results in the next one, on the other hand, if you didn't produce good results in this stage, you will not be able to make on the next stage. Remember, you need to do things right, and be honest to yourself.
The last stage is trading in a real account with sufficient funds. If you are at this stage, and have passed successfully every prior stage, then you have a chance to make it, go ahead and try it, you need to be confident in yourself and in your system, your strategy have already produced consistent profitable results, there are reasons to believe you are going to make it. Very few traders fail at this stage (if passed successfully prior stages.)
Trading successfully is no easy task, it requires a lot of work, patience, discipline, and education. By completing the steps outlined in this Forex course, you have a chance to produce profitable results. I repeat it again, you need to be honest to yourself about the results obtained in every stage. Some times you might need expert guidance regarding your system development strategies.
by Raul Lopez

Forex Trading Guide- How to deal with Forex Trading

2008-06-14T12:56:00.000-07:00

Forex Trading Guide- How to deal with Forex Trading
Buying and selling of different currencies of the world is known as forex trading. Forex or foreign exchange market is the largest trading market in the world. Forex trading market deals with more than US$2 trillion everyday. It has become favorite option for currency traders. Foreign exchange market is extremely different from stock exchange market. Currency trading is always done in pairs like USD/EUR or USD/GBP etc. Forex trading market works 24 hours a day.
Several investors and traders are joining forex trading every day. First time investors should keep in mind that forex trading works on certain principles. They should remember that it is an investment not an income. Currency can fluctuate at any time so right time investment is the best investment in forex trading. You should have another source of income while dealing in forex trading. If you are a first time investor don't believe in demo trading because it can be dangerous in long run. After getting all information about broker's system you can start forex trading with small amounts. You should always invest that amount for which you can bear profit or loss.
Sometimes forex trading is a risky business but the trader can reduce the risk by following best trading strategy. Trader should know the right time to enter and exit the market. Forex trading is an easy and simple trading business. You can do forex trading while sitting in your home. It requires a PC with Internet connection and a bit of time. You can perform all the transactions online with a small fee and the best thing of forex trading is that you don't have to pay large amounts to professional. Forex trading market offers a large number of online options for currency trading. Before joining it you've to search for the best option to achieve your goals.
Beginners can use forex trading software programs to track and analyze market conditions. These programs will help you in finding the best investment opportunities. Forex trading software enables you to make right decisions about investments. Beginners shouldn't try to predict the forex trading markets because currency fluctuation may occur anytime. You can handle forex trading by using trading system and money management strategy.
Don't be emotional in forex trading. You should behave like a businessman that can efficiently test the market data. Testing system and best money management strategy lets you to invest your capital in the best way. While paying minor attention to the ups and downs of the forex trading market you can easily maximize your profits. You can make profitable trades by focusing on the hours when market generally makes their biggest moves.
With some research, a lot of skill and a bit of luck you can enjoy forex-trading market completely. You've to be smart at the time of making choices and taking risks. The trading process is so simple and can be done with a small amount. You don't have to wait for the opening and closing of stock market because it works for twenty-four hours. Several trading companies are providing free information online. You can search for required information before making any decisions. Some companies also offer free trail periods; you can also check it out.
by Gagandeep Dhaliwal

Real Forex Traders Learn to Like Losses

2008-06-14T12:55:00.002-07:00

Real Forex Traders Learn to Like Losses
As a forex trader you have to learn how to take losses. Period. Don't be a crybaby. Learn how to take losses.
Learning how to take losses is one of the most important lessons you must learn if you want to survive as a trader. Nobody is 100% right all the time.
Losses are inevitable. Even Michael Jordan and Tiger Woods lose sometimes and they're considered the best in their field.
There will be trading streaks where you'll have a number of successful consecutive trades, but that will eventually come to an end you will take a loss.
As that point it's very important not to lose your head, you must remain in control of yourself. Don't have a cow man.
Take a break. Calm down and relax. Take a chill pill dude.
Until you've regained a clear mind and an ability to think logically again, stay out of the market.
Don't whine about your loss and never carry a prejudice against a loss.
The key to manage losses is to cut them quickly before a small loss becomes a large one.
I repeat. The key to manage losses is to cut them quickly before a small loss becomes a large one.
Never ever think that you will never lose. That's just ludicrous. Losses are just like profits, it's all part of the trader's universe.
Losses are unavoidable. Get over the loss and move on to the next trade.
by Scottie Pippin

5 Things You Must Do If You Want To Attain Financial Freedom Through Forex Trading

2008-06-14T12:55:00.001-07:00

5 Things You Must Do If You Want To Attain Financial Freedom Through Forex Trading
With the amazing growth of the forex market, you are going to see an astounding amount of traders lose all their money. Unfortunately, they haven't followed the simple steps I have laid out for you. Go through these steps and give yourself the greatest opportunity to achieve your goals.
1. Have Faith In Yourself
To reach the level of elite forex trader, you must trust in yourself and your forex trading education. You must be willing to make all your trading decisions, instead of relying on someone else's thoughts or ability (or lack of). Of course, you will prepare yourself fully before every risking any money.
2. Accept Your Learning Curve
Unless you are a veteran trader, you will lose money trading the Forex market. This is a near certainty. I don't say this to talk you out of trading. In fact, quite the opposite. You will be trading against others that fall to this reality day in and day out. You, however, will not risk a dime until you have learned the skills you need to make money trading the forex.
3. Decide What Type of Trader You Are
There are many ways to trade the forex. They range from very active to very patient. You must decide which style suits you best. The best time to learn this about yourself is while you are trading a demo account. There is no need to allow your learning curve to cost you money.
4. Get Educated
Education is the shortest path to elite forex trading. Regardless of your ultimate goals, you will reach them quicker with a great forex trading education. Take some time to review different options before deciding on who to trust with your forex trading education needs. A forex seminar will help shorten your learning curve drastically.
5. Continue to Get Educated
In order to achieve and retain elite forex trading skills, you must constantly be adding to you knowledge base. Your education should never end. In fact, one of the key points to look for in an elite forex trading course is ongoing education. It's nice to have an ongoing relationship with the person/people helping you to achieve your goals.
What separates an elite forex trader from all others is their desire and ability to be independent. Many traders are willing to follow signals, systems, strategies, or anything else you may call them. By taking this approach, however, these traders are only as good as the people they follow.
An elite forex trader will lead. Their decisions will be calculated and analyzed to near perfection. They will make decisions with no hesitation, and handle the growth of their account in a predetermined, intelligent fashion. Take your trading to their level and you will never look back.
by Eddie Yakubovich

How to Take Control in Forex Trading

2008-06-14T12:54:00.000-07:00

How to Take Control in Forex Trading
Forex Trading is not that easy, all FX traders before they enter this business, they think that they will be rich very quickly and make $20 000 in one or two weeks, but when they begin trading currencies they discover it is not true, it is not easy to make money especially when we work with money. Very tricky business, many of us think that there is a conspiracy planned by "THE BIG GUYS", they know what we think what we plan to do and they do the opposite to steel our money, many times we think to make the opposite of our decision (if I see the market is going up then I will sell). And we begin searching for someone to help us making at least 200 or 300 pips a month, probably many of us work with signals advisors who simply took our money and probably do not help us making decent profit. Many of us thought stop trading many of us quit FX trading but I think most of us will not quit easily because we see in it a golden opportunity to have our own business and make our fortune!
Foreign exchange is an opportunity to make a fortune and in same time it is an opportunity to loose our money, we can make a fortune if we knew how to handle Forex, if we don't know how to control Forex it will destroy us, so we must be stronger than it, and if we don't know how to control it with our own hands it will destroy us too. So how I can be stronger than this ferocious beast? It is simply by learning, observing, and practicing. The FX market will not go anywhere it will be trending and ranging for ever, so learn from experienced traders how they became that good, observe charts and look for common points look for the reason why the price change direction, and when you discover the reason which influence a currency you will have in your hand the first tool that gives you control. And each new thing you discover, try it on a demo account, see if it is valid and develop it. In this Forex article I am helping you to find your way, this Forex article does not give you the fish but it teaches you fishing. There is no conspiracy theory in this business, no big or small guys, we loose because we don't know, and the first thing we must do to become good traders is to admit that we don't know and we must always learn.
In this Forex Article I will give some clues and I will leave you learn, observe and practice.
First of all you must know that you must use fundamental and technical analysis in conjunction, both complete each others, so don't rely on one and leave the other. Fundamental is one of the reasons which influence the market, so if you are in a long trade and suddenly the trading currency went down so go and see if a report was released and see what its forecast and what was the released data and compare this data to your chart and you will have your first tool to control your business.
Second, in my opinion all the technical indicators didn't help me at all, I tried all the combinations nothing work, and indicators describe the status of the market but don't give you information about the next direction. I read a Forex article about a guy who describes his Forex Trading strategy in a Forex article, I was completely lost, he uses a combination of 12 indicators EMA340, SEMA890, EMA2900 etc: and he inserted FIBONACCI in it. I was totally lost. Even if his strategy worth 95% success I will not use it because I can control the market by using simpler techniques. So we don't need to seek indicators, only one indicator I use the Bollinger Bands which is the perfect weapon in my battle against Forex trading. So I want you to look at the Bollinger Bands and see how it affects a currency, focus on it and read well this Forex article and you will discover a lot of things, and you will have your second tool.
Third, suppose you are in a long trade and suddenly for no reason the Forex Trading price went down, there are no released reports it just turned down, this is weird. But weird things are those we don't understand, but if you observe your chart and go back several hours or days and drop a break line from higher swing points you will see that the price turns down because it reached that break line, you see there is no mystery. So this break line will be your Resistance and if price breaks it, it will continue going up, but going where and till when? Observe very carefully and you will learn as I did. And no need for midnight or afternoon candles, be simple as you can, that beast is not as ferocious as you think. So breakout is your third tool.
Fourth, what timeframe to use, it is up to you to choose the suitable timeframe, H1, H4, D1: I don't know, compare the charts and you will see the suitable timeframe. Timeframe is important and when you find it you will have your Fourth tool.
And that's it, I repeat observe your charts and focus and think in these clues in this Forex article and the more you think the more you discover, read Forex article, learn strategies and get foreign exchange books.
I do good profit from my Forex trading strategy because I program it, I gave my system the data and leave it do his job. This eliminates the fear factor and gave me more time to go out and have fun.
I hope this Forex Article gave some tips and techniques which help traders in their Foreign Exchange trades.
by Joe Chalhoub

Why do the best trading systems fail?

2008-06-14T12:53:00.000-07:00

Why do the best trading systems fail?
Why do Forex Traders fail? I have a theory.
At the time I decided to start forex trading (2 years ago) the Forex Boom was just starting. I really did think I had stumbled on that legendary pot of gold, and that I would soon be on easy street.
Here was a multi-trillion dollar online business where a smart guy like me couldn't fail to make lots of easy money.
I'd read that over 90% of forex traders fail, but hey — that wouldn't happen to me — I've got a college degree! If I learned the best forex trading techniques and studiously avoided the pitfalls, I'd be a top forex trader in no time!
So I invested in the best forex training course I could find, almost entirely dvd-based training, and it cost me more than $4000. It came on 10 dvds, with 14 hours of top quality forex education, and several pieces of software, including free forex signals software which was already set up with passwords etc... and ready to go. I even got a forex spread-betting account. Mmm... better still, now I can trade forex tax-free!
I also received access to the author's web site and could see his daily forex trades. Every evening I could review his trades and listen to his commentary, and see how many pips he had made or lost. Most days he made about 20 — 30 forex pips — mostly in the GBP/Dollar market.
This was going to be be easy!
The course covered all aspects of trading including preparation, record keeping, paper trading, even the phsychology of forex trading. I watched the entire dvd set over a couple of days. Then I re-watched the dvds covering actual FX trades and particular forex techniques — he was a technical trader.
I coudn't wait to get started. So I opened my spread betting account (another $5,000 but what the hell....). Oh, and I sent for the latest Mercedes and Ferrari literature — it wouldn't be long now....
That was nearly 2 years ago.
So do I have the Mercedes or the Ferrari? Nope! Have I made my fortune? Not yet!
In fact I've lost money — lots of money!
I haven't lost my confidence in the forex market as a way to make money online, I've seen and met too many traders who make good money trading the forex markets. I know it's possible, I've seen it done.
So it must be my system! So I invested even more money.
I bought the very best online forex trading systems — but only after I had carefully checked their testimonials and ensured that people were making serious money with them. I also bought books — lots of books. Books on forex training, books on forex trading, books to compare forex trading systems. I also bought downloadable forex courses and forex guides, I studied day trading systems versus long term trading systems — I was determined to succeed and make money in forex trading.
So am I making money now? Not really!
But at last I know where the problem is and why I have failed. It hurts to admit it, but...
The problem is ME.
Yep- me! I'm the problem.
I now know that my approach, my style, my methods, were all letting me down. Even when using a proven winning trading system, I would lose money.
And for a long (and very costly) time, I hadn't even realized it. It wasn't because I didn't invest enough money either.
I now accept that I can purchase a winning forex trading system online for very little, and that a top forex course will cost very little too. Indeed, there are a whole range of very affordable forex resources and training out there.
I can quickly and easily be ALMOST fully equipped to make money on the forex markets. Almost?
So what's the missing link? What's the difference between the winners and the losers? Who else should I consult to be the complete forex trader?
Well — me... It's me!
I've identified a whole load of personal traits and deficiencies that have prevented my success — (and very uncomfortable reading they make too). Words like self-discipline, concentration, resolution, dedication and honesty come to mind.
I've also learned that MOST available forex tutorials fail to cover this topic adequately — probably because their writers are successful forex traders who already possess the vital ingredient that the rest of us lack. They just don't realize it's a problem.
What's the problem?
In a sentence — "Most forex traders are incapable of sticking to the systems they have learned". That's why most forex traders fail.
So now I have written "The Missing Link, the other successful forex trading strategy". It's nothing to do with entry or exit points, or technical analysis, or news trading. It's everything to do with attitude and mind-set- and provides a totally different set of trading rules without which even the most successful forex trading strategy can fail.

Forex : How To Handle A String Of Investment Losses

2008-06-14T12:52:00.000-07:00

Forex : How To Handle A String Of Investment Losses
Everybody hates to lose and unfortunately no one is blessed with the ability of foresight, therefore losses are an unavoidable part of trading. When we enter a trade we will either be right, or wrong, and even if we broke-even we'd still be classed as being wrong — as nobody enters into a trade just to break-even! When unsuccessful traders encounter a string of losses they begin to engage in self-destructive patterns that help them escape the pain they are experiencing.
Bring to light these self-destructive actions that can help you realize what you are doing before it takes hold of your physical health. If you find yourself already engaged in these patterns hopefully this article can help you to get you back on track as quickly as possible.
What are the destructive patterns?
If you find yourself caught in a string of losses or a bad performing week/month be sure to monitor your behavior. It is during this time that you will be at your most vulnerable. You will begin to indulge in activities that at first seem harmless, but upon excessive use (or in time), begin to cause physical damage to your health.
Ask yourself the following question: during drawdown periods do I find myself over-indulging in these activities:
Food (especially junk food — e.g. chocolate, ice-cream, chips)?
Sex (includes viewing pornography)?
Alcohol?
Drugs (includes excessive smoking)?
Laziness (find it difficult to wake up in the morning)?
Entertainment?
All of the above taken in excessive doses can be detrimental to your own physical health (some even in small doses!).
These activities above during your losing period are only covering up the pain of confronting the true issue, and your body tries to rid the emotional pain by trying to "fix" it with physical pleasures. Unfortunately it is going about it in the wrong way, so what should you do?
Firstly... REALIZE WHAT YOU ARE DOING AND STOP IT!
You need to realize what you're doing and you need to STOP doing it immediately! You can either decide to stop, or you'll be forced to stop when your body eventually breaks down and prevents you from any form of movement. It will be much more beneficial to you in the long-term if you can decide to stop *NOW*.
Once you have stopped you now need to figure out a way to solve the pain — not by cutting out or neglecting it, but by staring it in the face. Bring your problems out into the light, be honest with yourself. There can be no growth without pain; you are experiencing the emotional pain, now it is time to find the error and therefore your growth.
Begin Your Review
The review process begins in two separate areas: You & Your System. Here are some checklists for you to go through to find out where the problem could lie:
"YOUR SYSTEM" CHECKLIST
Was your system thoroughly tested prior to trading it (or paper traded if you do not have the capacity to program your system into back testing software)?
Did you test with out-of-sample data?
Do you even have a system???? If you do not, how do you even know if the method that you are trading is even profitable??
Is your system's code correct?
Did you over-optimize your system? (What have we discussed about over-indulging?)
Did you paper trade your system prior to placing capital on it?
Did you trade with a small amount of capital prior to placing the rest of your funds on it?
Do you know the system's limitations?
Did you properly drill your system? (See our blog article on why I am the system designer from hell)
"YOU" CHECKLIST
Is the current drawdown you are exhibiting with your system normal?
Are you comfortable with your system's historical drawdown performance?
Are you fully aware of the risks involved with your system and the instrument(s) you are trading?
Are you trading with funds that you are comfortable risking?
Are you relying too heavily on your performance?
Have you set realistic goals?
As you can see there are generally two areas that you need to explore: the mechanical aspect — your system — and the emotional aspect — you. Both can be responsible for making the way you feel the way you do. It will either be an error on the system's side with how the system was tested and/or programmed, or it can be your own psychological profile not being comfortable with the system's performance.
Your Answers = Change = Your Growth
What steps should we now take? Now that we have begun a corrective process where we have stopped the evil nature of our over-indulging ways to take control we should continue our "corrective nature" by invoking our findings and taking ACTION in correcting our errors.
If the problem was mechanical — fix it, if the problem was emotional either go about setting up new thought patterns, or change your current system. The answers lie in whether you need to expand your knowledge in system development, or whether you need to grow emotionally as a person.
Unfortunately there is no easy road, and even if there was everybody would be doing it. Hopefully this article has made you ponder over some of your behaviors during drawdown periods, be sure to keep an eye on yourself and as always take care of your body, because there's no use in making all the money in the world when you don't have the physical capacity to enjoy it
by Amy Goodmann

The Funny Sort Of Traders In Forex Currency Trading

2008-06-14T12:51:00.002-07:00

The Funny Sort Of Traders In Forex Currency Trading
What is the very reason why people get into forex currency trading? The money, of course. They would not be in it for anything other than that. Although there are very few who are more interested in knowing how the foreign market and the system work. But few of them really. Forex currency trading can offer a lot of money if the trader knows how to play their cards right.
Foreign currency trading has become the best income-generating industry in the world today. It is quite understandable because people do not need years of education to get into one. Compared with other industries that require some years of expertise, traders only have to learn some basic points about foreign currency trading, online for that matter. With the many online web sites offering free trainings and instant education, it is no wonder that people can get into foreign currency trading without any hassle at all.
Many people get into foreign currency trading but not all become successful either.
Some of the factors affecting the foreign currency trading are those within the market itself. These are expected and traders should know them about them first-hand to be able to anticipate and plan the needed action to counter it.
Other reasons for not succeeding in the foreign currency trading is because of the traders themselves. lacking of discipline and poor money management to mention some. These are problems that could be prevented but was not given much attention to.
There are really no personification of the "perfect trader" because the foreign currency trading is not perfect itself. Though some advises are given, they do not really ensure smooth sailing in the foreign currency trading. they just serve as guidelines to give traders some pointers on what to do when the situation calls for it.
Here are some of types of persons who enter into foreign currency trading that people do not know about and may not get to read everyday. They may sound almost absurd but there are really some of them out there.
The type who put your investment in the safest possible market. Then try to forget about them. The fact that some traders are really not into the foreign currency trading but is trying to "make" it there is an accepted fact. There are those who just want to invest and not make time for them. This is the best advise that can be given those kinds.
If they do not have the patience to try and make their trades work then they could just invest into some stable market and have them check one in a while. Or forget them altogether. They would be surprise at how their foreign currency trading is coming along without them putting any time and work into them.
It can work too. Money is not the issue here. Some people may just want to be a part of foreign currency trading and leave everything to fate. One way or another they are at least contributing to the industry. At least, their money is.
The itchy trader. This is the traders who are the exact opposite of the first ones mentioned. This kind of trader is the impatient one. Always trying to check what has been happening to the foreign currency trading especially the trade that he or she have invested on.
This is the kind that does not play around with money. Every cent counts and if putting some of it into the foreign currency trading would multiply that sum, then the trader would do everything to make it gain some profit. If it means taking more time and dedication that is allowed, then this trader would be more than happy to spend more time in the foreign currency trading.
This is also the kind that views foreign currency trading as a sport. Should always be there to see the action taking place and not wanting to miss a thing.
It is ironic how these two types of foreign currency traders have qualities that goes extremely opposite each other. Either way, one or more of the styles they are using can also bring some money into the bag. The one thing that they have in common is the fact that they both are willing enough to take the inherent risks.
by Kevin Anderson

Your FOREX trading potential can be predicted by looking at your daily emotional behavior

2008-06-14T12:51:00.001-07:00

Your FOREX trading potential can be predicted by looking at your daily emotional behavior
As hundreds and thousands of articles have been written on the subject of trading the markets, and with the emergence of new financial instruments every day, I feel compelled to put together a dissertation on the most important element of trading, the emotional effect.
Before detailing the key elements, I will offer to you the thoughts of two prominent individuals. They do not need any introduction, as their work is known and appreciated all over the world. I am sure you will love their insight into the human psyche.
"When dealing with people, remember you are not dealing with creatures of logic but creatures of emotion". Dale Carnegie (1888-1955)
"Let's not forget that the little emotions are the great captains of our lives and we obey them without realizing it". Vincent Van Gogh (1853-1890)
In a world apparently dominated by logic, it is very interesting to find such "heretic" ideas. There is nothing more debilitating than the thought of us acting not on our heavily trained conscious, but rather on the unknown subconscious impulses.
I would like to add just one more fact to my presentation, in order for you to fully grasp the importance of this new approach to trading and in general to any business activity.
The Institute for Health and Human Potential, with offices in U.S.A., Canada and Australia is a research and learning organization that uses Emotional Intelligence to leverage performance and leadership. Fortune 500 companies, the world's top business schools, professional athletes and Olympic medallists seek their expertise.
According to their studies, "Research tracking over 160 high performing individuals in a variety of industries and job levels revealed that emotional quotient was two times more important in contributing to excellence than intellect and expertise alone"
Shocking? Not at all. It is our way to act on impulse, without questioning the triggers. .
It is well known already that the two emotions dominating trading are GREED and FEAR. What is less grasped is the extent to which these emotions influence our decisions.
While amateur traders are greedy when they lose and fearful when they win, professional operators have an exactly opposite attitude, being fearful when losing and greedy when winning.
While simple psychological training could help you discipline your impulse reactions, it is the experience you get "in the ring" that makes you understand how to play with these primal emotions.
We all hate to lose, not necessarily money. The sentiment is very powerful. ALL professional operators are well versed in dealing with it day in and day out. Although they have been through tense moments due to financial losses, they have learned the most important rule in trading the markets: losses are the COST OF DOING BUSINESS. They have a high emotional management procedure and are trained to implement it no matter how hard their "ego" may suffer.
This is easier said than done, as emotions kick in and all theory crash and burn together with any trading plan.
Here you have some easy steps to help you start taming your emotional horses.
— What you see is NOT what you get, as opposed to what you have been taught all your life. The way you act is just a consequence of years and years of education and interaction with others and not your genuine attitude. You are the product of an outside education, not necessarily positive.
— In the long run, your Forex business is just PART of your whole life, together with your family, friends, hobbies, long-term projects and various other activities. I personally use a very powerful "mantra" when in pain following a loss. LIVE TO FIGHT ANOTHER DAY!
— Never lose sight of the general picture. That is your primary goal. For a professional Forex operator, the primary goal is the PROTECTION of his or her trading capital. Keep a trading journal and learn from your mistakes.
— If you want to get a pretty accurate picture of your trading prospects, take a look at your daily emotional decisions. Most of the time, you will repeat all emotional behavior in your professional life.
If you take your time to sit back and observe your daily routines, the picture will emerge with greater clarity, helping you foresee hurdles along your trading career. Do you have a swinging mood? Do you change your mind very often? Are you capable of keeping a commitment? Do you lose your temper easily? Are you on the "half-full glass" or "half-empty glass" side of life?
These traits will not change just because you start trading. That is why you have to be very careful with your expectations. Base them both on your assets as well as liabilities, in order to obtain an accurate picture.
That is just the beginning, but a very resourceful one on a journey few of us have started yet.
I have seen traders taking NLP (Neuro-Linguistic Programming) lessons, practicing the Tai-Chi art or simply meditating. They try to get in touch with unseen forces at work deep inside, vectors of influence that rule our inner world.
The way to succeed in life has infinite variations but one common start, superbly crystallized in the following aphorism, inscribed in golden letters at the entrance to the Temple Of Apollo at Delphi and attributed to Socrates, among several other ancient Greek philosophers: NOSCE TE IPSUM,(Know yourself).
The magic of success is within our grasp. We just need to find the wand!
by Bogdan Vasile

FOREX trading psychology: Learn to see the line between the trading plan and your emotional impulses

2008-06-14T12:48:00.000-07:00

FOREX trading psychology: Learn to see the line between the trading plan and your emotional impulses
The vast majority of Forex education organizations fail to address the only true characteristic of a market place, the human nature.
You can easily find loads of charts, pivot points, moving averages, trend lines and all sorts of Fibonacci ratios, together with the latest in trading automation. Any Forex website publishes some or all of these data, along with myriads of other details, interviews and opinions.
You may even get entry and exit signals, support and resistance levels, all of which could appear as sufficient in the decision making process.
I was under the same impression as a beginner, I was at the same level as an intermediate trader and only heavy losses and low risk/reward decisions made me look for a different approach to trading.
If you are aware of the importance of having a trading plan for each trade you plan to initiate, then you must be familiar with moments of doubt, when following the opening of the trade, the market goes awry, together with your emotions and self-esteem.
Do you feel frustrated? Join the vast club of frustrated professional Forex traders.
When you see the market moving against all odds and logic, your emotional self cries for an immediate position reversal (SHORT from LONG and vice-versa), in a complete disregard of your own trading plan.
On the other hand, all your training books, videos and mentors have pumped the "trading plan supremacy" into your brain.
While the viable solution seems to reside in the robotic way of trading the plan, a professional operator must learn to listen to his or her "hidden partner", the subconscious.
Our brain is capable of storing immense quantities of data, without us being aware of it. Our five senses perceptions are in constant use and they permanently add to our overall life experience. While our subconscious is capable of dealing with all this seamlessly, the conscious mind has only a very limited operational capacity, primarily used to help us dealing with our daily tasks.
As we trade, ALL our experiences are deposited deep within our brain, slowly building up what I call the unseen analyst. This is what you may call the sixth sense or the instinct traders develop as they progress.
As the name of the game with Forex trading is VOLATILITY and 80% of all trades do not last more than 2-3 days, with the vast majority of them being daytrades, it is easy to accept that conditions can and will change in a heartbeat, rendering most trade plans obsolete.
The only way to alleviate the contradictions between your emotional self and the heavily trained brain is to learn how to give them priority over time.
As a beginner, you simply cannot have the emotional experience to "feel" anything related to the market processes and therefore it is advisable to rely completely on the mechanisms of a trading plan.
At this stage, take your time to learn how to interpret the charts, prepare yourself according to the daily economic calendar and how to construct a comprehensive trading plan. Once you took a trading decision, stick with it, no matter what. At this stage, you are a robot, implementing a trading strategy.
Your emotional weight should be nonexistent in the economy of the trade.
As you progress along the path of becoming a professional Forex operator, your unseen analyst will start adjusting your trading decisions, silently participating in your trading decision process.
It is now the time to make room to your "feel", to accommodate your growing sentiment of "feeling the market".
Your emotional weight should now become an accepted presence.
You will soon learn how to adjust this "mix" in a way to achieve the optimal trading performance.
by Bogdan Vasile

Forex Trading: The Fear Factor

2008-06-14T12:46:00.000-07:00

Forex Trading: The Fear Factor
Market knowledge and ability to understand analysis will only get you so far in forex trading, but without the nerve to actively compete risking your own money in the process you can never become a successful trader.
Wagering huge volumes of money in a market as susceptible to change is liable to cause a whole range of opposing emotions; fear, excitement and anxiety just to name a few. Battling against your emotions in order to complete a successful deal is one of the major hurdles, which must be overcome if you are to become a trader able to close huge deals and earn vast sums of money. If you can overcome or even use these emotions to make trades on the Forex then a successful career may be beckoning, but failure to do so will almost certainly cost you a substantial amount of money and end any lingering desires to progress in the busy world of exchange rate trading.
Initiating and closing a trade at the right times are the backbone of becoming a successful Forex trader. If a person cannot execute these deals at the right times, the psychological and financial damage can be crippling. Missing a huge trend or sitting too long on a good price, can be a demoralising experience, but one that many will encounter during a career in Forex trading.
Entering at the right time is just one thing that must be done correctly, but if you are unable to leave at the right time or hold your nerve during the course of the trade, the implications are potentially severe. For example accepting a small loss just before the market rises can lead to a horrendous huge profit/loss ratio margin. Similarly sitting on a currency price that is plummeting for too long could be financially crippling. Understanding the Forex market and having faith in your ability to judge a trend will pay dividends if you hold your nerve, backing out at the wrong time can prove to be a catastrophic misnomer.
The fear generated by investing your own personal money is the main thing that must be overcome. It is the culprit in so many failure stories, people who just couldn't overcome their anxiety investing unwisely, pulling out at the wrong time, missing a rise completely, all result in failure and are caused by fear. Accepting this fear, and using it to your potential will make you a stronger trader, able to trade freely and enjoy the thrill of the exchange. Fighting it will get you nowhere, understanding and overcoming it are the best remedies to this baseless emotion.
Trading strategies will help you ride out the rough times and capitalize on the good ones. Sometimes just taking a step back and accepting a few losses will give you the energy and the knowledge to attack the Forex with renewed vigour, and make some serious profits. Accepting that sometimes you will lose out, you need to be able to take the hits and roll with a punch, there are no guarantees in the trading market, so being able to move on and start again is a skill that is paramount to generating success.
Analysis and charts can only get you so far. You must first master these things, and be able to correctly interpret the figures that are represented in order to spot the trends and make your move. But this all means nothing if you don't have the courage of your convictions. If you are too afraid to buy and not sure when to sell then a glittering career in market trading is likely to elude you. 'The trend is your friend' but it means nothing if you firstly can't spot it and secondly don't have the courage to back it. Knowledge, strategies and overcoming fear may well be the 3 best ways to become to unlock the door to becoming a successful trader. Without all 3 you will more often than not become unstuck, so prepare, practice and evaluate everything before taking the plunge in the complicated world of Forex trading.
by Michael J Campbell

Trading Psychology: Mistakes in a Trading Environment

2008-06-14T12:44:00.000-07:00

Trading Psychology: Mistakes in a Trading Environment
When it comes to trading, one of the most neglected subjects are those dealing with trading psychology. Most traders spend days, months and even years trying to find the right system. But having a system is just part of the game. Don't get us wrong, it is very important to have a system that perfectly suits the trader, but it is as important as having a money management plan, or to understand all psychology barriers that may affect the trader decisions and other issues. In order to succeed in this business, there must be equilibrium between all important aspects of trading.
In the trading environment, when you lose a trade, what is the first idea that pops up in your mind? It would probably be, "There must be something wrong with my system", or "I knew it, I shouldn't have taken this trade" (even when your system signaled it). But sometimes we need to dig a little deeper in order to see the nature of our mistake, and then work on it accordingly.
When it comes to trading the Forexa market as well as other markets, only 5% of traders achieve the ultimate goal: to be consistent in profits. What is interesting though is that there is just a tiny difference between this 5% of traders and the rest of them. The top 5% grow from mistakes; mistakes are a learning experience, they learn an invaluable lesson on every single mistake made. Deep in their minds, a mistake is one more chance to try it harder and do it better the next time, because they know they might not get a chance the next time. And at the end, this tiny difference becomes THE big difference.
Mistakes in the trading environment
Most of us relate a trading mistake to the outcome (in terms of money) of any given trade. The truth is, a mistake has nothing to do with it, mistakes are made when certain guidelines are not followed. When the rules you trade by are violated. Take for instance the following scenarios:
First scenario: The system signals a trade.
1. Signal taken and trade turns out to be a profitable trade. Outcome of the trade: Positive, made money. Experience gained: Its good to follow the system, if I do this consistently the odds will turn in my favor. Confidence is gained in both the trader and the system. Mistake made: None.
2. Signal taken and trade turns out to be a loosing trade. Outcome of the trade: Negative, lost money. Experience gained: It is impossible to win every single trade, a loosing trade is just part of the business; our raw material, we know we can't get them all right. Even with this lost trade, the trader is proud about himself for following the system. Confidence in the trader is gained. Mistake made: None.
3. Signal not taken and trade turns out to be a profitable trade. Outcome of the trade: Neutral. Experience gained: Frustration, the trader always seems to get in trades that turned out to be loosing trades and let the profitable trades go away. Confidence is lost in the trader self. Mistake made: Not taking a trade when the system signaled it.
4. Signal not taken and trade turns out to be a loosing trade. Outcome of the trade: Neutral. Experience gained: The trader will start to think "hey, I'm better than my system". Even if the trader doesn't think on it consciously, the trader will rationalize on every signal given by the system because deep in his or her mind, his or her "feeling" is more intelligent than the system itself. From this point on, the trader will try to outguess the system. This mistake has catastrophic effects on our confidence to the system. The confidence on the trader turns into overconfidence. Mistake made: Not taking a trade when system signaled it
Second Scenario: System does not signal a trade.
1. No trade is taken Outcome of the trade: Neutral Experience gained: Good discipline, we only need to take trades when the odds are in our favor, just when the system signals it. Confidence gained in both the trader self and the system. Mistake made: None
2. A trade is taken, turns out to be a profitable trade. Outcome of the trade: Positive, made money. Experience gained: This mistake has the most catastrophic effects in the trader self, the system and most importantly in the trader's trading career. You will start to think you need no system, you know better from them all. From this point on, you will start to trade based on what you think. Confidence in the system is totally lost. Confidence in the trader self turns into overconfidence. Mistake made: Take a trade when there was no signal from the system.
3. A trade is taken, turned out to be a loosing trade. Outcome of the trade: negative, lost money. Experience gained: The trader will rethink his strategy. The next time, the trader will think it twice before getting in a trade when the system does not signal it. The trader will go "Ok, it is better to get in the market when my system signals it, only those trade have a higher probability of success". Confidence is gained in the system. Mistake made: Take a trade when there was no signal from the system
As you can see, there is absolutely no correlation between the outcome of the trade and a mistake. The most catastrophic mistake even has a positive trade outcome, made money, but this could be the beginning of the end of the trader's career. As we have already stated, mistakes must only be related to the violation of rules a trader trades by.
All these mistakes were directly related to the signals given by a system, but the same is applied when getting out of a trade. There are also mistakes related to following a trading plan. For example, risking more money on a given trade than the amount the trader should have risked and many more.
Most mistakes can be avoided by first having a trading plan. A trading plan includes the system: the criteria we use to get in and out the market, the money management plan: how much we will risk on any given trade, and many other points. Secondly, and most important, we need to have the discipline to follow strictly our plan. We created our plan when no trade was placed on, thus no psychology barriers were up front. So, the only thing we are certain about is that if we follow our plan, the decision taken is on our best interests, and in the long run, these decisions will help us have better results. We don't have to worry about isolated events, or trades that could had give us better results at first, but then they could have catastrophic results in our trading career.
How to deal with mistakes
There are many possible ways to properly manage mistakes. We will suggest the one that works better for us.
Step one: Belief change. Every mistake is a learning experience. They all have something valuable to offer. Try to counteract the natural tendency of feeling frustrated and approach mistakes in a positive manner. Instead of yelling to everyone around and feeling disappointed, say to yourself "ok, I did something wrong, what happened? What is it?
Step two: Identify the mistake made. Define the mistake, find out what caused the mistake, and try as hard as you can to effectively see the nature of that mistake. Finding the mistake nature will prevent you from making the same mistake again. More than often you will find the answer where you less expected. Take for instance a trader that doesn't follow the system. The reason behind this could be that the trader is afraid of loosing. But then, why is he or she afraid? It could be that the trader is using a system that does not fit him or her, and finds difficult to follow every signal. In this case, as you can see, the nature of the mistake is not in the surface. You need to try as hard as you can to find the real reason of the given mistake.
Step three: Measure the consequences of the mistake. List the consequences of making that particular mistake, both good and bad. Good consequences are those that make us better traders after dealing with the mistake. Think on all possible reasons you can learn from what happened. For the same example above, what are the consequences of making that mistake? Well, if you don't follow the system, you will gradually loose confidence in it, and this at the end will put you into trades you don't really want to be, and out of trades you should be in.
Step four: Take action. Taking proper action is the last and most important step. In order to learn, you need to change your behavior. Make sure that whatever you do, you become "this-mistake-proof". By taking action we turn every single mistake into a small part of success in our trading career. Continuing with the same example, redefining the system would be the trader's final step. The trader would put a system that perfectly fits him or her, so the trader doesn't find any trouble following it in future signals.
Understanding the fact that the outcome of any trade has nothing to do with a mistake will open your mind to other possibilities, where you will be able to understand the nature of every mistake made. This at the same time will open the doors for your trading career as you work and take proper action on every mistake made.
The process of success is slow, and plenty of times it is attributed to repeated mistakes made and the constant struggle to get past these mistakes, working on them accordingly. How we deal with them will shape our future as a trader, and most importantly as a person.
by Raul Lopez

Forex: No psychological limitations

2008-06-14T12:42:00.001-07:00

Forex: No psychological limitations
Back when I first started learning about investing, I decided to start from the beginning and read basic books on personal finance as well as "guides" for understanding all of the investment world in a nut shell. Most of these authors were very knowledgeable and informative, but their investment advice was far too conservative for my taste. They would literally write chapter after chapter talking about the differences between conservative investing, which according to them generally yields somewhere around 5% PA, as opposed to "risky" investing which usually meant a diversified stock/mutual fund portfolio yielding (in my mind) only slightly higher averages. What kind of returns can you expect in the stock market? Well they say the market has gone up an average of 10% a year since Adam and Eve. Popular indexes like the DOW and the now more popular S&P500 have always, like real estate, "gone up over time."
Now, these market averages are almost worshiped like golden calves. Repeatedly drilled into my brain was the concept that there were hundreds (if not thousands) of fund managers and other "professionals" out there with Harvard degrees, decades of experience, millions of dollars under management, and they were all spending 15 hours a day consuming every single bit of market information in the hopes of beating these golden calves by a few points.
What chance did I have? If Dr. Fund Guru Jr. who eats, sleeps, breathes the markets and has more credentials than I have individual hairs on my body can't consistently make 20% a year...well...forget it kid...your chances are slim to none. I guess I'll buy some shares of XYZ fund and accept the scraps off the table from the stock gurus.
NOT!
The foreign exchange market offers many benefits that the stock market does not have. Most of these have been beaten to death on various forums, blogs, articles, e-books, etc. However, it's always good to reiterate the positive (my own personal reason is last): — Forex offers unprecedented liquidity. With over two trillion dollars transacted per day on the market, it makes filling any buy/sell order virtually instant. That equates to less slippage and more profitability. "Paper trading" stocks vs actually trading stocks is very different, because orders may not be filled in a timely manner. The difference between trading a forex demo account and an actual account is virtually nill. — Forex is available 24 hours a day 5.5 days a week, as opposed to the daylight trading hours of the stock exchanges. — Forex is uncontrollable by large entities. Large net worth individuals, banks and fund managers who throw their weight around in the stock market can often have huge effects on price action. Because of the immense volume of foreign currency traded per day, the market is unmoved by "heavy hitters." Not even central banks can control the Forex market. — Forex offers up to 200:1 leverage as opposed to 2:1 stock leverage. — Forex has no restrictions for selling short, as opposed to the stock market's "uptick" rule — Forex can actually be traded INSIDE of an IRA or Roth IRA account. — Forex gains are taxed at the preferred 60/40 rate, no matter what trading style you use (intra-day, swing, position) as opposed to the tax penalties for holding stocks for short periods of time.
The list does go on, but for me the biggest advantage is a psychological one. I know it probably sounds silly, but fear and intimidation can sometimes subconsciously defeat us before we even begin. I don't like the idea of having to live up to, and in a way, compete with "professional managers" who have more knowledge of the fundamentals of the markets than I ever will. It's almost as if Forex, in some way, levels the playing field. I don't have to psychologically compete against anyone's idea of what kind of returns are "acceptable and realistic" and what kind of returns are "pure fantasy." I only have to trade until I can find an acceptable reward to risk ratio, and consistent profitability thereof. The only one I compete against is myself.
by Joshua White

Forex Market Trading And The Mind Games

2008-06-14T12:39:00.000-07:00

Forex Market Trading And The Mind Games
First, what is Forex: The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.
Mind Games defined: Mind Games are a kind of social interaction where participants try to screw with one anothers' heads. The concept is most often used colloquially to refer to deceitful, confusing or Machiavellian situations. However some mind games are described by the psychology of transactional analysis.
When it comes to trading on the Forex market, winning is a matter of the mind rather than mind over matter. Any trader who's been in the game for any length of time will tell you that psychology has a lot to do with both your own performance on the trading floor and with the way that the market is moving. Playing a winning hand depends on knowing your own mind — and understanding the way that psychology moves the market.
Studying the psychology of the market is nothing new. It doesn't take a genius to understand that any arena that rides and falls on decisions made by people is going to be heavily influenced by the minds of people. Few people take into account all the various levels of mind games that motivate the market, though. If you keep your eye on the way that psychology influences others — including the mass psychology of the people that use the currency on a daily basis — but neglect to know what moves you, you're going to end up hurting your own position. The best Forex coaches will tell you that before you can really become a successful trader, you have to know yourself and the triggers that influence you. Knowing those will help you overcome them or use them. Are you saying 'Huh?" about now? Believe me, I understand. I felt the same way the first time that someone tried to explain how the mind games we play with ourselves influence the trades and decisions that we make. Let me break it down into more manageable pieces for you.
Anything involving winning or losing large sums of money becomes emotionally charged. All right. You've heard that playing the market is a mathematical game. Plug in the right numbers, make the right calculations and you'll come out ahead. So why is it that so many traders end up on the losing end of the market? After all, everyone has access to the same numbers, the same data, the same info — if it's math, there's only one right answer, right?
The answer lies in interpretation. The numbers don't lie, but your mind does. Your hopes and fears can make you see things that just aren't there. When you invest in a currency, you're investing more than just money — you make an emotional investment. Being 'right' becomes important. Being 'wrong' doesn't just cost you money when you let yourself be ruled by your emotions — it costs you pride. Why else would you let a loser ride in the hope that it will bounce back? It's that little thing inside your head that says, "I KNOW I'm right on this, dammit!"
To most people, being right is more important than making money. Here's the deal. The way to make real money in the forex market is to cut your losses short and let your winners ride. In order to do that, you have GOT to accept that some of your trades are going to lose, cut them loose and move on to another trade. You've got to accept that picking a loser is NOT an indication of your self-worth, it's not a reflection on who you are. It's simply a loss, and the best way to deal with it is to stop losing money by moving on — and really move on. Moving on means you don't keep a running total of how many losses you've had — that's the way to paralyze yourself. This brings us to the next point:
Losing traders see loss as failure. Winning traders see loss as learning. Not too long ago, my twelve year old son told me that before Thomas Edison invented a working light bulb, he invented 100 light bulbs that didn't work. But he didn't give up — because he knew that creating a source of light from electricity was possible. He believed in his overall theory — so when one design didn't work, he simply knew that he'd eliminated one possibility. Keep eliminating possibilities long enough, and you'll eventually find the possibility that works.
Winning traders see loss in the same way. They haven't failed — they've learned something new about the way that they and the market work. Winning traders can look at the big picture while playing in the small arena.
Suppose I told you that last year, I made 75 trades that lost money, and 25 that made money. In the eyes of most people, that would make me a pretty poor trader. I'm wrong 75% of the time. But what if I told you that my average loss was $1000, but my average profit on a winning trade was $10,000? That means that I lost $75,000 on trades — but I made $250,000, making my overall profit $175,000. It's a pretty clear numbers game — but how do you keep on trading when you're losing in trade after trade? Simple — just remember that one trade does not make or break a trader. Focus on the trade at hand, follow the triggers that you've set up — but define yourself by what really matters — the overall record.
Bottom line: You can't keep emotions out of the picture, but you can learn not to let them control your decisions. Keep it all in perspective and realise that there are a lot of big boys playing this game and playing it to win...
by David Mclauchlan

Emotions And Forex Trading Don't Mix

2008-06-14T12:38:00.002-07:00

Emotions And Forex Trading Don't Mix
The key to making money in the currency exchange market is to avoid emotional decisions and to follow a carefully thought out strategy that takes the current market and history into account. Going with your gut is not the way to go in the Forex market. Going with your gut could cost you money. Forex trading is a highly volatile market where emotions tend to run high. Emotions can influence your trading decisions, unless you have a strategy planned in advance, and stick to it, no matter what you think you're seeing at the moment. The keys to success in Forex are system, analysis and perseverance.
Most experienced traders tell novice traders that they need to develop a system — and stick to it no matter what. Letting your emotions rule your decisions can hurt your trading in a number of ways. The system tells you when to buy, what to buy, when to trade and what to trade for. By sticking to your system you'll maximize your profits. A system based on technical analysis of historical market trends is one of the most potent tools that you can utilize if you're just getting started in Forex trading. Many traders, with years of experience, continue to use this system to keep the profits rolling in. Many traders will tell you that when their gut instinct and their system collide, the system is almost always right.
Using a mechanical system takes the emotion out of your trading, eliminating one of the reasons people fail. Your system doesn't sway with emotions. It sticks to a tried and true course. To be effective, your system — whether you develop your own or adopt one created by someone else — should identify the entry and exit point of your trade, mitigating factors, and an exit strategy. In general terms this is as follows:
Under what conditions should I acquire a currency?
For instance, you may have a buy order for when a particular currency drops more than 5 pips because your analysis tells you that that's likely to be as low as it goes.
When should I trade one currency for another and for which one?
There are two reasons to exit — to maximize your profit, or minimize your loss. That means you have a set stop-loss order and a set take-profit order at which point you cash out your trade.
What factors will I allow to change that decision?
While the money market moves in predictable patterns, there are always individual variations of a trend within those patterns. If you've taken those variations into account, it will be far easier to decide when a factor really does make a difference, and when it's just wishful thinking. If you're not careful however this is where emotion could come into play and sour deals for you.
How will I trade out of a currency?
Your exit strategy may be as simple as a stop-loss order when my loss hits 5% or a take-profit order when I make 40% profit'.
Another key is perseverance. Analysis of trends in the market will show you that the market moves in dips and spurts within overall patterns that are predictable. No trend moves smoothly in an up or down line — there are inevitable periods of time when values suddenly spiral up or down based on some outside factor. These are the times when emotion can hurt your portfolio. When a currency that you're holding takes a sudden dip south, it's tempting to succumb to panic trading, cut your losses and run even if your system tells you to hold on. On the other hand, it's easy to catch the rising excitement as a trade starts increasing in value and scramble to buy more of the same. These are exactly the times to rely most heavily on your trading system. It will tell you exactly when to trade for maximum profit.
If you control your emotions and stick to the system you'll maximize your profits andall should be smooth sailing.
by David Mclauchlan

Forex: Why Psychiatrists Make Better Traders Than Expert Economists?

2008-06-14T12:38:00.001-07:00

Forex: Why Psychiatrists Make Better Traders Than Expert Economists?
It should be noted that millionaire traders, Elder, Williams and some others are in fact professional psychiatrists. And it is not accidental that not the economists are the leaders and most successful traders, but professional psychiatrists and psychotherapists. Think about it. You will become a successful trader when you understand why it happens with Forex. You will understand what your Forex mistakes are, and why you are making them. And when you correct these mistakes you will become a trader who has no psychological barriers and obstacles on his way to better earnings in the Forex market.
So, why do the psychiatrists make better traders than economists who, as one would think, have the Forex market at their finger tips?
The economists are confused by:
— the fact that exchange rates are not always related directly to the economic circumstances in the countries. Well, do you know any economist who would be bidding for low fx rates when the economic situation is getting better and better? Or the one who admits that technical analysis of currency pairs is more important for Forex trading than the fundamental one? Any economist is confident that this can never happen because he knows all the economic dogmas. But it happens in the Forex. After all, how can a trader lose with the currencies moving up and down by the economic rules? The currency will surely react to the economic changes in the country, but who knows when and how? Here is a tip: there is the Elliott fifth way to teach a lesson to the ones who believe that fundamental knowledge is enough (before the trend turns, the currency spurts absurdly by the old trend), to confuse and draw the newbies into the game, while the experts wait for the trend to turn back.
— the lack of psychological knowledge that helps to understand the behavior of the crowd. And that is self-evident.
Are there any methods to overcome this fear?
It seems that every Forex book, every article offers efficient solutions for psychological difficulties experienced by the traders.
IN FACT NEITHER OF THESE BOOKS CONTAINS METHODS TO OVERCOME THE FEAR EXPERIENCED BY A FOREX TRADER!
But what do these books offer instead?
Almost every book of this kind consists of two unequal parts:
— the bigger part of the book narrates about traders' problem that interfere with their Forex work and make it unsuccessful (nervousness, doubts, worries, fear, sleep deprivation, etc.). As if the traders do not know their own problems.
— the considerably lesser part contains conclusions and recommendations to the traders who are to solve their problems and overcome their fears to become successful.
The conclusions are disappointing:
Many psychiatrists realize that the new field opens before their eyes — now they may treat traders whose number amounts to millions all over the world and is growing with every day. And since most traders have a dream to become as successful as George Soros and other famous traders, this new field promises to be rather lucrative.
One thing is bad though: the overwhelming majority of these new-sprung trader brain specialists do not even know what the Forex is all about.
by Alexander Brin

Protective Puts

2008-06-14T12:35:00.002-07:00

Protective Puts
Option overlays in the forex are a great way to control risk while taking advantage of the upside in trading. Options are a broad subject so I only intend on discussing one concept in this article and then will follow up with another article on a second overlay strategy. One of our trading systems at proftingWithForex.com uses option overlays, and you can follow along month by month to see how this strategy actually performs in real time. The two concepts I will talk about are very common and can be executed easily and without constant maintenance. Those are two things I like to look for in a system so I am not the one making all the mistakes for the first time and so I can have a life along with my forex trading. I will cover protective puts in this report and covered calls next.
PROTECTIVE PUTS
A put is an option with three components. The first is a contract. When you buy a put, you are buying the right to sell someone the underlying currency at a predetermined price for a predetermined period of time. You could buy a put today to sell a lot of the GBP/USD at $2.0000 any time between now and a date you choose in the future. If the currency pair falls to 1.9900, you can still sell it for 2.0000 and realize a profit. In fact, it doesn't matter how far the currency falls. If it is still within your time window, you can sell the currency for 2.0000 at will. The set price (2.0000) that you have selected for your contract is known as the strike price. The second component is time. Options are available in monthly increments. That means you can buy one that is good until next month or 12 months from now. The choice is up to you. Finally, options cost money. The price of an option is called the premium. The premium is higher the more valuable the options is. An option with a long time frame and a great strike price is more expensive than one with a very short time frame and a more speculative strike price. I think the best way to explain this is to use an example.
Example 1:
Let's assume that on January 22, 2007, you wanted to buy one contract of the GBP/USD. Let's assume it had a price of 1.9750. You are a prudent investor, and you want some protection from risk in the market so you buy a protective put that allows you to sell this contract at 1.9750 anytime before that contract expires. In this case, the contract would have expired a month later on the third Friday of February, the 16 th . That put will cost you the equivalent of 150 pips per contract. The pair subsequently dropped to 1.9502. In that case, the put will still be worth 248 pips because you can still sell the lot for 1.9750 (1.9750 — 1.9502 = 0.0248). That is exactly equal to the amount you would have lost on the contract you were long so they wash each other out. In fact, the only thing you are out is the 150 pips you paid to purchase the contract in the first place. You didn't have to set a stop because you were totally protected. Even though the contract value dropped significantly-more than the 150 pips you had planned for-you had a hedge that protected your capital.
Example 2:
The following month's trade, February to March, would have been another loss, but the March to April trade was a winner. For the March to April trade, you could have purchased the long position in the currency pair for 1.9372. You could have covered your position with a put at 1.9350 that would have cost you 120 pips, leaving you with some exposure between 1.9350 and 1.9372. However if you add those two positions, you had a level of total risk similar to what you had during the January to February trade. During the month, your long position rose significantly to 2.0027. That means you made 655 pips. What about your put? Well, there is no way you will want to sell this position for 1.9350 so you will just let the put expire worthless. That will reduce your gains by the amount you paid for the put so your new total is a net gain of 535 pips.
This strategy can appear to be slightly complicated at first, but it is worth learning more about it as it offers significant benefits. Institutional traders use option overlays, such as protective puts, all the time. It helps control risk and reduces total volatility in a portfolio. Here are a few more of the benefits, along with two of the cons, of this strategy.
Benefit #1-No stops
You do not need to set a stop on your long currency position. How many times have you been right in your direction but got stopped out on a whipsaw in the market? I am positive that this happens to most forex traders on a regular basis. With a protective put, you are in charge and can let the exchange rate drop to zero, if that were possible, without exceeding your maximum loss. By the way, this benefit is also true during announcements. You are now in control.
Benefit #2-Unlimited upside
Unlike many hedging strategies, this technique still allows for unlimited upside. Although gains are offset by the price of the put, gains can still be significant.
Benefit #3-Lower portfolio volatility
The total portfolio has lower volatility because your downside is capped. Here is an additional example. I will assume that pricing and volatility has been reasonably constant, on average, during the last 10 years and that your strategy is to buy a long position on the GBP/USD and an at the money put with total portfolio leverage of 20:1. That would have returned 10 percent per year during that period. When you combine this advantage with some prudent analysis, it is entirely possible to see much better returns than this.
Con #1 — Cost of the put
The put will cost you 150 pips if you let it run until expiration each month-whether the market goes up or down. That price eats into your upside and creates a predetermined downside. Even if the market dropped less than 150 pips, the maximum loss will be the same.
Con #2 — Cost of trading
If you purchase a put, you will pay a commission. With commission prices falling all the time, this is usually nominal but it adds another pip worth of losses to each month's trading.
The most difficult thing for most investors to do is to protect their capital. You will hear successful individual investors often say that if you can effectively protect your capital, profits will take care of themselves. I agree with that sentiment and use protective puts to help give me an edge. At ProfitingWithForex.com we maintain a model portfolio in the trades section that uses option overlays to illustrate the concept in real time. Log in, and check it out to see what we are up to and what this looks like over time.
by Jogn Jagerson, author of Profiting With Forex, a McGraw-Hill publication.