“Your Guide To Forex
Trading Profits”
No
part of this book may be reproduced by any mechanical, photographic, or
electronic process, or in the form of a phonographic recording, nor may it be
stored in a retrieval system, transmitted, or otherwise copied for public or
private use.
Limit of Liability / Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult a professional where appropriate. Neither the publisher nor the author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
Risk
Disclosure: The information in this book is for educational purpose only. Past
performances do not guarantee future results. FOREX Trading involves
substantial risk and there is always the potential for loss. Your trading
results may vary. Trade only capital you can afford to lose. We assume no
liability for losses incurred using the information on this site.
CFTC
- U.S. Government Required Disclaimer: Forex, Futures and options trading has
large potential rewards, but also large potential risk. You must be aware of
the risks and be willing to accept them in order to invest in the futures and
options markets. Don't trade with money you can't afford to lose. This website
is neither a solicitation nor an offer to Buy/Sell futures or options. No
representation is being made that any account will or is likely to achieve
profits or losses similar to those discussed on this website. The past
performance of any trading system or methodology is not necessarily indicative
of future results.
Substantial
risk is involved. Forex trading has large potential rewards, but also large
potential risk. You must be aware of the risks and be willing to accept them in
order to invest in the Forex markets. Don't trade with money you can't afford
to lose. Nothing in our book or website shall be deemed a solicitation or an
offer to Buy/sell futures and/or options or Forex. No representation is being
made that any account will or is likely to achieve profits or losses similar to
those discussed on our site. Also, the past performance of any trading
methodology is not necessarily indicative of futures results. Trading involves
high risks and you can lose a lot of money.
CFTC
RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN
LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT
REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE
RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN
MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN
GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF
HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY
TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
Table of Contents
4 The Basics of FOREX Trading
7 Reasons To Trade In
The FOREX Market
12 Getting Started In The
Exciting World Of Forex Trading
16 Overview
of Basic FOREX Strategy
18 An
Introduction To Forex Charts
28 Forex
Charts, Technical Indicators, and Trading Systems
36 An
Introduction To Trading Forex Without Indicators
39 Determining
Your Strategy
40 Forex Spread Basics
43 Tips
For Trading Forex Successfully
51 More
Rules Of Thumb for Successful Forex Trading
56 In Conclusion
What exactly is FOREX
trading? Put simply, FOREX trading is the buying and selling of international
currencies. Traditionally, participation in the FOREX market was confined to
major banking and trading institutions. But in recent years, technological
developments have opened up this once exclusive arena to smaller companies and
even individuals by allowing them to trade currencies online.
The world’s
currency rates are not fixed. They follow a floating exchange rate and are
always traded in pairs— EuroDollar, Dollar/Yen, etc. Most international
transactions are exchanges of the world’s major currencies.
When it comes to Forex trading, there are a number of major currency pairs. : Euro v. US dollar, US dollar v. Japanese yen, British pound v. US dollar, and US dollar v. Swiss franc. These currency pairs are considered major in comparison to the other currency pairs because of their trading volume.
When it comes to Forex trading, there are a number of major currency pairs. : Euro v. US dollar, US dollar v. Japanese yen, British pound v. US dollar, and US dollar v. Swiss franc. These currency pairs are considered major in comparison to the other currency pairs because of their trading volume.
In the FOREX
market, these relationships are shortened: EUR/USD, USD/JPY, GBP/USD, and
USD/CHF. They may also be listed as follows (without the slash): EURUSD,
USDJPY, GBPUSD, and USDCHF
Below is a chart of 4 currency pairs clearly illustrating their relationship to each other.
Below is a chart of 4 currency pairs clearly illustrating their relationship to each other.
Figure 1.0 Major
Currency Pairs - Daily Data
It is also
important to remember that there are no dividends paid on currencies. If you
are a trader in the FOREX market, you look to see whether one currency’s value
will appreciate against another currency. When this is the case, you exchange
the latter for the first. Ideally, you will be able to exchange the first
currency for the other at a later time and collect a profit from the trade.
FOREX transactions are typically conducted by professionals at major banks and brokerage firms. FOREX trading has long been an important feature of the international market. At all hours of the day, currencies are being traded by brokers around the world. In fact, the FOREX market operates virtually twenty- four hours a day and five days a week with traders at international banking institutions working a number of separate shifts.
The FOREX market is different from the normal stock market in the fact that price shifts are much smoother and do not result in significant gaps. Each day the FOREX market turns over trillions of dollars, allowing traders to enter and exit certain position very easily. As you can see, the FOREX market is a dynamic and continuous system that basically never sleeps. To be sure, even on September 11 in 2001 it was still possible to obtain currency quotes.
FOREX transactions are typically conducted by professionals at major banks and brokerage firms. FOREX trading has long been an important feature of the international market. At all hours of the day, currencies are being traded by brokers around the world. In fact, the FOREX market operates virtually twenty- four hours a day and five days a week with traders at international banking institutions working a number of separate shifts.
The FOREX market is different from the normal stock market in the fact that price shifts are much smoother and do not result in significant gaps. Each day the FOREX market turns over trillions of dollars, allowing traders to enter and exit certain position very easily. As you can see, the FOREX market is a dynamic and continuous system that basically never sleeps. To be sure, even on September 11 in 2001 it was still possible to obtain currency quotes.
Also known as the foreign exchange market, or FX, it is the oldest and most expansive financial market in the world. In comparison, the currency futures market is a mere one percent the size of the FOREX market.
Trades are brokered between major banking groups and circulate around the globe, from America to Australia, to Asia, to Europe, and back to the U.S. For a long time, financial prerequisites and hefty minimum transaction amounts put the FOREX market out of reach of small traders. Consequently, at one time major banks and financial institutions were the only parties that could benefit from participation in the FOREX market’s fluidness and strong exchange rates.
Today is a different story. FOREX market dealers can divide large units within the market, allowing smaller corporations and even individuals the ability to trade these smaller units. Even though it is the oldest financial market in the world, the FOREX market has evolved a great deal in a short amount of time. High-speed internet connections and sophisticated online Forex trading platforms has definitely made it easier for individual traders to get involved in Forex trading and possibly be very successful at it. This basic guide is your first step towards a successful future in trading in the extremely lucrative FOREX market.
Reasons
To Trade In The FOREX Market
If you asked Forex traders the number one reason they traded Forex most
of them would say, “profit potential”
Figure 1.1
Daily GBPUSD Data
The chart above shows the daily GBPUSD (British Pound/US
Dollar) currency pair. This chart shows the “BUY” entry where the blue arrow is (the bottom left of the chart).
This represents where a particular Forex trading system went long (bought).
The profit so far in this trade is approximately $24,000 per Forex contract. This is from just one simple trade in the Forex market! So as you can see the profit potential is there and opportunities such as these exist in all Forex currency pairs.
The profit so far in this trade is approximately $24,000 per Forex contract. This is from just one simple trade in the Forex market! So as you can see the profit potential is there and opportunities such as these exist in all Forex currency pairs.
There is a unique and potentially very profitable
opportunity offered through cash/spot FOREX markets regardless of the condition
of the market.
The
advantages of FOREX trading are:
Around the
clock market:
A trader can trade anytime that they think market conditions are favorable; Forex
offers a 24-hour market. This is particularly convenient for those who wish to
trade Forex on a part-time basis. You could easily find markets to trade that
will not conflict with your work schedule. There is basically no schedule that
the Forex market’s trading hours can’t accommodate.
Easy in-Easy
out: A
trader can enter or exit the market almost totally at will; no other market
offers as much liquidity. There are very few execution barriers and no limits
are placed on daily trading. The leverage available in Forex is much higher
than equity markets: A leverage ratio of up to 400:1 in comparison to 2:1 in
the equity markets.
Although the risk of using greater leverage can be higher
in FOREX trading, the potential for profit is there as well!
A low-cost transaction: Compared to other markets the Forex market has some of the lowest transaction costs available.
Always An Opportunity To Profit: FOREX trading actually consists of buying or selling one currency against another, and there is always a profit opportunity for one currency pair or another.
A low-cost transaction: Compared to other markets the Forex market has some of the lowest transaction costs available.
Always An Opportunity To Profit: FOREX trading actually consists of buying or selling one currency against another, and there is always a profit opportunity for one currency pair or another.
Global
market:
With no organized exchanges like the New York Stock Exchange, trading is
facilitated by electronic communication and telephones.
No market
monopoly:
Because of the size of the FOREX market, no single trader or bank can control
the market price for any length of time. Because of the ineffectiveness of bank
interventions to manipulate prices, they have diminished.
It is
basically unregulated:
There are no specific FOREX regulations for daily operations. Of course, banks
are always regulated through banking laws.
There are
many different advantages to trading FOREX instead of futures or stocks, such
as:
1. Lower Margin - A FOREX trader can control a large
amount of currency with only a small account deposit, just like when futures
and stock speculation is done. Futures require a 5% margin and the margin
required for FOREX is around 1%. In layman’s terms, in FOREX trading, a
currency trader can control 5 times as much with his money as in futures
trading and 50 times more than stock trading!
There is much profit in trading on margin, but you need
to be fully aware of the very high risks too. Be sure you understand the ins
and outs of your margin account and that you have read the margin agreement
between you and the clearing firm. If you still have things you are not sure
about, discuss these issues beforehand with your account representative.
If you allow your account to fall below an amount set in
your agreement, you could experience the partial or complete liquidation of
your positions. It may be done before you even get a margin call, so be sure
you review your margin balance regularly.
Take advantage of stop-loss orders on each open position;
this is a must in order to reduce risk and preserve valuable working capital.
2. There are No Exchange Fees and NO Commission - You pay
exchange and brokerage fees in the futures market, but FOREX trading is
commission free with most Forex brokers. You benefit from free access to this
worldwide network where buyers and sellers are matched almost instantly.
Although the trading is commission free, the spread (difference between the
asking price and the bidding price) is larger than futures.
3. Guaranteed Stops and Limiting Risk - Unlike the
sometimes unlimited risk involved in the futures market, FOREX is said to have
guaranteed stops that can be utilized to limit risk. This is a myth. During a time of extreme volatility your
stops in the Forex market can be “run” just as in any other market. We
personally know of a trader with one of the largest Forex brokerages who had
his stops run by over 140 pips per contract! Basically it is the equivalent of
not being able to get out of a futures trading position as the price moves
against you.
You are able to plan ahead to limit risk to some degree
in the FOREX trading market. An example of this would be losses sustained in
the futures market due to Mad Cow Disease.
4. Trade Rollover In FOREX trading, you need to rollover
each trade every two days just to keep your position. In futures, you must plan
ahead to rollover when a contract expires.
5. Open Around the Clock - In the futures market your
trading is limited during the window of time that each market is open. If
current events make getting out of a position important, you still must wait
until the market reopens. That could be hours, creating financial disaster for
you. But, the FOREX market is open around the clock, five days a week. It
actually follows the sun! From the United States, to Europe, Asia, Australia,
and back again to the States, it allows you to trade at any time you desire.
6. A Market place of Free Trade On a daily basis, the
foreign exchange is a $1.4 trillion (and growing) dollar market! This is 46
times larger than all the futures markets combined. Governments around the
world struggle to control their own currency because of the massive number of
people trading FOREX worldwide.
FOREX trading is a tremendous opportunity and an alternative
to futures and commodities trading. As is true with all trading, there are
certainly risks involved. To reduce your risk, the services of a Broker are
important and advised. This comprehensive guide will help you learn what is
necessary to achieve success in the FOREX market. Let’s get started!
Getting
Started In The Exciting World Of Forex Trading
Learning to trade
with Forex is not unnecessarily difficult; however, there are definitely a few
items you must be aware of and instructions to follow. Before beginning any
trading, obviously you need to locate and forge a relationship with a broker to
execute the trades. Just as with doctors, lawyers and other professions, there
are a multitude of Forex brokers from which you can select.
To help you choose, here are some factors to consider:
Minimal Spreads -
Unlike standard stock trading brokers, Forex brokers do not charge any
commissions on the trades. They earn their income from what is called a spread.
The spread is simply the difference between the buy and sell price of currency
at a particular point in time. As you locate and investigate the brokers, you
should inquire as to the spreads they charge. The lower the spread, the less it
will cost you to trade in Forex. This is the same rule as with traditional
brokers. The higher their commission on the trades, the lower your profit at
the conclusion of the buy and sell transaction. It is in your best interest to
choose a Forex broker offering a low spread.
Compliance and Reputation -
Traditional stock trading brokers generally operate through their own brokerage
houses. Forex brokers, however, are most often affiliated with a large bank or
other financial institution. This is due to the substantial sums of capital
required. In addition, you should confirm that the Forex broker you choose is
properly licensed and registered. Forex brokers should be registered with the
Futures Commission Merchant (FCM). IN addition, they are regulated by the
Commodity Futures Trading Commission (CFTC).
You can locate and
verify the registration as well as other facts and background information at
the CFTC website at http://www.cftc.gov .Without
a doubt, you want to retain and trade through a broker who is affiliated with a
reputable bank or financial institution.
Available Research Tools and Information
- Like traditional stock and commodity brokers, Forex brokers maintain various
types of websites, trading platforms and underlying research and information
portals. The sites should provide you with real time information, current
charts, technical information and comparison ability and other relevant data. A
good Forex trader will also sustain the ability to trade on different systems.
As with any major financial endeavor of this type, ask for free trials to you
can evaluate the Forex broker’s various trading platforms. Forex brokers should
offer a wide array of information, schedules, tools and other support functions
and records.
The bottom line is
to locate a broker who will provide you with all the tools and services you
require to be successful.
A Variety Of Leverage Options -
To succeed in Forex trading you Leverage the price spreads on your trades. The
price differentials are minute down to the small percentages of a penny. You
are, however, using more than your actual capital borrowed from the broker to
make the trades which is how you Leverage larger amounts for your trades than
you actually have in cash. This allows you to earn money on the small price
deviations. As an example, if you are leveraging at a ration of 100 to 1, this
means that for every one of your dollars with which you are trading, you are
borrowing 100 from the broker. A wide majority of brokers will allow you to
leverage up to a 250 to 1 ratio.
You need to be
careful, however, because the leverage ratio is directly related to risk. The
higher the ratio, the more you are effectively borrowing from the broker. While
you can earn more profit from the trades, you can also lose more if the price
fluctuation is not in your favor. This risk reward evaluation is based on your
own capital amounts and your tolerance level for profits and losses on the
trades. If you are flush with capital, leveraging a higher amount is not as
much of a concern. Nevertheless, brokers offer a large number of leveraging
ratios and you will certainly find one or more to fit your desires and
financial constraints. Even if you have a good amount of capital and can accept
a certain amount of risk, you may not want to leverage a high amount if the
market becomes volatile such as with exotic currency pairs.
Types of Accounts
- You will need to open an account with a broker to execute trades. There are a
variety of types of accounts which you can maintain. The lowest account is
referred to as a mini account. It has a low minimum opening balance requirement
of approximately $300.00. A mini account provides you with the highest ratio of
leverage since you are using a small amount of capital with which to execute
larger sums in your trades. Aside from the mini account is a standard account.
That type of account provides a multitude of various leverage ratios. It has a
higher minimum balance to open of approximately $2000.00. Finally, another type
of account which brokers offer is a premium account. These require
substantially higher minimums to open. They also offer you multiple ratios of
leverage as well as give you access to additional platforms, tools and
services. As you evaluate and pick a broker, find one that has the right mix of
accounts, leverage, information and services for your requirements and
financial circumstances.
Stay Away From Disreputable Brokers - Just like in any profession, there are good and bad representatives. Brokers are no different. Some are reputable and others are the ones you just need to avoid. These are the brokers who do not have your best interest in hand and simply buy prematurely or sell near a preset price point to increase their own profits.
Stay Away From Disreputable Brokers - Just like in any profession, there are good and bad representatives. Brokers are no different. Some are reputable and others are the ones you just need to avoid. These are the brokers who do not have your best interest in hand and simply buy prematurely or sell near a preset price point to increase their own profits.
These brokers will
pick up a fraction of a penny always against on your trades. None of the
brokers you evaluate will ever admit to such trading, but there are methods to
determine if you are considering a broker who engages in this practice. You can
speak with other brokers to get their opinion on the one or more that you are
considering. You can ask if they are aware of the brokers trading proclivity in
terns of the buying and selling near the price points.
There is no
organization that tracks this type of activity. You can try to look on the Internet
for discussion boards or messages that might disclose certain brokers and their
trading activity.
Margin Calls and Requirements
- Obviously since leveraging is all
about borrowing money from the broker you need to understand exactly how much
risk your broker is going to allow you to take on trades. Once you establish
that together and discuss it, the broker will know the prices and differentials
in the fluctuations within which to trade by buying or selling. This can,
however, adversely impact you if the broker has that discretion and trades at
losses.
For example,
assume you maintain a margin account and your positions dramatically fall
before turning around and rising substantially even exceeding the beginning
price. Whether or not you have sufficient capital, a broker might have traded
out your position during the fall to lessen the broker’s risk and potential
loss. That trade could have been at or near the bottom of the price
fluctuation. That would result in a margin call to you and you could be liable
for substantial sums of money even though the price rebounded after the broker
liquidated your position.
Opening a Forex
account, regardless of the type, is similar to taking out a rotating equity
loan or maintaining an equity account. The main thing that separates them from
the Forex account is that you are required to execute a margin agreement with
relation to your Forex accounts. The margin agreement acknowledges that you are
trading with money borrowed from the broker and that the broker can insert
itself into your trades as necessary to lower its risk and protect its
interest. It also explains your liability relating to any losses. After you
execute the agreement and deposit the beginning capital to the account you
opened, you are ready to begin trading.
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Overview of
Basic FOREX Strategy
Technical analysis and fundamental analysis are
considered the two main forms of analysis in both the FOREX market as well the
equity markets. However, most FOREX traders opt for using technical analysis.
The following is a quick overview of both types of
analysis and how they are used in FOREX trading.
Fundamental
Analysis
Using fundamental analysis in the FOREX market tends to
be somewhat difficult and is generally used to forecast long-terms trends.
There are, of course, some traders who conduct their trades on a short term
basis solely on current news releases. There are many fundamental indicators of
currency values that are released at various times so we have provided a list
of a few for to be aware of:
• Non-farm Payrolls
• Purchasing Managers Index or PMI
• Consumer Price Index or CPI
• Retail Sales • Durable Goods
Of course these are not the only fundamental indicators
you need to be aware of. There are also several meetings that can provide you
with additional information that may affect a market. These meetings usually
focus on interest rates, inflation, and other causes of currency value
fluctuation. Sometimes a volatile market is caused by something as simple as
the wording of issues such as the Federal Reserve chairman’s discussion on
interest rates.
The most significant meetings you should be aware of are
the Federal Open Market Committee and Humphrey Hawkins Hearings. Simply
studying the commentary can help FOREX fundamental analysts to better
understand long-terms market trends and can also help short-term traders
capitalize on the market.
Should you opt for the fundamental strategy, you should
keep an economic calendar on hand so you know when these reports are available.
Your broker should be able to keep you up-to-date on this information as well.
Technical
Analysis
Technical analysis helps FOREX traders analyze price
trends much like their counterparts in the equity market. The only difference
is that FOREX markets are open 24 hours every day. In order to work with that
24 hour a day time frame, some types of technical analysis to be changed or
modified.
The following is a short list of technical analysis tools
that are most commonly used in FOREX:
- Moving
Averages
- Stochastic
Oscillator
- Channel
Breakout
- MACD
(Moving Average Convergence Divergence)
- Candlestick
charts
- Elliott
Waves
- Fibonacci
Studies
- Parabolic
SAR
- Pivot
Points
An
Introduction To Forex Charts
No discussion of technical analysis would be complete
without an introduction to Forex chart basics. The very first Forex chart we
will start with is called a “bar” chart. It gets its name because of its
elongated bar-like shape. The typical bar on a bar chart is composed of 4
components:
Open – Opening price of the time period used
Open – Opening price of the time period used
High - Highest price of the
time period used
Low - Lowest price of the time
period used
Close – Last price of the time
period used
Below is a typical bar of a bar chart
Figure 1.1 Bar
Open – Tick on left side of bar
High – Top of bar
Low – Bottom of bar
Close – Tick on Last price of the time period used
Close – Tick on Last price of the time period used
The chart below is a monthly chart of the EURUSD
(Eurodollar/US Dollar) currency pair.
Monthly charts are longer-term charts used to get a feel
for the “big picture” of the market. Many traders start here and then work
their way through a series of smaller timeframe charts.
Figure 1.2 Monthly
EURUSD Data
The weekly chart is the next timeframe available. The
weekly chart confirms the EURUSD’s upward movement since the beginning of 2009.
Figure 1.3 Weekly
EURUSD Data
When we focus in on the daily chart we see that the
market continues to be in an uptrend.
Traders who are trend followers often take this “top down” approach to gain perspective on the market’s movements and establish the direction of the trend. If a trader using this method feels that the upward trend will continue they will see to find a suitable entry point for a long position in this market.
Traders who are trend followers often take this “top down” approach to gain perspective on the market’s movements and establish the direction of the trend. If a trader using this method feels that the upward trend will continue they will see to find a suitable entry point for a long position in this market.
Figure 1.4 Daily
EURUSD Data
Below is a very popular timeframe to use in Forex
charting. It is a 4-hour bar chart. The 4-hour chart is an excellent chart to
use in trading. It has become increasingly popular with those traders who feel
that the smaller timeframes, i.e., 15 minute, 5 minute, etc. move too erratically
to base trading decisions on.
Figure 1.5 4-Hour EURUSD Data
The hourly chart is by far one of the most popular. It
may be used by longer-term traders to refine their entries and exits. The
1-hour chart is also used by day traders who wish to gauge short-term market
direction.
Figure 1.6 1-Hour EURUSD Data
The 5-minute chart is used almost exclusively by day
traders.
Figure 1.7 5-Minute
EURUSD Data
Figure 1.8 Daily
EURUSD Candlestick Data
The name “candlesticks” comes from the appearance of the data on the chart. They price data looks like a “candle” with a “wick” on each end. In the chart above the solid green and solid read areas are known as the “real bodies”. The gray lines that are extending from each end are known as “wicks”. You may also here “wicks” referred to as “shadows”
Candlesticks have become so popular because you can look at a candlestick chart and instantly get useful information. For instance, the green candles are called “bullish candles” because the price moved in an upward direction.. The closing price for a green candle is always higher than the opening price. Red candles are called “bearish candles” because the price moved in a downward direction. The closing price for a red candle is always lower than the opening price.
The chart below shows a green candle at the start of a strong uptrend (see blue arrow).
Figure 1.9 Daily
EURUSD Candlestick Data
The chart below shows a red candle at the start of a
strong downtrend (see red arrow).
Figure 1.10 Daily
EURUSD Candlestick Data
Consecutive candles of the same color generally indicate the continuation of a trend.
You can see from this brief introduction to candlestick charts that they can be very useful. After our brief introduction to candlestick charts it’s time to move to our next topic.
Forex Charts
and Forex Technical Indicators
Forex charts and technical indicators, also known simply as “indicators” have become a standard of Forex market analysis. An indicator is a visual element that is placed on the same Forex chart as the currency pair. It gets its name because it “indicates” something. An indicator can tell a trader when prices are at a favorable level to place a trade such as a buy trade or a sell trade.
Forex charts and technical indicators, also known simply as “indicators” have become a standard of Forex market analysis. An indicator is a visual element that is placed on the same Forex chart as the currency pair. It gets its name because it “indicates” something. An indicator can tell a trader when prices are at a favorable level to place a trade such as a buy trade or a sell trade.
Figure 1.11 Daily
EURUSD Data
The green line we see below is an example of an
indicator. This particular indicator is called a “simple moving average” or SMA.
Arrows have been placed on the chart to represent buy and sell triggers. The
“triggers” in this case are as follows:
When the price closes above the moving average then we have a buy trigger.
When the price closes below the moving average we have a sell trigger.
When the price closes above the moving average then we have a buy trigger.
When the price closes below the moving average we have a sell trigger.
Figure 1.12 Daily
EURUSD Data
One question you may ask is, “When we see a trigger what
do we do?” That’s a good question. The standard way of using a moving average is
to take the trade on the next bar after the trigger. This means that we would
buy on the open of the bar “after” the trigger bar (blue up arrow bar in this
case). The reverse is true of selling.
This is a simple example how you can use a simple Forex indicator to make a trading decision. Notice that this is just an observation and that in order to profit in Forex you will need to analyze the market further.
This is a simple example how you can use a simple Forex indicator to make a trading decision. Notice that this is just an observation and that in order to profit in Forex you will need to analyze the market further.
Why analyze a market? You need to analyze a market in
order to make a decision to buy or sell…or do nothing at all. Let’s further explore
how Forex technical indicators can be used to help us make trading decisions. In
fact, we are going to look at how technical indicators can be used to create
simple Forex trading systems.
Simply put, a Forex trading system is a set of rules designed to help you trade Forex profitably. A Forex system generates trading signals. These trading signals tell the trader to take a certain action such as BUY or SELL.
The moving average we are using is a 9-period moving average. Since we are working with daily data this we will be using a 9-day moving average.
Simply put, a Forex trading system is a set of rules designed to help you trade Forex profitably. A Forex system generates trading signals. These trading signals tell the trader to take a certain action such as BUY or SELL.
The moving average we are using is a 9-period moving average. Since we are working with daily data this we will be using a 9-day moving average.
Date Open High Low Close Avg.
Table 1.1 Daily
EURUSD Raw Data with Simple Moving Average
The table above shows the open, high, low, and close
prices with the moving average values in green. As you can see the values of
the moving averages changes as the prices of the EURUSD changes,. It “moves” as
the price moves, hence the name moving averages.
This particular moving average is calculated using the last 9 “closing” prices (listed under Close in the table).
This particular moving average is calculated using the last 9 “closing” prices (listed under Close in the table).
Below is a daily EURUSD chart showing the buy and sell
signals generated by using a simple 9-period moving average trading system we
created.
Figure 1.13 Daily
EURUSD Data with Simple Moving Average
One of the greatest advantages of using trading systems
is to see how they would have performed on past data. If the results on past
data look favorable then we may have a system that will work on future data as
well. So how did our 9 period moving average system perform? Let’s take a look:
Test Period: 1/20/2003-1/20/2008
Stop Loss Amount = $1000 (100pips)
We have added a risk control measure in the form of a stop loss. A stop loss is an order designed to “stop loss” on a trading position. If the market moves in a way that causes your position to lose value the stop loss is designed to limit the amount of that loss.
10 Day Simple Moving Average System Net Profit = ~ - $2,300
Test Period: 1/20/2003-1/20/2008
Stop Loss Amount = $1000 (100pips)
We have added a risk control measure in the form of a stop loss. A stop loss is an order designed to “stop loss” on a trading position. If the market moves in a way that causes your position to lose value the stop loss is designed to limit the amount of that loss.
10 Day Simple Moving Average System Net Profit = ~ - $2,300
So far this doesn’t seem to be the type of moving average system that we would like to trade. Fortunately for us we can change the parameters of this indicator and research to find one which best suits our needs.
We have run a few tests and found the following:
42 Day Simple Moving Average System Net Profit = ~ $23,000
That’s quite a difference in net profit isn’t it? As you can see from this simple example it pays to do your research to find indicator settings that work well.
Note: The above examples and all examples that follow are for the purposes of illustration only. They are not meant to suggest that the displayed settings are to be used.
Introducing
The Stochastic Oscillator
The next
indicator we will explore is called the stochastic oscillator or stochastics
for short. Unlike the simple moving average the stochastic oscillator is not
displayed on the same scale as the price. It is typically displayed below the
prices as shown below.
The stochastic oscillator is grouped within type of technical indicators called oscillators because its value move or oscillate between two extremes. These extremes range between 0-100.
The stochastic oscillator is grouped within type of technical indicators called oscillators because its value move or oscillate between two extremes. These extremes range between 0-100.
Figure 1.14 Daily
EURUSD Data with 14-period Stochastic
The typical interpretation of the stochastic oscillator
is as follows:
- When the stochastic is over 80 that indicates that the market is overbought and losing upward momentum. Traders can either look to liquidate their long (buy) positions or look to sell.
- When the stochastic is over 80 that indicates that the market is overbought and losing upward momentum. Traders can either look to liquidate their long (buy) positions or look to sell.
- When the stochastic is
below 20 that indicates that the market is oversold and losing downward
momentum. Traders can either look to liquidate their short (sell) positions or
look to buy.
Figure 1.15 Daily
EURUSD Data
The above chart shows entries and exits based upon using
a 14-day stochastic oscillator.
Test Period:
1/20/2003-1/20/2008
Stop Loss
Amount = $1000 (100pips)
14 Day Stochastic Oscillator System Net Profit = ~ - $1,900
14 Day Stochastic Oscillator System Net Profit = ~ - $1,900
So far this doesn’t seem to be the type of system that we would like to trade.
We have run a few tests and found the following:
6 Day and 46 Day Stochastic Oscillator System Net Profit = ~ $22,000
That’s quite a difference in net profit isn’t it? In this example you are shown two different parameters for the stochastic oscillator to introduce you to a new concept. In the first test we used a single parameter for both the buy and the sell trades. In the second test we used 6 days for our buy entries and 46 days for our sell entries.
Why does this seem to work so well? Because market may behave differently when moving downward than they do when moving upward so the best parameters for a bull market will not necessarily be the best parameters for a bear market.
Note: The above examples and all examples that follow are for the purposes of illustration only. They are not meant to suggest that the displayed settings are to be used.
An
Introduction To Trading Forex Without Indicators
You have probably heard about trading Forex without indicators. There is much being written about it these days, but it is actually nothing new. Trading without indicators is also called trading “price action”. This means simply trading based upon the price itself and nothing else.
You have probably heard about trading Forex without indicators. There is much being written about it these days, but it is actually nothing new. Trading without indicators is also called trading “price action”. This means simply trading based upon the price itself and nothing else.
Figure 1.16
Daily EURUSD Data
What follows will be an example of trading without
indicators. In the chart above you will see series of blue dots on prices bars
and red dots on price bars. Although this is an example of trading without
indicators the dots will help with the explanation. The blue dots represent
when the high price has moved higher than the highest high of the previous 10
days. The red dots represent when a day’s low price has moved lower than the
lowest low of the previous 10 days. The red and blue arrows represent a sell
(short) entry and a buy (long) entry respectively.
The chart below shows entries and exits based upon using a 10-day breakout system. The system is called a breakout system because the trade is taken when the price “breaks out” of a certain range. In this case we buy on a breakout of the highest high of the last 10 days and sell on a breakout of the lowest low of the last 10 days.
The chart below shows entries and exits based upon using a 10-day breakout system. The system is called a breakout system because the trade is taken when the price “breaks out” of a certain range. In this case we buy on a breakout of the highest high of the last 10 days and sell on a breakout of the lowest low of the last 10 days.
Figure 1.17
Daily EURUSD Data
Test Period:
1/20/2003-1/20/2008
Stop Loss
Amount = $1000 (100pips)
14 Day and 8 Day Breakout System Net Profit = ~ $36,000
This is another system where we have used different parameters for the buy entry and the sell entry.
We have run a few tests and found the following:
22 Day and 8 Day Breakout System Net Profit = ~ $42,000
14 Day and 8 Day Breakout System Net Profit = ~ $36,000
This is another system where we have used different parameters for the buy entry and the sell entry.
We have run a few tests and found the following:
22 Day and 8 Day Breakout System Net Profit = ~ $42,000
Once again we see that testing different parameters pays
off.
We have just gone over a few examples of how we can use a simple Forex chart with or without indicators to create a basic trading system. As we have stated before the parameters in the examples are not meant to be recommendations or suggestions for entering and exiting trades. They are here to illustrate the power that a few simple changes can have on a trading system’s overall performance results.
We have just gone over a few examples of how we can use a simple Forex chart with or without indicators to create a basic trading system. As we have stated before the parameters in the examples are not meant to be recommendations or suggestions for entering and exiting trades. They are here to illustrate the power that a few simple changes can have on a trading system’s overall performance results.
Determining
Your Strategy -
It takes successful traders a while to develop and perfect the strategies that
they use. Some prefer to use one particular study or formula while others use a
variety of other strategies. Some experts would probably recommend that you try
to find a good combination of both fundamental and technical analysis to make
long-term predictions and to help you identify entry and exit points.
Ultimately the decision is up to you.
It is also recommended that when you start in the FOREX
market you should start by opening a demo account and paper trade as a way to
practice making a profit on a regular basis. Usually individuals who get into
the FOREX market too quickly and without practicing to gain experience tend to
lose money and ultimately aren’t successful. So before investing your money
into anything, it’s always a good idea to get your feet wet before jumping in.
You will also have to learn to trade while keeping your
emotions in check. It would be impossible to track the stop-loss points if you
aren’t able to execute them when you need to. It is highly recommended that you
set your stop-loss and take-profit points to execute automatically and never
change them unless it’s a necessity. Trust your decisions and stand by them or
you will end up driving you and your broker crazy.
It’s also important to follow the trends. Going against a
trend is a pretty big gamble because statistically the FOREX market has tended
to stick to trends so odds are you will be more successful if you don’t go
against the grain.
The FOREX market is the world’s biggest market and people
are drawn to it on a daily basis. But before you jump into the market, make
sure you have a broker you trust and really put some effort into finding a
strategy that will help you be successful.
Forex
Spread Basics
Forex is the trading between two different forms of currencies. Those two currencies make up the pricing of Forex paired as Currency1/Currency2. When trading, you have to sell one currency in order to purchase the other currency. To exit this trade, the reverse must be performed. Take the following example, you think the Japanese Yen is going to rise in value compared to the US Dollar and want to cash in on the growth rate. In a Forex trade, you sell US Dollars in order to purchase Japanese Yen. To exit the trade, you sell the Japanese Yen back and purchase US Dollars. The goal of this trade is to get more US Dollars back than when you sold them, meaning the USD/JPY exchange rate has risen and you made a profit.
The trouble today with these trades is the deceiving
marketing to traders that almost all Forex brokers use. The brokers claim to
have the tightest spreads in the industry. Spreads in the Forex spot market are
a complicated, hard to understand topic, but one of the greatest factors in
your trading profitability. It is important to understand this topic to unlock
the best Forex trade gains.
A spread is defined as the difference between the price
you buy at, known as the ask price, and the price you sell at, known as the bid
price. The spread is measured in pips. For example, if a EUR/USD (Euro/US Dollar)
quote is 1.2222/4, then the spread would be 2 pips or if a EUR/USD (Euro/US Dollar)
quote is 1.22225/40, then the spread would be 1.5 pips. A .5 pip spread drop
doesn't seem like a large difference, but it can actually mean the difference
between a loss pip spread and a gain pip spread.
Wide spreads result in higher asking prices, meaning you
pay more when you buy, and lower bidding prices, meaning you get less when you
sell leading to a loss on your part and a gain by the broker. This is where
brokers get there money and makes it harder for you to make gains. However, Forex
brokers don't usually earn the full spread using this method, most lose gains
when they hedge client positions. This spread is helpful in compensating the
market maker from the time of your trade to when the broker's net exposure is
hedged. The Forex broker's net exposure when hedged could be an entirely
different value.
These spreads will affect the return on your trading
strategy and should be taken into great consideration when trading. Your
interest as a Forex trader is to ask low and bid high, similar to stock trading
but contrary to the nature of wide spreads. Therefore you would want to wait
for a half-pip lower spread as it can easily turn your non profitable trade
into a high gaining trade.
Although tighter spreads translates to "things are
good for you", it doesn't mean anything profit wise without following
through. If for instance you see a tight spread, but your trade gets mixed with
a few wide pips or is rejected altogether, you won't actually receive the tight
spread. Repeated occurrence of this would mean your broker is using some tricks
to stop tight spreads. Some tricks brokers use include: rejected trades,
delayed execution, slipping, and stop-hunting all help to stop acquiring tight
spreads. Repeated offense means your broker is showing tight spreads, but
switching for wider ones.
Comparing brokers is a fairly hard task to do since spread policies between each differ greatly and are difficult to understand. For example, some brokers give you the choice of a fixed spread that remains the same no matter the state of the market. This seems like a good deal, but fixed spreads are usually higher than variable ones. In short this option is like paying insurance on your trade.
Another example, some brokers conversely use varying
spreads that are dependent of the market state. If the market is in good
condition, the spreads will be tight, but as soon as the market worsens, the
spread will begin to widen. Fixed and variable rates both have pros and cons,
but the better one to chose ultimately depends are your trading style. Either
rate you chose relies on your quality of execution.
Brokers also use different spreads based on the
individual's account. A client that has a large account will receive a tighter
spread. A client that makes larger trades will receive a tighter spread. A
client referred by another broker will actually receive a wider spread so the
company can cover the cost of referral. These policies differ from broker to
broker, some offer the same spreads to everyone. Some brokers use different
deceiving tactics and make it hard to uncover the truth about a company's
spread policy.
Be wary when talking with brokers and never trust the
promises you hear. A lot of traders take the broker's word on these promises,
resulting in some serious loss. Try out various brokers before settling or ask
an expert who have tried many different brokers, it always pays to do you
homework.
Tips For
Trading Forex Successfully
Undoubtedly, trading involves much more than just what is
contained in some short tips. A solid trading system is necessary, augmented by
experience, a courageous spirit, and, of course, capital. But, for most people
just starting in trading, and others who are possibly losing their zest and
confidence due to large, but hopefully temporary, drops in market values, a
basic overview can restore clarity to your trading. With that goal in mind,
some tips are presented that we hope will assist you as you seek to navigate
these exciting financial waters.
1. If a position is showing negative activity, do not
increase the risk by getting in deeper.
This is the same as the old trader’s saying, “Never add
to a losing trade”.
2. Never fail to decide upon a stop and a profit
objective prior to your entering a trade. Use your knowledge of the market to
determine placement of stops, not the amount of money you have available in
your account. It is not feasible to conduct the trade if an adequate stop is
too costly.
3. Keep in mind the privilege of a position. A market
judgment should not be made when you are already a position. Once you are in a
position all of your decisions about adding to the position, protecting the
position, or exiting the position should already be made.
4. Sometimes circumstances change and when you determine
that, you make the choice to exit a trade. Don’t assume you can just take your
choice of price with the easy plan to exit at the market. One example of this
is when some surprise big news comes out following a big event. This can push
the acceptable level of volatility beyond that which works with your trading
methods.
5. Don’t buy a dull market in a Bear market and don’t
sell a dull market in a Bull market.
Simply translated this means that if there is no momentum
in one direction or the other then the chance of the follow through necessary
to profit is slim. Enter trades that you have determined will have the greatest
chance for success.
6. When the market is very volatile or is experiencing a
lack of liquidity, you should not trade at all. Even when there is potential
for extreme volatility caution should be exercised. Although volatile market
movements hold the potential for huge gains they can be far too unpredictable.
Always avoid unnecessary risk when trading.
7. It is important to keep in mind that the same trading
systems do not always work in both up and down markets. If you have a trend-following
Forex trading system you must understand that there is always the potential for
it to perform less than admirably in sideways markets.
8. You need to adjust your trading strategy with each
market type: up trending, range bound, and down trading. Ideally with a
trend-following trading system it would be best to avoid sideways markets
altogether. There is nothing wrong with a trend-following system which “stands
aside” during sideways markets…in fact it is preferred that it stand aside.
9. Choose trades that move along with the dominant market
pattern. Although up market and down market patterns are always discernable,
one or the other is always the most dominant. For instance, during an up
market, sell signals are repeatedly taken, only to be respectively stopped.
This all goes back to the timeless statement, “The trend is your friend”. Trading in the direction with the greatest probably for success is just common sense. This is not to say that you can’t develop a counter-trend trading system that can be profitable.
This all goes back to the timeless statement, “The trend is your friend”. Trading in the direction with the greatest probably for success is just common sense. This is not to say that you can’t develop a counter-trend trading system that can be profitable.
10. A sell signal is just a failed buy signal; a buy
signal is just a failed sell signal.
11. A losing trade is always much less difficult to
enter!
13. Follow your gut instincts; if you don’t feel good
about something, don’t trade.
14. When you hear a Forex trading tip ignore it. Go with
what you know and that is the trading system you have taken the time to develop
faith in.
15. Current events in the news only are significant when
they DO NOT propel the market in the direction of the news.
16. You gain a modicum of understanding when you read
yesterday’s paper today, armed with knowledge of the market’s activity today.
You realize that yesterday’s market activity has no impact on today’s.
17. Never make your trade decisions based on the
direction of a gap. The market should not force you into a trade.
18. Use the rule of “in late, out early,” being mindful
that the first tick and the last tick are by far the most expensive.
19. Exit when you realize everyone else is in.
20. Don’t add to the risk factor by trading when ill. Trading
can be strenuous enough without the added stress of not feeling well. Avoid
trading when there is anything which might affect your trading discipline.
21. Your unit of trading should only be altered when you
have a plan of attained goals. You should establish a reduction plan for times
when the market experiences lower volume or your trading is a little off.
A good money management system is part of every good trading plan. It will reduce your position size when your trading system gets out of sync with the market and increase your position size when your trading system is in sync with the market.
A good money management system is part of every good trading plan. It will reduce your position size when your trading system gets out of sync with the market and increase your position size when your trading system is in sync with the market.
22. Don’t be cocky or boastful in any way. Enjoy your
trading success with pride and modesty.
23. Judge your success by the growth of your equity over
time and not by the success of individual trades. Even a bad trader can have a
winning streak.
24. Taking a break from trading for a day will often
break a losing streak.
25. If you are on a roll, keep going! You are doing
something right. Why in the world would you want to stop? When you and your
trading methods are in sync with the markets just keep your winning streak
going.
26. When you are having an off day, turn off the computer
screen and find something else to do. Don’t just keep at it when you are
losing; that doesn’t make any sense.
Walking away for awhile is not an easy thing to do, but it is important to discipline yourself to do it.
Walking away for awhile is not an easy thing to do, but it is important to discipline yourself to do it.
27. Scalpers reduce the number of variables affecting
market risk by being in trades or positions only for a few seconds. Day traders
reduce market risk by being in trades for minutes.
It makes perfect sense that the smaller your profit target the quicker it will be hit. This is what has attracted so many to day trading. If this style of trading interests you please keep in mind the following:
Increased Frequency Of Trading = Increased Transactions Costs
It makes perfect sense that the smaller your profit target the quicker it will be hit. This is what has attracted so many to day trading. If this style of trading interests you please keep in mind the following:
Increased Frequency Of Trading = Increased Transactions Costs
28. The decision to convert a scalp or day trade into a
position trade means that you did not understand the risks of the trade
adequately.
29. Don’t let an opportunity that you missed trouble you.
Opportunities are around every bend.
There are new opportunities every single day. So many new traders like to talk about the big money that they left on the table. Experienced traders are happy to have taken their slice of the price action. Rarely, if ever will you get 100% of the possible potential profit of ANY trade.
There are new opportunities every single day. So many new traders like to talk about the big money that they left on the table. Experienced traders are happy to have taken their slice of the price action. Rarely, if ever will you get 100% of the possible potential profit of ANY trade.
30. You are better served by learning to trade Forex than
searching for an elusive secret formula.
31. Don’t trust the advice of others because they
probably didn’t do as much research as you did.
This is a statement that really hits home. It does
sometime seem that the grass is greener on the other side of the fence. There
will be days when it seems like everyone else is in the know except you. Don’t
let that bother you. If you’ve done your homework your time will come.
32. Mentally establish the reality of what is happening,
good or bad, up or down, by affirming it aloud amid a mind full of preconceived
notions.
If you have a losing trade don’t be afraid to say to
yourself, “Cleary my trading method did not work out on that trade, but my
research has shown me that if I continue on this path I will succeed!”
33. Flexibility is absolutely necessary to be a success
at day trading. You need to be an informed participant, understanding the
market potential for both sides of the market. An informed decision-maker makes
trades with understanding of what is the current market climate.
34. Deliberate, even bemoan and confess your errors in
discipline. You will continue to make these types of errors for many years, it
seems, and so reminding yourself may delay the inevitable.
35. If this list made you uncomfortable, then you are
like many other traders in two ways:
A. You have enough trading experience to understand that
the mistakes are yours, not the market’s, and you seek to overcome these
inadequacies.
B. Oddly enough, you have become one with the market. You
could not leave, and you do not want to. Wherever you go in life, you will
ALWAYS keep tabs on the market.
Additional
Market Wisdom To Help You Trade Successfully
1. Trade in the direction of the trend with small
accounts under $25,000. Forex trading permits bi-directional trading which
appeals to beginners, but your odds are better trading in the direction of the
trend in the long term.
2. Keep two accounts: one is a real one and one is a
demo. Use the demo account to test alternative trades, continuing with lifelong
learning, although an active trader.
3. Stop trying to predict the future; you can’t. There
are no leading indicators. There is software on the market to predict market
trends, but if you think about it, if it worked, would they tell you about it?
This is extremely important to understand. By the time you search out and think you have found the Holy grail of Forex trading you could have amassed a fortune in profits.
This is extremely important to understand. By the time you search out and think you have found the Holy grail of Forex trading you could have amassed a fortune in profits.
4. Use the daily charts to help you time your trades: the
four-hour chars and one hour charts. Trading at 15 and 30 minute increments
takes quite a lot of skill.
5. Be an observer of patterns. Trade the pattern instead
of the time frame. You will see hesitation, reversal and breakout patterns
quite often.
6. The more lots you trade, the safer, if you can afford
it. Trading consists of technical analysis, money management and a lot of
emotional energy. It is difficult to make the best entry and exit decisions
with just one lot alone. This is because you don’t have the flexibility to take
partial profits or add to your position.
7. Trading at the extremes seems to up the odds that you
are going in the right direction. Extreme trading is actually conservative
trading!
8. Carefully review the major currency pair before taking
a position in any of them. You may have missed something.
They are:
USDJPY – US dollar/Yen
They are:
USDJPY – US dollar/Yen
EURUSD - Euro/US
dollar
USDCHF – US
dollar/Swiss
GBPUSD - Pound/US dollar
GBPUSD - Pound/US dollar
(see chart of these below)
Figure1.0 Major
Currency Pairs - Daily Data
9. There is something called the “Upside Down rule.” It
sounds silly, but works. If you can turn a chart upside down and it does not
look any different to you, then stay away from it.
More Rules Of
Thumb for Successful Forex Trading
These are some of the important rules you should never
break when trading. Applying these rules consistently with an adequate amount
of discipline can lead to being a profitable trader. These rules can
exponentially improve your success if understood, implemented and practiced
consistently.
Setting up and Implementing specific goals and objectives
- Important to your success is having
specific goals and objectives.
It is amazing how often we meet our objectives, and reach
our goals when we speak aloud and write them down. To be successful your
objectives must be achievable and measurable. Making money is the first
objective when trading; but shouldn’t keep you from having objectives not
strictly related to cash.
Reward and risk go together, without planning and being
prepared for high risk (draw-downs) you can’t expect to see high returns. Your
goals and objectives must be geared toward you and must contain these characteristics
if they are going to be useful:
• They must be measurable regarding completion and the
timeframe involved
• They need to be realistic and achievable
• They must be worth the time and effort put into them
• They need to be positive - As an example, here are some actual
objectives (bearing in mind this is only a partial list):
• Create 2 new positive-expectancy trading systems yearly
• Make fewer errors implementing your trading systems
yearly
• Take 2 weeks vacation yearly
Note, only one example is about making money, it has a
measurable objective similar to a draw-down. It is not guaranteed.
Knowing what you are trying to gain and trying to achieve
will make your objectives more obtainable. It will help you to pay attention to
what you want to achieve and to effectively gauge your trading strategy’s
progress and success.
Consistency
and discipline -
To obtain the full potential of your trading system you will need to take every
trading entry, adjust every stop and close out every trade when your trading
system directs you to. Extreme confidence in your trading system, quality
technology, and the discipline to stick to your plan are necessary for success.
Having and underlying belief about consistency and discipline allows you to have
a plan for all situations and helps define consistency.
Your trading plan must include these items to be
successful:
• Complete rules for entering, adding to, and getting out
of your positions
• How to respond should your trading tools become inoperable.
• What to do if you are unable to trade
• What to do if you lose a defined percentage of your
account
• What to do if the markets are closed leaving you in
your current positions
Without these answers consistency and discipline can not
be obtained and the reasons for monetary loss can not be determined.
Let your
profits run -
When you have a profitable trade the fear of losing unrealized cash will cause
you to want to quit while you are ahead. Most trading consists of small winners
and losers over a long time, with a few big winners. This is what makes the
difference between profitability, breaking even or losing. Your ability to let
big winners happen determines your yearly performance. The key is to have
trailing stops outside the noise of the market so they don’t get stopped out
during the normal trading process. Prepare yourself to give up a large portion
of a trade’s open profit makes this difficult to implement.
Adding to a winner and widening your stops (do not widen
your stops if you are already in a trade) helps you capture the largest amount
of profit. Your trade has shown itself to be a winner, the risk is low, add to
the position rather than implement stops that are too tight.
It is imperative that your rules are pre-defined allowing
for large winning trades.
Cut your
losses short -
This rule is as difficult as the one above. Just as profitability comes from
big wins, preserving your capital comes from avoiding the big losers.
Setting a maximum loss point allows you to know how much
is being risked on this position. Your exit price tells you a trade is a loser
and when to exit. 100% accuracy in regards to our maximum loss is unobtainable
due to gaps at the open and because of limit moves in futures. Having these
rules and keeping them saves us from catastrophic looses when we have a series
of trades that keep going against our position.
A losing position at your maximum loss point means get
out right away. Trades are either winners or losers. The chances of a losing
trade turning around are absolutely unknown to any of us. Accept the loss, move
on. Financially and mentally you will be in a much better place. Even if this
loser turned around, the stress and bad feelings from holding your position are
not worth it.
Never add to
a losing trade - If a trade shows itself to
be a winner add to it then, but not before. In many cases your trade will hit
your stop loss, not changing directions. Sometimes a trade turns around before
hitting your stop loss and sometimes after doing so, regardless it is never
worth it adding to a loser.
Don’t take
too much risk - Risking too much capital on a single trade is
a devastating mistake. Losing all your capital puts you out of the game and
prevents you from continuing. Risking all of your account on one loser will put
you out of the game.
You should only risk 1-3% of your available capital on
any individual trade. This is calculated using the size and difference between
the entry price and your maximum stop price in regards to the amount of capital
allocated to the system. With these combined it is almost certain that you will
not hit your maximum draw-down for the year or lose your trading capital. If
you worry about the size of a trade it is too big, use a lower amount.
Longevity in any trading market is the key to making money. Trade slowly over a
long time with a minimum amount of risk.
Only trade Forex
trading systems with a positive mathematical expectation - That’s a fancy way of saying that a positive
expectancy trading system determines how much money you will make in a year
based on your number of trades, amount of capital allocated to the system and
the accuracy in using your trading signals. If you don’t know if your trading
system is positive expectancy then you shouldn‘t be trading. Expectancy is
calculated using profit or loss on each trade; dividing it by initial risk, and
taking the average of this number over a series of trades. Successful traders
trade systems when the odds are in their favor.
You will want to minimize all of you trading business
costs. Some trading systems only offer marginal profitability due to trading
implementation costs which can be the difference between profit and loss.
Modern electronic brokers as well as fully automated trade processing and execution
make it worthwhile to look for a low cost implementation of a trading system.
Choosing the right broker can significantly reduce high
commissions, wide spreads and large amounts of slippage leading to a systems
usability or lack there of.
Educate
yourself -
Competing at the highest level in the trading business requires you to be
well-educated about what you are doing. This will help you to become an expert
in your trading business.
Avoid trading
scared money - Needing to make a certain
amount of money per month to avoid being in financial trouble is the quickest
way to mess up your trading discipline, rules, objectives, and profits. Trade
with a reasonable amount of risk used to achieve a good reward. Never trade if
you need the money to pay bills. Never trade if your business and personal
expenses are not covered by another form of income. This is how hasty decisions
get made.
In
Conclusion
Forex trading can be fun as well as tremendously profitable, but in all honesty it is always more fun when it is profitable.
In the examples you were shown you can see first hand that trading Forex does not have to be complicated. Yes, it takes work and dedication, but all things which have huge potential rewards require work and dedication.
The rules, tips, and techniques laid out in this book are designed to lay the groundwork for you to trade successfully. Some of these are hard and fast rules that you definitely must not ignore. Many of the hard and fast Forex trading rules have to do with discipline and risk control. Without these you simply cannot be successful. Even if you are exceptionally well capitalized you can easily make your account disappear without risk control.
If you do remain disciplined, properly capitalized, and risk aware, Forex trading offers you the opportunity of a lifetime. The leverage available in Forex combined with proper money management can grow a small trading account to levels of equity that you never thought were possible.
I wanna Thank all my
subscribers for a wonderful year of exchanging trading ideas/ earning ideas
& investment ideas . I wish you all a Prosperous 2020 . May the Profits
&pips be with you in 2020! Have a Great Year Ahead! allforexr
/Create an account To
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