This simple exercise will increase Forex profits 100% and works for 99% of all short-term FX traders – stop trading so much – widen out your stops – widen out your profit targets – and only trade in the direction of the trend indicated by 4 hour chart.
1) Stop trading so much
Sure there are no commissions but the spreads are HUGE and believe it or not (well you’ll believe it after you do the simple exercise below) the spreads are reducing your profits 100%!
2) Widen out your stops
Initial stop loss should be a minimum of 23 points; I use between 23 and 35 point stop losses for short-term trading.
3) Widen out your profit targets
Unless you think a trade can make you 100 points or more don’t do it.
4) Only trade in the direction of the 4 hour chart
The real money is made in the direction of the trend
Simple exercise
1) Download all your trades for the year into an excel spreadsheet (if you don’t know how to do this ask your broker for help).
2) Determine the dollar value of the spread for each trade.
3) Sum up the total dollar value of all spreads for all trades and add this number it to your current account balance; this is your spread adjusted account balance.
4) Take your spread adjusted current account balance and divide it by your opening balance at beginning of year; the result will be a percentage change.
5) Take your actual current account balance and divide it by your opening balance at beginning of year; the result will be a percentage change.
6) Subtract your spread adjusted year to date percentage change from your actual year to date percentage change.
7) That number should be 100% or more
8) Take the necessary steps as outlined above (1 to 4) and improve your results 100%
by Jimmy Young
Streaming Forex Price Ticker
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Minggu, 26 Agustus 2007
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
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
How To Control Fear And Greed In Trading
There is an old saying that the market is driven by fear and greed. Anyone that has placed more than a couple of trades will surely have experienced these two emotions.
All traders experience emotion. The distinction between a successful trader and an unsuccessful trader comes down to how they deal with that emotion. Let's look at how these emotions affect a successful trader and an unsuccessful trader in various scenarios:
1. The trader's three previous trades have been losers. The unsuccessful trader will consider this before placing his next trade and be fearful that this trade will also end up a loser. This might result in a delay in placing the trade whilst waiting for the price to confirm that they were right - thus missing a perfectly good entry. They might suddenly discover that some other factor, previously unconsidered, is a reason not to enter the trade at all. Basically they will be fearful of another loss.
The successful trader will have tested their strategy extensively and will be aware that a series of losing trades is very probable. They will also measure their success on whether they place the trade according to their system rather than whether it is purely a winner or a loser. They trust their system and place the trade when the set-up occurs. The fear is removed from the trade because they know that several losers in a row is to be expected.
2. Once a trade is entered it immediately moves against the trader. The unsuccessful trader will fear that they have made a mistake. They fear making another loss so they wait and hope that the market moves back in their favour. The fear of taking another loss now controls their trading decisions, they might move their stop further out so the market doesn't take them out for a loss. They might ignore the trade, hoping that it will get back to at least breakeven - the daytrade becomes a position trade of a few days and then it becomes a long term 'buy and hold' strategy.
The successful trader, of course, will know from extensive testing of his system that such trades happen and that the trade might come round or it might hit the stop. His stop is in place and it will remain in place - the system dictates where the stop is, not the trader's fears.
3. Once a trade is entered it immediately moves strongly in the traders favour. The unsuccessful trader will suddenly see a villa in the sun or a new sports car flashing before his eyes. This trade is going to the moon so he removes his price target and decides to let it go. Greed has now completely taken over his trading decisions and the previous plan (if any) is ignored. Of course, markets rarely move in one direction for long and when the market turns the greed turns to fear as the dream slips away and the trader tries to hold on until the price gets back to where it was. The daytrade becomes a position trade...
The successful trader has set a target, either a certain price or a timed exit and will stick to it. If the trade only takes 5 minutes then that's just great, there's plenty that won't.
Fear and greed are human emotions - we can't do anything about that. But, when it comes to trading we need a way to control those emotions. Here's a few tips:
1. Know your system. If you have confidence in your system this helps to override those feelings of fear and greed. Confidence can only come from designing and extensively testing your own ideas. You can never be fully confident when you rely on someone else's tips or signals.
2. Automate your system. Computers do not suffer from fear and greed, they won't hold onto a loser praying for a miracle or screaming at the screen that the market is wrong - they'll just cut it if that is what the system says to do.
3. Money management. Quite simply, no matter how good your system you must only risk a sensible amount - and always money you can afford to lose.
By Tim Wreford Platinum Quality Author
All traders experience emotion. The distinction between a successful trader and an unsuccessful trader comes down to how they deal with that emotion. Let's look at how these emotions affect a successful trader and an unsuccessful trader in various scenarios:
1. The trader's three previous trades have been losers. The unsuccessful trader will consider this before placing his next trade and be fearful that this trade will also end up a loser. This might result in a delay in placing the trade whilst waiting for the price to confirm that they were right - thus missing a perfectly good entry. They might suddenly discover that some other factor, previously unconsidered, is a reason not to enter the trade at all. Basically they will be fearful of another loss.
The successful trader will have tested their strategy extensively and will be aware that a series of losing trades is very probable. They will also measure their success on whether they place the trade according to their system rather than whether it is purely a winner or a loser. They trust their system and place the trade when the set-up occurs. The fear is removed from the trade because they know that several losers in a row is to be expected.
2. Once a trade is entered it immediately moves against the trader. The unsuccessful trader will fear that they have made a mistake. They fear making another loss so they wait and hope that the market moves back in their favour. The fear of taking another loss now controls their trading decisions, they might move their stop further out so the market doesn't take them out for a loss. They might ignore the trade, hoping that it will get back to at least breakeven - the daytrade becomes a position trade of a few days and then it becomes a long term 'buy and hold' strategy.
The successful trader, of course, will know from extensive testing of his system that such trades happen and that the trade might come round or it might hit the stop. His stop is in place and it will remain in place - the system dictates where the stop is, not the trader's fears.
3. Once a trade is entered it immediately moves strongly in the traders favour. The unsuccessful trader will suddenly see a villa in the sun or a new sports car flashing before his eyes. This trade is going to the moon so he removes his price target and decides to let it go. Greed has now completely taken over his trading decisions and the previous plan (if any) is ignored. Of course, markets rarely move in one direction for long and when the market turns the greed turns to fear as the dream slips away and the trader tries to hold on until the price gets back to where it was. The daytrade becomes a position trade...
The successful trader has set a target, either a certain price or a timed exit and will stick to it. If the trade only takes 5 minutes then that's just great, there's plenty that won't.
Fear and greed are human emotions - we can't do anything about that. But, when it comes to trading we need a way to control those emotions. Here's a few tips:
1. Know your system. If you have confidence in your system this helps to override those feelings of fear and greed. Confidence can only come from designing and extensively testing your own ideas. You can never be fully confident when you rely on someone else's tips or signals.
2. Automate your system. Computers do not suffer from fear and greed, they won't hold onto a loser praying for a miracle or screaming at the screen that the market is wrong - they'll just cut it if that is what the system says to do.
3. Money management. Quite simply, no matter how good your system you must only risk a sensible amount - and always money you can afford to lose.
By Tim Wreford Platinum Quality Author
Guide To Trading
1. Set a Stop Loss: Before entering any trade, decide beforehand the amount you are willing to lose and stick to it, set a stop loss on the trade before you enter. Do not fluctuate your stop loss if you are in a losing trade.
2. Let your profits run: Do not be emotional about a trade, you will lose some and win some – just know it. Know the reason why you entered a trade and stick to those reasons. The less emotional you are the more successful you will be. Stick to your game plan, move your stop loss as the market moves in your favor and let your profits run.
3. Don't be influenced: You have your own game plan stick to it. If you are influenced by others you will constantly be changing your mind, learn to insulate external sources once you have made up your mind. You will always find someone who will give you a logical reason to do the opposite.
4. Keep your position sizes within your limitations: Successful traders know that in order to profit you trade for the long term. Trading is a game of probabilities, and over the long run as long as you stick and implement sound strategies and stay consistent – success is much more likely to come. To be a successful trader you should never take a position that puts substantial capital in jeopardy. In actuality you will rarely find successful traders who risk more than 10% of their account in any trade. For instance, if you deposit USD 25,000 your maximum loss should be USD 2,500 on a margin of 5% and a EUR 100,000 minimum trade that works out at about 2.5 figures or 250 pips (on a EUR/USD trade) as a maximum. Normally trade with a stop loss of under 50 pips and a maximum stop loss of one-figure or 100 pips and trade sizes of 100,000 to 200,000 base units (the leading currency), thereby risking substantially less then 10% and more like 2-5% of the deposit on hand. You might want to start small and increase your trade sizes as your confidence grows.
5. Know your risk vs. reward ratio: The minimum ratio you should be using is 2:1, so if you are successful on 50% of your trades you are doing well. For instance, if you are long GBP/USD and you want to earn 30 pips you should not risk more than 15 pips. You should never risk 30 pips in order to make 10 pips, For if you do you’ll make more a lot more successful deals then unsuccessful ones, but the poor ones will ruin any your chances for profit. Your risk vs. reward analysis is extremely important to trading successfully.
6. Have adequate capital: You should never trade with money that you cannot afford to lose. Always make sure that you have enough credit, for example you should can ask yourself the following question: “if I were to lose 50% of my opening balance in 6 months will I still be able to afford to trade?” Only if the answer is yes should you start trading. One of the keys to successful trading is mental independence, which means your trading freedom must not be influenced by your fear of losing.
7. Trending or Neutral: Learn to analyze the market; is it a trending market or a neutral market? In a trending market then follow the trend in a neutral market buy on lows and sell on highs as long as you use stop-losses you are controlling your risk.
8. Don’t fight the trend: Don’t try to buy on dips and sell on highs on a trending market. The old saying "the trend is your friend" is a good one, why fight it go with it!
9. Averaging – don’t do it: One of the most common mistakes traders make is the continuing adding of a losing position. Averaging will be the death of short-term trades. For short-term trades, preserving capital is the most important thing, and putting too much capital at risk will jeopardize success. In short term trading, if a strategy is right the market should move in the correct direction within a relatively short period of time, however if it's wrong, the short-term traders should realize that they traded incorrectly, they should take the loss and move on. There is not much room for pride in short term trading. You should never add to a losing position.
10. Chasing a bad idea: Happens all the time, you see a potential trade - decide to wait till the next day to see if it sets up, when you see that it did exactly what you thought it may be too late. Review your reasoning for the trade, make sure your initial reason is still there if not forget about the trade. There will always be trading opportunities be patient and strike.
11. Understand the way the market thinks: You should understand that all the information (except for newly released information which the market adjusts too within a short moment) is already built into the price of the cross. You should know what indicators are coming; particularly the majors and you should know what is already anticipation by the market. There are many publication of market anticipation for major indicators.
12. Trading - a game of probabilities: You will not be correct 100% of the time, it’s a fact. Good experienced traders roll know this, it’s a numbers game, and you’ll make some and lose some the idea is simply to win more than you lose, not to catch all the fish in the pond. Understand trading is a game of probabilities and if you do the right thing in the long run, you will come out ahead. Learn from mistakes, when you start trading you may well lose more in the beginning than you make, think about what you did wrong, try not to be emotional about the trades, if you stick to your game plan and learn hopefully your profits will out weight your losses.
13. Know why you are in the trade: Keep a trading log, and write down why you entered a trade. Don’t be impulsive have a plan, this way you will learn which strategies work for you in the long run and which don’t. If trading before or after releases work for you, look for them and trade those.
14. If the logic goes you go: If the reason you entered the trade disappears then so does your reason to remain in the trade. If you think you’re at a low and it breaks through, get out, then reevaluate and decide once more.
15. Have a maximum run: If you have 4 or 5 bad trades in a row, take a break, something isn’t working, go away regroup, don’t be afraid to take a break.
16. Study: Learn new ideas, keep up to date, and don’t trade other people’s ideas, you should always know why your in the trade.
17. Have Fun: Enjoy what you do, keep calm, stay as unemotional as possible - you will be more successful.
2. Let your profits run: Do not be emotional about a trade, you will lose some and win some – just know it. Know the reason why you entered a trade and stick to those reasons. The less emotional you are the more successful you will be. Stick to your game plan, move your stop loss as the market moves in your favor and let your profits run.
3. Don't be influenced: You have your own game plan stick to it. If you are influenced by others you will constantly be changing your mind, learn to insulate external sources once you have made up your mind. You will always find someone who will give you a logical reason to do the opposite.
4. Keep your position sizes within your limitations: Successful traders know that in order to profit you trade for the long term. Trading is a game of probabilities, and over the long run as long as you stick and implement sound strategies and stay consistent – success is much more likely to come. To be a successful trader you should never take a position that puts substantial capital in jeopardy. In actuality you will rarely find successful traders who risk more than 10% of their account in any trade. For instance, if you deposit USD 25,000 your maximum loss should be USD 2,500 on a margin of 5% and a EUR 100,000 minimum trade that works out at about 2.5 figures or 250 pips (on a EUR/USD trade) as a maximum. Normally trade with a stop loss of under 50 pips and a maximum stop loss of one-figure or 100 pips and trade sizes of 100,000 to 200,000 base units (the leading currency), thereby risking substantially less then 10% and more like 2-5% of the deposit on hand. You might want to start small and increase your trade sizes as your confidence grows.
5. Know your risk vs. reward ratio: The minimum ratio you should be using is 2:1, so if you are successful on 50% of your trades you are doing well. For instance, if you are long GBP/USD and you want to earn 30 pips you should not risk more than 15 pips. You should never risk 30 pips in order to make 10 pips, For if you do you’ll make more a lot more successful deals then unsuccessful ones, but the poor ones will ruin any your chances for profit. Your risk vs. reward analysis is extremely important to trading successfully.
6. Have adequate capital: You should never trade with money that you cannot afford to lose. Always make sure that you have enough credit, for example you should can ask yourself the following question: “if I were to lose 50% of my opening balance in 6 months will I still be able to afford to trade?” Only if the answer is yes should you start trading. One of the keys to successful trading is mental independence, which means your trading freedom must not be influenced by your fear of losing.
7. Trending or Neutral: Learn to analyze the market; is it a trending market or a neutral market? In a trending market then follow the trend in a neutral market buy on lows and sell on highs as long as you use stop-losses you are controlling your risk.
8. Don’t fight the trend: Don’t try to buy on dips and sell on highs on a trending market. The old saying "the trend is your friend" is a good one, why fight it go with it!
9. Averaging – don’t do it: One of the most common mistakes traders make is the continuing adding of a losing position. Averaging will be the death of short-term trades. For short-term trades, preserving capital is the most important thing, and putting too much capital at risk will jeopardize success. In short term trading, if a strategy is right the market should move in the correct direction within a relatively short period of time, however if it's wrong, the short-term traders should realize that they traded incorrectly, they should take the loss and move on. There is not much room for pride in short term trading. You should never add to a losing position.
10. Chasing a bad idea: Happens all the time, you see a potential trade - decide to wait till the next day to see if it sets up, when you see that it did exactly what you thought it may be too late. Review your reasoning for the trade, make sure your initial reason is still there if not forget about the trade. There will always be trading opportunities be patient and strike.
11. Understand the way the market thinks: You should understand that all the information (except for newly released information which the market adjusts too within a short moment) is already built into the price of the cross. You should know what indicators are coming; particularly the majors and you should know what is already anticipation by the market. There are many publication of market anticipation for major indicators.
12. Trading - a game of probabilities: You will not be correct 100% of the time, it’s a fact. Good experienced traders roll know this, it’s a numbers game, and you’ll make some and lose some the idea is simply to win more than you lose, not to catch all the fish in the pond. Understand trading is a game of probabilities and if you do the right thing in the long run, you will come out ahead. Learn from mistakes, when you start trading you may well lose more in the beginning than you make, think about what you did wrong, try not to be emotional about the trades, if you stick to your game plan and learn hopefully your profits will out weight your losses.
13. Know why you are in the trade: Keep a trading log, and write down why you entered a trade. Don’t be impulsive have a plan, this way you will learn which strategies work for you in the long run and which don’t. If trading before or after releases work for you, look for them and trade those.
14. If the logic goes you go: If the reason you entered the trade disappears then so does your reason to remain in the trade. If you think you’re at a low and it breaks through, get out, then reevaluate and decide once more.
15. Have a maximum run: If you have 4 or 5 bad trades in a row, take a break, something isn’t working, go away regroup, don’t be afraid to take a break.
16. Study: Learn new ideas, keep up to date, and don’t trade other people’s ideas, you should always know why your in the trade.
17. Have Fun: Enjoy what you do, keep calm, stay as unemotional as possible - you will be more successful.
Commonly Used Technical Indicators
Moving Averages
Moving averages are trend indicators and are used by traders as a tool to verify existing trends, identify emerging trends and signify the end of trends. Moving averages are smooth lines that enable the trader to view long term price movements without the short term fluctuations.
Of the three types of moving averages, the most common is the simple moving average; the other two are the weighted and exponential moving averages.
All the moving averages are calculated as the average of a specified number of either low, high or closing price of the period. The difference between the three types is the weighting or importance placed on each particular period. For example the weighted and exponential moving averages give greater importance to the latest prices whereas the simple gives equal importance to all the periods chosen.
Each new point of the moving average drops off the oldest period and brings in the newest period. A moving average line will change depending upon the number of periods chosen, the greater the number the slower the average. Some traders will play with a different number of moving averages all with different periods until they find a series of moving averages that they feel best indicate the behavior of the particular instrument being studied.
When choosing a moving average to work with, ideally in an upward trending market the current price should not fall beneath the moving average line chosen more then once. The moving average should form a support line during upward trends and a resistance during down trends. If the upward trend continues yet it breaks the moving average line on more then one occasion, then this is a good indication that the moving average line chosen is too fast, and has not been smoothed out enough. If for example a 30-day moving average was used then a 45-day moving average may be more appropriate for this particular instrument.
Once a trader is content with the behavior of the moving average line against the actual prices he may use the line to signify the continuation of a trend or the end of a trend. If the price closes below the moving average line on two occasions in an upward trending market – this is an indication of the end of the trend and time to exit a long position. The same logic follows in a downward trending market except in reverse; the current price needs to close above the moving average on two occasions to indicate that the downtrend is over.
Another way of using moving averages is in pairs. Many traders will first find the long-term moving average as described above and add a faster moving average (smaller period) as an even earlier indication of the end of a trend. I the shorter moving average crosses the slower moving average this may signal an earlier exit point for a trend.
Stochastics
The most commonly used stochastic is the slow stochastic. Stochastic oscillators are also used to determine either the strength of a trend or when the end of a trend is approaching. Stochastics are displayed by two lines known as %K (Faster) and %D (Slower) that oscillate between a scale ranging from 0 to 100.
The mathematics behind the oscillators is unimportant, what is important is the meaning and placement of the lines. When the lines cross above the 80 line, this is a representation of a strong upward trend, when they cross below the 20 line it is a representation of a strong downward trend. When the %K line crosses over the %D line this could be an indication of a change in the trend, and a possible exit point. When prices are fluctuating a normal appearance for the stochastics will be for them to be crossing over one another in mid range – here what is being shown is a lack of a trend.
The stochastics give their best signal when both the lines are moving to new ground at the same time as the actual price; this is a good indication of a continuation of a trend. However when the stochastics cross in a different direction of a prolonged trend this could be an indication to either exit or switch directions.
Relative Strength Index (RSI)
RSI is another momentum oscillator. RSI attempts to pick reversals in the trend. As with Stochastics they are read on a scale between 0 and 100. A Reading above 80 indicates an overbought market and readings below 20 indicate an oversold market. Trading on RSI's should occur only when there is a direction change above or below the 80 and 20 lines; as RSI lines can often remain above or below the 80, 20 levels for prolonged periods of time during strong trending markets.
The shorter the RSI period, the faster it will be and the more signals will be issued. Here a trader needs to find his balance. Day-traders will often use shorter lines for more regular signals and longer term traders will use longer RSI's.
Bollinger Bands
Bollinger Bands are volatility indicators and are used to identify extreme highs or lows in relation to the current price.
Bollinger Bands are based on a set number of standard deviations from the moving average. It essentially tries to indicate support and resistance levels or bands of expected trading.
As with the moving average, here too the trader can pick and adjust the moving average to base his Bollinger Bands on and the number of standard deviations to use. The trader can adjust these over time to suit his individual trading style. The default used is usual a 20-day moving average and two standard deviations from the moving average.
A break above or below the Bollinger Bands may show an exit point or a reversal.
Moving Average Convergence Divergence (MACD)
MACD is an enhanced study of the moving averages and behave as an oscillator. The MACD plots the difference between a 26-day exponential moving average and a 12-day exponential moving average. A 9-day moving average is generally used as a trigger line, meaning when the MACD crosses below this trigger it is a bearish signal and when it crosses above it, it's a bullish signal.
Traders use the MACD for trend reversals. For instance if the MACD indicator turns higher while prices are still falling this could be an exit point and a possible reverse trade.
Fibonacci Retracements
Fibonacci retracement levels are a sequence of numbers that indicate changes in trends from previous peaks or troughs. After a significant price move, prices will often retrace a significant portion of the original move. As prices retrace, support and resistance levels often occur at or near the Fibonacci retracement levels.
In the currency markets, the commonly used sequence of ratios is 23.6%, 38.2%, 50% and 61.8%. Fibonacci retracement levels are drawn by joining a trend line from a significant high point to a significant low point. The pullback simply represents a correction in the trend and not an end to the trend. The most significant pullbacks are the 38.2%, and 61.8% levels.
Moving averages are trend indicators and are used by traders as a tool to verify existing trends, identify emerging trends and signify the end of trends. Moving averages are smooth lines that enable the trader to view long term price movements without the short term fluctuations.
Of the three types of moving averages, the most common is the simple moving average; the other two are the weighted and exponential moving averages.
All the moving averages are calculated as the average of a specified number of either low, high or closing price of the period. The difference between the three types is the weighting or importance placed on each particular period. For example the weighted and exponential moving averages give greater importance to the latest prices whereas the simple gives equal importance to all the periods chosen.
Each new point of the moving average drops off the oldest period and brings in the newest period. A moving average line will change depending upon the number of periods chosen, the greater the number the slower the average. Some traders will play with a different number of moving averages all with different periods until they find a series of moving averages that they feel best indicate the behavior of the particular instrument being studied.
When choosing a moving average to work with, ideally in an upward trending market the current price should not fall beneath the moving average line chosen more then once. The moving average should form a support line during upward trends and a resistance during down trends. If the upward trend continues yet it breaks the moving average line on more then one occasion, then this is a good indication that the moving average line chosen is too fast, and has not been smoothed out enough. If for example a 30-day moving average was used then a 45-day moving average may be more appropriate for this particular instrument.
Once a trader is content with the behavior of the moving average line against the actual prices he may use the line to signify the continuation of a trend or the end of a trend. If the price closes below the moving average line on two occasions in an upward trending market – this is an indication of the end of the trend and time to exit a long position. The same logic follows in a downward trending market except in reverse; the current price needs to close above the moving average on two occasions to indicate that the downtrend is over.
Another way of using moving averages is in pairs. Many traders will first find the long-term moving average as described above and add a faster moving average (smaller period) as an even earlier indication of the end of a trend. I the shorter moving average crosses the slower moving average this may signal an earlier exit point for a trend.
Stochastics
The most commonly used stochastic is the slow stochastic. Stochastic oscillators are also used to determine either the strength of a trend or when the end of a trend is approaching. Stochastics are displayed by two lines known as %K (Faster) and %D (Slower) that oscillate between a scale ranging from 0 to 100.
The mathematics behind the oscillators is unimportant, what is important is the meaning and placement of the lines. When the lines cross above the 80 line, this is a representation of a strong upward trend, when they cross below the 20 line it is a representation of a strong downward trend. When the %K line crosses over the %D line this could be an indication of a change in the trend, and a possible exit point. When prices are fluctuating a normal appearance for the stochastics will be for them to be crossing over one another in mid range – here what is being shown is a lack of a trend.
The stochastics give their best signal when both the lines are moving to new ground at the same time as the actual price; this is a good indication of a continuation of a trend. However when the stochastics cross in a different direction of a prolonged trend this could be an indication to either exit or switch directions.
Relative Strength Index (RSI)
RSI is another momentum oscillator. RSI attempts to pick reversals in the trend. As with Stochastics they are read on a scale between 0 and 100. A Reading above 80 indicates an overbought market and readings below 20 indicate an oversold market. Trading on RSI's should occur only when there is a direction change above or below the 80 and 20 lines; as RSI lines can often remain above or below the 80, 20 levels for prolonged periods of time during strong trending markets.
The shorter the RSI period, the faster it will be and the more signals will be issued. Here a trader needs to find his balance. Day-traders will often use shorter lines for more regular signals and longer term traders will use longer RSI's.
Bollinger Bands
Bollinger Bands are volatility indicators and are used to identify extreme highs or lows in relation to the current price.
Bollinger Bands are based on a set number of standard deviations from the moving average. It essentially tries to indicate support and resistance levels or bands of expected trading.
As with the moving average, here too the trader can pick and adjust the moving average to base his Bollinger Bands on and the number of standard deviations to use. The trader can adjust these over time to suit his individual trading style. The default used is usual a 20-day moving average and two standard deviations from the moving average.
A break above or below the Bollinger Bands may show an exit point or a reversal.
Moving Average Convergence Divergence (MACD)
MACD is an enhanced study of the moving averages and behave as an oscillator. The MACD plots the difference between a 26-day exponential moving average and a 12-day exponential moving average. A 9-day moving average is generally used as a trigger line, meaning when the MACD crosses below this trigger it is a bearish signal and when it crosses above it, it's a bullish signal.
Traders use the MACD for trend reversals. For instance if the MACD indicator turns higher while prices are still falling this could be an exit point and a possible reverse trade.
Fibonacci Retracements
Fibonacci retracement levels are a sequence of numbers that indicate changes in trends from previous peaks or troughs. After a significant price move, prices will often retrace a significant portion of the original move. As prices retrace, support and resistance levels often occur at or near the Fibonacci retracement levels.
In the currency markets, the commonly used sequence of ratios is 23.6%, 38.2%, 50% and 61.8%. Fibonacci retracement levels are drawn by joining a trend line from a significant high point to a significant low point. The pullback simply represents a correction in the trend and not an end to the trend. The most significant pullbacks are the 38.2%, and 61.8% levels.
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