Interest rates can have a major effect on how certain currency pairs are traded. For some traders looking at a long term trade, the practice of collecting rollover comes into effect.
Rollover is when interest is figured out between the currency pairs each day and paid to you or from you. Different currencies have different interest rates, and collecting the spread between the currencies interest rates is where the Forex carry trade comes in.
Carry trades are trades that are done with specific currency pairs with the thought of earning interest in mind. Whenever two currencies are being traded, a fee occurs that has to be paid. Basically that fee exists because there is a difference in interest rates between the two currencies, and that difference has to be addressed in order to balance the difference out in the Forex transaction.
If the trader is buying a currency with the higher interest rate, then they can earn credit, which sometimes can be as much as 20% of the total profit of a transaction. This is a carry trade: a longer term trade going at least one full day but typically longer, which results in interest being accrued.
Here's how the interest due is figured. Let's use the U.S. Dollar-Japanese Yen (USD/JPY) pair as an example. Suppose the interest rate in the United States is 5.5%, while the interest rate in Japan is only .5%. Since the currency pair is USD/JPY, subtract 5.5 - .5 = 5%. Since there is 5% left over, that amount needs to be credited to the trader that is long the USD/JPY pair. That's the additional bonus that comes with a successful carry trade.
The basic reasoning behind this is that when you are trading this currency pair, you are "borrowing" the Yen at .5% to purchase US Dollars, which are paying 5.5%, so 5% becomes the left over difference. The interest is figured daily, and while holding this position, you will earn interest from the daily rollover.
Certain Forex currency pairs have a tendency to catch a long term upswing when interest rates change, in part because a large number of traders will specifically look for the opportunity to take advantage of these pairs and the interest positive rates that they offer. This can be a very beneficial long term trade strategy.
If you're considering a long term position with a currency pair, the interest rate may be a major consideration since up to a quarter of your profits from a long term Forex carry trade may come from the positive interest being credited to your account. Not a bad way to go, making profit from the interest of leveraged money.
Forex trading robots are more popular than ever and with the power of software programs back testing data has never been easier and there are many systems to choose from but how do you find a good one - lets find out...
While there are many forex robots to choose from, 99% of them are junk and won't make you any money. Why?
Because they simply have never been traded and normally come with the disclaimer below - most forex traders don't read it, if you do, you will see why the vast majority fail in real time trading - here it is:
"CFTC RULE 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown".
So the seller of a forex trading robot can present any track record they like which they can simply make up! The problem of course is that as the system has never been traded, you have no idea if it will be profitable or not and the track record is worthless.
Traders should realize this by asking themselves this simple question:
If the forex trading robot is so good, why doesn't the vendor trade it for real and if it does make such big gains, why is he bothering me for a few hundred bucks?
Well now you know the answer.
The vendor doesn't real care if the forex trading system makes money or not - they are not relying on its profitability in the market, just the fact that they can make some system sales.
There are a few trading systems which come with real time track records - but even here you have to be careful, that you understand how and why the system makes profits, as you are going to have to be able to follow it through losing periods with discipline.
Forex trading can make you big profits but be careful of the forex trading robots!
Make sure it has a real time track record and that you know how it works and have the confidence to follow it, with discipline to achieve long term forex success.
Foreign exchange is one of the most profitable marketplaces to invest in as it deals with trillions of dollars everyday. Though many people are of the opinion that earning money in foreign exchange market is a child’s play, it is not! It actually depends on your knowledge about the ins and outs of the market along with your observation regarding the changing trends that decide your success in foreign exchange transactions. It is important to keep in mind the specificity of market when dealing with foreign exchange. Central banks, large banks, multinational corporations, currency speculators, financial markets, governments, corporation and other such institutions are all involved in foreign exchange trade.
Retail traders make a small fraction of the foreign exchange market and participate indirectly with the help of banks or brokers. The average trade in the global foreign exchange market made daily is more than US$ 3 trillion. No commission is charged as such according to a particular transaction; conversely the profit is earned because of the speculation that occurs due to the difference in amount among the two varied currencies. This difference of prices among the two currencies is known as spread. The rates of all these currencies are inconstant and their prices keep on varying depending upon several factors like currency rate differentials, economic events, political events, terrorism acts, and weather conditions of different countries.
Initiating and making transactions in foreign exchange market is quite an easy task, provided you know the repercussions of the transactions you are making. There is mainly a single currency pair to quote the currencies such as EUR/USD. While the first currency is the base currency, the other currency is called as the counter currency. It would prove to be beneficial to purchase this pair of currency when you know that the prices for euros (base currency) are anticipated to soar higher than those of the US dollars (counter currency). Buying and selling are the two sides that every transaction has. In other words, it is unfeasible to make the purchase transaction of a currency pair like EUR/USD and further exchange it with another pair of currency say EUR/JPY without closing the first transaction.
Introduction of the Internet has been a great comfort in making foreign exchange dealings at the comfort of your home. However, it is better to make sure that the site where you are making for foreign exchange transactions is accredited so as to ensure the safety of the money being transferred and invested.
There is also a lot of information on the websites that you can go through to make sure that you are proceedings the right way and what are the precautions and essential points to get started in foreign exchange dealing. It is also better to have some knowledge about the timings of foreign exchange along with holidays. Learning from others helps a lot. In fact, in the present scenario, there are many courses that have been introduced that teach the basics of foreign exchange market and how to make transactions to make maximum profit possible.
Forex trends occur all the time and a glance at any forex chart will show you them but making money from them is far harder, as you have to employ correct market timing and risk control. Here we are going to show you how to forex trend follow the right way for big gains.
What time Period?
Here we are going to look at the big trends and these typically last for months and some last for years, as they reflect the health of the underlying economy.
Lets look at how to enter existing trends and execute trading signals correctly.
Bu far the best way of doing this is to but or sell breakouts, to new highs or lows and dips to value areas.
Buy New Highs!
Most major trends start from new market highs not market lows.
When a price breaks out you go with it. It may not appear that you are getting the best entry point however you are trading with the odds in your favour and valid breakouts tend to give big price moves.
Many traders make the mistake of not doing this and waiting for a "better price" to occur on a dip - but breakouts tend to accelerate away, never dip back and the entry and big profit is missed.
The more times the resistance has been tested and the wider these tests are the more valid it tends to be and 3 tests is a minimum.
Buying Value Areas
If a breakout does not occur, you can wait for a dip to occur and in longer term trends you always have them, as prices become over bought or oversold and then come back to longer term value.
Here you can use a simple moving average supported by momentum to confirm the move.
In currency trading we love dips to the 20 and 40 day moving average to initiate new positions. You simply wait for the dip and use momentum indicators to show that momentum is turning in the direction of your view - then enter.
NEVER try and predict in advance - act on the reality of the change in momentum and you will have the odds in your favour. Try and predict and you are really just hoping and guessing and will lose.
Forex Trend following involves patience and making sure that you are getting in at the best price in terms of the risk reward.
The above two tips will help you do this.
Many traders like to catch or predict where highs and lows will be and be perfect - but you cant do this so don't try. If you could catch just 50% of all major trends you would be very rich and this is the aim of forex trend following.
Look at a chart and practice using breakouts and buying to 20 and 40 day MA and you will surprised at how effective and profitable these simple tools are; in turning forex trends into big profits.
Consider this - everything about forex trading can be learned yet, 95% of traders lose money so if this is so what is the obstacle to success? This is the subject of this article.
The obstacle to success in forex trading is you! This might sound odd but it's not, because while the information about how to successfully trade is available applying it requires mental discipline and most traders are unprepared for this. Further explanation will make this clearer.
You can learn a method in just a few days. We would suggest a simple one based upon breakout methodology and we have covered this in our other articles, so simply look them up.
One point top make clear is - simple methods work far better than complicated ones, as they are more robust with fewer elements to break.
Do not be duped by people trying to sell you complicated methods or "sure fire" / "holy grail" trading robots - build your own.
Now you need to think about this equation:
Simple Robust Method + Disciplined Application = Forex Trading Success
If you don't have the discipline to apply your method you don't have one! Now trading discipline is achievable but it's not easy to be disciplined, so you need to make sure that you note the following points.
You Need to Know How and Why Your System Works
If you don't, you will never have the confidence in your system to follow it with discipline.
Without confidence you wont have discipline, its as simple as that.
This may sound obvious but to many traders think they can blindly follow someone else and win and of course as soon as a few losses occur (and they will) they throw in the towel.
Even if you follow someone else, you must know how and why the system will win and have confidence to follow it with discipline.
You also need to keep in mind you are going to look stupid at times as the market wrong foots you - but if you are disciplined take your losses and run your profits, you will be trading the odds and win over time.
The fact is 95% of traders lose and as we said at the start of this essay, they don't fail because they cant learn - in most instances they fail because they learn the wrong knowledge or don't have the discipline to apply it.
Learning the right knowledge is easy, having the discipline to apply knowledge is much harder.
You have to create your own set of rules and apply them for long term forex success - if you can do this you can be a winner.
Here we will give you three simple steps to making money with forex charts. Anyone can learn forex charting and it represents a time efficient and profitable way of trading.
Here we are going to look at charting the longer term trends that yield the big profits and these trends can last for week's months or years and can be very profitable.
Avoid trading low odds trades in short time frames and day trading ( the most popular method for novices) is compete waste of time, as you can never get the odds in your favour.
Be patient and wait for the high odds trades and they can't be forced and don't come around everyday.
Right, let's look at forex charting for beginners and how to pile up some big profits quickly, with a simple robust system.
Step 1
Getting a Robust Forex Trading System
The first think you need to do is construct a simple trading system and it only needs to be a few indicators, combined with support and resistance.
Simple systems work best. There more robust than complicated ones and have fewer elements to break in the brutal, hard world, of real trading.
Start with a breakout system. This is buying new market highs - it's a fact that most major forex moves start from new market highs NOT market lows.
A breakout should be past at least 2 x tests of resistance and the more the better and wider they are apart the better too.
Most traders hate breakout trading that's why its so effective - they want to wait for the pullback - but they wait in vain as the price accelerates away and their not in.
Step 2
Confirming the Trade
Once you have a breakout you need to confirm that price velocity and momentum is going to carry prices forward and here you need to learn about leading momentum indicators.
We have covered these fully in our other articles and they will help you put the odds on your side.
Step 3
Money Management
With breakout trading money management is simple - your stop goes just below the breakout point and as the trend unfolds you need to lock in profit but be careful!
Most traders make the mistake of locking in profit to quickly and your forex trading strategy must give the market room to breathe. Don't aim for perfection or trying to second guess the market; act on the reality of price change and trail your stop way behind normal market volatility.
You must learn to do the above and be disciplined or you will never make any real money.
Putting it all Together
The above sounds simple and it is. In fact, anyone can learn to trade forex the hard part is applying your method with discipline. You need to take losses and calculated profits when your charts tell you and ride the trends with discipline.
The method above works and will continue to work as it's based on sound logic and your challenge to acquire the discipline to apply it to make big forex profits.
Many traders don't understand how and why forex technical analysis works and base there trading systems on wrong assumptions and lose. Here we will show the advantages of forex charts and how you can make big profits from them.
1. The Equation for Market Movement
The equation is simple
Market Fundamentals + Human perception of = Price.
Its humans that decide the price of anything and that includes currency prices.
As human nature is constant this is reflected in chart patterns which repeat and repeat again. The fundamental news is not important by itself, its how it is perceived that determines the course of events.
Forex technical analysis simply assumes all the fundamentals will quickly show up in price action and more importantly, the forex charts will tell you how all the traders have perceived them.
You are viewing the truth on a forex chart no guessing or predicting is needed, you are seeing the reality of the market price.
2. Forex Trend Following
Forex prices move in trends up or down and as the currency markets reflect the health of the economy they represent, these trends can last for weeks, months or even years.
A forex chartist doesn't care how or why prices are moving, they simply want to lock into these trends and make money from them.
3. A Game of Odds Not Certainties
Many people think prices move to some mysterious scientific theory - but they don't and there is no way of predicting where prices will go. If of course there were a scientific theory of forex market movement, we would all know the price in advance and there would be no market!
When you trade forex you are simply trading the odds - but don't let that put you off, you can make a lot of money. You're like a good poker player who passes hands by, folds losing ones and hits the big paying high odds hands.
Your trade is your hand and you should be patient, to wait for the right opportunities and not be afraid to fold or pass a trade by, until you get the right opportunity.
4. Best Time Frames
The best time frames are the big trends which last for weeks and months and the overbought / oversold areas within the trend which, last for few days to a week.
Never day trade! This is huge mistake made by many traders. All short term volatility is random and you will never win so don't try it.
You can however swing trade or long term trend follow, it's a matter of choice which method you choose - both work.
5. Choosing Your Indicators
Start by using support and resistance lines and learn a breakout methodology, its timeless and it works and is covered in our other articles. Then, just add a few indicators to help you confirm your trades and your all set.
Forex technical analysis can make you a lot of money if used correctly and this means
- Acting on the reality of price change not predicting
- Using simple robust rule based system
- Being patent and only trading high odds trades
- Controlling losses with rigid money management.
When using forex technical analysis, you have a time efficient way to seek huge profits from the markets and if you can get yourself a simple rule based system which trades the reality of price change and locks into and holds trends, you can make outstanding gains.
Unstoppable growing numbers of daily volume transaction added with availability of mini account have made Foreign Exchange trading become one of primary choose to materialize unlimited income.
What is mini account? In case you never heard about it, in essence, through mini account you can start trading currency with small capital as low as $300. This mini account has become standard in currency trading industry. So, no matter which broker you use, they would likely have mini account to offer to their customers as one avenue of trading vehicle.
The Gold-digger of New Century
Remember long times ago when Gold Rush infected entire United States nation? People from all ages and cultures went many thousands miles looked for gold. Spent whole days and nights dug from one river to one river, from one mountain to one mountain.
After decades, it seems once again Gold Rush comes again. But this time it is not just infected United States but a whole world.
The invention of World Wide Web has brought so many opportunities. Unlike 50 years ago, now people can do trading from the comfort of their bedroom. With just a few clicks you can make hundreds of thousands of dollars per year to spend in any way you like, now compare that with 10 hours per day tiresome MBA job.
With unemployment rate as high as now, you will get lucky if your MBA job even pay $50,000 per year. This brings even another venture such as currency trading becomes attractive avenue to choose.
How You Can Make Hundreds of Thousands of Dollars from Trading Currency
Have you ever wondered how there are 23 years old kid silently make hundreds of thousands of dollars trading while so many adult above his ages struggling even to cover monthly bill?
Because he has a system, he has a proven method to identify when to enter and when to exit. And the truth that is all you need to think when it comes to make five figures income from trading. It is so simple that a lot of people can't believe it.
The truth you don't need a master of finance degree from world-class university to make a living from trading.
All You Need is 4 Simple Steps
All you need is these 4 simple steps to create millions of dollars trading system:
Step 1 - identify the direction of the trend
Step 2 - identify when to enter the market
Step 3 - identify when to exit the market
Step 4 - Good money management
And my friend, that is all you need to figure out and you are on your way to holiday all of your life with pocket full of cash.
This is daunting to begin with ... but every journey begins with a single step so here goes. I actually started with some options trading seminar way back in January 2005 and learnt the basics of charting there. This was then followed by some weeks of paper trading. Inconsistent paper trading though ... did not do it every week.
By the time I got to May I had somehow chanced and learnt about Forex and its advantages over the other markets (liquidity, leverage, 24/7, etc). Started demo trading on Oanda's FXGame.
On 2nd June, I rushed into opening a trading account with Oanda with just $50 because I wanted to trade the NFP that very day. Wasn't able to get in on limit entries and so I started chasing the market. In 3 separate trades, I caught 32 pips in all. Not bad huh?! Too bad I traded only at 2 measly cents per pip ... LOL! =)
Things then went pretty downhill from here. I made just about every mistake there is to make as a rookie:
- Traded on other people's tips/advice/opinions
- Overtrading
- Trading without a stop loss
- Trading to gain back losses immediately (revenge trading)
- Getting real emotional (Roller-coaster ride to say the least)
- Trading for fear of losing potential profit (A.K.A chasing the market)
- Unwilling to take a loss and move on
- Trading just for the sake of trading
- Not having a target exit based on either number of pips or price level
- Telling myself market will reverse when charts don't support that view
- Not having an effective strategy for news trading
And finally at the end of June, I find myself with an account balance of about $15. Hey, in absolute dollars, that's only a loss of $35 but it's a loss of 70% of initial capital. I told myself then that this will not stop me and that I'll keep learning, trying and improving myself. After all, that was just my first month.
Moving on in July, I became more serious by getting a journal so that I could record my trading thoughts, ideas and also my individual trade entries and exits. In it were my trading plans and rules (if you're interested to know what were in them, let me know)
It was also at this time that I was going thru the various forex forums and tried out the many different mechanical systems and feeling excited each time I eyeballed and backtested as if I have finally found the "holy grail". (Hey, what did you expect?)
By the end of the month, I did a review and the results were pretty interesting to me. They looked like this:
Out of 35 trades, I had 57.6% wins and 42.4% losses. Made 176 pips and lost 203 pips making a nett of -27 pips. My average win was 9 pips and average loss being 14.5 pips.
Bottom Line: Pretty breakeven month. The results immediately improved over the previous month as a result of the journal (I believe) and this was my only second month trading. The most obvious observation was that my average win was smaller than my average loss.
I carried on penciling my trades in August and little did I know what was to come. On the first week, I lost some 47 pips. And on the early part of second week, I found I was pretty invincible as I made some 186 pips in 8 trades (0 losses) from Monday thru to Thursday UNTIL ..... Friday when I opened 3 long EUR trades from around 2460~2467. By Friday's close, I was down on all 3 trades. Oh btw, all those 8 trades were LONG EUR.
By the following Wednesday, market was trading around 22xx (some 200 pips lower) and I received the dreaded margin call. I was truly humbled then. My best week ever (I thought) turned into my worst week.
I decided then to take a break and it was not until the 19th of Sept that I started trading again.
I then went on to gain more trading experiences thru more losses for several more months and it was not until April and May that my records started showing more black marks than red marks. For what it's worth, I netted 277 pips in the month of May.
By then, I thought I had figured it all out when I scored another 133 pips in the first week of June 06. As you might have guessed by now, the very next week, the market taught me yet another lesson. I opened up some EUR, JPY and CHF trades on the 6th of June and refused to accept losses while they were still small. BIG MISTAKE indeed! The market continued moving away from my entry and some 20 days later, I finally closed my trades out for a total loss of 1536 pips from those 4 trades. That resulted in a loss of some 77% of the account equity.
Needless to say, that was my 2nd wakeup call. And mind you, even at this stage, I was never disillusioned. I just chose to pick up from where I left off and carry on stronger than ever (hey, look at Thomas Edison and the rest of the greats...they NEVER GAVE UP).
July came and went. And so did August and September. Something hit me as I realized changes in my psychology and in my mindset. I no longer chase after the boat. I wait for prices to come to my level (most of the time anyway). I don't get TOO emotional whichever way my trade turns out. These are just some examples.
Today my trading records look much healthier than when I first began. I realize too that trading is a never-ending journey. Along the way, you do realize that your trading has improved as a whole and yet you're not quite at the finishing point because the truth is, the finishing point does not exist. You just simply keep on going.
All in all, I've had some great fun challenging myself on a daily basis and gaining experience over time and the following are things I've found out and practise. I hope this inspires and/or benefits you.
And here they are (some might be obvious but not to other traders):
- Intentionality of trading (I.E Why do we trade? this will be another article altogether)
- Daily hi/lo fib swings
- Market reacts to psychological numbers
- Average daily range of the pairs you're trading (Use ATR for this)
- Put in my stop and take profit per trade during entry
- Great exits are more important than good entries
- Moving my stop to BE+1 as soon as feasible
- Not reading too much into pivots on Mondays
- Early european trends start around 0645GMT
- Reversals of the above (if any) then tend to happen around 0730GMT~0815GMT
- Forex has a volatile nature and you must cater for that
- Not more than 7% drawdown in a month (I use 5% currently)
- Learn to stop trading when I'm ahead (...risk of overtrading)
- Market gives clues ... It usually tells you quickly when you're wrong (it's up to you to listen and obey the signal)
- Do not bet on a reversal ... Bet on the trend to continue instead
- Expect pullbacks only 50% of the time on Friday closes (late U.S session) ... these pullbacks typically produce 24~39 pips
- Breaking the 200EMA (15m) and CPP tends to give very strong reliable pushes
- Study your biggest losses ... they give clues/lessons
- When I'm tired, I don't trade
- When in doubt, please STAY OUT
- Study the longer timeframes over the weekends (Monthly/Weekly 35%, Daily 35%, 4Hr 20%, 1Hr 10%)
The above list is not exhaustive and more will be added over time. I've pretty much come to the end of this article. To be honest, it was pretty tiring compiling this but at the same time knowing that if just 1 trader benefits from reading it, it would be worth it.
Until we meet again, stay healthy and pip-wealthy!
I've often wondered long and hard what it took to succeed when I first started out and had only a few clues as to how. I didn't quite understand then what the professionals meant when they said a successful trader has to have a certain psychology, rules on risk management and also knows their how-what-when-why-where concepts on entering and exiting a trade.
And it so happened that after trading for about 2 years, I begin to realize and know these concepts on many more levels and not just on the intellectual one. It's my desire to share these with both seasoned and new traders alike.
In what I term the M.R.S Trader, we will have an in-depth look at the mindset, risk management and also strategies that the trader has (in that sequence as well). They are the 3 pillars of success in trading.
(M)indset
Without a doubt, this is absolutely the most important element out of the 3 that we will cover (not belittling the other 2 in the process). Many processes in life require that we get our mindset/psychology on the right track and trading is not an exception.
As a start, we have to tackle the truth and you have to ask yourself this honest question .... "Why do I trade?"
It's amazing really but many people who trade are not really in for the profits (although they think they are). There's usually a myriad of reasons but one of the more common ones is that they're trading for the excitement of it.
I remember some time ago I was chatting with a friend and the conversation went like this:
me: I'll stay out for now. don't rush into a trade
friend: i know it
friend: i prefer trading when the situation is rushed, it blows up my adrenaline
me: not good.
me: are you trading for profit or for excitement?
me: Casinos provide more entertainment
someone: hehehe ...
My point is that if you are not trading primarily for monetary gains, then you shouldn't be trading at all.
Having said that, it's my opinion that we humans can be pretty irrational creatures (note: traders are humans too) and as such, we have to watch out for irrational behavior especially during trading as it can work against us pretty badly.
When you start out trading, you should never expect yourself to succeed in a short time (e.g. such as under 6 months). This is not only unrealistic but places totally unnecessary pressure and stress on you.
I like to quote what Gary Player (a golf legend) once said. He said "The harder you work, the luckier you get".
I interpreted that to mean that the odds of success increases in tandem with the amount of effort one puts in. But do not be mistaken here ... I do not think that hard work guarantees you being successful in trading as this is a totally different ball game altogether from most of the mainstream careers.
Still, one should persevere and keep the faith and commit to having success in whatever field he or she chooses (and in this case, trading).
At this juncture, I would also like to address an issue that concerns new traders and that is the idea of demo trading. Many would presumably start off (told or otherwise) demo or paper trading by using virtual / demo money and that is perfectly fine until you realize that most of us will never benefit fully from it because real money isn't involved and as such, there is no emotion at all. When that happens, it isn't real live TRAINING. In my view, it's simply a waste of time for the majority.
I can sense many people disagreeing at this point. However, I'm obliged to share with you what works and it is in my experience that I found what worked for me and what did not.
The question then to answer (if you choose to agree with me) is "How can one learn to trade without risking a great deal?" and what follows is simply my suggestion.
I would suggest using XXX amount of dollars where it wouldn't cost you to sacrifice the way you live (should you lose it all) yet large enough so that you can actually experience the emotions while trading and take it more seriously. What say you? You might as well consider that as paying for live training/tuition to the market.
With that said, once you start trading proper, you should never focus on how much you would make or what you could buy with the money you make. Instead, you should FOCUS solely on your profitable trade setups and trading them well. The profits are simply an afterthought, a given. It WILL come eventually so long as you trade well.
(R)isk Management
Now that we got mindset out of our way, let's talk about risk management. Some call it money management, others call it trade management. I choose to call it risk management because I see managing risk in trading as something very core and very essential.
First things first, traders have to decide how much risk or drawdown as a percentage of the entire equity they are willing to take in a given period (be it a day, a week or a month). As a guideline, it can range from 2% right up to 10% and more. I personally use 5% as my line in the sand.
Breaking it down further, you have to decide how much risk you are willing to take per trade (this relates back to max drawdown in a month and the typical number of trades taken in that time). Also, risk tolerance is dependant on the style of your trading. You have to discern if you are a positional trader or an intraday one. Positional traders will allow for a bigger move against his entry by trading a smaller size. Conversely, intraday traders can only afford a relatively smaller move against his position if the trade taken is a bigger one as compared to the one taken by the positional trader.
Another factor to take into account is the trader's typical setup. If his setup requires only a small stop, he can choose to put on a bigger trade as compared to another setup that requires twice the stop of the former setup.
So what can a proper and well thought out risk management plan achieve for the trader and his account?
For starters, the trader has a plan that he knows that if he breaks it, he will have a much harder time growing equity. Suppose a trader loses 50% of his account in a given month. Mathematically, he needs to make 100% on his remaining equity just to get back to where he started off in the month where he wiped 50% from his account. Does this make sense?
With proper risk management, an account can grow very quickly if the trader trades profitably. On the other hand, the balance on the account will dwindle more slowly if the trader experiences bad spells or streaks. This is true only and only if the trader trades in the size proportionate to the total equity or balance.
As a final point in risk management (and most would miss out on this I reckon), you should also think about the possibility that your internet connection might go down at any point in time while trading. And as such, I use 2 precautionary measures.
The first one would be to put in my profit target and stop loss per individual trade. And last but not least, to write down your broker's telephone number somewhere next to your trading desk so that you can call in to change your orders.
(S)trategy
Finally, we come to the last letter of M.R.S which incidentally stands for strategy. Strategy is all about finding your edge and applying it to the markets. It is about finding setups that create your buy/long/call bias and your sell/short/put bias.
It's a paradox really because most beginners focus way too much on strategies rather than having the right trading mindset and having a proper risk management plan. It's no wonder that in a recent trip to a major bookstore (if you need to know ... it's Borders), I couldn't help but notice that most books on trading are focused on technical analysis, strategies and trading setups rather than giving a balanced view and write-up on the 3 components that are very essential for successful trading. So much for giving these books with titles such as "How to be a profitable trader"!
Moving on ... let's discuss trade entries. Amateurs armed even with a profitable edge usually end up negative because more often than not, they tend to be wishy-washy with their entries (because of greed/fear).
Professionals on the other hand tend to be strict with their entries. They do not compromise with price. They essentially plan and wait for price levels to fall into their trap before entering into a trade. They aren't afraid of missing out on a trade as such because they know that another opportunity is just around the corner. May I remind you that patience is key!
As a natural sequence, we will now look at setting profit targets for trades. Primarily, there are 2 methods as I see it. You can either use a technical target (based off indicators, etc) or use an arbitrary number away from your entry as your target objective. Some would argue it doesn't make sense to use an arbitrary target because we would be limiting our gains but hey ... why do you care if you are consistently hitting your arbitrary targets every other day. In any case, it is horses for courses and as such, choose whatever works for you.
I remember the time when my trading improved dramatically and it basically boiled down to a routine I started practicing. And it's none other than trade journaling.
In trade journaling, one records details of a trade. In my case, I record the price at which I entered and exited, the date of the trade, size of trade, the net result, the session at which I enter and exit my trade and most importantly, the rationale behind the trade.
If you like and can afford more time (especially when you are just starting out), you can also grab a screenshot of your trade, record your stop loss point, etc. It's basically a case where you record details that are important to you when you refer back to your trades and learn from them
Hey, if you haven't been journaling your trades, I challenge and invite you now to start doing so. I promise it will improve your trading as a whole. Trade journaling will change you internally. It will propel you to new levels in your evolution as a trader. If you like to, you are welcome to email me and let me know how journaling has changed the way you traded before.
Summary
I'll like you to just bear in mind that successful trading is like the wheel with 3 spokes (think of Mercedes Benz). You simply cannot do with deficiency of development in any one of them.
Put it this way ... someone with the best strategies and setups in the world wouldn't make money if his emotions run him riot and if he over-leverages on his position. Prove me wrong if you can.
As I bring this article to a close, any wonder why female traders tend to trade better than their male counterparts. (Think M.R.S ...)
Till we meet again, stay healthy and pip-wealthy!
I remember it wasn't too long ago in the month of January 2005 that I went for a course to pick up options trading. Following the course, I paper or demo traded options for quite a few months. Was profitable overall but somehow or rather, I was led into the world of forex trading within a few months of my options trading course.
Within a very short time, I fell in love with the forex market because it made a lot more sense than options trading (at least to me). On top of that, the market is a whole lot more liquid and it's a lot more macro than options. That was enough for me to drop whatever experience I had with options trading and for me to get started with forex trading.
Before long, I opened an account with Oanda and I remember funding my first deposit with a measly $50. Amazing huh? It was on the same day that I traded my first live forex trade. If you need to know, my first 3 trades were on the June 2005 trading on the non-farm payroll event. Those 3 trades lasted all of 30 minutes and I made a grand total of 32 pips. Don't ask me how much they amounted to in real dollars. It's a joke to say the least.
Following that positive first trading session, I was even more pumped up and started studying charts like how Albert Einstein would be doing his experiments and tests. I never looked back from then on right till today. I've made a lot of contacts and friends in this field and till today, I'm still learning and am still very much on this journey and path of discovery.
If you've been wanting to trade forex, get started with a demo account just to get acquainted but don't take too long to get started with the real thing because it's with live trading that you learn the most. Till we meet again, take care and blessings!
Over the course of my forex trading career and coaching, I've noticed that there are many mistakes and blunders that both beginner traders and advanced traders would commit. Out of these many possible mistakes, I'm going to be discussing a little about 11 of them.
#1 - Trading on other people's tips/advice/opinions
Listen! You never ever learn to trade if you always make trades based on what other fellow traders tell you (otherwise known as tips or advice or opinions). Successful traders tend to make their own decisions
#2 - Overtrading
Even the best of traders make this mistake. Never ever allow yourself to overtrade (in terms of number of trades and in trade sizes).
#3 - Trading without a stop loss
You can get away with this once or twice. But if you keep trading without a stop loss, it will become the mother of your biggest loss. You can count on me for this.
#4 - Trading to gain back losses immediately (revenge trading)
Needless to say, whenever you get emotional via revenge trading, you've already started on the wrong foot. Never get emotional please!
#5 - Getting real emotional (Roller-coaster ride to say the least)
Point number 4 bears repeating. The moment you sense yourself getting emotional, GET AWAY FROM THAT TRADING DESK! (I hope I've made myself clear)
#6 - Trading for fear of losing potential profit (A.K.A chasing the market)
This is otherwise more commonly known as greed. You should know by now that greed and fear always precedes a downfall.
#7 - Unwilling to take a loss and move on
The best traders take a loss as if it is normal and part and parcel of business. Learn from them.
#8 - Trading just for the sake of trading
Don't start doing this. Trade only when you see a profitable trade setup.
#9 - Not having a target exit based on either number of pips or price level
If you have no idea where you plan to get out, why get in in the first place?
#10 - Telling myself market will reverse when charts don't support that view
Listen to your brains and your gut. They'll warn you way before shit happens.
#11 - Not having an effective strategy for news trading
For news traders, you need to be fighting against factors that will make it difficult for you to profit such as gaps and widening spreads. You need an effective strategy against these to be successful.
Ok, I hope I've really contributed to your forex trading. If you need to reread, please take the time to do so. It will be worth it. All the best and good trading!
If you are serious about trading successfully, you need to be keeping a forex trading journal. I remember a long time ago when I first got started trading, I was just doing so so until the day when I decided to start keeping a trade journal.
Your trading will see drastic improvements pretty quickly when you start keeping a journal because keeping a trade journal sends signals to your entire being saying that you are serious with whatever you're doing.
So if you're with me so far and want to start your own trade journal, read on and let me give you a guide as to what should be in your trade journal.
#1 - Record Date and Time of Trade
This will help you refer back to the charts and see when you entered and exited the trade
#2 - Record Currency Pair and Direction
Record which pair you were trading at that time ... be it GBPUSD or EURUSD or whatever. Also record if it is a long or short trade. E.g LONG EURUSD
#3 - Record Your Trade Entry Price
This is a no brainer ... I personally use Excel for this.
#4 - Record Your Exit Price For Your Trade
The difference between your exit and entry price will determine whether your trade is a profitable or loss trade.
#5 - Record Your Trade Size
In other words, how many lots did you take on that particular trade? If you're trading in mini-lots, record that as well.
#6 - Record Your Nett Pips
Record in numbers ... That way you can see your trading performance at a glance. E.g -22 pips or +34 pips
#7 - Record Your Nett P&L
Make a record of how much you made or lost with that particular trade in terms of dollars and cents. By doing so, you can see which are your biggest losers.
#8 - Record If You Were Trading Countertrend or With The Trend (Optional)
I'm personally very detailed and so I record this sort of details as well.
#9 - Trading Session
If you like you can also record the session you were trading in such as european open or asian close.
#10 - Screenshots (Optional)
Sometimes it will really help when you take screenshots of what you saw at that time you entered the trade.
#11 - Additional Remarks
This column or detail is good for recording how you felt about the trade (before and after it)
You can use your favorite document editors such as excel or word for logging your trades. Ok, this pretty much wraps it all up. Reading all these doesn't help you as much as actually doing it so if you've not been keeping a trading journal, why not do so right now?
Happy trading and happy journaling!
I'll like to share with you 6 powerful tips for forex trading with you today ... These are tips that I've gathered from my months and years of forex trading so don't look down on them. Are you ready to receive them? Ok, let's go ...
#1 - Intentionality of Trading
Ok, the first one here isn't too much about forex trading as it is about trading in general. Have you ever asked yourself why you want to be trading whatever you're trading? (be it futures, currencies or stocks) I say this because there are some people who trade only because they want excitement or they feel bored and that's a totally wrong motive for going into trading. Be sure to clarify this with yourself.
#2 - Daily Hi/Lo Fibonacci Swings
Be sure to understand the basics of fibonacci extensions and retracements. It would be wise of you to do a fibonacci study on a daily basis of the previous day's range (from high to low). Most important points are the 38.2%, 50% and 61.8% retracements.
#3 - Market Reacts to Psychological Numbers
If you haven't noticed by now, market very often reacts to psychological numbers or round numbers for that matter. So whenever it gets close to the double "00" figures, be sure to pay attention to what the market is actually doing and wanting to do.
#4 - Average Daily Range of the Pairs You're Trading
Be sure to understand as much as possible about the pairs that you're trading. You need to know that GBPUSD has a greater range than EURUSD for one. Use ATR (an indicator) over a period of 9 or 21 to find out the average true range over the past 9 or 21 days respectively.
#5 - Put in your stop and take profit per trade during entry
This isn't common knowledge but it's based off my own experiences. I always put in my stop and take profit for each and every trade during trade entry time or during the first 5 minutes. You don't want to be caught with your pants down.
Hope these 5 powerful tips will come in useful for you ... I need to say this again. They are really useful and powerful because these come from experience. Meantime, take care and happy trading!
If you have not read my 5 powerful tips for forex trading article yet, be sure to do so. Today, I'll like to share with you 5 intermediate keys for forex success. These are information that people would easily pay hundreds of dollars to get so count yourself lucky for getting them free.
#1 - Great exits are more important than good entries
Just remember, most traders are always focused on getting their entries right and I'm not denying that that is important but it's the exits that matter a lot more than the entries. Don't argue with me on that please. I've traded long enough to know my entries and exits. Where you exit will determine the fate of your trades. Period.
#2 - Moving my stop to BE+1 as soon as feasible
This is a bit of an idiosyncrasy for me. I never like seeing my positive trades turn into negative ones. When I say that, I mean trades that are really in the black already and not just up by 10 or 20 pips. Forex is much too volatile for that. Typically whenever trades are up by 30 pips or more, I'll move my stop loss to 1 pip more than break even. Essentially that means I've locked in at least 1 pip of profit. Let's move on ...
#3 - Not reading too much into pivots on Mondays
If you rely on pivots for trading, be sure not to read too much into them on Mondays. They are the least reliable on the 1st trading day of the week. Needless to say, these pivots are based on information from last Friday's trading but because there's a gap over the weekends, things tend to be screwed. I'd say to use pivots only from Tuesday and onwards.
#4 - Early European trends start around 0645GMT
Need I say more? Eastern Europeans will start the ball rolling around this time. Take note!
#5 - Reversals of the above (if any) then tend to happen around 0730GMT~0815GMT
Listen ... you've just gotten some real gold ok? If there are any reversals from the european trend that starts around 0645GMT, it will tend to happen in a 45 minute period that starts from 0730GMT-0815GMT. Is that cool or what?
Now that I've let the cat out of the bag, be sure to take full advantage of this. You've just read some really golden information. Enjoy it ... and as usual, good trading to ya.
Today I'll like to talk and give you 5 forex pointers that you can really use (assuming you don't know them yet). Ok, if you've brought on the popcorn, I'll start the show.
#1 - Forex has a volatile nature and you must cater for that
We all know that the forex market is the most volatile and active out of all the trading markets in the world, be it futures, equities, etc. With that said, you need to cater your trading around that. By that, I mean you have to practically bend your rules to fit the market you're trading in. And that means not having very tight stop losses for one as you have the odds against you even when you have a very good setup. Make sense?
#2 - Not more than 7% drawdown in a month (I use 5% currently)
Be sure to set a limit on the maximum monthly drawdown you'll allow yourself to get into by calendar month. Drawdown meaning your losses. Set it as a percentage % of your total equity balance. So if you've got $10,000 at the start of the month and if you decide to set 7% as your max drawdown, you need to jolly well stop trading when you hit a loss of $700. Personally I use 5% as my max drawdown per month (i'm conservative).
#3 - Learn to stop trading when I'm ahead (...risk of overtrading)
When you're ahead of the game, learn to control your emotions and get away from it all otherwise you might risk losing your profits and even your pants. By getting away from the terminal, you allow yourself to stay rock steady and not get your heads in the cloud. This is the mark of a true and good trader.
#4 - Market gives clues ... It usually tells you quickly when you're wrong (it's up to you to listen and obey the signal)
Out of 100 trades that I take, there's seldom a time when the market doesn't give you any warning that it's about to turn its tide on you. It's one of those things where you just know it when it happens and when it happens, you should take heed and just obey and follow the market. No one is stronger than the market itself.
#5 - Do not bet on a reversal ... Bet on the trend to continue instead
Finally, more often than not, market will always continue doing what it has always been doing. Can't remember which Newton's law which says that something in motion will remain in motion until an opposite force acts upon it. The forex trending market is not an exception.
Okie dokey ... I had fun writing this for you. Use these tips to your own trading advantage and be sure to come out ahead of the game. Good trading!
I'll like to spend the next 10 minutes or so with you explaining 6 forex observations I've gathered from the time I've been trading the currency or forex market.
#1 - Expect pullbacks only 50% of the time on Friday closes (late U.S session) ... these pullbacks typically produce 24~39 pips.
Pretty self explanatory I hope ... Yep, basically you can expect pullbacks only 50% of the time. Whenever the Friday pushes come, they will come fast and furious. Just go along with it for the easy pickins. Any pullbacks will be minimal. As mentioned earlier, they will produce only about 24-39 pips.
#2 - Breaking the 200EMA (15m) and CPP tends to give very strong reliable pushes
If you're watching the 15 minute charts, whenever you see the action breaking through the 200EMA and central pivot point (for the day) simultaneously, be sure to take notice as they will usually result in very strong and reliable pushes. In other words, more easy profits if you would just go along with it.
#3 - Study your biggest losses ... they give clues/lessons
There's something to be learned from every single trade that you take but from my experience, it's the biggest losses that I've incurred that I learnt the most. They give clues to your trading style and personality.
#4 - When I'm tired, I don't trade
This is a no brainer. When you're tired, don't trade because you won't perform well. Enough said.
#5 - When in doubt, please STAY OUT
No one will ever hold a gun to your head and force you to take a trade. So whenever you have doubts about the trade you're about to take, just don't take it and just stay out. That's the best advice I can give.
#6 - Study the longer timeframes over the weekends (Monthly/Weekly 35%, Daily 35%, 4Hr 20%, 1Hr 10%)
Learn to study the longer timeframes and its movements as they will yield the most dividends and payouts for you. Take time to study them over the weekends when the markets are inactive.
It really is my wish and hope that you study and reread over what I've just shared and apply them to your own forex trading journey. All the very very best to you.
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