The Use Forex Trading as Hedging of Currency Risks

Companies engaged in foreign trade transactions worldwide are active participants in international Forex market. For exporters, there is a constant need to sell foreign currency, while importers - buy it. Currency exchange rates in the international currency market are constantly changing. As a result, the real value of buy or sell a currency for the goods or services can significantly change and profitable contract may not be profitable or unprofitable. Of course, and can reverse the situation when a change of exchange rates makes a profit, but the task of trading company is not profit from changes in exchange rates. For commercial companies, it is important to be able to plan the real cost of buy or sell a product, so the company is widely used in its operations hedge currency risks. Cash, as well as future income or expenses in foreign currencies subject to exchange rate risks. Normally, accounting for the company is in one currency (for example, in United States dollars), thus resulting from the revaluation of articles in foreign currencies may gain or loss when changing rates of these currencies.

Hedging currency risk

Hedging currency risk - is protected from adverse movements in exchange rates, which is to fix the present value of these funds by entering into transactions on the Forex market. Hedging leads to the fact that the company disappears risk rates, which makes it possible to plan activities and to see financial results are not distorted exchange fluctuations. Transactions in the Forex market are carried out under the principle of margin trading. This trade has a number of features, which made him very popular. A small start-up capital allows the transaction to the amount many times (in the tens and hundreds) of its excess. This surplus is called Leverage (Leverage). Trade is conducted without real money supply, which reduces overhead and provides an opportunity to open positions as buying or selling currency (including different from the currency deposit). A feature of hedging currency risk through transactions without the actual movement of funds (using leverage) you can not divert traffic from the company’s significant money.

There are two basic types of hedging - hedging buyer and seller hedging. Hedge buyer used to reduce the risks associated with a possible rise in the prices of goods. Hedge seller is in the opposite situation - to limit the risks associated with a possible decrease in prices of goods.

The general principle of hedging in the foreign trade transactions is to open foreign currency position on the trade account aside for future operations conversion of funds. The importer must buy foreign currency, so it opens up the position of pre-buying the currency on the trade account, and when the moment of real buying the currency in his bank, closing the position. Exporter must sell foreign currency, so it opens up the position of pre-selling the currency on the trade account, and when the time of the sale of real currency in his bank, closing the position.

September 25, 2008 by FXcaliber

Do not Worry Beginners Mistakes will be done by Forex Basics!

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The Importance of Identifying Favorable Stock Chart Patterns

The Importance of Identifying Favorable Stock Chart Patterns

To be a successful investor it’s important to look for those stocks which are forming a favorable chart pattern such as a "Cup and Handle", "Double Bottom" or "Flat Base". In 2002 some of the best performing stocks exhibited the above mentioned chart patterns before breaking out and undergoing significant price appreciation.

Here are a few stocks that exhibited a "Cup and Handle" pattern before breaking above their Pivot Points on strong volume. CBZ formed a 7 month Cup from July of 2001 until February of 2002 and then developed 3 week Handle (H) before breaking above its Pivot Point in early April on strong volume. After breaking out of its Handle CBZ appreciated nearly 155%.

FSTW formed a 1 year Cup from January of 2001 until January of 2002 and then developed a 9 week Handle. FSTW then broke out of its Handle and above its Pivot Point in April accompanied by strong volume. After breaking out of its Handle FSTW appreciated nearly 225% over the next few months.

HL formed a shallow 9 month Cup from May of 2001 until February of 2002 and then developed a 4 week Handle (H). It then broke out of its Handle and above its Pivot Point in late March on good volume. After breaking out of its Handle HL gained nearly 275% over the next few months.

MWRK formed a 5 month Cup from September of 2001 into the early part of 2002 and then formed a 4 week Handle (H). MWRK then broke out of its Handle and above its Pivot Point in early March. After breaking out of its Handle MWRK gained nearly 200% over the next several months.

Another chart pattern to look for is the "Double Bottom" which looks like the letter "W". Here is a stock (CFI) that formed a Double Bottom pattern from May of 2000 into the early part of 2002 and then developed a small 3 week Handle (H) before breaking out in March accompanied by strong volume. After breaking out in March CFI gained nearly 170% over the next four months.

The third type of chart pattern to look for is called a "Flat Base". Flat Bases form as a stock basically trades sideways for several weeks or months. CVU formed a Flat Base for nearly 6 months before breaking out in April on good volume and appreciated over 300% over the next few months.

TENT is another example of a stock which formed a Flat Base for 10 months before breaking out in the early part of 2002. After breaking out TENT appreciated nearly 450% over the next 6 months.

These are some of the chart patterns you should be looking for when deciding which stocks to invest in. Investing in a stock which doesn’t have a favorable looking chart pattern can lead to poor performance while other stocks which are breaking out of a favorable chart pattern ("Cup and Handle", "Double Bottom" and "Flat Base") undergo significant price appreciation. Also if you examine the stocks mentioned above they all broke out of a favorable chart pattern on strong volume as well.

Bob Kleyla
http://www.amateur-investor.net/

The Dangers Of Getting Emotional About A Forex Trade

Anyone who has seen the film Wall Street will undoubtedly remember Michael Douglas telling Martin Sheen not to get emotional about a stock. This is good advice for people trading in the stock market, but it is absolutely vital for people involved in Forex trading.

It is very easy to find yourself caught up in a trade. You open a position because you feel good about it and then you hang in there even if the market starts to move against you because you just know that the market is going to turn back in your favor. From time to time of course it does but, as a general rule, it doesn't.

The problem here is that you allow yourself to become attached to a trade and your decision to stay with it is very much an emotional decision. Also, because you are emotionally attached to a trade you view closing your position as an admission that you were wrong to have opened it in the first place.

Trading within the Forex market has to be driven by the market indicators and your trading decisions must be based on what these indictors are telling you and not on how you are feeling. If you are going to be a successful trader then you have to be ruled by your head and not by your heart.

There will be times when you find that you have an emotional attachment to a specific currency and that the majority of your trading tends to be in that currency. There's nothing wrong with this. You may even feel sometimes that the time is right to buy a particular currency. That's okay too. The mistake is not to follow a feeling about a particular currency but to open a position purely on the basis of this feeling.

If you have a feeling about a currency then begin by checking it out and take a look at the market numbers. If the numbers tell you that the time is right to open a position then do so but, if they tell you that it's not a favorable market then, no matter how you feel about it, you should not get into the market.

Similarly, if you have opened a position and the indicators tell you that the market is moving against you and that it is time to close your position then do so. Your heart may well tell you to 'hang in there' but it is the market and not your heart which pays your bills

In Forex trading you will win on some trades and will lose on others and that's nothing more than the way the market works. It is not a question of whether you are right or you are wrong. The market will frequently move unexpectedly and catch out even the most experienced of traders.

The secret lies in following the market indicators, recognizing that you are going to lose in a trade and getting out as quickly as you can to minimize your loss. You can then move on to your next, hopefully profitable, trade.

The truth about Buy and sell signals

Wrong! The perennial questions are, "Should I buy? Should I sell?" All too many traders focus their efforts on identifying buy and sell signals. In fact, that’s what most trading books consist of-some way to find buy and sell signals. Trading systems are usually all about "where to get in."

The research and analysis traders do is geared towards reaching the goal of getting that magic "base line" directive to guide their actions. How ignorant can you be?

Any successful, experienced trader will tell you that although properly identifying buy/sell signals is important, it’s not the key to being successful. Instead, the way you manage each trade is what will determine your success.

Traders who take the baseline approach tend to believe that the success of their trading activity is dependent on following the right buy/sell signals at the right time. Clearly, it’s important that a trader be able to understand the process of generating signals and to use the methods involved. Realistically though, almost any trader can find a way to generate signals (whether using technical methods already out there, coming up with their own system, or using their platform’s automated signal generation tools).

Any successful, experienced trader will tell you that your trade doesn’t begin and end with a buy or sell. There’s a trade management process involved. For each trade you make, you’re making a group of decisions. The way you manage and time those decisions is what will determine the success of your trade.

Let’ say two traders get the same signal at the same time and act on it. One’s trade may result in profits while the other’s results in losses. How is this possible? It can occur because each trader made a different combination of decisions throughout the course of the trade. The decisions might include scaling in and/or out of the trade, using or not using trailing stop losses, setting or not setting profit objectives prior to entry, patience or lack thereof, etc. The trader who made the most effective overall combination of decisions will have the better trade results in the end. Of course, there are times when pure chance, gives the better result to the worst trader.

It’s very important to regard trading as a process, and to understand that as a trader your efforts need to be focused on the activity of trading itself, as opposed to getting a quick base line answer. Because there are many things to take into consideration in making your trades successful, it’s essential that you educate and train yourself in all the different areas. Learn how to develop better trading plans and analysis methods, and then learn how to apply what you’ve developed to the process of a making a trade-from the original impulse to enter or stay out of a trade to the control of your thought processes and emotions in managing that trade.

by Joe Ross
http://www.tradingeducators.com/

The 4 Elements Of Any Good Trading Market

The foreign exchange market (forex market or fx market) is the world's largest market and consists largely of the forex spot market (spot foreign exchange market) and the currency futures market. Today however the majority of smaller traders tend to confine themselves to trading spot forex.

There are four elements which must be present in any good financial market, whether you are trading in the stock, bond, futures, currency market or any other market. These four elements are liquidity, transparency, low trading costs and market trends.

Liquidity

There are always two sides to a trade, a purchase and a sale, and in its simplest form liquidity refers to the ease with which traders can buy and sell. To be truly liquid traders must also be able to trade in substantial volume without this having any marked effect on prices.

If a market lacks liquidity then traders will often encounter delays in meeting orders to buy, frequently leading to a significant variation between the price when an order is placed and when it is executed. In addition, it may be hard to sell in a market that is not sufficiently liquid.

Fortunately the currency exchange market (especially when trading in major world currencies such as the USD and GBP) is extremely liquid and a huge number of trades are conducted each day on the Forex money market with a trading volume that far exceeds that of other markets.

Transparency

A market is said to possess transparency when traders can access accurate information at all stages of the trading process.

Information is the key to many things in life and the world's various markets are no exception. There are many examples, especially in the world stock markets, of companies and individuals which have run into difficulty because the parties to a trade did not have access to accurate information.

The foreign currency exchange market is without doubt the world's most transparent market and this is especially true when it comes to pricing.

Low Trading Costs

Markets carry trading costs which inevitably lower a trader's profits or increase his losses. However, when a market can keep its trading costs low it becomes attractive to traders and encourages both an increased number of trades and an greater trading volume.

The absence of commission and other usual trading costs, together with the tight spread of prices, in currency trading mean that trading costs in the Forex market are kept very low.

Market Trends

In many markets it can be difficult to know just when to enter the market and when to exit it (when to 'buy' and when to 'sell'). As a result, it is important to have some way of assessing the present state of a market and to predict its future direction.

In the foreign currency exchange market this is achieved by employing various forms of technical analysis which examine the past performance of the market and identify trends which can then be used to predict its future.

Most markets display trends of one form or another, but in some markets these are far more clearly defined than in others, making it far easier for traders to enter and exit the market. The foreign currency market displays a particularly strong trending characteristic.

What makes a good Trading Strategy?

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Ask most NEW traders, and they will tell you about some moving average or combination of indicators or a chart pattern that they use. This is, as the more experienced trader knows, an entry point and not a strategy.

Any trader who is more experienced will say a strategy should also include money management, risk control, perhaps stop losses and of course, an exit point. They might also say that you must let your profits run and cut your losses short. A well-read trader will also tell you that your strategy should fit with your trading personality.

BUT there is one other vital ingredient that many traders forget - and that is to fully understand the "personality" of what you trade. Some traders specialise in say, gold or Brent crude or currencies or they might specialise in a particular index such as the FTSE 100 or the Dow but many traders choose to trade shares. Indeed some traders dabble in a bit of everything. I think this is the area that causes many traders to fail or at least not reach their full potential.

In my view: You absolutely MUST specialise.

I am sure that on the surface most people would say that sounds sensible but here is why it is a MUST!

Superficially, many charts look the same. I bet if you had not seen the charts for some time and someone where to show you a chart of Brent Crude over 6 months and then a chart of Barclays PLC over the same 6 months you would be hard pushed to say which was which purely on the look of the chart.

However, I bet that if you found a trader who trades ONLY Barclays day in and day out and also found someone who trades ONLY Brent Crude day in and day out, both of them would easily identify which was which. WHY?

Because every share, index or commodity has it’s own "personality".

Some will be volatile intra-day, some will follow their sector or the main index (market followers), some will do their own thing, some will spike up and down regularly, some will stop at key moving averages and some will just plough through. Some will move by 5% on average before they retrace and some by 2%. Some will gap up or down regularly, some will not. You get the idea!

Therefore, no matter how good you are at analysing indicators, moving averages, trends and patterns, the same strategy WILL NOT work for everything. I would go so far as to say that a strategy that works well for Bovis Homes, for example, is likely NOT to work for BT Group - they have very different "personalities".

So let’s return to our question: What makes a good trading strategy? Let me answer with a series of ten questions that you need to find answers to, in order to build a REALLY GOOD strategy.

1. What do you want to trade (share, index, commodity, currency, etc)? If your answer is shares (plural) I would urge you to pick one typical share at this stage to really specialise. You can add more later.
2. What "personality" does that share, index etc have?
3. What entry system is the most reliable for that share?
4. What stop loss system is the most effective for that share?
5. What average risk will a typical trade carry?
6. What exit system works well for that share?
7. What is your trading personality (attitude to risk, losses, discipline, how much do you worry etc) and can you trade that strategy without overriding it?
8. What timescale do you want to trade? (Using intra-day or end of day data)
9. How much data do you keep on past trades to help identify strategy weaknesses?
10. How does all this fit with your trading objectives?

Once you have an answer to each question you need to do one final thing. Make sure all those things fit together and complement each other. For example, if the ideal stop loss position represents a big average risk and conflicts with your own attitude to risk, you need to start again. If you will override your exit point because greed makes you hang in for more, you need to think again. Perhaps you shouldn’t trade that stock in the first place - look for one with a different "personality" which will lead to a strategy you can trade comfortably.

It is a long and sometimes painful iterative journey. You might need to go round and round in ever decreasing circles over a long time. Testing and refining, testing and refining before you can truly have a reliable and repeatable strategy that REALLY WORKS for you.

THEN, you can look for other things to trade that have the same "personality" as your specialist stock, index, commodity or currency.

But if it were easy, everyone would be doing it right?

Good luck and enjoy your trading.

David Graeme-Smith
Short Swing Trading
http://www.shortswingtrading.com/

Daily Forex Analysis - October 17, 2008

AUDUSD Analysis.

After breaking above 0.7133 resistance, AUDUSD pulled back from 0.7237 and reached 0.6495 level. One more rise above 0.7237 previous high to reach next short term cycle top is still in favor. Initial support is now located at 0.6495, only fall below this level will signal resumption of down trend, and then deeper decline could be seen to 0.6000 zone.

GBPUSD Analysis.
GBPUSD formed a short term cycle top at 1.7630 level. Further fall could be seen to test 1.6786 previous low support, a break below this level will signal deeper decline towards 1.6000 zone. Initial resistance is located at 1.7630, only rise above this level will take price back to 1.7950-1.8000 area.

USDJPY Analysis.
USDJPY is forming a sideways consolidation in a range between 97.91 and 103.06. Further fall to test 95.77 (Mar 17 low) support could be seen after consolidation, and a break below 97.91 level will confirm such case. However, the next cycle top on daily chart is nearing, one more rise above 103.06 to reach the cycle top is still possible next week.

EURUSD Analysis.
EURUSD is forming a sideways consolidation in a range between 1.3258 and 1.3785. As long as 1.3785 resistance holds, we’d expect down trend to resume, and further fall could be seen to 1.3000 after consolidation. Only break above 1.3785 level could signal lengthier correction to down trend.

USDCHF Analysis.
USDCHF breaks above 1.1486 previous high resistance and pulls back from 1.1488 level. One more rise above 1.1488 is still possible after consolidation. Initial support is at 1.1245 and key support is now at 1.1128 level, a break below 1.1128 will indicate that the uptrend from 1.0693 (Sep 22 low) has completed, and then pullback towards 1.0800 zone could be seen to follow.

USDCAD Analysis.
USDCAD is forming a sideways consolidation in a range between 1.1304 and 1.2123. Pullback towards 1.1450 zone could be seen in a couple of days. Initial resistance is at 1.1995 and key resistance is located at 1.2123 level.

Daily Forex Analysis - October 16, 2008

GBPUSD Analysis.
GBPUSD pulls back from 1.7630 and formed a short term cycle top on 4-hour chart. Further fall could be seen to test 1.6786 previous low support, a break of this level will signal resumption of down trend, and deeper decline is expected to 1.6000 zone. Initial resistance is located at 1.7630 only rise above this level will signal further rally towards 1.7950-1.8000 area.

USDJPY Analysis.
USDJPY pulls back from 103.06 and formed a short term cycle top on 4-hour chart. Consolidation in range between 97.91 and 103.06 is expected in a couple of days. Initial resistance is located at 103.06, only rise above this level will indicate lengthier correction to down trend is underway and delay the resumption of down trend.

EURUSD Analysis.
Being contained by 1.3785 resistance, EURUSD pulls back from 1.3768 level. Sideways consolidation in a range between 1.3258 and 1.3785 could be seen in a couple of days. Initial resistance is at 1.3785, only break above this level could signal lengthier correction to down trend.

USDCHF Analysis.
USDCHF traded in a range between 1.1128 and 1.1486 on 4-hour chart for several days. Further rally is still in favor after consolidation and a break of 1.1486 will signal resumption of up trend. Initial support is at 1.1245 and key support is now at 1.1128 level.

AUDUSD Analysis.
AUDUSD breaks above 0.7133 resistance and reaches 0.7237 only. One more rise above 0.7237 level is still possible in a couple of days. Key support is at 0.6330, a break of this level will signal resumption of down trend, and deeper decline could be seen to 0.6000 zone.

USDCAD Analysis.
USDCAD formed a short term cycle bottom at 1.1304 level and rebounds sharply to as high as 1.1931 level. Further rally to test 1.2123 is still possible later today, however, this level would more likely be held, and pullback could be seen to retest the trend line support.

For long term forex analysis.

Currency Trading Training - 7 Favorite Tips

Currency trading training is not over when a trader finally sees the equity increasing in their account.

The Forex market is a very demanding environment and for a trader to maintain a success level, constant currency trading training is necessary.

The following 7 favorite tips can be used as timely reminders and need to be read and absorbed on a regular basis:

#1 - Take Responsibility

"The buck stops here." Don't blame the markets, or a host of other factors for a losing trade. You entered it for whatever reasons you had at the time. Take responsibility for it.

#2 - Use Each Losing Trade As A Stepping Stone

You lost a trade? Good. It will help you focus on a potential problem in your trading method. If after careful analysis you are satisfied you worked according to your plan, fine. Move on.

#3 - Never Become Impatient With The Market

New traders in the early stages of their currency trading training can be eaten alive by the market. During periods of consolidation with little liquidity the anxious impatient trader will force trading opportunities where there none.

Learn to accept the fact that around 70% of the time price will be in a consolidation channel.

#4 - Focus Daily On Improving Your Trading Skills

Currency trading training is an ongoing process. Day by day, step by step the trader improves. So rather than be preoccupied with profits and losses, concentrate on developing the skills. Your account will start to reflect your focus in time.

#5 - Be Pleased With Well Executed Trades Whatever The Outcome

Is this possible? Yes. You can feel well pleased even with a losing trade if you stuck to your methodology and executed the trade well. It is dangerous to feel good about a winning trade when you went against your trading method to achieve it. Your elation is likely to be short lived. Learn to execute the plan!

#6 - If In Doubt Stay Out

The feeling of regret can drain a person mentally and emotionally from entering a poorly considered trade. Once the trigger has been pulled and the trade starts going wrong, the agony of watching it inch towards your stop should renew in the trader the determination to stay out when in doubt!

#7 - Always Have A Good Reason

Currency trading training involves careful analysis of reasons for entering a trade. Just because price is high is not a reason to go short or long if price is low. Price will do what price wants to do so rather than trading from gut reaction, e.g. "Price can't go any higher (or lower)" learn to detach emotions and use pure technical analysis to establish a number of reasons why you should take a trade.

As currency trading training is a long term commitment, skills and disciplines learned can sometimes be forgotten as bad habits creep in.

It is necessary to constantly renew the thinking processes by repeating over and over the habits of successful traders.

These 7 favorite tips will keep the newer trader out of a lot of trouble!

Forex Market Snapshot

Introduction

The following facts and figures relate to the foreign exchange market. Much of the information is drawn from the 2007 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity conducted by the Bank for International Settlements (BIS) in April 2007. 54 central banks and monetary authorities participated in the survey, collecting information from approximately 1280 market participants.

Excerpt from the BIS:

"The 2007 survey shows an unprecedented rise in activity in traditional foreign exchange markets compared to 2004. Average daily turnover rose to $3.2 trillion in April 2007, an increase of 71% at current exchange rates and 65% at constant exchange rates...Against the background of low levels of financial market volatility and risk aversion, market participants point to a significant expansion in the activity of investor groups including hedge funds, which was partly facilitated by substantial growth in the use of prime brokerage, and retail investors...A marked increase in the levels of technical trading – most notably algorithmic trading – is also likely to have boosted turnover in the spot market...Transactions between reporting dealers and non-reporting financial institutions, such as hedge funds, mutual funds, pension funds and insurance companies, more than doubled between April 2004 and April 2007 and contributed more than half of the increase in aggregate turnover." - BIS

Structure

• Decentralised 'interbank' market
• Main participants: Central Banks, commercial and investment banks, hedge funds, corporations & private speculators
• The free-floating currency system began in the early 1970's and was officially ratified in 1978
• Online trading began in the mid to late 1990's

Source: BIS Triennial Survey 2007

Trading Hours

• 24 hour market
• Sunday 5pm EST through Friday 4pm EST.
• Trading begins in New Zealand, followed by Australia, Asia, the Middle East, Europe, and America

Size

• One of the largest financial markets in the world
• $3.2 trillion average daily turnover, equivalent to:
  
• More than 10 times the average daily turnover of global equity markets¹
• More than 35 times the average daily turnover of the NYSE²
• Nearly $500 a day for every man, woman, and child on earth³
• An annual turnover more than 10 times world GDP⁴
  
  
• The spot market accounts for just under one-third of daily turnover

1. About $280 billion - World Federation of Exchanges aggregate 2006
2. About $87 billion - World Federation of Exchanges 2006
3. Based on world population of 6.6 billion - US Census Bureau
4. About $48 trillion - World Bank 2006.

Source: BIS Triennial Survey 2007

Major Markets

• The US & UK markets account for just over 50% of turnover
• Major markets: London, New York, Tokyo
• Trading activity is heaviest when major markets overlap⁵
• Nearly two-thirds of NY activity occurs in the morning hours while European markets are open⁶

5. The Foreign Exchange Market in the United States - NY Federal Reserve
6. The Foreign Exchange Market in the United States - NY Federal Reserve

Average Daily Turnover by Geographic Location

Source: BIS Triennial Survey 2007

Concentration in the Banking Industry

• 12 banks account for 75% of turnover in the U.K.
• 10 banks account for 75% of turnover in the U.S.
• 3 banks account for 75% of turnover in Switzerland
• 9 banks account for 75% of turnover in Japan

Source: BIS Triennial Survey 2007

Technical Analysis

Commonly used technical indicators:

• Moving averages
• RSI
• Fibonacci retracements
• Stochastics
• MACD
• Momentum
• Bollinger bands
• Pivot point
• Elliott Wave

Currencies

• The US dollar is involved in over 80% of all foreign exchange transactions, equivalent to over US$2.7 trillion per day

Currency Codes

• USD = US Dollar
• EUR = Euro
• JPY = Japanese Yen
• GBP = British Pound
• CHF = Swiss Franc
• CAD = Canadian Dollar
• AUD = Australian Dollar
• NZD = New Zealand Dollar

Average Daily Turnover by Currency

N.B. Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%.

Source: BIS Triennial Survey 2007

Currency Pairs

• Majors: EUR/USD, USD/JPY, GBP/USD, USD/CHF
• Dollar bloc: USD/CAD, AUD/USD, NZD/USD
• Major crosses: EUR/JPY, EUR/GBP, EUR/CHF

Average Daily Turnover by Currency Pair

Source: BIS Triennial Survey 2007

Forex Money Management

Put two rookie traders in front of the screen, provide them with your best high-probability set-up, and for good measure, have each one take the opposite side of the trade. More than likely, both will wind up losing money. However, if you take two pros and have them trade in the opposite direction of each other, quite frequently both traders will wind up making money - despite the seeming contradiction of the premise. What's the difference? What is the most important factor separating the seasoned traders from the amateurs? The answer is money management.

Like dieting and working out, money management is something that most traders pay lip service to, but few practice in real life. The reason is simple: just like eating healthy and staying fit, money management can seem like a burdensome, unpleasant activity. It forces traders to constantly monitor their positions and to take necessary losses, and few people like to do that. However, as Figure 1 proves, loss-taking is crucial to long-term trading success.

Amount of Equity Lost	Amount of Return Necessary to Restore to Original Equity Value
25%	33%
50%	100%
75%	400%
90%	1000%

Figure 1 - This table shows just how difficult it is to recover from a debilitating loss.

Note that a trader would have to earn 100% on his or her capital - a feat accomplished by less than 1% of traders worldwide - just to break even on an account with a 50% loss. At 75% drawdown, the trader must quadruple his or her account just to bring it back to its original equity - truly a Herculean task!

The Big One

Although most traders are familiar with the figures above, they are inevitably ignored. Trading books are littered with stories of traders losing one, two, even five years' worth of profits in a single trade gone terribly wrong. Typically, the runaway loss is a result of sloppy money management, with no hard stops and lots of average downs into the longs and average ups into the shorts. Above all, the runaway loss is due simply to a loss of discipline.

Most traders begin their trading career, whether consciously or subconsciously, visualizing "The Big One" - the one trade that will make them millions and allow them to retire young and live carefree for the rest of their lives. In FX, this fantasy is further reinforced by the folklore of the markets. Who can forget the time that George Soros "broke the Bank of England" by shorting the pound and walked away with a cool $1-billion profit in a single day? But the cold hard truth for most retail traders is that, instead of experiencing the "Big Win", most traders fall victim to just one "Big Loss" that can knock them out of the game forever.

Learning Tough Lessons

Traders can avoid this fate by controlling their risks through stop losses. In Jack Schwager's famous book "Market Wizards" (1989), day trader and trend follower Larry Hite offers this practical advice: "Never risk more than 1% of total equity on any trade. By only risking 1%, I am indifferent to any individual trade." This is a very good approach. A trader can be wrong 20 times in a row and still have 80% of his or her equity left.

The reality is that very few traders have the discipline to practice this method consistently. Not unlike a child who learns not to touch a hot stove only after being burned once or twice, most traders can only absorb the lessons of risk discipline through the harsh experience of monetary loss. This is the most important reason why traders should use only their speculative capital when first entering the forex market. When novices ask how much money they should begin trading with, one seasoned trader says: "Choose a number that will not materially impact your life if you were to lose it completely. Now subdivide that number by five because your first few attempts at trading will most likely end up in blow out." This too is very sage advice, and it is well worth following for anyone considering trading FX.

Money Management Styles

Generally speaking, there are two ways to practice successful money management. A trader can take many frequent small stops and try to harvest profits from the few large winning trades, or a trader can choose to go for many small squirrel-like gains and take infrequent but large stops in the hope the many small profits will outweigh the few large losses. The first method generates many minor instances of psychological pain, but it produces a few major moments of ecstasy. On the other hand, the second strategy offers many minor instances of joy, but at the expense of experiencing a few very nasty psychological hits. With this wide-stop approach, it is not unusual to lose a week or even a month's worth of profits in one or two trades. (For further reading, see Introduction To Types Of Trading: Swing Trades.)

To a large extent, the method you choose depends on your personality; it is part of the process of discovery for each trader. One of the great benefits of the FX market is that it can accommodate both styles equally, without any additional cost to the retail trader. Since FX is a spread-based market, the cost of each transaction is the same, regardless of the size of any given trader's position.

For example, in EUR/USD, most traders would encounter a 3 pip spread equal to the cost of 3/100th of 1% of the underlying position. This cost will be uniform, in percentage terms, whether the trader wants to deal in 100-unit lots or one million-unit lots of the currency. For example, if the trader wanted to use 10,000-unit lots, the spread would amount to $3, but for the same trade using only 100-unit lots, the spread would be a mere $0.03. Contrast that with the stock market where, for example, a commission on 100 shares or 1,000 shares of a $20 stock may be fixed at $40, making the effective cost of transaction 2% in the case of 100 shares, but only 0.2% in the case of 1,000 shares. This type of variability makes it very hard for smaller traders in the equity market to scale into positions, as commissions heavily skew costs against them. However, FX traders have the benefit of uniform pricing and can practice any style of money management they choose without concern about variable transaction costs.

Four Types of Stops

Once you are ready to trade with a serious approach to money management and the proper amount of capital is allocated to your account, there are four types of stops you may consider.

1. Equity Stop

This is the simplest of all stops. The trader risks only a predetermined amount of his or her account on a single trade. A common metric is to risk 2% of the account on any given trade. On a hypothetical $10,000 trading account, a trader could risk $200, or about 200 points, on one mini lot (10,000 units) of EUR/USD, or only 20 points on a standard 100,000-unit lot. Aggressive traders may consider using 5% equity stops, but note that this amount is generally considered to be the upper limit of prudent money management because 10 consecutive wrong trades would draw down the account by 50%.

One strong criticism of the equity stop is that it places an arbitrary exit point on a trader's position. The trade is liquidated not as a result of a logical response to the price action of the marketplace, but rather to satisfy the trader's internal risk controls.

2. Chart Stop

Technical analysis can generate thousands of possible stops, driven by the price action of the charts or by various technical indicator signals. Technically oriented traders like to combine these exit points with standard equity stop rules to formulate charts stops. A classic example of a chart stop is the swing high/low point. In Figure 2 a trader with our hypothetical $10,000 account using the chart stop could sell one mini lot risking 150 points, or about 1.5% of the account.

Figure 2

3. Volatility Stop

A more sophisticated version of the chart stop uses volatility instead of price action to set risk parameters. The idea is that in a high volatility environment, when prices traverse wide ranges, the trader needs to adapt to the present conditions and allow the position more room for risk to avoid being stopped out by intra-market noise. The opposite holds true for a low volatility environment, in which risk parameters would need to be compressed.

One easy way to measure volatility is through the use of Bollinger bands, which employ standard deviation to measure variance in price. Figures 3 and 4 show a high volatility and a low volatility stop with Bollinger bands. In Figure 3 the volatility stop also allows the trader to use a scale-in approach to achieve a better "blended" price and a faster breakeven point. Note that the total risk exposure of the position should not exceed 2% of the account; therefore, it is critical that the trader use smaller lots to properly size his or her cumulative risk in the trade.

Figure 3

Figure 4

4. Margin Stop

This is perhaps the most unorthodox of all money management strategies, but it can be an effective method in FX, if used judiciously. Unlike exchange-based markets, FX markets operate 24 hours a day. Therefore, FX dealers can liquidate their customer positions almost as soon as they trigger a margin call. For this reason, FX customers are rarely in danger of generating a negative balance in their account, since computers automatically close out all positions.

This money management strategy requires the trader to subdivide his or her capital into 10 equal parts. In our original $10,000 example, the trader would open the account with an FX dealer but only wire $1,000 instead of $10,000, leaving the other $9,000 in his or her bank account. Most FX dealers offer 100:1 leverage, so a $1,000 deposit would allow the trader to control one standard 100,000-unit lot. However, even a 1 point move against the trader would trigger a margin call (since $1,000 is the minimum that the dealer requires). So, depending on the trader's risk tolerance, he or she may choose to trade a 50,000-unit lot position, which allows him or her room for almost 100 points (on a 50,000 lot the dealer requires $500 margin, so $1,000 – 100-point loss* 50,000 lot = $500). Regardless of how much leverage the trader assumed, this controlled parsing of his or her speculative capital would prevent the trader from blowing up his or her account in just one trade and would allow him or her to take many swings at a potentially profitable set-up without the worry or care of setting manual stops. For those traders who like to practice the "have a bunch, bet a bunch" style, this approach may be quite interesting.

Conclusion

As you can see, money management in FX is as flexible and as varied as the market itself. The only universal rule is that all traders in this market must practice some form of it in order to succeed.

By Boris Schlossberg, Senior Currency Strategist, FXCM

Forex Strategy: Trading with Stochastics

Stochastics are amongst the most popular technical indicators when it comes to Forex Trading. Unfortunately most traders use them incorrectly. In this article we will review the correct way to use this popular technical indicator.

George Lane developed this indicator in the late 1950s. Stochastics measure the current close relative to the range (high/low) over a set of periods.

Stochastics consist of two lines:

%K - Is the main line and is usually displayed as a solid line

%D - Is simply a moving average of the %K and is usually displayed as a dotted line

There are three types of Stochastics: Full, fast and slow stochastics. Slow stochastics are simply a smother version of the fast stochastics, and full stochastics are even a smother version of the slow stochastics.

Interpretation:

Buy when %K falls below the oversold level (below 20) and rises back above the same level.

Sell when %K rises above de overbought level (above 80) and falls back below the same level.

The interpretation above is how most traders and investors use them; however, it only works when the market is trendless or ranging. When the market is trending, a reading above the overbought territory isn't necessary a bearish signal, while a reading below de oversold territory isn't necessary bullish signal.

Trending market

When the market is trending is necessary to adapt the oscillator to the same conditions: When the market is trending up, then the signals with the higher probability of success are those in direction of the trend "Buy signals", on the other hand when the market is trending down, selling signals offer the lowest risk opportunities.

Thus when the market is trending up, we will only look for oversold conditions (when the stochastics fall below the oversold level [below 20] and rises back above the same level) to get ready to trade, and in the same way, when the market is trending down we will only look for overbought conditions (when the stochastics rise above de overbought level [above 80] and falls back below the same level.

Taking all overbought/oversold signals during a trending market will lead us to many whipsaws. If you are not comfortable with the number of signals given, try expanding your trading to other currency pairs.

Trend-less market

During a ranging market we could use the interpretation explained above to trade off stochastics.

Divergence

Divergence trades are amongst the most reliable trading signals in the Forex market. A divergence occurs either when the indicator reaches new highs/lows and the market fails to do it or the market reaches new highs/lows and the indicator fails to do it. Both conditions mean that the market isn't as strong as it used to be giving us opportunities to profit from the market.

Stochastics can also be used to trade off divergences.

Price behavior

A price behavior can be incorporated into any kind of system or Forex strategy. When using divergences or overbought/oversold condition with a price behavior approach, the probability of success of our signals increases enormously. Why? Because price dictates at the end, how all indicators will behave, it also gives us a lot of information about the probable direction it will take in the future.

I hope this article helps you become a better trader.

Don't forget to read our risk disclaimer.

Making Forex Day Trading Successful

If you're serious about Forex day trading, where open positions are usually only held for one day, then you'll need to set aside a chunk of time each day to make it happen. Many day traders might try to balance their regular full-time job with Forex trading, but it can be difficult to juggle both endeavors. However, it can be done if you plan it right and make the necessary time commitment and thoroughly try to keep abreast of the latest Forex trading news and offerings.

Scheduling your time

Just like anything else that you're serious with, you'll need to keep set hours for day trading. If you work a 9 am - 5 pm job, you can easily day trade from 7 pm - 10 pm since the Forex market is open 24 hours a day, six days a week. You can even day trade on Sunday, when you don't have to worry about your other job. That extra day can really give you the opportunity to study the latest Forex market trends.

Online resources

Online Forex trading offers some of the sleekest and most impressive total package offerings. Many sites provide the latest Forex news in daily online journals where you can keep current with the latest happenings. You can read about such news items as projected interest rate cuts in Europe or the weakening of a certain country's currency due to the political climate. Not only are daily news articles available, but also fundamental and technical news alerts. These alerts can be sent to you around the clock, up to five or six times per day, so you get the latest information before you make that trade. Online Forex trading systems can send these all-important alerts via your email or even mobile phone, so that you have this information at your fingertips wherever you're located. You don't have to wait until you come home to open your account to see the latest happenings. It gives you a real heads-up on the market so you'll be able to make that day trade decision even that much quicker.

Another invaluable resource to make your day trading that much more successful are the online Forex seminars. It can help you brush up on your overall Forex knowledge and give you invaluable trading strategies for your Forex investments.

by Harman Gilly

Online Forex trading system platforms provide all the conveniences of Forex trading in a user-friendly environment.

The Trading Teacher

When I studied the principles of investing in university, I was taught that the price of a share reflected the value of the company. With fundamental analysis, there are many methods on how one can analyse the financial statements of companies to find out whether a share is a good or a bad investment. You can conduct horizontal and vertical analyses on standardised financial statements, which are just fancy terms for comparing numbers. You can calculate certain financial ratios to get a better understanding of a company's liquidity, working capital management, its ability to remain in business over the long term, and its profitability.

I applied these concepts when I started trading the stock market. Soon I found that if I wanted to trade shares in a timeframe of less than three months, decisions based on these analyses were not useful. I did not want to buy shares only to receive dividends. I wanted to trade for capital gains.

I was dissatisfied with my knowledge, the tools and the methods that I had to trade the markets. With my desire to trade a timeframe shorter than three months and my strengthening belief that emotions greatly impact on trading, I began to search for different approaches to buying and selling shares.

I went back to one of my textbooks in university. I wanted to know how else I could analyse the markets. From the passage I read, I learned that one can analyse the markets in one of two ways: fundamental analysis and technical analysis.

I bumped into a newspaper ad one day for a trading seminar. While reading through the ad I saw the words: technical analysis. An expert trader was going to speak on the exact topic I was interested in learning. It was a free seminar and everybody was welcome to come along. So I called a friend of mine and I asked if he would be interested in attending this trading seminar. He was.

The seminar was organised by a business selling trading courses: courses to instruct people on how to trade the share market. When we arrived, we were led into a small room. There were about thirty people. The spokesman was apparently a veteran trader who wrote two books on trading. Let's call him Bauer for the purpose of this article. Bauer had a very strong presence. He was a huge, tall man with a clean-shaven head.

I was on the front row seat trying to listen and understand every word this man said. It was his teachings that planted the seeds of how I eventually grew as a trader over the years. Many times, I heard his voice in my head, reminding me of the lessons I learnt from his books and the lessons I learnt from him that day. I will try to enumerate the lessons I learnt from this man to help you the way they helped me.

This man had my attention from the very beginning. "The share market is a game where people try to steal money from other people. That is the objective of the game and it is legal", he began. I wondered what the professionals in Wall Street would have thought about that statement if they heard it. I smiled. I liked him already.

He continued: "If you are going to join this game, you are essentially given permission to steal money from other people and in exchange, you are okay with them stealing your money also. Some of the brightest people in the world will be playing with you. Therefore, if you are going to war and fight an army with real weapons, you better make sure you do not go there with a plastic gun."

He said that people rush to the markets to lose their money. It sounded laughable but I guess it was the only conclusion one can draw from the fact that most people begin trading without sufficiently preparing and educating themselves. Of course, most of us do not put on a trade with the hope of losing our money; however, that is what we are effectively doing when we trade without adequate preparation.

"They just cannot wait to lose their money. They do not bother learning about the market first. They think it is easy. Most people know that they need training before they can fly a plane or perform surgery, but I do not know why they think it is easy to make money trading", he exclaimed. He was quite emotional about it.

"Trading is hard", he declared. Only about 5% of people know how to trade profitably. And so the probability of finding someone else who knows what they are doing is very, very small. "Do not rely solely on the advice of your brokers, your fund managers or whoever else. Your best hope for success is to educate yourself. The sooner you do that, the better off you'll be."

"When it comes to buying and selling shares, there is no such thing as investing. What people normally refer to as investing means long-term trading to me". When people hold on to their investments for five or more years with the intention to sell later, then all they are effectively doing is trading:just with a longer time frame.

"Do not buy shares solely for the dividend payments. They offer you measly rewards", he said. "Do trade only with the purpose of making money from capital gains. Buy low, sell high and that's how you should make your profit."

At the time, I was juggling between the concepts of short-term trading or investing for the long-term. I did not know whether I was taking the right approach by attempting to make short-term profits. He made his stance on the matter strongly.

He asked us if we knew what drove prices up or down. Remembering what my lecturer said in university, I responded, "the price moves up and down close to the intrinsic value of the share".

He turned his attention to me and asked, "What share are you trading?"

"XYZ (I changed the name for the purpose of this article)", I replied quite happily. Perhaps I could squeeze a tip or two from him about the stock.

"Do you know what the intrinsic value of XYZ Company is", he asked.

I nodded my head sideways and muttered, "no".

"I'll tell you what the value of XYZ is: it is zero!" He barked.

I was taken aback by his response. Zero? Then what are we paying money for when we buy a share? I thought. Then he clarified himself.

"Price is only a perception — it is people's perception of what they think the value of the share price is".

"The key to success in trading is psychology", he continued. Psychology? I thought. How did psychology get involved in this? "The stock market is like an opinion poll. It is a measure of what people think is going to happen. If they think the price will go up, you will see an upward movement on the chart because there are more buyers so the sellers increase their price because some of these buyers are willing to buy at higher prices", he explained.

He then used an example to explain a typical trader's behaviour when he trades without a system. As he explained it, I recognised my own behaviour in his demonstration.

This was all a revelation for me. When I was buying and selling shares I wondered what type of people were on the other side of the trade because collectively, they were pretty smart. Now I know. It was people like Bauer who were on the other side of those transactions, doing the exact opposite of what I was doing, using similar methods like the ones he was using. They were looking at the share market with a philosophy and an approach that were completely alien to me. Traders like him were making all the money and traders like me were losing.

I shook my head in disbelief that other people saw things the way they did. I felt excited knowing that there was another alternative, another approach in analysing the markets.

"What you need, is to develop your own trading system." He exclaimed to everybody in the entire room. "Without a trading system, you will fail. I guarantee you. This trading system must be something that is suited for you and you only. Even if I give you my trading system I am certain that you will fail to make money, because my system is not designed for you. It is designed for me. That is why you need to learn how to use the tools and acquire the skills needed to be a trader".

I accepted his advice without fully understanding this concept of matching a trading system to suit the trader's own personality. It lingered in my mind for a long time. The wisdom of his advice became apparent to me as I slowly learnt more about the nature of trading.

Bauer diverted our attention to the charts on the screen projected from his laptop. All I saw were lines, curves, rectangular boxes and more squiggly lines. The tools of a professional trader: I thought. I was being shown the tools that my market 'adversaries' have been using to 'clobber' me with all this time. My heart was beating faster than usual. I was in awe. I wanted those tools.

I asked Bauer what program he used to analyse the markets. He told me. I also asked him how many indicators he used. I had read enough about technical analysis by that time to know that technical analysts use indicators to analyse share prices. There are many indicators to choose from so I wanted to know how many of those are used by professional traders. He started counting his fingers. 'Seven', he said.

I think many people there had not really read up on technical analysis but I had done my homework and by that time, I was pretty much the only person in dialog with him, asking him questions. I wanted to gain as much knowledge and wisdom he was willing to give me.

Then I heard one of the most important lessons I've learnt which minimised my losses during my early years of trading: "Trade so small that it is almost a waste of your time. Assume the next trade is going to be the first out of a thousand trades you are going to be making in your life. Even though your profits are smaller, your losses are smaller too. There is no need to rush. Do not worry about getting rich too quickly."

He was suggesting that novices like me should trade using small position sizes. That means to buy small number of shares at the start. I was intrigued. I did not know a person should trade that 'small'.

Eventually, the seminar ended. I grabbed the booklets and brochures given out by some of the staff. In one of these brochures was the name of the program he uses. They were selling the software with the courses they were offering. I could not afford the entire package but I knew I had to buy the same charting software Bauer used. I decided to learn as much as I could about how to use charts and graphs to analyse the market. I needed to develop my own trading system.

As for my friend, he said he had a car loan to take care of first. He would look into trading shares later when he had a little more money to set aside.

A couple of days later, I got a call from the organiser of the seminar, telling me that based from the questions I had been asking that night, I was the type of person that would most benefit from their education package. Bauer was asked to demonstrate the need for trading education because he traded the markets. In the process, he was selling the courses well. Bauer seemed knowledgeable and experienced. He has enlightened me and probably several other people in that room about how much there was to learn. I was sold. I just could not afford the courses at the time but I wanted them so badly that I asked the sales person on the other end of the line if I could work for them in exchange for the course.

I did not get to do the course but I bought the software from a different distributor at a cheaper price. I also bought the two books Bauer wrote. I figured that I could acquire the skills and wisdom through self-education. I learnt a lot from those two books and from using the software. Having that opportunity to attend that seminar was a 'gift from the heavens', as far as I was concerned. Wherever you are, Bauer, I thank you. You — and others like you -- have made me recognize the value of passing on knowledge and experience for others to follow.

About The Author:

Marquez Comelab is the author of the book: The Part-Time Currency Trader. It is a guide for men and women interested in trading currencies in the forex market. Discusses analysis, tools, indicators, trading systems, strategies, discipline and psychology. See: http://marquezcomelab.com. His other articles are also published at http://thefreedomtochoose.com along with other helpful articles.

A Quick Forex Guide for Traders

In this Forex course we will review some steps you need to take care before you venture into your trading journey. Most traders venture into the Forex market with little or no experience in the Forex market. This results in painful experiences like loosing most of the risk capital, frustration because it seemed so easy to make money, etc.

The first thing you need to realize is that, it is not easy to make money. As every other endeavor in life, where important rewards are to come after mastering it, you need to work hard. You need to get very well educated and experienced before having the possibility to receive important rewards on it. The key on mastering the Forex market relies on commitment, patience and discipline.

Ok, you have decided you are going to trade the Forex market, you have seen several advertisings featuring how easy is to make money in the Forex market. You might think this is your opportunity to reach your financial freedom, right away, time is money, why waiting any longer if you have the opportunity to make money now. I know, I've been there, but you have a chance now, I didn't, no body told me what I am going to tell you.

We, Forex traders, make transactions based on a set of rules. These sets of rules are what we call a Trading System. Our systems tell us the exact time where we need to get in the market and out the market in order to make a profit (i.e. buy low sell high.)

Creating a system is the first big step you need to take care first. Why is this so important? Because you need to build a system that suits your personality, otherwise you are going to find hard to follow it, thus hard to profit from.

A system can be based on technical indicators or what we called a mechanical system or based on experience and intuition or what we call discretionary systems. I highly recommend using and trying first a mechanical system, because discretionary systems are dangerous during the early stages of a Forex trader (can lead to indiscipline.) With experience, on later stages, you will find out which signals work better and which ones to avoid.

The next step in this Forex course is to try your system on a demo account. Most Forex brokers offer a demo account, an account with virtual money. This is an excellent choice to test your trading system as there is no money at risk. In this step you will figure out if the strategy works for you. If you feel comfortable trading it, then it is most likely to produce good results. How much time should you stay in this step? It varies, but you shouldn't go one step further until your system gets consistent profitable results over a period of time. It can take many months, but remember, you need to be patient.

You must be honest to yourself; you need to take every single signal generated by your system, not only the signals you thought were going to work, otherwise, you are going to have problems in the next two steps.

Ok, by know you had consistent profitable results on your demo account. You might think its time to go full. Nope, nope, nope. There is a big difference between trading a demo and a real account. The most important difference lies on emotions (fear, greed, anger, etc.) These are psychological barriers that affect every single decision made by traders regardless of what he/she is trading (stocks, bonds, Forex, futures, grains, etc.) These emotional factors, in my opinion, are the most determinant factor that separates profitable traders from the others.

The next step in this Forex course is specially designed to deal with emotions and to confirm the results obtained in the prior step (consistent results in a demo account.) At this step you need to trade in a real account with limited funds. Some brokers offer fractional lot trading. Meaning you are able to trade any desired amount (even cents.) The important thing here is that these emotions we've been talking about are present only when there is real money at risk. At this stage, you are going to see if you are really comfortable trading your system and if you are able to trade with such system, remember different systems produce different emotions. If you are able to produce similar results than those obtained in a demo account, then ready for the next step. If you didn't, then you might need to create another system, there is chance your system never fit you. If you created consistent profitable results on this stage, you have a chance to produce similar results in the next one, on the other hand, if you didn't produce good results in this stage, you will not be able to make on the next stage. Remember, you need to do things right, and be honest to yourself.

The last stage is trading in a real account with sufficient funds. If you are at this stage, and have passed successfully every prior stage, then you have a chance to make it, go ahead and try it, you need to be confident in yourself and in your system, your strategy have already produced consistent profitable results, there are reasons to believe you are going to make it. Very few traders fail at this stage (if passed successfully prior stages.)

Trading successfully is no easy task, it requires a lot of work, patience, discipline, and education. By completing the steps outlined in this Forex course, you have a chance to produce profitable results. I repeat it again, you need to be honest to yourself about the results obtained in every stage. Some times you might need expert guidance regarding your system development strategies.

Choosing A Forex Strategy

Technical analysis and fundamental analysis are the two basic areas of strategy in the FOREX market which is the exact same as in the equity markets. However, technical analysis is by far the most common strategy that is used by individual FOREX traders. Here is a brief overview of both forms of analysis and how they directly apply to forex trading:

Fundamental Analysis

If you think it's hard enough to value one company, you should try valuing a whole country instead. Fundamental analysis in the forex market is often an extremely difficult one, and it's usually used only as a means to predict long-term trends. However it is important to mention that some traders do trade short term strictly on news releases. There are a lot of different fundamental indicators of the currency values released at many different times. Here are a few of them to get you started:

* Non-farm Payrolls

* Purchasing Managers Index (PMI)

* Consumer Price Index (CPI)

* Retail Sales

* Durable Goods

You need to know that these reports are not the only fundamental factors that you have to watch. There are also quite a variety of meetings where you can get some quotes and commentary that can affect markets just as much as any report. These meetings are often brought out to discuss any interest rates, inflation, and other issues that have the ability to affect currency values.

Even changes in how things are worded when addressing certain issues such as the Federal Reserve chairman's comments on interest rates; can cause a volatile market. Two important meetings that you have to watch out for are the Federal Open Market Committee and Humphrey Hawkins Hearings.

Just by reading the reports and examining the commentary, it can help FOREX fundamental analysts to get a better understanding of any and all long-term market trends and also to allow short-term traders to be able to profit from extraordinary happenings. If you do decide to follow a fundamental strategy, you will want to be sure to keep an economic calendar handy at all times so you know when these reports are released. Your broker may also be able to provide you with real-time access to this kind of information.

Technical Analysis

Just like their counterparts in the equity markets, technical analysts of the FOREX trading market analyze price trends. The only real difference between technical analysis in FOREX and technical analysis in equities is the time frame that is involved in that FOREX markets are open 24 hours a day.

Because of this, some forms of technical analysis that factor in time have to be modified so that they can work with the 24 hour FOREX market. Some of the most common forms of technical analysis used in FOREX are:

* The Elliott Waves

* Fibonacci studies

* Parabolic SAR

* Pivot points

A lot of technical analysts have a tendency to combine technical studies to make more accurate predictions on your behalf. (The most common method for them is combining the Fibonacci studies with Elliott Waves.) Others prefer to create trading systems in an effort to repeatedly locate similar buying and selling conditions.

Choosing Your Strategy

Most successful traders will develop a strategy and perfect it over a specific period of time. Some people will focus on one particular study or calculation, while still some others use broad spectrum analysis as a means of determining their trades. Most experts would likely suggest that you try using a combination of both fundamental and technical analysis, with which you can make long-term projections and also determine entry and exit points. Of course, in the end, it is the individual trader who has to decide what works best for him.

When you are ready to get started in the FOREX market, you should open a demo account and paper trade so that you can practice until you can make a consistent profit. Many people who fail have a tendency to jump into the FOREX market and quickly lose a lot of money because of a lack of experience. It is important to take your time and learn to trade properly before you start committing capital.

You also need to be ale to trade without emotion. You can't keep track of all stop-loss points if you don't have the ability to execute them on time. You must always set your stop-loss and take-profit points to execute automatically, and don't change them unless you absolutely have to. Make your decisions and stick to them. Otherwise you will drive yourself and your brokers crazy.

You should also realize that you need to follow the trends. If you go against the trend, you are just messing with your money because the FOREX market tends to trend more often than anything else and you will have a higher chance of success in trading with the trend.

The FOREX market is the largest market in the world, and every day people are becoming increasingly interested in it. But before you begin trading, make sure your broker meets certain criteria, and take the time to find a trading strategy that works for you.

by Giles Windholm

How I became a successful part time trader

Introduction

I am Joe Chalhoub, a computer engineer, Forex trader and strategy builder. I began trading currencies 3 years ago. The first 3 months trading were complete failure, I remember I lost all my money and I was about to quit, but I couldn't, I felt if I quit now maybe I am missing the chance of having my own business. So I stopped trading and began observing, studying, analyzing and practicing.

Observing: I began observing the market, what causes movement, reaction, ranging and trading.

Analyzing: I began working with technical and fundamental analysis; how each analysis can predict and redirect the market and how I can use them both for my own benefit. I will talk about these analyses in the following paragraph.

Reading: I bought Forex Trading Books and read them, books explaining different strategies and tactics used by experienced traders.

Practicing: I created free accounts and began trading virtually and each technique I invent I tried it and monitored its performance and validity.

After one year of studies, analysis and practicing trading techniques and after many failure and frustration I reached my own strategy and it is working very well and each month my profit is positive.

Implementation

I reached my targets and I built a successful strategy, but that's not enough; to make profit I must not miss any opportunity and forex market is full of opportunities because it is the most active market in the world, for that reason I must sit all time and watch and detect opportunities all day long from Monday to Friday.

How to resolve this problem, I can't sit and observe the market hours and hours, I have my career and my family, so I thought I must program my strategy, let the Information Technology do the hard work for me, and nobody is discipline as a software, so I created an artificial intelligent software which collects data from the market and implement my strategy on this data and detect opportunities 24/24.

This program analyses fundamental and technical data and generates forex signals which are forwarded automatically to my broker platform where the signals are executed automatically and forwarded also to my website members. All this is done without my interfering, I just run the program, it analyses and makes its decisions (Buying, Selling or stay aside).

How to succeed in Forex Trading

Five over hundred traders succeed in this business, what differentiate those five successful from the 95 others is one thing, it is the HARD WORK. Forex trading is not an easy business, and who tells you that he can make you rich in one night is one of those 95. Only one thing can make you a successful trader, HARD WORK, and nothing else. Don't rely on other traders or advisors to help you, rely and have confidence on yourself.

Don't begin trading quickly, the forex market will not go anywhere, it will stay forever, give yourself 6 to 12 months of studies, analysis, readings, practice and build your own strategy before begin real trading, it will take a lot of time and dedication but at the end you will reach your target.

Strategy

I will not reveal my full strategy but I will reveal some techniques I use which help traders in their trades.

My strategy follows the following tips and techniques:

1 — Discipline: Put criteria for your trades, watch the market and only trade when criteria are met, if they are not met do not trade. My program is the most disciplined trader, it takes care of all of this, it monitors the market and only trade if only criteria are met, and the second advantage of this is the elimination of the fear factor, it enters a trade when it sees it is good to enter and fear nothing.

2 — Money management: It's the main key for good trading, I exit all trades and stop trading for a specific day if I lost -60 pips, in the other hand I put stop loss for my trades if I reached +25 pips profit, in that case profit will not get under +25 pips and it has open target, and all I have to do is go out and have fun.

3 — No trades for now: The most important thing in trading is sometime not to trade, I take this decision after looking to my charts and see that there is not enough volatility or there is no enough reports will be released for today and it is better to wait until market is more volatile. I advise traders not to trade during the first days of the month, personally I begin trading at the first Friday of the month when the "NonFarm payroll" report will be released.

4 — Analysis: I use fundamental and technical analysis while trading. Fundamental defines the trend of the market and the technical analysis is used after the definition of the trend. I trade the news by analyzing programmatically the released data for a specific report and generate signals which are executed immediately on the trading platform and forwarded simultaneously to my members.

Fundamental and technical analysis must be used together, if one is used without the other this will lead to failure.

5 — Technical indicators: In the forex market there is a lot of indicators which are used by many traders. I use ADX, Bollinger Bands to identify trends and volatility; RSI to identify an over bought or sold and Moving Average to identify a signal. And the most important technique is FIBONACCI, I advise traders to implement this technique and use it to confirm trades.

Finally, I must say that Forex is not easy, and many times we feel that someone is doing a conspiracy on us to take our money, but the truth is nothing is impossible, and others successful traders are not more intelligent than us and they are not genius from other planet, the fact is the more you work the more you become closer to become good trader. Do not quit quickly because this business deserves hard work and dedication.

By Joe Chalhoub

About the author:

Address: Lebanon, Beirut

Website: http://www.rpchost.com

Email: webmaster@rpchost.com

Bio: http://www.rpchost.com/profile.aspx