Forex trading can be a good fit, but it's not for everyone. You have to take many things into account, and of course, you always risk losing money. If this isn't for you, don't worry. A lot of people aren't cut out for it. However, if you are considering jumping into forex trading, read on. Following are some traits that successful traders share. If this is you, you just might be a success. If not, perhaps forex trading is not for you.
You have to have discipline. Successful forex traders work on establishing their own trading system and then keep with it. They do not try to "trade on the fly" or do hit or miss trading.
You have to be able to accept risk. Although many will tell you that forex trading is not particularly risky, this is not really true. Just like any type of trading, you can lose money. You have to be willing to accept that this might happen to you.
Be willing to fail. Even the best forex traders lose money sometimes on some of their trades. This happens to everyone and is simply the nature of forex trading itself. However, unlike the average forex trader, successful forex traders don't focus on failing. They accept what has happened, learn from it what they can, and then move on to the next trade.
Have confidence. To be a successful forex trader, you have to be competent in your knowledge and in your ability to make trades that succeed. Don't doubt or second-guess your trades.
Be willing to be wrong. Remember that no one is perfect and you're going to make mistakes. There will be times when your analysis just doesn't hit the mark. However, don't stay in trades that have gone bad just because you don't want to be wrong. Cut your losses, get out and then look for the next opportunity to succeed again.
Have patience. If you're smart, you'll follow your system and wait for a good opportunity to present itself. You don't have to have your positions open at all time. You can go a day or two without any trades being made at all. Don't trade just because you think you need to. If you think this way, you're likely to make many more mistakes than you have to and many more bad trades than you need to.
Know when you should get out. As with any successful trading, you don't just need to know when to get in, but you need to know when to get out as well. Many traders have gotten greedy and wanted to stay in a trade too long; when they do this, their profits can be wiped out by a sudden trend downward. When you've got your trading system established, listen to it. It will tell you when to get out.
Know what your financial limitations are. Don't over-leverage yourself. Don't trade with money you can't afford to lose. If you trade with the mortgage money for next month, you're in trouble. You risk losing everything you have and ending up on the street. Make sure you only trade with money that you can afford to lose. It's okay to start small, with just a few hundred dollars if you need to. Don't risk losing more than you can afford to.
Thursday, September 13, 2007
What is Technical Analysis
Simply put, technical analysis means that one studies price movement. You can use price charts in order to keep track of price movement history. By doing so, you can try to figure out which way prices will go, up or down, in future trends.
Most online forex brokers give you many different tools that will help you figure out what it is that will assist you in technical analysis. Some of these include the following:
Bollinger Bands
Bollinger Bands measure market volatility. They use three lines of data: an average that changes in the middle; an upper line, which keeps track of the changing average and then adds two standard deviations; and a lower line, which keeps track of the changing average, and subtracts two standard deviations.
If the market is particularly volatile, the bands appear further apart. If volatility is not so great, the bands appear closer together.
One phenomenon known as the "Bollinger Bounce" means that the middle band is "controlled" by the two outer bands. When the middle band nears either of the two outer bands, it is "bounced" back towards the middle. This helps you visually keep track of the market, and it's useful because if the middle band does approach either the upper or lower band, you know it's likely that it will be pushed back towards the middle. It's best to use this as a strategy if prices are changing rapidly but you see no clear trends from your data.
Another way to spot a general trend is what is called the "Bollinger Squeeze." When the bands squeeze close together, it might mean that a breakout is going to happen pretty soon. If the middle band "breaks through" or exceeds either the upper or lower band, it's likely that the market will continue to trend in that direction.
Another indicator is called the "Parabolic SAR," or "Parabolic Stop and Reversal." This indicator spots trend reversals. It is perhaps the easiest indicator to read. Points or dots are placed in the chart in positions that are either above or below the "candles." (There is thea formula used that regulates where the points appear on the chart, but it's too in depth to describe here.) If points appear above the candles, traders should sell. If points appear below the candles, traders should buy.
Parabolic SAR works best if there are clear downward or upward trends. However, it does not work very well when price movement is minimal.
Another indicator is called "stochastics." Stochastics measures conditions that have been overbought or oversold in the market. The scale ranges from 0 to 100. If stochastics' lines are above 80, this means that the market has been overbought and a downward trend may soon be coming. If stochastics lines go below 20, it may mean that the market has been oversold and an upward trend is about to occur.
Stochastics can help you if you want to determine when you should lock in profits or when you should place an order to buy or sell. However, don't just rely on one of these indicators. Use several of them and adjust your trading strategy according to what you see.
Most online forex brokers give you many different tools that will help you figure out what it is that will assist you in technical analysis. Some of these include the following:
Bollinger Bands
Bollinger Bands measure market volatility. They use three lines of data: an average that changes in the middle; an upper line, which keeps track of the changing average and then adds two standard deviations; and a lower line, which keeps track of the changing average, and subtracts two standard deviations.
If the market is particularly volatile, the bands appear further apart. If volatility is not so great, the bands appear closer together.
One phenomenon known as the "Bollinger Bounce" means that the middle band is "controlled" by the two outer bands. When the middle band nears either of the two outer bands, it is "bounced" back towards the middle. This helps you visually keep track of the market, and it's useful because if the middle band does approach either the upper or lower band, you know it's likely that it will be pushed back towards the middle. It's best to use this as a strategy if prices are changing rapidly but you see no clear trends from your data.
Another way to spot a general trend is what is called the "Bollinger Squeeze." When the bands squeeze close together, it might mean that a breakout is going to happen pretty soon. If the middle band "breaks through" or exceeds either the upper or lower band, it's likely that the market will continue to trend in that direction.
Another indicator is called the "Parabolic SAR," or "Parabolic Stop and Reversal." This indicator spots trend reversals. It is perhaps the easiest indicator to read. Points or dots are placed in the chart in positions that are either above or below the "candles." (There is thea formula used that regulates where the points appear on the chart, but it's too in depth to describe here.) If points appear above the candles, traders should sell. If points appear below the candles, traders should buy.
Parabolic SAR works best if there are clear downward or upward trends. However, it does not work very well when price movement is minimal.
Another indicator is called "stochastics." Stochastics measures conditions that have been overbought or oversold in the market. The scale ranges from 0 to 100. If stochastics' lines are above 80, this means that the market has been overbought and a downward trend may soon be coming. If stochastics lines go below 20, it may mean that the market has been oversold and an upward trend is about to occur.
Stochastics can help you if you want to determine when you should lock in profits or when you should place an order to buy or sell. However, don't just rely on one of these indicators. Use several of them and adjust your trading strategy according to what you see.
What is Forex?
FOREX - the foreign exchange market or currency market or Forex is the market where one currency is traded for another. It is one of the largest markets in the world.
Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates.
In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.
Unlike stocks and futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific currency pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with forex brokers, brokers with banks, and banks with banks. If the European session is ended the Asian session or US session will start, so all world currencies can be continually in trade. Traders can react to news when it breaks, rather than waiting for the market to open, as is the case with most other markets.
Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to the BIS study.
Like any market there is a bid/offer spread (difference between buying price and selling price). On major currency crosses, the difference between the price at which a market maker will sell ("ask", or "offer") to a wholesale customer and the price at which the same market-maker will buy ("bid") from the same wholesale customer is minimal, usually only 1 or 2 pips. In the EUR/USD price of 1.4238 a pip would be the '8' at the end. So the bid/ask quote of EUR/USD might be 1.4238/1.4239.
This, of course, does not apply to retail customers. Most individual currency speculators will trade using a broker which will typically have a spread marked up to say 3-20 pips (so in our example 1.4237/1.4239 or 1.423/1.425). The broker will give their clients often huge amounts of margin, thereby facilitating clients spending more money on the bid/ask spread. The brokers are not regulated by the U.S. Securities and Exchange Commission (since they do not sell securities), so they are not bound by the same margin limits as stock brokerages. They do not typically charge margin interest, however since currency trades must be settled in 2 days, they will "resettle" open positions (again collecting the bid/ask spread).
Individual currency speculators can work during the day and trade in the evenings, taking advantage of the market's 24 hours long trading day.
Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates.
In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.
Unlike stocks and futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific currency pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with forex brokers, brokers with banks, and banks with banks. If the European session is ended the Asian session or US session will start, so all world currencies can be continually in trade. Traders can react to news when it breaks, rather than waiting for the market to open, as is the case with most other markets.
Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to the BIS study.
Like any market there is a bid/offer spread (difference between buying price and selling price). On major currency crosses, the difference between the price at which a market maker will sell ("ask", or "offer") to a wholesale customer and the price at which the same market-maker will buy ("bid") from the same wholesale customer is minimal, usually only 1 or 2 pips. In the EUR/USD price of 1.4238 a pip would be the '8' at the end. So the bid/ask quote of EUR/USD might be 1.4238/1.4239.
This, of course, does not apply to retail customers. Most individual currency speculators will trade using a broker which will typically have a spread marked up to say 3-20 pips (so in our example 1.4237/1.4239 or 1.423/1.425). The broker will give their clients often huge amounts of margin, thereby facilitating clients spending more money on the bid/ask spread. The brokers are not regulated by the U.S. Securities and Exchange Commission (since they do not sell securities), so they are not bound by the same margin limits as stock brokerages. They do not typically charge margin interest, however since currency trades must be settled in 2 days, they will "resettle" open positions (again collecting the bid/ask spread).
Individual currency speculators can work during the day and trade in the evenings, taking advantage of the market's 24 hours long trading day.
What Are Fibonacci Numbers?
Do you know who Leonardo Fibonacci is? Now, when you think of the name "Leonardo," perhaps you think of Leonardo da Vinci, but unlike Leonardo da Vinci, Leonardo Fibonacci did not paint the Mona Lisa. No, Leonardo Fibonacci was a mathematician who lived from about 1175 to 1250. He was well known in his day and contributed greatly to the world of mathematics. One of the things he did was that he introduced the decimal system to Europe.
He also studied a sequence of numbers that are known today as the "Fibonacci numbers." Alternatively, they are known as the "Fibonacci sequence."
The Fibonacci sequence begins with a zero and one. Each new number is the sum of the two previous numbers; for instance, zero plus one equals two, one plus two equals three, two plus three equals five, and so on.
Therefore, the first numbers in the sequence appear as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, ad infinitum.
Fibonacci discovered that this series of numbers and their ratios to each other occurred throughout nature and in fact are incredibly commonplace in the world.
So what does this have to do with forex trading? Well, the ratios that the Fibonacci numbers displayed are also apparent in the price movement of currencies, as well as in stocks and other types of investments.
Although it's too detailed to go into here, there are three numbers you need to concentrate on from this sequence. They are 0.382, 0.500, and 0.618. There are others as well, but these are the most important.
These numbers help to calculate what are called "retracement levels." Many traders use retracement levels when they need to figure out where they should place buy and sell orders. It works like this:
Let's assume that the price of a currency pair, or a company stock, is trending upward. The history says that prices tend to hit a peak and then go into temporary reversal. Then, they continue to trend upward. This is where Fibonacci numbers come into play.
When a currency is trending, the price can be expected to reverse back to one of the Fibonacci numbers. Then, it "bounces" back to its original level or nearly so to continue the trend. Assuming you forecast this right, you can buy just before the upward trend continues and profit handsomely.
Whatever the online trading platform you use, it should give you the means to chart the Fibonacci numbers. To do this, you draw a line from a low point to a high point. Retrace the levels will automatically be mapped on the chart for you.
There are the things to consider besides trading when the price hits a particular Fibonacci number.
For instance, you don't know at what retracement level the price will stop. If you choose 0.382 and it drops to 0.618, you could lose a great deal. Additionally, if you choose the wrong high or low point, the retracement levels will not reflect what actually happens and will be of no use to you.
Finally, even though Fibonacci numbers are a good tool, sometimes they don't forecast accurately at all. Again, remember that many variables come into play in the forex market. Therefore, don't rely just on one method, like Fibonacci numbers, to predict what price movement is going to be.
He also studied a sequence of numbers that are known today as the "Fibonacci numbers." Alternatively, they are known as the "Fibonacci sequence."
The Fibonacci sequence begins with a zero and one. Each new number is the sum of the two previous numbers; for instance, zero plus one equals two, one plus two equals three, two plus three equals five, and so on.
Therefore, the first numbers in the sequence appear as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, ad infinitum.
Fibonacci discovered that this series of numbers and their ratios to each other occurred throughout nature and in fact are incredibly commonplace in the world.
So what does this have to do with forex trading? Well, the ratios that the Fibonacci numbers displayed are also apparent in the price movement of currencies, as well as in stocks and other types of investments.
Although it's too detailed to go into here, there are three numbers you need to concentrate on from this sequence. They are 0.382, 0.500, and 0.618. There are others as well, but these are the most important.
These numbers help to calculate what are called "retracement levels." Many traders use retracement levels when they need to figure out where they should place buy and sell orders. It works like this:
Let's assume that the price of a currency pair, or a company stock, is trending upward. The history says that prices tend to hit a peak and then go into temporary reversal. Then, they continue to trend upward. This is where Fibonacci numbers come into play.
When a currency is trending, the price can be expected to reverse back to one of the Fibonacci numbers. Then, it "bounces" back to its original level or nearly so to continue the trend. Assuming you forecast this right, you can buy just before the upward trend continues and profit handsomely.
Whatever the online trading platform you use, it should give you the means to chart the Fibonacci numbers. To do this, you draw a line from a low point to a high point. Retrace the levels will automatically be mapped on the chart for you.
There are the things to consider besides trading when the price hits a particular Fibonacci number.
For instance, you don't know at what retracement level the price will stop. If you choose 0.382 and it drops to 0.618, you could lose a great deal. Additionally, if you choose the wrong high or low point, the retracement levels will not reflect what actually happens and will be of no use to you.
Finally, even though Fibonacci numbers are a good tool, sometimes they don't forecast accurately at all. Again, remember that many variables come into play in the forex market. Therefore, don't rely just on one method, like Fibonacci numbers, to predict what price movement is going to be.
Marketiva Forex Broker
Marketiva is one of the most popular online Forex brokers:
1. Buy and sell major currency pairs and cross rates with one mouse click
2. You can start trading with as little as $1!
3. Open your account for free and get $5 cash reward so you can start trading right away!
4. Spreads between bid and offer prices are among the tightest in the forex market
5. Trading on margin (1%) allows you to trade $10,000 with only $100 deposit (collateral) in your account
6. You don't need to start on live market right away - practice with your virtual money first
7. You can invest money in various Investment Funds through Marketiva
8. No commissions or exchange fees on your trades - you can trade as much as you like!
9. No interest charged on your open positions
10. Read real-time economic news and forecasts about global economy and forex markets
11. Get alerts narrated aloud prior to major scheduled market events
12. Chat with other forex traders about market events, exchange trading ideas and learn
13. Get help from our support professionals available 24h on support channels
14. The most sophisticated and easy-to-use forex charting tool with built-in advanced technical indicators
15. You can trade, view and modify open positions - directly on your charts
16. Modify parameters of technical indicators in real-time and see how they appear immediately
17. Build your chart collection by adding your saved chart configurations
18. Easy to use and understand even if you are a beginner
19. Streamster trading software gives you the best forex trading experience available!
20. Arrange trading windows according to your preference, set charting options, use auto-pilot, and much more...
21. You only need 5 minutes to open your account - and it's free!
1. Buy and sell major currency pairs and cross rates with one mouse click
2. You can start trading with as little as $1!
3. Open your account for free and get $5 cash reward so you can start trading right away!
4. Spreads between bid and offer prices are among the tightest in the forex market
5. Trading on margin (1%) allows you to trade $10,000 with only $100 deposit (collateral) in your account
6. You don't need to start on live market right away - practice with your virtual money first
7. You can invest money in various Investment Funds through Marketiva
8. No commissions or exchange fees on your trades - you can trade as much as you like!
9. No interest charged on your open positions
10. Read real-time economic news and forecasts about global economy and forex markets
11. Get alerts narrated aloud prior to major scheduled market events
12. Chat with other forex traders about market events, exchange trading ideas and learn
13. Get help from our support professionals available 24h on support channels
14. The most sophisticated and easy-to-use forex charting tool with built-in advanced technical indicators
15. You can trade, view and modify open positions - directly on your charts
16. Modify parameters of technical indicators in real-time and see how they appear immediately
17. Build your chart collection by adding your saved chart configurations
18. Easy to use and understand even if you are a beginner
19. Streamster trading software gives you the best forex trading experience available!
20. Arrange trading windows according to your preference, set charting options, use auto-pilot, and much more...
21. You only need 5 minutes to open your account - and it's free!
Profit By Trade Off Dynamic Support And Resistance In The Forex Market!
Dynamic support/resistance has always interested me throughout my trading career although it wasn't until recently that I discovered a couple of moving averages that seem to stop price in its tracks more often than not.
The 365 and the 150 exponential moving average have constantly been great trading tools for me. Plot them on your chart no lower than 4 hours and you will see how often price reacts to them.
You may be thinking 'that's great but how does that make me money?'
Let me explain. A system is nothing more than an edge, define a consistent edge and you have your self the beginning of a profitable system.
In our case we know there is a good chance that price will bounce off of one of the moving averages. All we need then is a trigger to enter the trade.
The best triggers are not lagging, I love to use price action in the form of candle stick patterns. My favorite being the engulfing candle.
Ok so now we have our entry (engulfing candle) we need an exit. I find that human nature always gets in the way of taking profit and there for I have the most success with trailing stops. There is no need for human interference and less chance that greed or fear will take control of the situation.
That is it you have your self a nice trading system, how do I know? Because I have traded this exact way for a while it works like a charm more often than not.
Remember always keep it simple in the forex market and you will succeed!
The 365 and the 150 exponential moving average have constantly been great trading tools for me. Plot them on your chart no lower than 4 hours and you will see how often price reacts to them.
You may be thinking 'that's great but how does that make me money?'
Let me explain. A system is nothing more than an edge, define a consistent edge and you have your self the beginning of a profitable system.
In our case we know there is a good chance that price will bounce off of one of the moving averages. All we need then is a trigger to enter the trade.
The best triggers are not lagging, I love to use price action in the form of candle stick patterns. My favorite being the engulfing candle.
Ok so now we have our entry (engulfing candle) we need an exit. I find that human nature always gets in the way of taking profit and there for I have the most success with trailing stops. There is no need for human interference and less chance that greed or fear will take control of the situation.
That is it you have your self a nice trading system, how do I know? Because I have traded this exact way for a while it works like a charm more often than not.
Remember always keep it simple in the forex market and you will succeed!
Practice Good Money Management in Your Forex Trading
it can be argued that proper money management is the keystone to successful trading in the Forex market. With that being said, the purpose of this article is to provide you with some general principles on how to practice good money management in your Forex trading.
Just how important is money management? I strongly believe that it is possible to have two experienced traders each take the exact opposite side of a series of trades, and each of them come out ahead over time. The way this is possible is by each of them exercising the skill of proper money management. If you have a trading system that has a demonstrated historical accuracy rate of 55% or better, but you practice poor money management, you can still blow out your account. On the other hand, if you use a mediocre trading system that has only a 45% accuracy rate, but you practice the right kind of money management, you can still come out ahead. That's how important money management is to your success as a trader.
The first principle of proper money management is that you must have your money management rules precisely defined as a system. It will not do to decide the size of your trading position by the seat of your pants. A good pilot may be able to fly that way, but even a good trader will die that way.
The second principle of proper money management is that you must never risk more than a very miniscule percentage of your available trading capital on any given trade. The exact percentage will vary from trader to trader, but in general, even the most highly skilled traders will not even consider risking more than 1% to 2% of their capital on any given trade. Even 3% is considered to be way too high most of the time.
The next principle of money management is to have your risk/reward ratio clearly defined for each trade. That means that you know how much you are risking to lose in relationship to how much you hope to gain on each trade.If you understand your risk/reward ratio, then you are able to approach your trading scientifically and in a way that is mathematically sound.
If you want to get into more specifics that go beyond those general principles, there are some very good money management systems that are available. I recently came across one that borders on absolute genius, in my opinion. It is called the Binary Equation System, and is based on the work of an 18th century mathematician. It is not a trading strategy as much as it is a strategy for money management that is designed especially for Forex trading. You can read more about this particular strategy at http://www.tradewhileyousleep.biz.
No matter which system of money management that you settle on, the most important thing is that you have a sound set of rules for your position size that you follow without question. If you are willing to do that, then you can indeed be successful as a Forex trader.
Just how important is money management? I strongly believe that it is possible to have two experienced traders each take the exact opposite side of a series of trades, and each of them come out ahead over time. The way this is possible is by each of them exercising the skill of proper money management. If you have a trading system that has a demonstrated historical accuracy rate of 55% or better, but you practice poor money management, you can still blow out your account. On the other hand, if you use a mediocre trading system that has only a 45% accuracy rate, but you practice the right kind of money management, you can still come out ahead. That's how important money management is to your success as a trader.
The first principle of proper money management is that you must have your money management rules precisely defined as a system. It will not do to decide the size of your trading position by the seat of your pants. A good pilot may be able to fly that way, but even a good trader will die that way.
The second principle of proper money management is that you must never risk more than a very miniscule percentage of your available trading capital on any given trade. The exact percentage will vary from trader to trader, but in general, even the most highly skilled traders will not even consider risking more than 1% to 2% of their capital on any given trade. Even 3% is considered to be way too high most of the time.
The next principle of money management is to have your risk/reward ratio clearly defined for each trade. That means that you know how much you are risking to lose in relationship to how much you hope to gain on each trade.If you understand your risk/reward ratio, then you are able to approach your trading scientifically and in a way that is mathematically sound.
If you want to get into more specifics that go beyond those general principles, there are some very good money management systems that are available. I recently came across one that borders on absolute genius, in my opinion. It is called the Binary Equation System, and is based on the work of an 18th century mathematician. It is not a trading strategy as much as it is a strategy for money management that is designed especially for Forex trading. You can read more about this particular strategy at http://www.tradewhileyousleep.biz.
No matter which system of money management that you settle on, the most important thing is that you have a sound set of rules for your position size that you follow without question. If you are willing to do that, then you can indeed be successful as a Forex trader.
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