Sunday, February 26, 2012

Forex Trading - Trade with a Strategy

Trading successfully is by no means a simple matter. It requires time, market knowledge and market understanding and a large amount of self restraint.

Anyone who says you can consistently make money in foreign exchange markets is being untruthful. Foreign exchange by nature, is a volatile market. The practice of trading it by way of margin increases that volatility exponentially. We are therefore talking about a very 'fast market' which is naturally inconsistent. Following that precept, it is logical to say that in order to make a successful trade, a trader has to take into account technical and fundamental data and make an informed decision based on his perception of market sentiment and market expectation. Timing a trade correctly is probably the most important variable in trading successfully but invariably there will be times where a traders' timing will be off. Don't loose heart if you loose on some trades. Experienced and seasoned traders do not expect to generate returns on every trade.

Let's enumerate what a trader needs to do in order to put the best chances for profitable trades on his side:

Trade with money you can afford to lose:
Trading forex markets is speculative and can result in loss, it is also exciting, exhilarating and can be addictive. The more you are 'involved with your money' the harder it is to make a clear-headed decision. Money you have earned is precious, but money you need to survive should never be traded.

If in doubt, stay out:
If you're unsure about a trade and find you're hesitating, stay on the sidelines.

Trade logical transaction sizes:
Margin trading allows the forex trader a very large amount of leverage, trading at full margin capacity can make for some very large profits or losses on an account. Scaling your trades so that you may re-enter the market or make transactions on other currencies is generally wiser. In short, don't trade amounts that can potentially wipe you out and don't put all your eggs in one basket.

Identify the state of the market:
What is the market doing? Is it trending upwards, downwards, is it in a trading range. Is the trend strong or weak, did it begin long ago or does it look like a new trend that's forming. Getting a clear picture of the market situation is laying the groundwork for a successful trade.
Determine what time frame you're trading on:
Many traders get in the market without thinking when they would like to get out, after all the goal is to make money. This is true but when trading, one must extrapolate in his mind's eye the movement that one expects to happen. Within this extrapolation, resides a price evolution during a certain period of time. Attached to this is the idea of exit price. The importance of this is to mentally put your trade in perspective and although it is clearly impossible to know exactly when you will exit the market, it is important to define from the outset if you'll be 'scalping' (trying to get a few points off the market) trading intra-day, or going longer term. This will also determine what chart period you're looking at. If you trade many times a day, there's no point basing your technical analysis on a daily graph, you'll probably want to analyse 30 minute or hour graphs. Additionally it is important to know the different time periods when various financial centers enter and exit the market as this creates more or less volatility and liquidity and can influence market movements.

Time your trade:
You can be right about a potential market movement but be too early or too late when you enter the trade. Timing considerations are twofold, an expected market figure like CPI, retail sales or a federal reserve decision can consolidate a movement that's already underway. Timing your move means knowing what's expected and taking into account all considerations before trading. Technical analysis can help you identify when and at what price a move may occur.

Gauge market sentiment:
Market sentiment is what most of the market is perceived to be feeling about the market and therefore what it is doing or will do. This is basically about trend. You may have heard the term 'the trend is your friend', this basically means that if you're in the right direction with a strong trend you will make successful trades. This of course is very simplistic, a trend is capable of reversal at any time. Technical and fundamental data can indicate however if the trend has begun long ago and if it is strong or weak.

Market expectation:
Market expection relates to what most people are expecting as far as upcoming news is concerned. If people are expecting an interest rate to rise and it does, then there usually will not be much of a movement because the information will already have been 'discounted' by the market, alternatively if the adverse happens, markets will usually react violently.

Use what other traders use:
In a perfect world, every trader would be looking at a 14 day RSI and making trading decisions based on that. If that was the case, when RSI would go under the 30 level, everyone would buy and by consequence the price would rise. Needless to say, the world is not perfect and not all market participants follow the same technical indicators, draw the same trendlines and identify the same support & resistance levels. The great diversity of opinions and techniques used translates directly into price diversity. Traders however have a tendency to use a limited variety of technical tools. The most common are 9 and 14 day RSI, obvious trendlines and support levels, fibonnacci retracement, MACD and 9, 20 & 40 day exponential moving averages. The closer you get to what most traders are looking at, the more precise your estimations will be. The reason for this is simple arithmetic, larger numbers of buyers than sellers at a certain price will move the market up from that price and vice-versa.

Why Share Strategies?

We get this question pretty often from readers? And the reason we feel traders should be open to discussing approaches is so that they can better improve their abilities. Trading is a continuous learning experience, and to think that you’ll be trading the same simple setup five years from now is probably naive. All traders are continually working on different aspects of the game, and in order to stay sharp and continue improving, one needs to continually refine and adapt.

We Pipsters are always going on and on about the conditioning of the individual. We firmly believe that fundamental and technical abilities are both necessary in order to be a successful trader, yet the fact is an ability to succeed is no easy task that can be rendered through simple memorization of both fundamentals and a technical approach to trading.

A truly successful trader in this game is much like a truly successful athlete. Of course there are millions of guys who can kick a soccerball or shoot a basketball. There are thousands who can do it particularly well.

But the ones who come out on top are able to perform with regularity. It’s when they can perform with regularity that they earn the stripes that go with being a professional. And doing it consistently is more than a matter of mental preparation than physical preparation.

The mental part of the game is the part that absolutely gets most traders.

The mental part of the game is the last part of the game any traders want to work on.

And the mental part of the game is the part that separates those who are consistently earning a living from those who are forever trying to fine tune the magic ‘formula’ that will make earning pips easy.

Yes, we’ve all met them before… the guys (and gals) out there who’ve been doing this for years, constantly testing charts and setups looking for some sort of tell all scenario where the gut wrenching decisions need not be made. They want it to be as simple as turning on a car, and it’s never going to be that easy. There is always going to be the issue of the market looking to cause chaos in order to shake up the market and keep things in balance.

A truly refined professional who has worked on the mental part of the game realizes that the strategy is simply ONE of the keys to success, and that any approach to trading requires the steadfast mentality to see a system through — to test it properly; define it’s weaknesses; and finally, to put it into action and trade it according to plan rather than dismantling the plan at the first sign of distress.

Trading is a probability game. There is no knowing the direction of the market. There is no setup that is going to work without fail time and time again.

One of our best pieces of advice that we offer to new traders who are not successful is to sign up with a Forex Signal Service that has a proven track record, and study the approach and behavior of these professionals. Professionals do not always come up, but you’ll see first hand how well they’re able to manage their accounts over a long stretch, which is inevitably the key to performance.

The only way to succeed as a professional in this highly competitive arena is to become ‘forever’ a student of the game, and to appreciate the mental makeup that is necessary to become the sort of trader who can put his or her hard earned testing to practice in live action markets and not fold under the pressure of that very formidable drawdown. Study the Forex basics, understand the value of good free information and Forex tips provided on this site, and work to develop an understanding of the mental makeup of a successful trader.

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Most Popular Forex Trading Strategies

Forex trading strategies are key to successful trading. An understanding of these Forex trading strategies can make a significant difference to what you stand to gain from your stint in the Forex market. The following are some Forex trading strategies accessible to investors:
Leverage. While leverage enables online Forex traders to trade a higher amount than they have in their account, it also exposes them to higher risks. However, you can make the most of leverage (which is sometimes as high as 100 times the amount you have in your deposit account), while protecting yourself from huge losses by using a strategy. This strategy involves making use of only as much leverage as is appropriate for the experience you have in trading.
Stop loss order. This is another universally used Forex trading strategy that enables investors to cap their losses. This strategy helps generate a pre-specified price level beyond which investors would neither let their position remain open nor place a new trade.
Simple Moving Average (SMA). The ability to read prior data from charts is highly critical to Forex trading. The SMA is usually automatically generated by a Forex trading platform. The moment the price of a currency moves above the SMA, it represents a time to buy, and when the price dips below the SMA, it is the time to sell.
Support and Resistance. These are the levels at which the market price of a currency tends to reach repeatedly, but fails to move above/below it. These levels can be identified by studying the past data of a currency pair.

Although none of the Forex trading strategies can guarantee 100% results, most of the times investors seem to benefit from them. You can adopt any of the Forex trading strategies depending on your requirements. Easy-Forex® offers Trading Tools that
help you improve your success potential.

Forex Trading Strategies

Developing a profitable forex trading strategy requires passion, persistence, and discipline, but most of all it requires that you obtain a genuine and effective forex trading education. There are many forex strategies floating around the internet that you can learn from, some of these are effective, many of them are more trouble than they are worth however. This website was created and designed to help you learn more about how to develop a successful forex trading strategy that will actually give you an edge in the market.
The forex market provides some of the best opportunities for financial market speculation for retail traders today. It is the most widely traded market in the world, contains the deepest liquidity (this means you can get in and out of trades very easily), and is open 24 hours a day from Sunday afternoon until Friday evening. The combination of these factors means that forex traders have more opportunities, greater flexibility, and lower transaction costs than traders in any other financial market. However, these facts alone will not make you a profitable forex currency trader, you need to study and learn about which forex strategies work and which ones are probably not worth your time (there are many of the latter, and few of the former).

Unfortunately there is no “magic bullet” when it comes to a forex strategy, whether or not a particular forex trading strategy is profitable depends on not only the strategy itself but also on the trader trading that particular strategy. If a trader has very poor self-discipline and poor control of their emotions, they are probably going to lose money on even the most accurate of forex trading strategies. The intersection of self-discipline / emotional control and a truly effective forex trading strategy is where forex trading success is found. Until or unless you learn to master your own emotions you will simply never become a profitable and consistent forex trader. Many traders get lucky in the markets and hit some big winners only to give them all back soon after, far fewer traders find the discipline and self control that it takes to profit on a consistent basis in the forex market.

Some truths about forex trading strategies that you might not read on other websites:

• You won’t get rich overnight in the forex market, it takes time, effort, and discipline to become a consistently profitable trader. There is no “easy” way out.

• The particular forex trading strategy you use to navigate the market each day can have a profound affect on how you think about and view the market, in other words, on your trading psychology.

• Inflexible trading “systems” that provide for no flexibility or human discretion are inherently flawed and will break down over time as market conditions change.

• Forex strategies that teach traders how to “fish for themselves” are the genuine ones that have a higher probability of returning positive results in the long run.

• Even the best forex trading strategy on earth will not make money if you don’t practice proper restraint and money management.

I hope you enjoy the information on this website. It’s 100% FREE and it’s my gift back to you.