Thursday, November 26, 2009

Trading lesson from expert

Those of you who have taken one of our DailyFX Courses know that the instructors always recommend trading in the direction of the trend on the daily chart. If the trend is up, then only look for buys and if the trend is down, then only look for sells.

This includes those situations where you have identified a trading opportunity using a chart pattern. On the daily chart of the GBP/CHF below, I have identified two Double Tops and a Range Bound situation.

Many traders look for these patterns on a chart as solid trading opportunities. They will try to sell Double Tops (and buy Double Bottoms) and wait for a breakout of the range with the intention of entering into a trade in the direction of that breakout. But we still recommend using the direction of the trend as a directional bias on your trades even in these situations. When a market pulls back off of an all-time high and then starts to move back up to new all-time highs, there will be a period of time when the market looks like a potential double top. However, selling all-time highs or buying all-time lows is really not an approach that will lead to consistent profits. We should be looking to buy a market that is at or near all-time highs, not try to predict the end of the trending move. Our preferred play is to sell Double Tops in a downtrend and buy Double Bottoms in an uptrend. On the chart below are two examples of what that looks like. Many traders will sell as the market moves down through the support low between the two highs as that serves as some confirmation that it is indeed a Double Top. Selling as the market moves down through that low and placing your protective stop above the Double Top represents a solid trading opportunity.

Since we are looking at a market in a downtrend, we can also see how that trend may determine the direction of a break out of a trading range. When a market moves into a range bound situation, many times it is because traders are waiting for a news event before putting on new positions. More often than not, that news event just confirms the direction of the trend and breaks out of the range in that same direction. So markets that are moving down and then move into a range will more often than not, break down through support. Markets that are moving up and then move into a range will more often than not, break out up through resistance. Otherwise, markets have a tendency to break out of a range in the same direction it was trading in before going into the range. “More often than not” does not mean every time, but does offer a professional enough of an edge to use as the basis of a solid approach to trading.

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How To Manage Your Money When Trading The Forex Markets

Money Management

Forex trading can be a very rewarding profession because you can start off with a relatively modest amount of capital and turn it into a considerable amount of money. However it should be pointed out that it's definitely not a get rich scheme.

Of course it is possible to make a lot of money in a short space of time if you use a large amount of leverage and take out a large position or two. However you can do exactly the same at the races or at the roulette wheel. The fact is that forex trading should not be a form of gambling. It's all about taking calculated risks using sensible stakes, and employing a profitable trading system to help you generate winning trades.

Your goal should always be to grow your trading capital slowly and steadily so that in a few years time your account will be showing some considerable growth. This is a lot easier to do and will help you to achieve sustainable long-term wealth without taking unnecessary risks.

Indeed you should forget about using large amounts of leverage because by doing so you are putting a lot of your trading capital at risk. In the worst case scenario you may even be wiped out completely from a single trade that goes against you.

It's a much better idea to use a sensible staking plan. I personally like to risk no more than 3% of my trading capital on any given trade. That way I can easily withstand a few losing trades whilst racking up some decent profits from any winning trades.

This is particularly true if you let your winning trades run for as long as possible. For example you may think that a few losing trades of 3% each time may make a serious dent in your account, but if you let your winning trades run you may achieve gains of up to 5-10% per trade. Therefore your winning trades will more than compensate for your losing ones in the long run.

So the point is that if you are serious about becoming a profitable forex trader, you should manage your money as best as possible. This involves keeping your losses small, using modest stakes of no more than around 3% of your capital per trade, and letting your winning trades run. That way it's a lot easier to generate consistent profits in the long run. All you need is a profitable trading method and some trading capital to get you up and running.

Saturday, November 21, 2009

How to make money in forex

How to make money in forex trader is a post that will broading your understanding on how to trade forex successfully.i will be written in a question form, just to enlightyou more about success behind forex trading.

Questions: Not more than seven

1. How often after losing 10, 20 or 30 percent of your account you look back at your trades and regret you were right from the very begining but still lost, and lost heavily?

2. How may times you take a heavy position and that position turns in your favor soon after you have taken that position?

3. How many times you close out an excellent heavy position just to bank few pips or fearing that pa may move against you wiping out your account?

4. How many times you regret and wish you should have waited for the right time to enter?

6. How many times you keep on changing your direction, losing trade after trade feeling market is after your a$$?

7. Ask other thousand similar questions to yourself

After asking these questions, you would come to just one conclusion:

"Holigrail is not a method but a trader him/herself"

Golden words:
Decide what you want to do, calculate risk and reward, wait, wait, wait and wait for the opportunity. It may appear and disappear without giving you an entry chance. Again wait, wait, wait and wait. When you find the right opportunity, enter and sit tight until the trade concludes. Repeat this several times and you will be a millionaire in about 5 to 50 years, but you WILL BE one.

If you are not willing to take reasonable amount of risk, cannot wait, do not believe in your analysis, cannot stop keep changing your mind with every few pip move against you, and are a pussy cat - wear a tie and a coat, take early morning bus to go and work in someone else's office for next 50 years. Don't waste your time and energy on something which you are not serious in achieving, and that is, make millions.

Money management

What is Money Management: describes strategies or methods a player uses to avoid losing their bankroll.

Money management in the foreign exchange currency market requires educating yourself in a variety of financial areas. First, a definition of the foreign exchange currency or forex market is called for. The forex market is simply the exchange of the currency of one country for the currency of another. The relative values of various currencies in the world change on a regular basis.

Factors such as the stability of the economy of a country, the gross national product, the gross domestic product, inflation, interest rates, and such obvious factors as domestic security and foreign relations come into play. For instance, if a country has an unstable government, is expecting a military takeover, or is about to become involved in a war, then the country’s currency may go down in relative value compared to the currency of other countries.

The Forex, or foreign currency exchange, is all about money. Money from all over the world is bought, sold and traded. On the Forex, anyone can buy and sell currency and with possibly come out ahead in the end. When dealing with the foreign currency exchange, it is possible to buy the currency of one country, sell it and make a profit. For example, a broker might buy a Japanese yen when the yen to dollar ratio increases, then sell the yens and buy back American dollars for a profit.

There are five major forex exchange markets in the world, New York, London, Frankfurt, Paris, Tokyo and Zurich. Forex trading occurs around the clock in various markets, Asian, European, and American. With different time zones, when Asian trading stops, European trading opens, and conversely when European trading stops, American trading opens, and when American trading stops, then it is time for Asian trading to begin again.

Most of the trading in the world occurs in the forex markets; smaller markets for trade in individual countries. Simply put forex trading is the simultaneous buying of one currency and selling of another. Over $1.4 trillion dollars, US of forex trading occurs daily and sometimes fortunes are made or lost in this market. The billionaire George Soros has made most of his money in forex trading. Successfully managing your money in forex trading requires an understanding of the bid/ask spread.

Simply put the bid ask spread is the difference between the price at which something is offered for sale and the price that it is actually purchased for. For instance, if the ask price is 100 dollars, and the bid is 102 dollars then the difference is two dollars, the spread. Many forex traders trade on margin. Trading on margin is buying and selling assets that are worth more than the money in your account. Since currency exchange rates on any given day are usually less than two percent, forex trading is done with a small margin. To use an example, with a one percent margin a trader can trade up to $250,000 even if he only has $5,000 in his account. This means the trade has leverage of 50 to one. This amount of leverage allows a trader to make good profits very quickly. Of course, with the chance of high profits also comes high risk.

Like many other speculative investments, a key part of money management for the forex trader is only using money that can be put at risk. It is wise to set aside a portion of your net worth and make that the only money you use in forex trading. While the chances of good profits are there, if you should have a problem and get wiped out, you’ll only have a limited amount of money placed at risk. Also remember that the market is n constant motion. There are always trading opportunities.

If a currency is becoming stronger or weaker in relation to other currencies there is always a chance for profit. For instance, if you believe that the Euro is gong to become weak compared to the US dollar then selling Euros is a good bet. If you believe that the dollar is going to become weaker than the yen, or the pound sterling, then selling dollars is wise. Staying current on the news and current events in the countries whose currency you hold is a smart move. Many people reach points where they can predict currency changes based on political or economic news in a given country. Remember though that forex trading is speculation, so be careful when managing your funds and only invest what you can afford to risk.

Please always make sure you check with the pros when dealing in this market unless you are doing this as a hobby and don't have a lot at stake in it. There are a lot of big boys playing here and they won't lose much sleep if you and thousands others lose their shirts...

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Risk Warning

please note that Forex trading (OTC Trading) involves substantial risk of loss, and may not be suitable for everyone.