Use of stops in forex trading – the key to staying in the game

The recent fall in the dollar has highlighted the need to trade with stops. My focus is the forex market so I can only speak from this perspective but what I say is applicable to not only forex trading but all trading. If you want to stay in the game, trade with stops. I cannot say it any clearer. The purpose of this article is to use the current forex market trends as an example of why a trader needs to be disciplined and use stops.

It feels like déjà vu whenever a trend emerges. I get calls from traders asking what they should do with a long or short position that is deep underwater. I ask the same question I always ask, “Where was your stop?” The usual answer is I didn’t use one. I just don’t get it.

Why don’t traders use stops? There is no clear answer but one reason may be a reluctance to take a loss even though taking losses is part of the business and a pillar of proper money management. This is why “hedging” has become popular on retail forex trading platforms although essentially it is a flat position and more often than not an excuse not to book a loss. This is a topic for a future discussion.

Another reason may be that the currency market often trades in ranges, even during trends when there is consolidation. These ranges can last for days, weeks or months. During these periods, range trading works and hanging on to a position, even one that is underwater, often gives a chance to recover the loss or even make a profit. The problem is when ranges break and trends take over. In these breakout periods there is often no turning back as a market runs away from the range trader. Those who employ a range strategy and trade with stops should be okay. It is the undisciplined trader who trades without a stop that faces disaster, especially in a market, such as forex, that trades with leverage.

Take the current market as an example. Since the start of July and after peaking at 1.6744 on June 30, GBP/USD, with exception of a brief one-day break of 1.60, traded in a 1.60-1.66 range with most of the activity within 1.63-1.66 since the middle of July. This was a good market for range traders as there was a lot of volatility within this range. However, the market broke the top of the range on the last day of July and continued to climb at the start of August to reach 1.7005 on August 4. For those trading a range from the short side and using a stop, this was part of the strategy as ranges do not last forever. For those trading a range from the short side without a stop, the result could be fatal and the trading account wiped out. Even if you managed to stay afloat despite not using a stop and the market eventually came back to your entry level, the emotional and opportunity costs were not worth the risk.

I assume there are skilful traders who do not use fixed stops but use dynamic stops or other techniques to manage a position. However, there is no trader I know of who has stayed in the game without employing prudent money management. For the retail forex trader, this means using stops.

Source: Jay Meisler

How good forex traders manage their actions?

Trading in the financial markets is surrounded by a certain amount of mystique because there is no single formula for trading successfully. Think of the markets as being like the ocean and the trader as a surfer. Surfing requires talent, balance, patience, proper equipment and astute discrimination. Would you go into the water if there were sharks swimming all around you or dangerous rip tides? Hopefully not.

The attitude to trading in the markets is no different to that required for surfing. By blending good analysis with effective implementation, your success rate will improve dramatically and, like many skill sets, good trading comes from a combination of talent and hard work. Here are the four legs of the stool that you can build into a strategy to serve you well in all markets.

Leg No.1 – Approach

Before you start to trade, recognize the value of proper preparation. The first step is to align your personal goals and temperament with the instruments and markets that you can comfortably relate to. For example, if you know something about retailing, then look to trade retail stocks rather than oil futures, about which you may know nothing. Begin by assessing the following three components.

1. Time Frame

The time frame indicates the type of trading that is appropriate for your temperament. Trading off of a five-minute chart suggests that you are more comfortable being in a position without the exposure to overnight risk. On the other hand, choosing weekly charts indicates a comfort with overnight risk and a willingness to see some days go contrary to your position.

In addition, decide if you have the willingness and time to sit in front of a screen all day or if you would prefer to do your research quietly over the weekend and then make a trading decision for the coming week based on your analysis. Remember that the opportunity to make substantial money in the markets requires time. Short-term scalping, by definition, means small profits or losses. In this case you will have to trade more frequently.

2. Methodology

Once you choose a time frame, find a consistent methodology. For example, some traders like to buy support and sell resistance. Others prefer buying or selling breakouts. Yet others like to trade using indicators such as MACD, crossovers etc.

Once you choose a system or methodology, test it to see if it works on a consistent basis and provides you with an edge. If your system is reliable more than 50% of the time, you will have an edge, even if it’s a small one. If you back test your system and discover that had you traded every time you were given a signal and your profits were more than your losses, chances are very good that you have a winning strategy. Test a few strategies and when you find one that delivers a consistently positive outcome, stay with it and test it with a variety of instruments and various time frames.

3. Market (Instrument)

You will find that certain instruments trade much more orderly than others. Erratic trading instruments make it difficult to produce a winning system. Therefore, it is necessary to test your system on multiple instruments to determine that your system’s “personality” matches with the instrument being traded. For example, if you were trading the USD/JPY currency pair in the Forex market, you may find that Fibonacci support and resistance levels are more reliable in this instrument than in some others. You should also test multiple time frames to find those that match your trading system best.

Leg No.2 – Attitude

Attitude in trading means ensuring that you develop your mindset to reflect the following four attributes:

1. Patience

Once you know what to expect from your system, then have the patience to wait for the price to reach the levels that your system indicates for either the point of entry or exit. If your system indicates an entry at a certain level but the market never reaches it, then move on to the next opportunity. There will always be another trade. In other words, don’t chase the bus after it has left the terminal; wait for the next bus.

2. Discipline

Discipline is the ability to be patient – to sit on your hands until your system triggers an action point. Sometimes the price action won’t reach your anticipated price point. At this time you must have the discipline to believe in your system and not to second-guess it. Discipline is also the ability to pull the trigger when your system indicates to do so. This is especially true for stop losses.

3. Objectivity

Objectivity or “emotional detachment” also depends on the reliability of your system or methodology. If you have a system that provides entry and exit levels that you know have a high reliability factor, then you don’t need to become emotional or allow yourself to be influenced by the opinion of pundits who are watching their levels and not yours. Your system should be reliable enough so that you can be confident in acting on its signals.

4. Realistic Expectations

Even though the market can sometimes make a much bigger move than you anticipate, being realistic means that you cannot expect to invest $250 in your trading account and expect to make $1,000 each trade. Short-term time frames provide less profit opportunities than longer term, but the risk with longer-term time frames is higher. It’s a question of risk versus reward.

Leg No.3 – Discrimination

Different instruments trade differently depending on who the major players are and why they are trading that particular instrument. Hedge funds are motivated differently than mutual funds. Large banks that are trading the spot currency market in specific currencies usually have a different objective than currency traders buying or selling futures contracts. If you can determine what motivates the large players then you can often piggy-back them and profit accordingly.

• Alignment

Pick a few currencies, stocks or commodities and chart them all in a variety of time frames. Then apply your particular methodology to all of them and see which time frame and which instrument is most responsive to your system. This is how you discover a “personality” match for your system. Repeat this exercise regularly to adapt to changing market conditions.

Leg No.4 – Management (Implementation)

Since there is no such thing as only profitable trades, no system will trigger a 100% sure thing. Even a profitable system, say with a 65% profit to loss ratio, still has 35% losing trades. Therefore, the art of profitability is in the management and execution of the trade.

• Risk Control

In the end, successful trading is all about risk control. Take losses quickly and often if necessary. Try to get your trade in the correct direction right out of the gate. If it backs off, cut out and try again. Often it is on the second or third attempt that your trade will move immediately in the right direction. This practice requires patience and discipline but when you get the direction right you can trail your stops and almost always be profitable at best, or break even at worst.

The Bottom Line

There are as many nuanced methods of trading as there are traders. There is no right or wrong way to trade. There is only a profit-making trade or a loss-making trade. Warren Buffet says there are two rules in trading: Rule 1: Never lose money. Rule 2: Remember Rule 1. Stick a note on your computer that will remind you to take small losses often and quickly – don’t wait for the big losses.

Forex Trading – Technical Analysis for Beginners

Some Forex traders say the best indicator is price. Therefore many traders use chart patterns with the help of technical indicators trying to predict the price movement. This approach is quite different from the fundamental analysis when price is predicted based on economic news and social events.

Studying price movement with Forex technical analysis involves charts. The theory of it is that if you look at the historical records of how prices have moved in the past, you can identify tendencies and trends which will mean that you can predict how the prices will move in the future. Then as soon as you spot an emerging pattern that fits your system, you have a trading opportunity.

There are three types of Forex charts:

- The line chart is the first one

The name of line chart tells it all. It is a line connecting the closing prices. Ups and downs of that line show the movement of the currency pair. Unfortunately this type of price does not show you any information on price behavior within the time period. You can see only the close price.

- Second chart type is called bar chart

A bar chart will show a series of vertical lines or bars. The top of the line represents the highest price during that time period. The bottom of the line represents the low. A short horizontal bar on the left side indicates the opening price and a short horizontal bar on the right side indicates the closing price.

That’s why the bar charts also called OHLC charts. It stands for open, high, low and close.

- Third type of charts is candlestick chart

Forex candlestick charts show all of the same information as a bar chart, but presented in a different way which most people find easier to read at a glance.

Like bar chart candlestick shows the price movement in vertical direction. The same way as for bar the top of the candlestick is the high for the period and the bottom of the candlestick is the low of the price for the period. However the major difference is the body. Different color of the candlestick body represents the different tendency of the price withing the given period. The common colors are red for falling price and green for rising. However different charts may use different colors.

The reason many traders prefer candlestick charts is that it can be read and interpreted easily. Trend and turning points are clearly seen due to color difference.

Successful traders always take advantage of emerging trend. You probably heard the famous expression ‘Trend is your friend’. Therefore the ability to recognize the forming trend is of the major importance of trader’s success. Candlestick chart is a great tool in helping to develop this skill.

Source: Albert Schmidt

Best Forex Indicators

Forex is defined as the foreign exchange market where professionals trade currencies in an attempt to make money. Many traders, most notably George Soros, have made a ton of money in this way. By exploiting the fluctuations in the price of currencies relative to one another, traders can effectively buy low and sell high many times over and make money on the difference.

While Forex trading can be a highly risky proposition, there are certain fundamental things about the market as a whole that help Forex traders try to predict what the price of currencies will do. These are called indicators, and while they don’t predict the future 100% of the time, many times these events play out as expected and are a big help to the trader.

One such indicator is the Simple Moving Average (SMA). This indicator was developed early on, and it’s still one of the most widely used gauges today. A moving average is a set of data, in that for each day, the average price of the currency is calculated over a previous number of days. So for example, to calculate a 10 day moving average, today’s average is calculated by averaging the prices for the previous 10 days. Yesterday’s average is then calculated by taking the average price for the 10 days before yesterday, and so on. Each average is then plotted to where the set of data becomes a line on a graph of prices. In effect, this line “smoothes” the market action, taking out a lot of the daily fluctuations that can confuse the trader. This makes it much easier to notice the overall trend of which direction the currency price is headed.

Another widely used indicator is the Relative Strength Index (RSI). This number is found by calculating the ration of the number of up moves to the number of down moves of the currency price over a given period. Simply put, an up move is when the price rises that day, and a down move is when the price closes lower than where it opened. A RSI of 70 or over tells the Forex trader that the currency may be overbought, and might be due for a price drop. Likewise, a RSI of 30 or below can indicate an oversold currency, which may be due for a jump in price.

The Moving Average Convergence Divergence (MACD) is another indicator that is referenced a lot by traders. This one is a bit more complicated than the previous two, although the moving average is one component of the calculation. This indicator makes use of two lines, the first being a 26 day exponential moving average minus a 12 day exponential moving average. The other line, known as the “trigger line”, is usually a 9 day moving average. These two lines will continuously cross each other as the price of the currency fluctuates, and when the MACD line crosses above the trigger line, it’s considered a good time to buy the currency. When the trigger line then crosses above the MACD line, this indicates a good time to sell.

By making use of these and many other indicators, technical Forex traders can give themselves a better chance to make money than the average person. While trading in currency is not without a great deal of risk, it is these indicators that can give the trader a leg up and also make Forex trading an enjoyable experience.

Forex Option Trading to Diversify Your Forex Trading

Forex option trading is a hedging instrument, used not only by big financial institutions, but also by many individual Forex traders. Forex option trading is a great tool for implementing both, hedging and speculating strategies. Forex options are among the most liquid options in the world. The buyer in this case becomes a holder of a foreign currency option. The seller becomes the writer, or the granter.

The forex option holder receives the right to exchange a predefined amount of currency at a predefined date and price. The option buyer is obligated to pay a premium to the seller of the option. In fact, this is the only liability of the buyer, making Forex option trading a field with very limited liabilities. The forex option seller has two ways to precede with his/her option – to buy the contract back or to hold it until its expiration.

Forex option trading requires buying at a fixed price, in a fixed amount as well as at a fixed expiration date. All of this unties you from the dangerous market fluctuations.

Do Forex options always get exercised? As a matter of fact, most of the time the options are not exercised by their purchaser with the Forex option trading; options are often offset until they expire. If the option gets exercised, a spot position is assigned to the option holder. There also is a threat of an option expiring worthless, if at the expiration time the strike price is lower than the purchase price.

As mentioned above, you only pay a fixed price for the transaction when you buy a Forex option. Forex option trading will safeguard you against losing more than you have invested into the option. In the event of the final strike price on the market being higher than the purchase amount, you will instantly profit. In the event of the final strike price on the market is lower than the purchase price, you will lose. However, you will never lose more money due to this fixed price, in case your transaction becomes worthless.

Forex option trading is applied strictly at the international exchanges, since it is a hedging instrument. While being probably riskier than regular Forex trading due to its uniqueness, Forex option trading is also potentially much more profitable.

There are two types of options in Forex option trading- call options and put options. Call options give the right to buy currency, and put options give the right to sell currency. Both these options generally change in respond to the change in volatility, i.e. if the volatility falls, the prices of both options also fall. There are common and customized Forex options, respectively called “plain vanilla” and exotic.

In order to shield yourself from potential losses, it is better to follow general safety with Forex option trading:

1. Do not place a large chunk of your total capital into Forex option trading.

2. Do not try to trade at all times. It is better to patiently wait for the proven signals.

3. Trade on a Forex option trading demo account prior starting to trade live.

Forex option trading is a good way to learn and understand more about the Forex market. Forex option trading is a risky but also potentially very profitable Forex trading instrument.

Source: Steve Maenshel

Learn To Day Trade Forex

The most important thing that you should make very clear and understand is that Forex is not a get rich quick scheme. Skilled Forex Traders can and in fact do make good profits in Forex Trading. However like any other business whether small or big, success just doesn’t happen overnight, in a few weeks or in a few months. You should use this great formula for success: Profits = Patience+Practice+Persistence.

As they say there is no substitute for hard work and diligence. Practice trading on a demo account and pretend that virtual money is your own real money. Do not open a live trading account until you become profitable on your demo account. Stick to the plan and you can be successful.

In the beginning, just choose two major currency pairs that you will trade. It becomes very difficult to keep tab on the all four. You need to start with a major currency pair because the spread is the best and they are the most liquid. The EUR/USD pair is the most commonly traded pair and usually has the best spread because of its liquidity.

The USD/CHF is the most volatile and moves the most during the trading week. The USD/JPY moves a lot on the news out of Japan. GBP/USD is the most stable of the above three pair.

You should follow and understand the daily forex news and analysis of the professional currency analyst. It is important for you to get a birds eye view of the currency markets and the news that affects the prices of the major pair that you want to trade. You should also know and understand what the key technical support and resistance levels are in the currency pair that you want to trade.

Support is the predicted level when buying pressure overcomes the selling pressure. It is at this point the currency pair moves up on the charts. Buy at the support level. Resistance is the predicted level when selling pressure overcomes the buying pressure. It is where the currency pair moves down on the charts. Sell on the resistance level.

All the best forex news and analysis is available freely online. Most of the forex brokers provide this information on daily basis if you open an account with them. Read the technical news and analysis. Write down on a piece of paper the direction the analyst is saying about the currency pair you are trading. Also note the key support and resistance level for that pair.

Learn how to use technical indicators and always trade with stop losses. It is worth your time to be patient and learn how to use technical indicators on the charts that you will be reading shortly.

Learn to be disciplined when you are trading. Avoid emotions in trading! Stick to a good system and a plan. Depending on your risk appetite and strategy, set your stop losses accordingly when you trade. Try not to trade your gut feeling.

The Psychology of Trading

Perhaps the most critical characteristic shared by successful investors and traders is their psychological approach to the market. All forms of financial investments have foundational knowledge that is essential to success in that market. I am not suggesting that you can simply think the right way and trade stocks, commodities or any other market successfully. But you could be the world’s foremost expert on the commodities market and still not be able to translate that knowledge into monetary success.

Two emotions fear and greed can be lethal to your financial success. Developing an unemotional, systematic approach to your trading and investments is crucial for success. The following ideas will help you control your emotions and improve your trading results.

Develop a Trading System

Many people approach the market in a very unsystematic fashion. One day they are buying blue chip stocks that pay dividends; the next day they are playing tips from their nephews on biotechnology start-ups. Develop a system that suits your personal style, risk tolerance, knowledge level, and time available to devote to this activity. Decide what market you will trade and exactly how you will trade. Simply saying I will buy and sell stocks is not a trading system. Write down your rules. For example, for a stock investor, what criteria will stocks meet for your consideration? At what price will you buy? Will you short stocks? Where will you set your stop loss price? How much will you invest in any single position? How much will you diversify among industry sectors? Will you rotate in and out of sectors as they fall out of favor with the markets? Wherever possible, back test your rules and ensure your system has a reasonable expectation of profitability.

Have a Written Plan for Every Trade

Before you buy that stock or option spread or other investment, you must make some critical decisions. Write down your answers to the following questions: Why do I think this is a good idea? At what price will I admit my idea is not working and close the trade? If appropriate for this trade, at what price will I make some adjustments to the position? At what price will I take my profits? The answers to these questions and others constitute your trading plan. Be sure you have a plan before you establish the trade.

Follow Your Plan

This may be the hardest aspect of trading you must master. Once you have your plan, you must have the discipline to follow the plan unemotionally. Don’t allow yourself to rationalize how the stock is going to rebound or allow your ego to refuse to admit the mistake. When the stock price dips below your stop loss price, close the position.

Don’t hope. Don’t rationalize. Follow your plan.

Evaluate Your Results

Develop a routine of reviewing your trading results periodically. When I review my trades each month, I make an important distinction between my “losing trades” and my “bad trades”. Bad trades result when I break my own rules for entering the trade or lack the discipline to follow the plan. Losing trades are those where I followed all of my rules, but the trade just didn’t work out as planned. These losses are simply a “cost of doing business”. It is critical to treat your investing as a business, not a hobby. In any business, there are necessary expenses to keep the business open. Trading losses are an expected, necessary part of any investment activity. Developing a trading system and following the individual trade plans ensure that your profitable trades will outweigh your losses.

This Isn’t Gambling

A common misperception holds that investing is akin to gambling. In fact, when you closely analyze the actual trades of many investors, they are indeed gamblers. They are following tips and hunches, investing large amounts on expected turnarounds, anticipating mergers, betting on start-ups, and so on. But consider the business of gambling – not the gambler, but the casino. The casino establishes a game where the casino holds a statistical edge; depending on the game, that edge may be rather small, of the order of 1-2%. The casino owner knows that he may have a big winner today at one of the blackjack tables, but that doesn’t concern him because he knows he has an edge. When averaged over all of the different players and games, and over the long term, the casino will come out ahead.

When you work hard to develop the knowledge of the market you are trading, develop a trading system, have a written plan for every trade, follow your plan with great discipline, and learn from your mistakes, you have positioned yourself as the casino owner, not one of the customers.

What is Scalping in Forex Trading?

There are two basic styles of Forex Trading. Short term and long term. Essentially, short term trading is done on an intraday basis, where positions are opened and closed within the same day. Long term trading is done on a multiple day basis, where one position can last weeks or months, maybe longer. Within each of those, there are different time frames. For example, very short term traders might be looking at 1 minute charts, and entering and exiting trades minute by minute. Typically closing out trades within a few minutes of their open. It is not very likely that these people will gain more than a few pips per trade for their efforts. But they make up for it by making as many trades as possible during any given day. This is known as Scalping in Forex Trading.Day traders are short term traders. They get in and out of trades, making just a few pips per trade. But to be very profitable, they need to use extremely high leverage and/or make a ton of trades every day.

Most scalping in Forex trading is done based on range trading. A ranging market means there is no significant price volatility. In any given period of time, the price will fluctuate 10 to 20 pips, maybe more, between two price levels for the day. If you watch a chart for 20 minutes, you will see that it will normally move up and down. This is where scalping comes in. A Scalper will try and make at least 2 to 5 pips per trade.

The best time for scalping is when the market is consolidating and ranging. This typically occurs between big market gaps, such as after the close of the US market and before the open of the European markets. During these times, Forex markets tend to range for hours without much movement.

Personally, I don’t like scalping in Forex trading. It consumes a huge amount of time to make decent profits, and it costs more to trade. While brokers don’t “technically” have trading fees, they do get paid on something called the spread. So if a broker is giving me a price on a pair with a 3 point spread, then the trade needs to move in my direction at least 3 pips simply for me to brake even. If I want to profit, I need to make more than that 3 pips. Some pairs (especially during fast moving markets) have spreads as high as 20 pips, or more.

In order to be successful while scalping in Forex trading, you need a thorough understanding of technical analysis, and the time to apply it. You should have an idea of how to determine over or under bought pairs, support and resistance levels, trend lines, channels, and other indicators before entering into a trade.

Source: Forex Mastery

Four Overlooked Qualities of Successful Traders

One of the things I most enjoy about working with traders in various settings–prop firms, hedge funds, and investment banks–is the opportunity to see how successful traders actually succeed. I’m constantly amazed at the variety of strategies and skills that can be joined to create profitable approaches to trading and investing.During this most recent road trip, four characteristics of successful traders–ones that are commonly overlooked–have jumped out at me, and I thought I’d pass along:

1) The Constant Desire to Improve – I met with a group of traders who have been successful over a period of many years. Nevertheless, they were participating in day-long meetings, including a seminar with me, to build on their success for the coming year. It was very clear that they are continually searching for new opportunities and strategies. They also value continuing education, keeping up to date with what’s happening in their areas. They track their performance and, individually as well as a group, are setting very specific goals for improvement.

2) The Ability to Press Their Advantage – The really good traders are aggressive; no doubt about it. When they’re seeing the market well and have good ideas, they aren’t shy about using their size and pressing their advantage. Lesser traders are very quick to take profits and are risk averse re: losing those profits. The very successful traders keep their risk management, but don’t hesitate to become more aggressive when they see opportunity. They remind me of boxers who, seeing opponents hurt, will go for the kill. The less successful traders seem to lack that killer instinct.

3) Emotional Resilience – The very successful traders have a great attitude about losing. They know it’s going to happen. They don’t take it personally. If anything, they try to find learning experiences from losses. Elsewhere I have written about how good traders view a losing trade as “paying for information”. A trade with an edge that doesn’t go their way either tells them something important about the market, or it tells them something about their execution. Either way, it’s a potential learning experience. Resilience means that the excellent traders trade well out of a hole. They can be down money for day, week, or quarter and continue to make the same good trades they would normally make.

4) Creativity – We normally think of creativity as a trait that belongs to artists, but it also is quite noticeable among traders who have been successful over many years. They find edges in the most unlikely places. They look at interesting relationships within the market they’re trading, and they find unique relationships from one market to another. One trader very recently told me of a strategy that exploited the way one market was priced related to a similar market at certain time periods. I would have never thought of that idea in a million years. He was making consistent money from the concept.

As I write about these four qualities, I’m struck by how they also can be found among very successful athletes, entrepreneurs, and performing artists. When you’re a career trader, you truly are an entrepreneur, running your own business. Many of the same enterprising qualities we find in the business world are present in spades among excellent traders.

Posted by Brett Steenbarger

Stock Market Trading Plan

A trading plan will not guarantee your success in the markets, but a good plan will enable you to work methodically toward your trading goals while reviewing on a regular basis what is working and what is not. It will act as a roadmap for your trading journey. It will enable you to respond positively and constructively no matter what happens with your individual trades. And, most importantly, it will help you control the only thing a trader can control: his or her own actions.Finally, trading is a business. It can be a fascinating and sometimes thrilling business, but in the end it is a business. A trading plan helps you treat it as a business.

Successful trading begins with a winning trading plan. It’s as simple as that. If you develop a well-conceived trading plan to guide your actions in the market you will already have the advantage over most of your market competition. Put simply, it gives you the edge you need to win over the long haul.

Here are some important elements of a trading plan.

1. Why am I trading? What are my goals?

The answers to these questions might seem obvious, but they usually are not. Take some time to ask them of yourself, and seriously consider the answers. You may be surprised by what you learn. And whatever the answers, you will have a clearer picture going forward of what this enterprise means to you, and that will help you survive any rough patches.

2. What markets am I going to trade and why?

It is often best to specialize, especially for beginning stock market traders. Many pros make a great living trading the same stock day every single day for years. Choose a market that is appropriate for your experience level and trading style. Consider other factors such as available margin, volatility and liquidity.

3. What is the concept or philosophy behind your trading methodology?

Your trading system must have a concept behind it. Whether you are a value investor like Warren Buffet or a trend trader like George Soros, you should understand why you are doing what you are doing, how your beliefs about the markets define what you will do as a trader.

4. What will be your specific method?

In other words, specifically how will you execute your trading ideas? Will you buy breakouts or pullbacks? Buy oversold or sell overbought? Or will you use specific technical setups such as moving-average crossovers or another indicator-based strategy? Under exactly what conditions will you enter? When will you know to exit?

5. How much money will you risk on any single trade? On trading in general?

This is critical. Of course, start small. But just as importantly, have a plan in place for how much you will risk, emotions don’t cloud your judgment when the time comes. The key is to find an allocation that doesn’t cause any stress but still makes the trade worthwhile financially. One of the biggest problems with newer traders is that they are trading way too big in relation to their account size. Like when you are forex trading. Trading forex at 50-1 leverage. Yes, you can do it, but that doesn’t make it a good idea.

6. What will my trading rules be?

This is also critical. Your trading rules include entry and exit rules, rules governing maximum daily, weekly or monthly losses, maximum risk on any given trade, the maximum number of trades per week, etc., etc. These rules enforce discipline and keep you out of trouble. What price will enter at, what price will I will exit. Be discplined.

7. How will I record and evaluate my trading performance?

Allow me to repeat myself: This is critical. In fact, this might be the most important element of trading for new traders in the stock market. A new trader who evaluates his trades, winners and losers, in an effort to learn what works and what does not, will make quantum leaps forward in terms of ability and profitability. If you have a working trading plan and evaluate every single one of your trades after you have closed it you have already beaten 95% of the competition.

8. What are my rules for managing profits?

What’s the problem with profits? Well, believe it or not there is one, and it’s a serious one. It’s called euphoria, and it clouds the judgment perhaps more than any other emotion related to trading. Start piling up the profits for the first time and it won’t be long before you are convinced you are king of the world. About 30 seconds later you’ll be broke, following a series of unwise and exceedingly risky trades. So have a plan for protecting closed profits when you have reached your goals for the week or the month. Don’t give them all back.

9. How will I reward myself for following my trading plan?

Don’t leave this out. Following your trading plan will bring rewards in the form of profits, but you should also consciously reward yourself for doing so because it is such an important part of successful trading. So if you finish the week or the month (or even the day) without having broken any of your trading rules, find a way to reward yourself. You deserve it. You are in rare company.

If you follow your plan you are improving your chances of becoming sucessful stock market or forex trader.

Source:singapore trader report

Does The Perfect Forex Trading System Actually Exist?

By: James Woolley 

It’s a well-known fact that many forex traders spend much of their lives seeking out the perfect forex trading system. With so much money to be made, particularly if you make full use of leverage, it’s hardly surprising, but does this perfect system actually exist?

Forex forums are full of newbies asking about the best trading systems and how they can start earning lots of money from forex, but they’re usually brought back down to earth by the other more experienced forum members. This is because there is no such thing as the perfect forex trading system unfortunately. 

On these same forums you will often read about the latest and greatest forex systems but almost all of these systems eventually end up failing, despite initially looking profitable. It’s the same story with many of the commercial systems available online. They all have very impressive track records and look like very impressive systems on their sales page, but when you come to buy them, you quickly discover that they aren’t anywhere near as profitable as they claim to be. This is hardly surprising of course because if these systems were so profitable then they wouldn’t want to sell them to the general public.

The simple fact is that there is no perfect system. There are lots of systems that are capable of making a profit in the long-run, but even the very best systems will go through low periods and incur some losses in the short-term.

The key to being successful is to develop a system where the odds are in your favour for every single trade you make. This can be achieved by combining certain technical indicators so that you only enter positions where all your chosen indicators point in the same direction, so you can be confident in entering a long or short position.

You don’t necessarily need to trade a system with a high success ratio either. You can make decent money from forex trading just by developing a system with a 30 or 40% win ratio, for instance, if you have a solid stop loss policy and let your winning positions run.

It basically comes down to probabilities. If you have probability on your side for every trade you make then there’s no reason why you shouldn’t make money from forex trading. You don’t need to constantly be on the lookout for the latest and greatest trading system. It’s very often the simple tried and tested systems that are the most profitable in the long run.

Forex Tips – How to Avoid Scams When Choosing Forex Trading Systems

If you surf the internet, you will come across plenty of sales page selling various forex products, with lots of hype. I know there are many forex trading systems out there in the market and every product seems to claim that they can make big money in a short period of time, without too much capital, it is very easy to use and anyone can do it without any knowledge in trading.

But after people bought the products, then they realize its all marketing gimmicks and then the search for better forex trading systems begins again. So to help you guys, I have some forex tips that can help you avoid scams in your search for the best forex system.

1. Look Out For The Forex Trading Track Records

Although this seems common sense, but there will still be forex traders buying a forex trading system without looking for the track records first. If that is so, then there is no wonder why they lose. Please don’t be attracted by the claims like: ‘near 100% success rate’, ‘earn your first million in 2 years trading forex’, ‘forex training that can give you financial freedom ever’ and many more.

Look for the real time proof of the forex trading system because vendors will try to cheat by using a track record on a hindsight (they already know the closing prices), so look for a trading statement that they are trading daily.

2. Look Out For The Largest Drawdowns

 Any forex strategy will have a drawdown and it’s a matter of whether it is small or huge. This means that your trading account will experience a drop in value or margin which is in floating losses but yet the trade is still opened. Although the losses are not realized, but we should be looking for a forex trading system that gives you as little drawdowns as possible, a guide will be around 5% – 8%.

Depending on the system’s trading strategy, the drawdowns may be days, weeks or even months, so you will have to make sure that you are comfortable with those down swings.

3. Are You Comfortable With The Trading Timeframe?

This is a very important factor to look out for in a trading system. If you are working all day with very little time to trade the forex market and you purchased a trading system which requires you to monitor several times a day, then you are simply wasting you money.

What’s the point of having a good system but yet you have no time to trade and make profits? So if that’s the case, you might want to look for some systems that will allow you to trade but only have to monitor maybe once per day…and this type are mostly swing trading strategies. So be anxious to find out timeframe is the forex trading system operating on first.

Develop A Forex Trading Strategy To Become A Master Trader

By: Bart Icles

If you are interested in becoming an amazing trader in the forex market, you definitely need a powerful forex trading strategy to guide you in your trades. Those individuals who are expert forex traders have learned this early and are now the elite that make a lot of money. There are four simple steps that you can take to develop your forex trading strategy. Follow them and immediately see success in the forex market.

First, you must realize that your success falls only on you. You need to accept responsibility for your own success and each trade. Only you can make yourself successful! This means that you have to take the necessary steps to develop your own trading strategy. The good news for you is that everything you need to know about forex can be found online for free, or very cheap. 

Second, you need to focus on learn how to find the right information and increase your knowledge the right way. To be successful in the forex market, you need to learn the right things. This is important because many traders think that knowing more is better. This is simply not true!

You see, in the forex market, you get rewarded heavily for your results and the accuracy for your trades, not the effort you make in your trades. You should also make sure that the forex trading system that you chose to use integrate into your trading strategy is simple and easy to use. Simple systems are much easier to use for a long period of time and work much better than the complicated ones. This will give you confidence and an advantage over those who choose to use complicated systems.

Third, you need to decide right now if you feel comfortable taking a risk and if you have good money management skills. If you don’t like taking risks, you probably shouldn’t trade forex. Most traders don’t realize how big the actual risk is so they enter the market and lose a lot of money and get out quick. Then there are those who are so frightened by risk, that they end up being too conservative in their trades and lose a lot of money. If you want to make a ton of money in the forex money, you need to take risks that are calculated, I mean risk at the right times.

Last, you need to be realistic in your expectations. Sure, some people get into the forex market and get rich super fast. However, this isn’t the norm for most traders. If you take your time easing into the market and immediately begin developing a forex trading strategy that is strong and sustainable, you will find success.

Trading with moving averages

by Valeria Bednarik

As many of you already know, Forex is the most amazing and popular electronic financial market: it moves 1.5 trillion dollars a day, what NY Stocks market moves in a year. A 24 hours a day, 7 days a week market, with high volatility and liquidity, and with a plus advantage: leverage. A market where you can choose to go bull or bear with no cost: no extra premiums to pay, no additional options. It seems pretty much convenient, right?

Well, let me tell you the disadvantages before I continue: high volatility, liquidity, leverage. Yes, just the same: advantages are disadvantages too. All these things can play against you as well as in your favor, with an extra: Brokers. Most retail traders must use a broker, who will be the counterpart in all transactions as there is no way to directly deal in the interbank market. And, as brokers are market makers, they can widen spread, or even refuse to trade during particular moments or conditions.

So, why are we here? What makes Forex so attractive, so popular? Where is the DIFFERENCE? A non written rule says only 10 % of Forex traders are successful, against the 90 % who blow their accounts.

I remember, when I completed my technical course, my Master telling me: now you’re ready, you have all the tools you need, the tools most traders don’t have: you have technical knowledge, psychological training, and effective money management rules you can and now should apply. It took me pretty much a year to understand his words, but there is the difference: believe it or not, the “90 % losers” trade without using technical analysis, without a working plan, without nothing but the ambition to become rich in the short term. Most Forex traders trade by impulse following a hunch more than a trend. Using guts instead of indicators or oscillators.

Over the years I have been here, I’ve also discovered another difference: most traders spend their time looking for The System, the unique, the perfect one, of course one developed by someone else, instead of even trying to study two or three simple indicators; of course as soon as a system gives a bad entry, they discard it, and jump into another: the cycles repeats, and there goes their money.

One last word before diving in technical: remember here there is another important difference with other financial markets: time. For Forex traders, short term refers from minutes to a few hours. Traders can work and profit with 4 hours, 1 hour or even 30 minutes charts.

A simple and effective way to start with technical Forex trading is using Moving Averages: a Moving Average (MA) is a trend direction indicator that calculates a simple arithmetic average of prices for a particular period, showing the average value of the price of a currency over a set of values. There are different types of MA: we use SMA for simple moving averages and EMA for exponential ones. There are others kinds of MA (smoothed, linear weighted, etc) but we will limit this short study to the firsts ones, as they are the most used.

The SMA calculates the average of the price by dividing the sum of all the prices of the specified period by the quantity of prices.

If

x = close Price for each session

X = the number of sessions

The formula would be

SMA = Sum of “x” periods / X

Where x represent a certain number (it could be almost any number from 2 to 500 depending of how many historical information your charts include); besides, many charts allow to select a set to apply to the calculation: open, close, high, low, median or typical price.

The EMA smoothes the MA by adding the previous value to the current closing price and by giving the last prices more weighted value. This type of MA reacts faster to recent price changes than SMA.

Different ways to trade with MA

There are many different methods and settings of Moving Averages a trader can use; let’s see two basic methods, with some of the common settings, useful for intraday trading Remember that MA’s work better in trend markets and are not reliable in sideways ones.

A basic trading system is to use a MOVING AVERAGE BREAKOUT. You have to start by drawing a MA in any chart. Let’s see an example in a 1 hour chart of EUR/USD. I used a SMA of 20 periods (blue). When the price crosses the Moving Average down-up and there’s a new candle opening above the Moving Average indicator, we buy; and when the price crosses the Moving Average up-down and there’s a new candle opening below the Moving Average indicator, we sell. Your exit signal will be the price crossing the MA in the other way.

But this is not as simple as it seems and not reliable enough: a Moving Average Breakout has to be combined with an indicator to act as filter. The filter reinforces the signal and increases the probabilities of a good trade. The best choices in this case will be Momentum or Stochastic Oscillator. Any of these two arithmetical oscillators will act as a confirmation of the trade.

Another and of course better way to trade MA is to use MOVING AVERAGES CROSSES. With this system, you can work with at least two MA, although some traders prefer to use three. The first one will be set with a small period (Fast Moving Average), the second one will be set with an intermediate number of periods and the third with the biggest number of all (Slow Moving Average). Let’s see an example using SMA of 4, 9 and 18 periods in a 4 hours USD/JPY chart:

The light green is a 4 periods MA, the medium, 9 periods, and the dark green is for 18 periods. See how, when 4 MA crosses 9 MA and then, both of them cross 18 MA. You have there a good trigger. The 4 periods line crossing the 9 one is the first advice you have; this signal gets its confirmation when both, 4 and 9, cross 18. Your exit will take place when the slow MA turns back crossing 9 in the other way. This is a quite reliable and simple system when market moves in trend; besides there are lots of combinations that can be used, using MA or EMA. As an example, a good combination with EMA is 5, 13 and 34. And, as in the first case, this system would become even better if you combine it with any oscillator to act as filter.

Anyway, the question here is not only the MA or EMA system selected; this will also depend on the time frame you choose to work with: a signal in a 30 minutes chart will not be as strong as one in a 4 hours chart. Also, the “life” of a trade will depend on two main factors. The first is the continuity of the signal: as long as the conditions that gave the entry signal remains the same, the trade is valid; as soon as any of these conditions disappears, you are getting the signal to close your trade. Second, we generally consider that any signal is valid for the next four candles; so if you are trading using a 30 minutes chart, your signal will be valid for the next two hours. After that time, we consider the trade should be completed; if not, then, again, you must close your position, as soon as any of the conditions that trigger the entry signal change bias.

As one of the main characteristics of the Forex market is volatility, traders are forced to use a tool that many dislike, but that is much more useful than you can imagine: stop losses orders. I understand it is really hard to assume a loss; I don’t understand why many people risk all their capital in a single trade, when Forex gives a lot of opportunities every day. This is a certainty; you will lose money in Forex. But as long as you trade using the right tools, losses are just another step in the way. Understanding the delicate balance of risk management is the secret of success here. Get rid of your pride, find a simple system you like and follow these rules; you will probably close more profitable trades than you can imagine.

Three Lessons From Professional Forex Traders

Almost 90% of the part time traders that I know of want to become full time forex traders in the near future. And they hope to be professional traders one day. That is the dream for most forex traders. What about you?In order to survive in the forex trading world and make lots of money from the forex market consistently, being a normal forex trader is not good enough – you’ll need to become a professional forex trader. So just what are the secrets that professional forex traders have that enable them to make lots of money trading forex? I once had a conversation with a friend of mine, who is a professional trader. He shared with me the 3 secrets that make professional traders like him very rich:

Secret #1 – Professional traders are not geniuses- they simply follow a simple forex trading system

You see it correctly, they are not any smarter than you nor do they possess of any god-like foresight in forex trading. I dare to say this because I know some professional forex traders who seem to know nothing in this world and clumsy in doing other stuffs but can do extremely well in forex trading. Why is that so?

It’s simply because they have a successful forex trading system which gives them good forex trading signals. It helps them trade consistently. What they have to do is to repeat the consistency just by following the trading system. That’s about all. And let me tell you a little more secret, professional traders use simple forex trading systems instead complicated, as what most people thought.

Secret #2 – Learn to work smart, not hard

Do you think that you should learn how to trade forex the hard way and gain all the knowledge before you can be successful? Do you think you can master the forex market if you combine all the strategies taught by every forex trading experts? If your answer is yes, you are wrong. In other businesses, you may get rewarded for all the efforts and time you have put into.

But in forex trading, it’s the right forex trading tutorials and education that count and you are rewarded for being accurate and not so much for the effort you put in. You will be surprised to know that successful traders only follow a winning trading system blindly to build up their trading capital.

Secret #3 – They possess determination, discipline, money management and mindset for success

My professional forex trader friend once told me that he would leave everything aside just to concentrate on his forex trading. It’s his determination to succeed that made him overcome small losses and steep learning curves that he experienced in the beginning. He told me the problem with most traders is that they are too eager to trade and make money fast from the forex market.

You need to have discipline to follow the rules of your forex trading system. Huge capital gains in forex are piled up over years and not days, there is no shortcut to riches. He manages his money so well that even 2 or 3 losses in a row will not affect his trading capital much. 1% or even 0.5% of his capital margin per trade is what he is only willing to risk.

Not everyone can be a professional trader in a short period of time as you need huge capital, but anyone can become successful in forex trading if you learn how to trade forex the professional way.

Forex Trading Secrets Exposed – 3 Lessons From Professional Forex Traders on Forex Trading

Almost 90% of the part time traders that I know of want to become full time forex traders in the near future. And they hope to be professional traders one day. That is the dream for most forex traders. What about you?

In order to survive in the forex trading world and make lots of money from the forex market consistently, being a normal forex trader is not good enough – you’ll need to become a professional forex trader. So just what are the secrets that professional forex traders have that enable them to make lots of money trading forex? I once had a conversation with a friend of mine, who is a professional trader. He shared with me the 3 secrets that make professional traders like him very rich:

Secret #1 – Professional traders are not geniuses – they simply follow a simple forex trading system

You see it correctly, they are not any smarter than you nor do they possess of any god-like foresight in forex trading. I dare to say this because I know some professional forex traders who seem to know nothing in this world and clumsy in doing other stuffs but can do extremely well in forex trading. Why is that so?

It’s simply because they have a successful forex trading system which gives them good forex trading signals. It helps them trade consistently. What they have to do is to repeat the consistency just by following the trading system. That’s about all. And let me tell you a little more secret, professional traders use simple forex trading systems instead complicated, as what most people thought.

Secret #2 – Learn to work smart, not hard

Do you think that you should learn how to trade forex the hard way and gain all the knowledge before you can be successful? Do you think you can master the forex market if you combine all the strategies taught by every forex trading experts? If your answer is yes, you are wrong. In other businesses, you may get rewarded for all the efforts and time you have put into.

But in forex trading, it’s the right forex trading tutorials and education that count and you are rewarded for being accurate and not so much for the effort you put in. You will be surprised to know that successful traders only follow a winning trading system blindly to build up their trading capital.

Secret #3 – They possess determination, discipline, money management and mindset for success

My professional forex trader friend once told me that he would leave everything aside just to concentrate on his forex trading. It’s his determination to succeed that made him overcome small losses and steep learning curves that he experienced in the beginning. He told me the problem with most traders is that they are too eager to trade and make money fast from the forex market.

You need to have discipline to follow the rules of your forex trading system. Huge capital gains in forex are piled up over years and not days, there is no shortcut to riches. He manages his money so well that even 2 or 3 losses in a row will not affect his trading capital much. 1% or even 0.5% of his capital margin per trade is what he is only willing to risk.

Not everyone can be a professional trader in a short period of time as you need huge capital, but anyone can become successful in forex trading if you learn how to trade forex the professional way.

Forex Trading – No Time to Think

Let’s look at some traits of unsuccessful traders, do you fall into this group? What are you doing about it?

1. They are always putting off getting a forex broker then when they do they jump in and make a bad choice. So if you are looking for a great Forex Broker, we believe Tricom to be the Best Forex Broker in the market.

2. They fail to get any education or will not do any research they end up just betting 50/50 so they are gambling. They will not last very long. The Forex Market is not a gambling house and as you know those that gamble will eventually lose. Here is a great Forex Course for only $295

3. They spend the majority of time telling people how Forex Trading is scam, instead of doing research and educating themselves. Do you know or have you heard traders talking like this?

4. They have the wrong psychology and emotionally state to be Forex Trader, they get so excited by a win and if they have a bad trade they want to get revenge on the market or they blame somebody else.

Has anything above sounded like the mindset of successful trader to you? No of course it isn’t, honestly do you have any of the above mindsets? If you think like the above do yourself a favor and get out now, you will save yourself a lot of money.

The great Forex traders never stop learning and are always hunger to learn to move.