When you are just beginning to delve into the possibility of getting into investments that involve trading currency, you probably don't know a lot of things that you need to know. This means that you will need to engage is a process of learning a few basic things about Forex trading if you plan on being successful with your ventures. Here are some examples of Forex trading methods that you will need to learn about in order to achieve a decent return on your investments.
One of the first things you should understand is how to select currencies for trading. There are actually several factors that go into qualifying a currency as a possible trading device. From this perspective you will do well to align yourself with a broker dealer who can take the time to help you learn the right way to research an investment before you actually submit an order for execution. Learning from your broker dealer is one of the best ways to get a handle on how to go about making solid trades and realizing a profit.
Along with learning proper methods to research a currency before submitting an order, beginners may also want to learn how to track an existing order. Understanding how to monitor the growth or lack thereof that is associated with a current investment is essential if the investor is going to understand when it is time to sell the currency and invest the resources in a different order. The ability to analyze performance and understand what is happening is essential if you are to have any future as a trader in the Forex market.
Just as you need to be able to research the past and monitor the present, it is also essential that you learn methods that help you to project performance of a given currency. To a degree, this is based on the historical data that you have already learned how to accumulate as part of your basic evaluation of the trade. At the same time, taking that information and plotting a projected course for that currency over the next week or month is important. By learning how to make qualified projections, you will be much better equipped to forecast a realistic vision of what will happen, which will help you know when to pull out and move on to a new investment.
Learning the basic methods involved with researching, monitoring, and projecting data related to a given possible Forex investment is key to becoming a trader who makes a substantial return on your trading activity. Make it a point to learn these fundamental methods before you actually begin trading, and you will avoid making a number of costly mistakes at the beginning of your trading career.
Thursday
Forex Trading System Strategies
The Forex trading market is an around-the-clock cash market where the currencies of nations are bought and sold, typically via brokers. Forex prices can change at any moment in response to real-time events, such as political unrest or the rate of inflation. The purpose of this article is to present Forex trading strategies from some of the world's trading greats.
Emotional Discipline:
According to Victor Sperandeo, The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading... I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don't cut their losses short.
Define Your Risk:
According to Tony Saliba, I always define my risk, and I don't have to worry about it.
Deal With Randomness:
According to Larry Sanders, As humans we do not come equipped to deal with the variety of randomness that is around us every day. Many professions deal with making processes and things work reliably. We are taught to strive for perfection, for high scores in school and in sports. This can be a handicap to traders. There is no perfection in trading. Instead traders must put probability in their favor.
Learn to Take Losses:
According to Marty Schwartz, The most important thing in making money is not letting your losses get out of hand.
Stay Objective:
According to Randy McKay, I'll keep reducing my trading size as long as I'm losing... My money management techniques are extremely conservative. I never risk anything approaching the total amount of money in my account, let alone my total funds.
Transaction Costs:
According to Van K. Tharp, I seldom see a system that over a number of years produces profits that are much bigger than the transaction costs it generates - that is, if a system generates a million dollars in net profits, then it probably generates more than a million dollars in transaction costs.
Correct Market Attitudes:
According to Bob Koppel, True Trading Mastery derives from understanding the relatively small role technical analytical factors play in the overall trading process and the inestimatably important role that correct market attitudes and beliefs exert in facilitating a consistently profitable result.
Self-Master:
According to J. P. Morgan, To be a money master, you must first be a self-master.
Risk Control:
According to Ed Seykota, The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.
Hope, Fear and Greed:
According to Jesse Livermore, The spectator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you, you hope that every day will be the last day and you lose more than you should had you not listened to hope. And when the market goes your way you become fearful that the next day will take away your profit, and you get out too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.
Trading Forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
Emotional Discipline:
According to Victor Sperandeo, The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading... I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don't cut their losses short.
Define Your Risk:
According to Tony Saliba, I always define my risk, and I don't have to worry about it.
Deal With Randomness:
According to Larry Sanders, As humans we do not come equipped to deal with the variety of randomness that is around us every day. Many professions deal with making processes and things work reliably. We are taught to strive for perfection, for high scores in school and in sports. This can be a handicap to traders. There is no perfection in trading. Instead traders must put probability in their favor.
Learn to Take Losses:
According to Marty Schwartz, The most important thing in making money is not letting your losses get out of hand.
Stay Objective:
According to Randy McKay, I'll keep reducing my trading size as long as I'm losing... My money management techniques are extremely conservative. I never risk anything approaching the total amount of money in my account, let alone my total funds.
Transaction Costs:
According to Van K. Tharp, I seldom see a system that over a number of years produces profits that are much bigger than the transaction costs it generates - that is, if a system generates a million dollars in net profits, then it probably generates more than a million dollars in transaction costs.
Correct Market Attitudes:
According to Bob Koppel, True Trading Mastery derives from understanding the relatively small role technical analytical factors play in the overall trading process and the inestimatably important role that correct market attitudes and beliefs exert in facilitating a consistently profitable result.
Self-Master:
According to J. P. Morgan, To be a money master, you must first be a self-master.
Risk Control:
According to Ed Seykota, The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.
Hope, Fear and Greed:
According to Jesse Livermore, The spectator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you, you hope that every day will be the last day and you lose more than you should had you not listened to hope. And when the market goes your way you become fearful that the next day will take away your profit, and you get out too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.
Trading Forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
How to Succeed at Foreign Exchange Trading
Foreign exchange trading is one of the largest trading opportunities available. Every day, nearly two trillion dollars worth of foreign currency is traded on the bourses. Because of the immense size of this market, no single investor can substantially impact the market. Even multibillion dollar transactions are a relatively small percentage of the overall market, and can alter prices only slightly, and in the short term.
Foreign exchange trading is built on variations in basis points, where the basis point is one tenth of a cent (or one tenth of the smallest unit of currency being traded). For example, if Euros are $1.60 each, every $32 you put into Euros will net 20 of them. If Euros rise to $1.80 each, your 20 Euros will be worth $36.00.
The chief strategy for foreign exchange trading is watching the closing times of the major trading venues, which are London, the Asian markets and New York. A lot of banks will try to close out their positions at those times, which will cause the market to fluctuate.
Foreign exchange trading, like day trading in stocks, can result in an adrenaline rush mentality, and there's a lot of money to be made in small shifts in exchange rates. However, to make foreign exchange trading work for you as a day trader, you need to live the life and adjust your sleep schedule to be awake when the markets are open to capitalize on shifts.
You can also take a long term strategy on foreign exchange trading. This is where you're looking for long term trends rather than trying to run the races each day on daily shifts.
Key factors to keep in mind in terms of foreign exchange trading are the international news. In particular, any moves the Federal Reserve makes will change the exchange rates. Interest rate increases make the dollar more valuable (because holding investments in dollars that earn interest mean they accrue faster). Anything related to international conflict will drive the dollar down, and make other currencies more valuable.
A related type of foreign exchange trading is holding foreign bonds. This is how most foreign traders hold dollars, they buy US Treasury T-bills. A variation on this strategy is to hold foreign certificates of deposit. Basically anything rated in a foreign currency that's accumulating interest on a short term basis (or using a ladder strategy or options strategy) can be used to double dip foreign exchange processes, getting both the relative movement of currencies and the interest accrued.
Foreign exchange trading is built on variations in basis points, where the basis point is one tenth of a cent (or one tenth of the smallest unit of currency being traded). For example, if Euros are $1.60 each, every $32 you put into Euros will net 20 of them. If Euros rise to $1.80 each, your 20 Euros will be worth $36.00.
The chief strategy for foreign exchange trading is watching the closing times of the major trading venues, which are London, the Asian markets and New York. A lot of banks will try to close out their positions at those times, which will cause the market to fluctuate.
Foreign exchange trading, like day trading in stocks, can result in an adrenaline rush mentality, and there's a lot of money to be made in small shifts in exchange rates. However, to make foreign exchange trading work for you as a day trader, you need to live the life and adjust your sleep schedule to be awake when the markets are open to capitalize on shifts.
You can also take a long term strategy on foreign exchange trading. This is where you're looking for long term trends rather than trying to run the races each day on daily shifts.
Key factors to keep in mind in terms of foreign exchange trading are the international news. In particular, any moves the Federal Reserve makes will change the exchange rates. Interest rate increases make the dollar more valuable (because holding investments in dollars that earn interest mean they accrue faster). Anything related to international conflict will drive the dollar down, and make other currencies more valuable.
A related type of foreign exchange trading is holding foreign bonds. This is how most foreign traders hold dollars, they buy US Treasury T-bills. A variation on this strategy is to hold foreign certificates of deposit. Basically anything rated in a foreign currency that's accumulating interest on a short term basis (or using a ladder strategy or options strategy) can be used to double dip foreign exchange processes, getting both the relative movement of currencies and the interest accrued.
Top Transaction Types in Forex Trading
For those who have never heard of foreign exchange, also known as forex, they may be incredibly confused when you explain to them that investors buy, sell, and trade currencies. They may be even more confused to hear that the exchange rates for these currencies rely on the forex market and the way that investors view the currencies around the world. Those who begin to get into forex trading and investing may find that it can be even more confusing to determine what kind of investment to go with. There are multiple ways to have a transaction in the forex world. Some people may not understand the pros and cons between each, and why they may want to go with a certain forex transaction type over another. By trying to understand the top 5 transactions made on the forex market, you may better understand what you may want to do with your own investment.
Forward Transaction
A forward transaction is a transaction that is made for the future; this means that the money does not actually come into play until a future date. The buyer and seller agree on a specific, stuck exchange rate for that certain date in the future. Because of the fixed date, the rate is stuck to the choice on that day. The actual market numbers on the day of the transaction do not matter, as the fixed rate cannot be changed. There is no limit on the extent of a future forward transaction, as it is dependent on the buyer and seller alone.
Spot Transaction
The spot transaction is the quickest and fastest way to actually exchange your currency. There is an exchange of two currencies over a two day period on the forex exchange, meaning that no contracts are signed. This allows the transaction to happen at a faster pace.
Future Transactions
These transactions are also forward transactions, and deal with contracts much like the normal forward transactions. The contracts usually deal with a certain amount by a certain date, rather than on a certain date. The contract lasts for the time specified, and are major on the forex market.
Swap Transactions
Swap transactions are easily the most normal and common of the multiple ways to do transactions on the forex market. Swap transactions are also forward transactions, but they do not happen as a trade through the forex market itself. A swap transaction can be confusing at first, two investors agree to change currencies for a certain amount of time. A later date is set for the two investors to change currencies back.
Option Transactions
Option transactions in the forex market common. The foreign exchange options give an investor the right (or option) to exchange money on the forex market. This option has a fixed exchange rate and a specific date. The option transaction is the most prominent in the forex market because of the high traffic and amount of money that is sunk into the currency forex market daily.
Forward Transaction
A forward transaction is a transaction that is made for the future; this means that the money does not actually come into play until a future date. The buyer and seller agree on a specific, stuck exchange rate for that certain date in the future. Because of the fixed date, the rate is stuck to the choice on that day. The actual market numbers on the day of the transaction do not matter, as the fixed rate cannot be changed. There is no limit on the extent of a future forward transaction, as it is dependent on the buyer and seller alone.
Spot Transaction
The spot transaction is the quickest and fastest way to actually exchange your currency. There is an exchange of two currencies over a two day period on the forex exchange, meaning that no contracts are signed. This allows the transaction to happen at a faster pace.
Future Transactions
These transactions are also forward transactions, and deal with contracts much like the normal forward transactions. The contracts usually deal with a certain amount by a certain date, rather than on a certain date. The contract lasts for the time specified, and are major on the forex market.
Swap Transactions
Swap transactions are easily the most normal and common of the multiple ways to do transactions on the forex market. Swap transactions are also forward transactions, but they do not happen as a trade through the forex market itself. A swap transaction can be confusing at first, two investors agree to change currencies for a certain amount of time. A later date is set for the two investors to change currencies back.
Option Transactions
Option transactions in the forex market common. The foreign exchange options give an investor the right (or option) to exchange money on the forex market. This option has a fixed exchange rate and a specific date. The option transaction is the most prominent in the forex market because of the high traffic and amount of money that is sunk into the currency forex market daily.
6 Tips to Be a Successful Forex Trader
Forex trading is the simultaneous buying of one particular currency and the simultaneous selling of another particular currency. Forex trading is not an exact science, but it is a cost benefit analysis along with fundamental, economic and technical factors.
Failure can happen for a number of reasons, such as under capitalization, no trading strategy, no money management and a lack of discipline. The following tips are based on what most people face trading forex.
1. Stay out of the market for major news announcements. Currencies are representations of the strength of the economies. Fundamental news, whether economic or unsettling global events will have an affect on currency pairs. It is common for a major news announcement to drive the currency 200 pips. If it is the wrong direction, you can lose all your money depending on your margin leverage.
2. New traders should only trade pairs with smaller spreads, about 4 pips like EUR/USD. Some pairs can be greater than 10 pips. This means that the pair has to move in your favor by 10 pips to become even.
3. Use a practice account to get used to placing orders and for longer term trading practice, not for short term trading. Short term trading will not be the same as live trading because of the difference with fill prices. The actual entry price on live accounts will not be as good as the practice platforms in most cases. Some platforms are worse than others. Market makers have more of an affect on this than ECN brokers.
It is better to do live trading with a mini contract. It is real trading but with a small risk. Each pip move is only worth one dollar.
4. Look seriously into using algorithmic trading, also known as robot-trading, algo, black-box or automated trading. Today over 20% of all forex trading is being done by algorithmic trading. It is estimated that by 2010 the US and EU stocks markets will be trading 50% of automated trading.
Hedge funds, pension funds, and other large institutional traders use automated trading. For the small investor, there are some legitimate companies that offer a version of automated trading mostly known as robot trading.
5. This tip is important for traders using a smaller amount of capital. Make sure that your broker has the option to get you out of a trade if your capital funds get wiped out. If not, place your own stop loss where your capital reaches zero. Always keep a stop loss order slightly above that amount to get you out with a safety margin. It is good to place this stop with a little more room in case there is news that making the price volatile.
6. Forex trading is highly leveraged, since low margin deposits normally are required, an extremely high degree of leverage is obtainable in foreign exchange trading. You can get over 200:1 margin leverage but do not go over 100:1 margin. The higher margin will tempt you to enter larger trades and will ultimately use most of your margin on a trade. Once your capital goes down to zero, you are out of the trade with no more money left.
Failure can happen for a number of reasons, such as under capitalization, no trading strategy, no money management and a lack of discipline. The following tips are based on what most people face trading forex.
1. Stay out of the market for major news announcements. Currencies are representations of the strength of the economies. Fundamental news, whether economic or unsettling global events will have an affect on currency pairs. It is common for a major news announcement to drive the currency 200 pips. If it is the wrong direction, you can lose all your money depending on your margin leverage.
2. New traders should only trade pairs with smaller spreads, about 4 pips like EUR/USD. Some pairs can be greater than 10 pips. This means that the pair has to move in your favor by 10 pips to become even.
3. Use a practice account to get used to placing orders and for longer term trading practice, not for short term trading. Short term trading will not be the same as live trading because of the difference with fill prices. The actual entry price on live accounts will not be as good as the practice platforms in most cases. Some platforms are worse than others. Market makers have more of an affect on this than ECN brokers.
It is better to do live trading with a mini contract. It is real trading but with a small risk. Each pip move is only worth one dollar.
4. Look seriously into using algorithmic trading, also known as robot-trading, algo, black-box or automated trading. Today over 20% of all forex trading is being done by algorithmic trading. It is estimated that by 2010 the US and EU stocks markets will be trading 50% of automated trading.
Hedge funds, pension funds, and other large institutional traders use automated trading. For the small investor, there are some legitimate companies that offer a version of automated trading mostly known as robot trading.
5. This tip is important for traders using a smaller amount of capital. Make sure that your broker has the option to get you out of a trade if your capital funds get wiped out. If not, place your own stop loss where your capital reaches zero. Always keep a stop loss order slightly above that amount to get you out with a safety margin. It is good to place this stop with a little more room in case there is news that making the price volatile.
6. Forex trading is highly leveraged, since low margin deposits normally are required, an extremely high degree of leverage is obtainable in foreign exchange trading. You can get over 200:1 margin leverage but do not go over 100:1 margin. The higher margin will tempt you to enter larger trades and will ultimately use most of your margin on a trade. Once your capital goes down to zero, you are out of the trade with no more money left.
Learning to Trade the Forex Market
Learning to trade forex is very easy. Learning to trade forex well and at a profit is much more of a challenge.
There are a several good reasons why learning to trade forex is a worthwhile undertaking. Forex, or foreign exchange trading is the granddaddy of them all in the trading field. Daily volumes are in the trillions of dollars. The huge size of the market reflects the basic use of money in the modern world.
This massive activity every business day of the week means that the skilled forex trader has a virtually unlimited pool of money to tap into. When trading forex you never have to worry about the size of the pot. It will always be as much as you can possibly handle.
After learning to trade forex successful forex traders can make hundreds, even thousands, of dollars a day right from their home computer. One of the most successful forex traders of all time, George Soros, once made over a billion dollars in just a few days time by correctly forecasting that the Bank of England would not be able to defend an overvalued British Pound. Once Soros had completed his analysis he took massive action and placed a large short position against the Pound. As the Pound collapsed Soros made his fortune.
The following are a few good reasons to why learning to trade forex may be a good idea for those who have risk capital to trade with:
1. The forex market is where the big money is. There are really no limits as to what a skilled trader can make.
2. The forex market is worldwide and in major currencies like the US Dollar, the Euro, Japanese Yen, and British Pound is quite active. You can trade forex around the clock five days a week.
3. The forex market is highly liquid. This means that there is always a tight dealing quote at which you can buy or sell active currencies.
4. Forex trading usually comes at you fast. Your trade will most often move into profit or hit a stop loss point very quickly.
5. Currencies usually trend one way for long time periods. It is not unusual for a currency to have a major trend in one direction for three to five years at a time. When you trade with the major trend this gives you a trading edge.
6. Transaction costs are low. Major currencies can be traded even by small traders at dealing spreads of two to three pips.
If there is one point above all others about learning to trade forex it is this one. Your chances of having a successful outcome to your trade are increased tremendously when you trade with the major trend. When you enter your trade on a reaction (correction) within the trend your odds of completing a successful trade increase even further.
For example, let's say that you have identified the Euro as being in a major uptrend against the US Dollar. This is easy to do by looking at a long term chart of the Euro against the US Dollar. Instead of immediately rushing into the forex market and buying the Euro you wait until a correction takes place, as they often do, and you buy the Euro on a pullback to its long term trend line. This takes some patience and discipline to do but the payoff can be huge.
As the major trend kicks in your Euro position is immediately in profit. Then you have the pleasant decision to make as to when to take your profit. Learning to trade forex can be broken down into a series of decisions like this. The key is careful analysis as to the direction of the trend and then waiting for a good entry point. Patience and discipline are the hallmarks of the most successful forex traders.
In getting started in learning to trade forex setting up a free demo trading account with an online forex broker is recommended. Trading play money is not the same as trading your own real money but by starting with a demo account you can learn how to best set up and use the trading platform without putting your money at risk during the learning process.
There are a several good reasons why learning to trade forex is a worthwhile undertaking. Forex, or foreign exchange trading is the granddaddy of them all in the trading field. Daily volumes are in the trillions of dollars. The huge size of the market reflects the basic use of money in the modern world.
This massive activity every business day of the week means that the skilled forex trader has a virtually unlimited pool of money to tap into. When trading forex you never have to worry about the size of the pot. It will always be as much as you can possibly handle.
After learning to trade forex successful forex traders can make hundreds, even thousands, of dollars a day right from their home computer. One of the most successful forex traders of all time, George Soros, once made over a billion dollars in just a few days time by correctly forecasting that the Bank of England would not be able to defend an overvalued British Pound. Once Soros had completed his analysis he took massive action and placed a large short position against the Pound. As the Pound collapsed Soros made his fortune.
The following are a few good reasons to why learning to trade forex may be a good idea for those who have risk capital to trade with:
1. The forex market is where the big money is. There are really no limits as to what a skilled trader can make.
2. The forex market is worldwide and in major currencies like the US Dollar, the Euro, Japanese Yen, and British Pound is quite active. You can trade forex around the clock five days a week.
3. The forex market is highly liquid. This means that there is always a tight dealing quote at which you can buy or sell active currencies.
4. Forex trading usually comes at you fast. Your trade will most often move into profit or hit a stop loss point very quickly.
5. Currencies usually trend one way for long time periods. It is not unusual for a currency to have a major trend in one direction for three to five years at a time. When you trade with the major trend this gives you a trading edge.
6. Transaction costs are low. Major currencies can be traded even by small traders at dealing spreads of two to three pips.
If there is one point above all others about learning to trade forex it is this one. Your chances of having a successful outcome to your trade are increased tremendously when you trade with the major trend. When you enter your trade on a reaction (correction) within the trend your odds of completing a successful trade increase even further.
For example, let's say that you have identified the Euro as being in a major uptrend against the US Dollar. This is easy to do by looking at a long term chart of the Euro against the US Dollar. Instead of immediately rushing into the forex market and buying the Euro you wait until a correction takes place, as they often do, and you buy the Euro on a pullback to its long term trend line. This takes some patience and discipline to do but the payoff can be huge.
As the major trend kicks in your Euro position is immediately in profit. Then you have the pleasant decision to make as to when to take your profit. Learning to trade forex can be broken down into a series of decisions like this. The key is careful analysis as to the direction of the trend and then waiting for a good entry point. Patience and discipline are the hallmarks of the most successful forex traders.
In getting started in learning to trade forex setting up a free demo trading account with an online forex broker is recommended. Trading play money is not the same as trading your own real money but by starting with a demo account you can learn how to best set up and use the trading platform without putting your money at risk during the learning process.
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