Introduction
At first glance, it may not appear that important, but you will come to appreciate the wisdom of ensuring you have all of the tools necessary to make your currency trading experience a positive one.
Work Station Location
Choosing the right place for trading is your first step. Be sure not to rush into making this decision too quickly. Do you have a spare room? How about an office? The place you choose should be a place where you can concentrate and feel comfortable.
Trading Forex at times can be very stressful, so your trading area should be a place where you can relax. Avoid setting up your trading setup in your bedroom, as this could disrupt your sleep cycle. Having the right amount of rest and sleep is as important as trading forex itself. Keep this in mind.
Trading Computer and Accessories
One of the most frustrating events for a new trader is attempting with outdated computer equipment. The following list must not be ignored in acquiring adequate computer equipment:
Minimum Hardware Requirements:
• Pentium 3• 256 MB Ram• 20 GB HD• 17" Monitor• Fast Internet Connection • Windows 2000, XP• Antivirus and Firewall Protection
Whether you choose a desktop or laptop computer, be sure it meets the minimum requirements for the best operating results. You'll also want to have a comfortable chair with adequate lower-back support.
Other useful accessories include: a small calculator, a telephone to call dealing desk if needed and a notebook to be used as a trading log.
Recommended Hardware Requirements:
• Pentium 4 2.6GHZ or better• 512 MB Ram• 100GB HD• 2 17"monitors or 2 19" (LCD)• FAST Internet Connection • Windows XP• Antivirus and Firewall Protection
Internet Connection
When you are a day trader, you will need a stable fast internet connection, avoid internet services where frequent disconnections are the norm, for longer term traders (such as o daily chart traders), you can use a dial up connection but still preferred is a fast stable connection to the internet such as ADSL.Toby Smitz - Daily OperationsForex Trading
October 31, 2007
October 30, 2007
Advantages of Trading FOREX Over Stocks and Commodities
There are many advantages to Trading FOREX as your main income generator. Let's start by something that may be worrying you already.
"Do I need a Diploma or some kind of Certification to trade FOREX?" The answer is this:
When attempting to make more profit than losses on the fluctuation of exchange rates between major currencies (i.e., Trading the FOREX), nobody is going to ask you for a diploma, a formal license or verify the amount of hours you've spent studying the Foreign exchange market and banking industry. All you need is the proper training.
But this is not the only advantage you get when trading FOREX, compared to other ways of investment and speculation; i.e. Stocks and Commodities. You have a whole bunch of advantages over these other options that will be enumerated in the following paragraphs.
The Main Benefits of Trading the FX Spot Market:
1): FOREX is the largest financial market in the world.
With a daily trading volume of over $1.5 trillion, the spot FOREX market can absorb trading sizes that dwarf the capacity of any other market. In fact, when compared with the $50 billion daily market for equities or the $30 billion futures market, it becomes quickly apparent this gives you, and millions of other FOREX traders, almost infinite trading liquidity and flexibility.
2): FOREX is a TRUE 24-hour market.
The FOREX Market never sleeps. Trading positions can be entered and exited at any moment - around the globe, around the clock, six days a week. There is no waiting for an opening bell as in the case of trading stocks. It is a 24- hour, continuous electronic (ONLINE) currency exchange that never closes. This is very desirable for you if you want to trade on a part-time basis, because you can choose when you want to trade: morning, noon or night.
3): There is never a Bear Market in FOREX.
You can have access to a seamless, mutually-inclusive (two- way) exchange of currencies. Meaning, because currencies trade in "pairs" (for example, US dollar vs. yen or US dollar vs. Swiss franc), one side of every currency pair (for example, USD/JPY - JPY = YEN) is constantly moving in relation to the other. Thus, when you buy a particular currency, you are actually simultaneously selling the other currency in that particular pair. As the market moves, one of the currencies will increase in value versus the other. Of course, it is up to you to choose the correct currency to be long or short. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. This means you have equal potential to profit in both a rising or falling market.
4): High Leverage - up to 200:1 Leverage.
You are permitted to trade foreign currencies on a highly leveraged basis - up to 200 times your investment with some brokers. This is primarily attributed to the higher levels of liquidity within the currency markets. Standard 100,000- unit currency lots can be traded with as little as 1% margin, or $1,000. Mini FX accounts are permitted to trade with just 0.5% margin -- in other words, just $50 allows you to control a 10,000-unit currency position. Futures traders, who are accustomed to margin requirements generally equal to 5%-8% of the contract value, will immediately recognize that the FOREX market provides much greater leverage, and for stock traders, who must post at least 50% margin, there’s no comparison. If you are looking for an efficient use of trading capital, this is it!
5): Price Movements Are Highly Predictable.
Although currency prices in the FX market may be volatile, they generally repeat themselves in relatively predictable cycles, creating trends. The strong trends that foreign currencies develop are a significant advantage for traders who use the correct "technical" methods.
Unlike stocks, currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. Over 80% of volume is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. As a technically-trained trader, you can easily identify new trends and breakouts, which provide for multiple opportunities to enter and exit positions.
6:) Commission-free Trading and Low Transaction Cost
When you trade FOREX, through one of our recommended brokers (this info is in our private resources section), you'll do it totally commission-free! These brokers don't charge commissions to trade or to maintain an account, and that goes for all clients trading the FOREX through them, regardless of your account balance or trading volume. Even Mini FX traders can buy and sell currencies online, commission-free.
What about trading fees? There are none of the usual fees to which futures and equity traders are accustomed -- no exchange or clearing fees, no N_F_A or S_E_C fees. Because currencies trade over-the-counter (OTC), via a global electronic network -- in FOREX, what you see is what you get, allowing you to make quick decisions on your trades without having to worry or account for fees that may affect your profit/loss or slippage.
In the equities markets, you must pay both a commission and exchange fees. The over-the-counter structure of the FX market eliminates exchange and clearing fees, which in turn lowers transaction costs.
So, if FOREX broker don't charge commissions, how do they make money? Like all traded financial products, over-the- counter currency trading involves a bid/ask spread, which represents the prices at which your counterparty is willing to trade. Because the currency market offers round-the-clock liquidity, you receive tight, competitive spreads both intra-day and night. Stock traders can be more vulnerable to liquidity risk and typically receive wider trading spreads, especially during after-hours trading.
7): Instantaneous Order Execution and Market Transparency.
Market transparency is highly desired in any trading environment. The greater the market transparency, the more efficient the market becomes. Unlike other markets where transparency is compromised (like in the Enron scandal), FOREX markets are highly transparent (i.e., analyzing countries, and having access to real-time research / news, is easier than companies).
Because of this transparency, as an FX trader, you will be able to exercise risk management strategies in accordance to the fundamental and technical indicators we teach at RapidForex.com
The FX market offers the highest level of market transparency out of all the financial markets. Because of this, order execution and fill confirmation usually occur in just 1-2 seconds. Markets that do not offer executable prices and force traders to absorb slippage obviously compromise the trader's profit potential considerably.
In the forex world, order execution is all-electronic and because you'll be trading via an Internet-based platform, instantaneous execution is routine. There are no exchanges, no traditional open-outcry pits, no floor brokers, and consequently, no delays.
http://www.1-forex.comOmar VargasForex trader and freelance writerhttp://www.1-forex.com
"Do I need a Diploma or some kind of Certification to trade FOREX?" The answer is this:
When attempting to make more profit than losses on the fluctuation of exchange rates between major currencies (i.e., Trading the FOREX), nobody is going to ask you for a diploma, a formal license or verify the amount of hours you've spent studying the Foreign exchange market and banking industry. All you need is the proper training.
But this is not the only advantage you get when trading FOREX, compared to other ways of investment and speculation; i.e. Stocks and Commodities. You have a whole bunch of advantages over these other options that will be enumerated in the following paragraphs.
The Main Benefits of Trading the FX Spot Market:
1): FOREX is the largest financial market in the world.
With a daily trading volume of over $1.5 trillion, the spot FOREX market can absorb trading sizes that dwarf the capacity of any other market. In fact, when compared with the $50 billion daily market for equities or the $30 billion futures market, it becomes quickly apparent this gives you, and millions of other FOREX traders, almost infinite trading liquidity and flexibility.
2): FOREX is a TRUE 24-hour market.
The FOREX Market never sleeps. Trading positions can be entered and exited at any moment - around the globe, around the clock, six days a week. There is no waiting for an opening bell as in the case of trading stocks. It is a 24- hour, continuous electronic (ONLINE) currency exchange that never closes. This is very desirable for you if you want to trade on a part-time basis, because you can choose when you want to trade: morning, noon or night.
3): There is never a Bear Market in FOREX.
You can have access to a seamless, mutually-inclusive (two- way) exchange of currencies. Meaning, because currencies trade in "pairs" (for example, US dollar vs. yen or US dollar vs. Swiss franc), one side of every currency pair (for example, USD/JPY - JPY = YEN) is constantly moving in relation to the other. Thus, when you buy a particular currency, you are actually simultaneously selling the other currency in that particular pair. As the market moves, one of the currencies will increase in value versus the other. Of course, it is up to you to choose the correct currency to be long or short. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. This means you have equal potential to profit in both a rising or falling market.
4): High Leverage - up to 200:1 Leverage.
You are permitted to trade foreign currencies on a highly leveraged basis - up to 200 times your investment with some brokers. This is primarily attributed to the higher levels of liquidity within the currency markets. Standard 100,000- unit currency lots can be traded with as little as 1% margin, or $1,000. Mini FX accounts are permitted to trade with just 0.5% margin -- in other words, just $50 allows you to control a 10,000-unit currency position. Futures traders, who are accustomed to margin requirements generally equal to 5%-8% of the contract value, will immediately recognize that the FOREX market provides much greater leverage, and for stock traders, who must post at least 50% margin, there’s no comparison. If you are looking for an efficient use of trading capital, this is it!
5): Price Movements Are Highly Predictable.
Although currency prices in the FX market may be volatile, they generally repeat themselves in relatively predictable cycles, creating trends. The strong trends that foreign currencies develop are a significant advantage for traders who use the correct "technical" methods.
Unlike stocks, currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. Over 80% of volume is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. As a technically-trained trader, you can easily identify new trends and breakouts, which provide for multiple opportunities to enter and exit positions.
6:) Commission-free Trading and Low Transaction Cost
When you trade FOREX, through one of our recommended brokers (this info is in our private resources section), you'll do it totally commission-free! These brokers don't charge commissions to trade or to maintain an account, and that goes for all clients trading the FOREX through them, regardless of your account balance or trading volume. Even Mini FX traders can buy and sell currencies online, commission-free.
What about trading fees? There are none of the usual fees to which futures and equity traders are accustomed -- no exchange or clearing fees, no N_F_A or S_E_C fees. Because currencies trade over-the-counter (OTC), via a global electronic network -- in FOREX, what you see is what you get, allowing you to make quick decisions on your trades without having to worry or account for fees that may affect your profit/loss or slippage.
In the equities markets, you must pay both a commission and exchange fees. The over-the-counter structure of the FX market eliminates exchange and clearing fees, which in turn lowers transaction costs.
So, if FOREX broker don't charge commissions, how do they make money? Like all traded financial products, over-the- counter currency trading involves a bid/ask spread, which represents the prices at which your counterparty is willing to trade. Because the currency market offers round-the-clock liquidity, you receive tight, competitive spreads both intra-day and night. Stock traders can be more vulnerable to liquidity risk and typically receive wider trading spreads, especially during after-hours trading.
7): Instantaneous Order Execution and Market Transparency.
Market transparency is highly desired in any trading environment. The greater the market transparency, the more efficient the market becomes. Unlike other markets where transparency is compromised (like in the Enron scandal), FOREX markets are highly transparent (i.e., analyzing countries, and having access to real-time research / news, is easier than companies).
Because of this transparency, as an FX trader, you will be able to exercise risk management strategies in accordance to the fundamental and technical indicators we teach at RapidForex.com
The FX market offers the highest level of market transparency out of all the financial markets. Because of this, order execution and fill confirmation usually occur in just 1-2 seconds. Markets that do not offer executable prices and force traders to absorb slippage obviously compromise the trader's profit potential considerably.
In the forex world, order execution is all-electronic and because you'll be trading via an Internet-based platform, instantaneous execution is routine. There are no exchanges, no traditional open-outcry pits, no floor brokers, and consequently, no delays.
http://www.1-forex.comOmar VargasForex trader and freelance writerhttp://www.1-forex.com
October 28, 2007
FOREX 101: Make Money with Currency Trading
For those unfamiliar with the term, FOREX (FOReign EXchange market), refers to an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in the 1970's, when free exchange rates and floating currencies were introduced. In such an environment only participants in the market determine the price of one currency against another, based upon supply and demand for that currency.
FOREX is a somewhat unique market for a number of reasons. Firstly, it is one of the few markets in which it can be said with very few qualifications that it is free of external controls and that it cannot be manipulated. It is also the largest liquid financial market, with trade reaching between 1 and 1.5 trillion US dollars a day. With this much money moving this fast, it is clear why a single investor would find it near impossible to significantly affect the price of a major currency. Furthermore, the liquidity of the market means that unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always willing buyers and sellers.
Another somewhat unique characteristic of the FOREX money market is the variance of its participants. Investors find a number of reasons for entering the market, some as longer term hedge investors, while others utilize massive credit lines to seek large short term gains. Interestingly, unlike blue-chip stocks, which are usually most attractive only to the long term investor, the combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors with a broad range of strategies.
How FOREX Works
Transactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading.
Marginal Trading
Marginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in FOREX investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term "lot" refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500.
EXAMPLE: You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on an initial capital investment of $1,000, you have made over 40% in profits. (Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.)
When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.
Investment Strategies: Technical Analysis and Fundamental Analysis
The two fundamental strategies in investing in FOREX are Technical Analysis or Fundamental Analysis. Most small and medium sized investors in financial markets use Technical Analysis. This technique stems from the assumption that all information about the market and a particular currency's future fluctuations is found in the price chain. That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price. Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions. These are: that the movement of the market considers all factors, that the movement of prices is purposeful and directly tied to these events, and that history repeats itself. Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions. This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before.
A Fundamental Analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumors. By the numbers, a country's economy depends on a number of quantifiable measurements such as its Central Bank's interest rate, the national unemployment level, tax policy and the rate of inflation. An investor can also anticipate that less quantifiable occurrences, such as political unrest or transition will also have an effect on the market. Before basing all predictions on the factors alone, however, it is important to remember that investors must also keep in mind the expectations and anticipations of market participants. For just as in any stock market, the value of a currency is also based in large part on perceptions of and anticipations about that currency, not solely on its reality.
Make Money with Currency Trading on FOREX
FOREX investing is one of the most potentially rewarding types of investments available. While certainly the risk is great, the ability to conduct marginal trading on FOREX means that potential profits are enormous relative to initial capital investments. Another benefit of FOREX is that its size prevents almost all attempts by others to influence the market for their own gain. So that when investing in foreign currency markets one can feel quite confident that the investment he or she is making has the same opportunity for profit as other investors throughout the world. While investing in FOREX short term requires a certain degree of diligence, investors who utilize a technical analysis can feel relatively confident that their own ability to read the daily fluctuations of the currency market are sufficiently adequate to give them the knowledge necessary to make informed investments.Rich McIver is a contributing writer for The Forex Blog: Currency Trading News ( http://www.forexblog.org ).
FOREX is a somewhat unique market for a number of reasons. Firstly, it is one of the few markets in which it can be said with very few qualifications that it is free of external controls and that it cannot be manipulated. It is also the largest liquid financial market, with trade reaching between 1 and 1.5 trillion US dollars a day. With this much money moving this fast, it is clear why a single investor would find it near impossible to significantly affect the price of a major currency. Furthermore, the liquidity of the market means that unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always willing buyers and sellers.
Another somewhat unique characteristic of the FOREX money market is the variance of its participants. Investors find a number of reasons for entering the market, some as longer term hedge investors, while others utilize massive credit lines to seek large short term gains. Interestingly, unlike blue-chip stocks, which are usually most attractive only to the long term investor, the combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors with a broad range of strategies.
How FOREX Works
Transactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading.
Marginal Trading
Marginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in FOREX investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term "lot" refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500.
EXAMPLE: You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on an initial capital investment of $1,000, you have made over 40% in profits. (Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.)
When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.
Investment Strategies: Technical Analysis and Fundamental Analysis
The two fundamental strategies in investing in FOREX are Technical Analysis or Fundamental Analysis. Most small and medium sized investors in financial markets use Technical Analysis. This technique stems from the assumption that all information about the market and a particular currency's future fluctuations is found in the price chain. That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price. Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions. These are: that the movement of the market considers all factors, that the movement of prices is purposeful and directly tied to these events, and that history repeats itself. Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions. This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before.
A Fundamental Analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumors. By the numbers, a country's economy depends on a number of quantifiable measurements such as its Central Bank's interest rate, the national unemployment level, tax policy and the rate of inflation. An investor can also anticipate that less quantifiable occurrences, such as political unrest or transition will also have an effect on the market. Before basing all predictions on the factors alone, however, it is important to remember that investors must also keep in mind the expectations and anticipations of market participants. For just as in any stock market, the value of a currency is also based in large part on perceptions of and anticipations about that currency, not solely on its reality.
Make Money with Currency Trading on FOREX
FOREX investing is one of the most potentially rewarding types of investments available. While certainly the risk is great, the ability to conduct marginal trading on FOREX means that potential profits are enormous relative to initial capital investments. Another benefit of FOREX is that its size prevents almost all attempts by others to influence the market for their own gain. So that when investing in foreign currency markets one can feel quite confident that the investment he or she is making has the same opportunity for profit as other investors throughout the world. While investing in FOREX short term requires a certain degree of diligence, investors who utilize a technical analysis can feel relatively confident that their own ability to read the daily fluctuations of the currency market are sufficiently adequate to give them the knowledge necessary to make informed investments.Rich McIver is a contributing writer for The Forex Blog: Currency Trading News ( http://www.forexblog.org ).
October 27, 2007
Internet and Computer Systems in the FOREX Business
With every passing year the interest in electronic trading is bigger, more especially trading shares and currency through Internet. A new profession came forward - this of the currency dealer. The appearance of this profession was caused by the full force of development of Internet, which enabled the exchange business to be carried over at home or at the office. The electronic platforms offered by banks and investment brokers enables all of us to go in the sea of the financial markets and to start living a difference and unknown by this moment way of life.
The development of the computer technologies, the program security and the telecommunications, as the same as the grown experience, raises the qualification level of the brokers. It it's turn this raises the belief of the brokers in their own abilities to benefit and to lower the risk while operating. That's why the higher level of the trading qualification leads to a higher level of trade amount.
The introducing of automated dealing systems at the eighties, as the same as co-coordinating systems in the beginning of the internet trading at the end of the nineties, entirely changes the standard methods of currency trading. The dealing systems are online computer systems which integrate the banks in a united net while the co-coordinating systems become electronic brokers. The dealing systems are more reliable and much more effective which enables the dealers to realize a bigger number of concurrent transactions. Moreover, they are safer as far as the dealers can observe the executors of the transactions. Thanks to their reliability, speed and safety, the dealing systems are playing cardinal role in the expansion of the currency business.
The using of computers is taking a substantial role at many stages in the realizing of the currency business. In addition to the dealing systems the co-coordinating systems connect together the dealers all over the world in this way building up an electronic brokers market. The new office systems are ensuring a full account report, filling vouchers, keeping secretary work, procedures of lowering the risk and they account the expense for their acquisition. The present-day program products afford an opportunity to be generated all types of graphics, adding theoretically well-grounded technical indicators and favour the dealer for lon lasting using with comparatively low expense.
The using of Internet makes the financial information about the currency markets, currency indexes and prognoses about the rate of exchange, easy accessible all over the world. Now there are many websites with financial information. A big role in the currency trading has the rate exchange. The speed of the electronic post makes it possible getting these prognoses in a moment. If you take out a subscription to such a service, you can get prognoses of rate-exchange by electronic post every day. Such a service you can find at the following address:
http://www.iforex.orgEric Cooper is moderator of Internet Forex Club which provide to it's members useful forex forecasting and trade recommendation service. You can join the site at the following URL: http://www.iforex.org
The development of the computer technologies, the program security and the telecommunications, as the same as the grown experience, raises the qualification level of the brokers. It it's turn this raises the belief of the brokers in their own abilities to benefit and to lower the risk while operating. That's why the higher level of the trading qualification leads to a higher level of trade amount.
The introducing of automated dealing systems at the eighties, as the same as co-coordinating systems in the beginning of the internet trading at the end of the nineties, entirely changes the standard methods of currency trading. The dealing systems are online computer systems which integrate the banks in a united net while the co-coordinating systems become electronic brokers. The dealing systems are more reliable and much more effective which enables the dealers to realize a bigger number of concurrent transactions. Moreover, they are safer as far as the dealers can observe the executors of the transactions. Thanks to their reliability, speed and safety, the dealing systems are playing cardinal role in the expansion of the currency business.
The using of computers is taking a substantial role at many stages in the realizing of the currency business. In addition to the dealing systems the co-coordinating systems connect together the dealers all over the world in this way building up an electronic brokers market. The new office systems are ensuring a full account report, filling vouchers, keeping secretary work, procedures of lowering the risk and they account the expense for their acquisition. The present-day program products afford an opportunity to be generated all types of graphics, adding theoretically well-grounded technical indicators and favour the dealer for lon lasting using with comparatively low expense.
The using of Internet makes the financial information about the currency markets, currency indexes and prognoses about the rate of exchange, easy accessible all over the world. Now there are many websites with financial information. A big role in the currency trading has the rate exchange. The speed of the electronic post makes it possible getting these prognoses in a moment. If you take out a subscription to such a service, you can get prognoses of rate-exchange by electronic post every day. Such a service you can find at the following address:
http://www.iforex.orgEric Cooper is moderator of Internet Forex Club which provide to it's members useful forex forecasting and trade recommendation service. You can join the site at the following URL: http://www.iforex.org
October 26, 2007
A Sneaky Way to Steal Someone Elses Forex Trading System
Anyone who is serious about trading needs to have a Forex Trading System that is tailored to them, but there is no reason to start constructing your Forex trading system from scratch.
Why try and reinvent the wheel when you can benefit from other traders years of experience and borrow your trading system's ideas and concepts?
It's easy to do, and there are some pretty good Forex trading systems out there for you to work with. Some of them are free and some are very expensive, but the price tags don't always reflect the actual value of the Forex trading systems. But, many of these systems won't work for you, and I am not talking about out-right dishonesty here, which can be a big problem when trading. What I am talking about is your ability to effectively trade with the system that you may be considering using or buying.
You need to use a system that matches your life style and personality. If you have a day job (not trading), a Forex Trading System that requires you to stare at a screen all day wouldn't be appropriate. You would be distracted at work and miss the opportunities to make money, or even worse, you will not close a trade effectively and could lose money.
Some Forex trading systems have a potential to lose 20, 30 or 40% of your money before they are profitable. Can you handle a system that can drop your trading capital to half before making money? Or, are you prepared to have a string of 8 to 10 loses in a row before you have a winning trade? Some of the best traders in the world lose money on more than 50% of their trades. These are all important points to consider when you are creating your Forex Trading System. Choose aspects of the different systems that are out there that fit your trading style best, and then build your Forex trading system.
An excellent trading method, which was made famous by Richard Dennis and William Eckhardt and is sometimes referred to as Turtle Trading, is one of the best Forex trading systems that I know of. They get returns in excess of 20 to 100% per year using this system. But, could most traders trade their system? Not a chance! Dennis and Eckhardt also loose on over 60% of their trades.
Once you know what sort of Forex Trading System will work best for you, look at the components that make it work. Face it; if you are a new, or even a fairly serious, trader how likely are you to come up with a totally new concept? There are some very smart and wealthy traders out there. Why not use their ideas. Consider Dennis and Eckhardt's turtle trading, their system is based on a "breakout" method. I know most traders could not trade using their exact method, but they could take parts of it, such as the breakouts, to confirm a trend.
You can also use other Forex trading systems to give you an outline of what parts a system has to have for it to make money. All great Forex trading systems have these three basics:
1. Entry Rules,2. Money Management Rules and3. Exit Rules.
Study and learn from the Forex trading systems out there, borrow their concepts, and steal their ideas. It will put you on the track to the system that will make you a successful trader.David Jenyns is recognized as the leading expert when it comes to designing profitable stock trading systems.Discover the "secret formula" of trading that anyone can useto consistently generate BIG profits from the market by downloading your FREE copy of David's new UltimateStock Trading Systems course.Click Here To Download ==> Stock Trading Systemshttp://www.ultimate-trading-systems.com/stocks.htm
Why try and reinvent the wheel when you can benefit from other traders years of experience and borrow your trading system's ideas and concepts?
It's easy to do, and there are some pretty good Forex trading systems out there for you to work with. Some of them are free and some are very expensive, but the price tags don't always reflect the actual value of the Forex trading systems. But, many of these systems won't work for you, and I am not talking about out-right dishonesty here, which can be a big problem when trading. What I am talking about is your ability to effectively trade with the system that you may be considering using or buying.
You need to use a system that matches your life style and personality. If you have a day job (not trading), a Forex Trading System that requires you to stare at a screen all day wouldn't be appropriate. You would be distracted at work and miss the opportunities to make money, or even worse, you will not close a trade effectively and could lose money.
Some Forex trading systems have a potential to lose 20, 30 or 40% of your money before they are profitable. Can you handle a system that can drop your trading capital to half before making money? Or, are you prepared to have a string of 8 to 10 loses in a row before you have a winning trade? Some of the best traders in the world lose money on more than 50% of their trades. These are all important points to consider when you are creating your Forex Trading System. Choose aspects of the different systems that are out there that fit your trading style best, and then build your Forex trading system.
An excellent trading method, which was made famous by Richard Dennis and William Eckhardt and is sometimes referred to as Turtle Trading, is one of the best Forex trading systems that I know of. They get returns in excess of 20 to 100% per year using this system. But, could most traders trade their system? Not a chance! Dennis and Eckhardt also loose on over 60% of their trades.
Once you know what sort of Forex Trading System will work best for you, look at the components that make it work. Face it; if you are a new, or even a fairly serious, trader how likely are you to come up with a totally new concept? There are some very smart and wealthy traders out there. Why not use their ideas. Consider Dennis and Eckhardt's turtle trading, their system is based on a "breakout" method. I know most traders could not trade using their exact method, but they could take parts of it, such as the breakouts, to confirm a trend.
You can also use other Forex trading systems to give you an outline of what parts a system has to have for it to make money. All great Forex trading systems have these three basics:
1. Entry Rules,2. Money Management Rules and3. Exit Rules.
Study and learn from the Forex trading systems out there, borrow their concepts, and steal their ideas. It will put you on the track to the system that will make you a successful trader.David Jenyns is recognized as the leading expert when it comes to designing profitable stock trading systems.Discover the "secret formula" of trading that anyone can useto consistently generate BIG profits from the market by downloading your FREE copy of David's new UltimateStock Trading Systems course.Click Here To Download ==> Stock Trading Systemshttp://www.ultimate-trading-systems.com/stocks.htm
October 22, 2007
Pivot Points in Forex: Mapping Your Time Frame
It is useful to have a map and be able to see where the price is relative to previous market action. This way we can see how is the sentiment of traders and investors at any given moment, it also gives us a general idea of where the market is heading during the day. This information can help us decide which way to trade.
Pivot points, a technique developed by floor traders, help us see where the price is relative to previous market action.
As a definition, a pivot point is a turning point or condition. The same applies to the Forex market, the pivot point is a level in which the sentiment of the market changes from "bull" to "bear" or vice versa. If the market breaks this level up, then the sentiment is said to be a bull market and it is likely to continue its way up, on the other hand, if the market breaks this level down, then the sentiment is bear, and it is expected to continue its way down. Also at this level, the market is expected to have some kind of support/resistance, and if price can't break the pivot point, a possible bounce from it is plausible.
Pivot points work best on highly liquid markets, like the spot currency market, but they can also be used in other markets as well.
Pivot Points
In a few words, pivot point is a level in which the sentiment of traders and investors changes from bull to bear or vice versa.
Why PP work? They work simply because many individual traders and investors use and trust them, as well as bank and institutional traders. It is known to every trader that the pivot point is an important measure of strength and weakness of any market.
Calculating pivot points There are several ways to arrive to the Pivot point. The method we found to have the most accurate results is calculated by taking the average of the high, low and close of a previous period (or session).
Pivot point (PP) = (High + Low + Close) / 3
Take for instance the following EUR/USD information from the previous session:
Open: 1.2386High: 1.2474Low: 1.2376Close: 1.2458
The PP would be,PP = (1.2474 + 1.2376 + 1.2458) / 3 = 1.2439
What does this number tell us? It simply tells us that if the market is trading above 1.2439, Bulls are winning the battle pushing the prices higher. And if the market is trading below this 1.2439 the bears are winning the battle pulling prices lower. On both cases this condition is likely to sustain until the next session.
Since the Forex market is a 24hr market (no close or open from day to day) there is a eternal battle on deciding at white time we should take the open, close, high and low from each session. From our point of view, the times that produce more accurate predictions is taking the open at 00:00 GMT and the close at 23:59 GMT.
Besides the calculation of the PP, there are other support and resistance levels that are calculated taking the PP as a reference.
Support 1 (S1) = (PP * 2) - HResistance 1 (R1) = (PP * 2) - LSupport 2 (S2) = PP - (R1 - S1)Resistance 2 (R2) = PP + (R1 - S1)
Where , H is the High of the previous period and L is the low of the previous period
Continuing with the example above, PP = 1.2439
S1 = (1.2439 * 2) - 1.2474 = 1.2404R1 = (1.2439 * 2) - 1.2376 = 1.2502R2 = 1.2439 + (1.2636 - 1.2537) = 1.2537S2 = 1.2439 - (1.2636 - 1.2537) = 1.2537
These levels are supposed to mark support and resistance levels for the current session.
On the example above, the PP was calculated using information of the previous session (previous day.) This way we could see possible intraday resistance and support levels. But it can also be calculated using the previous weekly or monthly data to determine such levels. By doing so we are able to see the sentiment over longer periods of time. Also we can see possible levels that might offer support and resistance throughout the week or month. Calculating the Pivot point in a weekly or monthly basis is mostly used by long term traders, but it can also be used by short time traders, it gives us a good idea about the longer term trend.
S1, S2, R1 AND R2...? An Objective Alternative
As already stated, the pivot point zone is a well-known technique and it works simply because many traders and investors use and trust it. But what about the other support and resistance zones (S1, S2, R1 and R2,) to forecast a support or resistance level with some mathematical formula is somehow subjective. It is hard to rely on them blindly just because the formula popped out that level. For this reason, we have created an alternative way to map our time frame, simpler but more objective and effective.
We calculate the pivot point as showed before. But our support and resistance levels are drawn in a different way. We take the previous session high and low, and draw those levels on today's chart. The same is done with the session before the previous session. So, we will have our PP and four more important levels drawn in our chart.
LOPS1, low of the previous session.HOPS1, high of the previous session.LOPS2, low of the session before the previous session.HOPS2, high of the session before the previous session.PP, pivot point.
These levels will tell us the strength of the market at any given moment. If the market is trading above the PP, then the market is considered in a possible uptrend. If the market is trading above HOPS1 or HOPS2, then the market is in an uptrend, and we only take long positions. If the market is trading below the PP then the market is considered in a possible downtrend. If the market is trading below LOPS1 or LOPS2, then the market is in a downtrend, and we should only consider short trades.
The psychology behind this approach is simple. We know that for some reason the market stopped there from going higher/lower the previous session, or the session before that. We don't know the reason, and we don't need to know it. We only know the fact: the market reversed at that level. We also know that traders and investors have memories, they do remember that the price stopped there before, and the odds are that the market reverses from there again (maybe because the same reason, and maybe not) or at least find some support or resistance at these levels.
What is important about his approach is that support and resistance levels are measured objectively; they aren't just a level derived from a mathematical formula, the price reversed there before so these levels have a higher probability of being effective.
Our mapping method works on both market conditions, when trending and on sideways conditions. In a trending market, it helps us determine the strength of the trend and trade off important levels. On sideways markets it shows us possible reversal levels.
How we use our mapping method?We at StraightForex use the mapping method in three different ways: as a trend identification (measure of the strength of the trend), a trading system using important levels with price behavior as a trading signal and to set the risk reward ratio (RR) of any given trade based on where the is the market relative to the previous session.Raul Lopez
http://www.straightforex.com
Pivot points, a technique developed by floor traders, help us see where the price is relative to previous market action.
As a definition, a pivot point is a turning point or condition. The same applies to the Forex market, the pivot point is a level in which the sentiment of the market changes from "bull" to "bear" or vice versa. If the market breaks this level up, then the sentiment is said to be a bull market and it is likely to continue its way up, on the other hand, if the market breaks this level down, then the sentiment is bear, and it is expected to continue its way down. Also at this level, the market is expected to have some kind of support/resistance, and if price can't break the pivot point, a possible bounce from it is plausible.
Pivot points work best on highly liquid markets, like the spot currency market, but they can also be used in other markets as well.
Pivot Points
In a few words, pivot point is a level in which the sentiment of traders and investors changes from bull to bear or vice versa.
Why PP work? They work simply because many individual traders and investors use and trust them, as well as bank and institutional traders. It is known to every trader that the pivot point is an important measure of strength and weakness of any market.
Calculating pivot points There are several ways to arrive to the Pivot point. The method we found to have the most accurate results is calculated by taking the average of the high, low and close of a previous period (or session).
Pivot point (PP) = (High + Low + Close) / 3
Take for instance the following EUR/USD information from the previous session:
Open: 1.2386High: 1.2474Low: 1.2376Close: 1.2458
The PP would be,PP = (1.2474 + 1.2376 + 1.2458) / 3 = 1.2439
What does this number tell us? It simply tells us that if the market is trading above 1.2439, Bulls are winning the battle pushing the prices higher. And if the market is trading below this 1.2439 the bears are winning the battle pulling prices lower. On both cases this condition is likely to sustain until the next session.
Since the Forex market is a 24hr market (no close or open from day to day) there is a eternal battle on deciding at white time we should take the open, close, high and low from each session. From our point of view, the times that produce more accurate predictions is taking the open at 00:00 GMT and the close at 23:59 GMT.
Besides the calculation of the PP, there are other support and resistance levels that are calculated taking the PP as a reference.
Support 1 (S1) = (PP * 2) - HResistance 1 (R1) = (PP * 2) - LSupport 2 (S2) = PP - (R1 - S1)Resistance 2 (R2) = PP + (R1 - S1)
Where , H is the High of the previous period and L is the low of the previous period
Continuing with the example above, PP = 1.2439
S1 = (1.2439 * 2) - 1.2474 = 1.2404R1 = (1.2439 * 2) - 1.2376 = 1.2502R2 = 1.2439 + (1.2636 - 1.2537) = 1.2537S2 = 1.2439 - (1.2636 - 1.2537) = 1.2537
These levels are supposed to mark support and resistance levels for the current session.
On the example above, the PP was calculated using information of the previous session (previous day.) This way we could see possible intraday resistance and support levels. But it can also be calculated using the previous weekly or monthly data to determine such levels. By doing so we are able to see the sentiment over longer periods of time. Also we can see possible levels that might offer support and resistance throughout the week or month. Calculating the Pivot point in a weekly or monthly basis is mostly used by long term traders, but it can also be used by short time traders, it gives us a good idea about the longer term trend.
S1, S2, R1 AND R2...? An Objective Alternative
As already stated, the pivot point zone is a well-known technique and it works simply because many traders and investors use and trust it. But what about the other support and resistance zones (S1, S2, R1 and R2,) to forecast a support or resistance level with some mathematical formula is somehow subjective. It is hard to rely on them blindly just because the formula popped out that level. For this reason, we have created an alternative way to map our time frame, simpler but more objective and effective.
We calculate the pivot point as showed before. But our support and resistance levels are drawn in a different way. We take the previous session high and low, and draw those levels on today's chart. The same is done with the session before the previous session. So, we will have our PP and four more important levels drawn in our chart.
LOPS1, low of the previous session.HOPS1, high of the previous session.LOPS2, low of the session before the previous session.HOPS2, high of the session before the previous session.PP, pivot point.
These levels will tell us the strength of the market at any given moment. If the market is trading above the PP, then the market is considered in a possible uptrend. If the market is trading above HOPS1 or HOPS2, then the market is in an uptrend, and we only take long positions. If the market is trading below the PP then the market is considered in a possible downtrend. If the market is trading below LOPS1 or LOPS2, then the market is in a downtrend, and we should only consider short trades.
The psychology behind this approach is simple. We know that for some reason the market stopped there from going higher/lower the previous session, or the session before that. We don't know the reason, and we don't need to know it. We only know the fact: the market reversed at that level. We also know that traders and investors have memories, they do remember that the price stopped there before, and the odds are that the market reverses from there again (maybe because the same reason, and maybe not) or at least find some support or resistance at these levels.
What is important about his approach is that support and resistance levels are measured objectively; they aren't just a level derived from a mathematical formula, the price reversed there before so these levels have a higher probability of being effective.
Our mapping method works on both market conditions, when trending and on sideways conditions. In a trending market, it helps us determine the strength of the trend and trade off important levels. On sideways markets it shows us possible reversal levels.
How we use our mapping method?We at StraightForex use the mapping method in three different ways: as a trend identification (measure of the strength of the trend), a trading system using important levels with price behavior as a trading signal and to set the risk reward ratio (RR) of any given trade based on where the is the market relative to the previous session.Raul Lopez
http://www.straightforex.com
October 19, 2007
Be a Smarter FOREX Currency Trader: Three Basic Principles
Below I will describe three basic principles that may come in handy for currency traders. They are very easy to implement and potentially take advantage of as you will see.
Principle 1
Some currency traders find that it is useful to always trade a given currency pair at the very same time every day. The reasoning for this is that most of the other traders buying or selling that currency pair may also trade at the same time. Major trading pits may also be working the exact same shift every day. This technique may be especially useful for currency traders who exploit technical analysis. Again, the reasoning for this is that it may be possible to standardize the trading conditions if one trades during the same time frame every day, if only for a very little bit. However, that small bit of standardization may yield several pips worth of profit. Nevertheless, it is readily obvious that the foreign exchange market can be very volatile and random.
Principle 2
Certain currencies trade with a certain volatility at a certain time. Once you've finished practicing your trading skills on a demo account and you decide to test the waters using your own investment capital, you may want to minimize the amount of liquidity and volatility to hedge your risk. Alternatively, you may want to increase the risk involved, and potentially increase your profit potential. (It should be noted that very heavy risk is involved under any circumstances.)
The foreign exchange market follows the sun around the world moving from the United States to Australia and New Zealand to the Far East, to Europe and finally back to the United States. Overall foreign currency trading volume is determined by which markets are open and the overlap in the times that these markets are open. Currency trading volume is relatively high 24 hours a day, but there are considerable peaks in activity when the British, European, and US markets are open simultaneously, which is from 1 pm GMT to 4 pm GMT. Pacific Rim markets, such as Japan and Hong Kong, show a dip in their trading volume while there is extensive volume in the US market at the very same time. Nevertheless, it is still possible to perform technical analysis on Pacific Rim currencies. By trading during a certain time frame, one may be able to either minimize or maximize the level of volatility (and risk) for a given currency pair.
Principle 3
Although the above is a general statement about the activity volume for certain currencies, it may be a good idea to attempt to capture the level of volatility for given currency pairs. You can potentially use Bollinger bands, a tool used by technical analysts, to quantify volatility. Bollinger bands compare volatility and relative price levels over time. Some currency traders cannot trade a day in their life without using Bollinger bands, while others may not find any use for them; it is really up to you to decide whether Bollinger bands are of any use to your specific situation.
I have described three basic principles that may potentially come in handy for currency traders in the foreign exchange market. They are very easy to implement and may reap rewards (or lack thereof) depending on market conditions. Hopefully these principles will help you come up with your own successful strategies for trading currencies in the foreign exchange market.Joshua M. Kunken is Currency Analyst for ForeignMarketWatch.com. His articles may also be found at ForexTrack.com.
Principle 1
Some currency traders find that it is useful to always trade a given currency pair at the very same time every day. The reasoning for this is that most of the other traders buying or selling that currency pair may also trade at the same time. Major trading pits may also be working the exact same shift every day. This technique may be especially useful for currency traders who exploit technical analysis. Again, the reasoning for this is that it may be possible to standardize the trading conditions if one trades during the same time frame every day, if only for a very little bit. However, that small bit of standardization may yield several pips worth of profit. Nevertheless, it is readily obvious that the foreign exchange market can be very volatile and random.
Principle 2
Certain currencies trade with a certain volatility at a certain time. Once you've finished practicing your trading skills on a demo account and you decide to test the waters using your own investment capital, you may want to minimize the amount of liquidity and volatility to hedge your risk. Alternatively, you may want to increase the risk involved, and potentially increase your profit potential. (It should be noted that very heavy risk is involved under any circumstances.)
The foreign exchange market follows the sun around the world moving from the United States to Australia and New Zealand to the Far East, to Europe and finally back to the United States. Overall foreign currency trading volume is determined by which markets are open and the overlap in the times that these markets are open. Currency trading volume is relatively high 24 hours a day, but there are considerable peaks in activity when the British, European, and US markets are open simultaneously, which is from 1 pm GMT to 4 pm GMT. Pacific Rim markets, such as Japan and Hong Kong, show a dip in their trading volume while there is extensive volume in the US market at the very same time. Nevertheless, it is still possible to perform technical analysis on Pacific Rim currencies. By trading during a certain time frame, one may be able to either minimize or maximize the level of volatility (and risk) for a given currency pair.
Principle 3
Although the above is a general statement about the activity volume for certain currencies, it may be a good idea to attempt to capture the level of volatility for given currency pairs. You can potentially use Bollinger bands, a tool used by technical analysts, to quantify volatility. Bollinger bands compare volatility and relative price levels over time. Some currency traders cannot trade a day in their life without using Bollinger bands, while others may not find any use for them; it is really up to you to decide whether Bollinger bands are of any use to your specific situation.
I have described three basic principles that may potentially come in handy for currency traders in the foreign exchange market. They are very easy to implement and may reap rewards (or lack thereof) depending on market conditions. Hopefully these principles will help you come up with your own successful strategies for trading currencies in the foreign exchange market.Joshua M. Kunken is Currency Analyst for ForeignMarketWatch.com. His articles may also be found at ForexTrack.com.
October 18, 2007
Why Forex Traders Plan To Fail Before They Even Place Their First Trade & How You Can Know It & ...
Have you heard the wise saying that a trader who fails to plan, plans to fail? I have, and I was once that trader! However, did you know that even though traders who have constructed a plan, which incorporates their trading stategy (their "edge"), they have a plan that is likely to fail?
If we look at all traders who participate in the market: we have one group that fails to plan and therefore plans to fail; another group whose plan is failed; and a third group who properly plans and therefore does not fail.
Is it any wonder that the success rate for forex traders is so slim?
Well it doesn't have to be.
Here's a list of reasons why those whose plan is destined for failure fail:
1. They become emotionally attached to their ideas about how the market should be with minimal or inadequate testing;
2. They fall in love with their back-tested net profit results without fully understanding other key statistical data;
3. They don't admit they're plan is wrong.
Let's explore each point in a little more detail.
1. Becoming emotionally attached to your ideas without adequate results
Most new traders when they realize the importance of obtaining a trading plan and sticking to that plan immediately begin to use the knowledge they have been taught and haphazardly throw it all together into what they deem their "trading plan".
When they are questioned on whether they have a trading plan most of these traders answer with an unequivocal "Yes!".
Most of these traders are destined for failure because their strategy is untested. They rely on blind faith to guide them through the trading jungle to make their untold millions. Would you walk from one length of the Amazon jungle to the other blind-folded? Of course not! You'll have to watch out for all the snakes, tarantulas, and other creepy things that go bump in the night, so why would you approach trading in the same fashion? I mean all you're really doing is placing the blind-fold on your capital!
Why do traders do this?
Because it's easy. That's right... it's easy. They don't need to learn a computer language to type their system into some piece of software that will take them the better part of 6 months to a year to learn, and they don't have to spend any money on buying historical data. Therefore it's easy and it's cheap and it also conserves time!
So does success meet lazy people like this?
Not many! However I will admit that it does meet a fortunate few - only those lucky enough to start their trading during roaring markets where even a monkey can make money! To repeat again: don't wear the blind-fold. Your success may be great at the start, but given time and trades, you'll be the one out of the game - having depleted all your capital.
So what do you do if you KNOW that your method is untested?
If you have the time, the money and the learning capacity I would strongly encourage you to purchase some back-testing software (such as Wealth-Lab Developer), acquire some forex data, ask heaps of questions on the Wealth-Lab forum on how to code your ideas and within 3-6 months you'll be safely coding your own forex system and testing adequately.
If you do not have the time, the money nor the learning capacity I would strongly suggest that you manually write down your system into clearly defined steps that you MUST follow. Then, after opening a DEMO forex account you would trade your system according to the rules you have set out. Trading your rules until about 20 trades have been completed.
After traders obtain their results from their testing period they unfortunately look at only one figure and make a rash conclusion about the system based on that one performance figure, namely, the net profit. This then leads us into the next problem of why traders plans are failed prior to placing their first live trade...
2. They fall in love with the net profit result and no longer question it any further!
The net profit is only one statistic among thousands, however, to keep things simple we will look at the top 3 results that you need to make sure you fully understand.
Here are the other statistical pieces of data that you should look at when your system has completed its testing period:
I. How many trades did it have? If you have made a nice profit, but have only had 3 trades during the testing period you do not have a sufficient sample space to arrive at any safe conclusions. Can you imagine what would happen to Neil Armstrong if NASA had only done 3 computations on how they would arrive on the moon??!! If it's not good for NASA then it's probably not good for you either, however, as NASA do zillions of computations you would only need to conduct about 20 trades as the bare minimum before you can arrive at any safe conclusions;
II. What was your money management procedure during the testing phase? This is by far the most important point, however, you need to make sure your system is properly working prior to even embarking on this difficult area (hence the reason why it is a CLOSE second to the above point). Be sure you fully understand what I am about to explain (read it several times to absorb it if need be)... If you test a method whereby you rely on a percentage amount of capital on a trade you can be biasing your results!
How?
Let us look at the following comparison sheet where we plot 21 trades with their pip return (we'll assume that each pip = US$1), and compare the returns against using 10 contracts per trade, 10% capital per trade, or 2% risk per trade...
Example Trade Sheet
Now as you can see from the results they can easily be doctored according to the different type of money management technique you use and what variable you decide to use it on (i.e. who is to say that we not use 20 contracts per trade, or 20% capital, or 5% risk per trade - all of these would inflate the net return figures).
It is best when you trade to stay at a fixed quantity. If you use any results that require a percentage calculation of the equity balance prior to the trade quantity being calculated you will BIAS the last trades more than the trades at the start. Hence, using a fixed quantity throughout the entire sample is one of the true indications of whether your system is profitable or not.
III. What was the drawdown? This is the largest peak to trough distance on your equity curve. In other words, if you were to enter in on the day the equity curve made a peak, how much would you have lost if you bailed out at the lowest point? To test this manually you would obtain an equity curve peak trace how far the equity curve goes down until it moves higher that the peak you started from - the lowest point made between these two points will be your trough figure which you will then subtract from your starting peak figure. The figure with the largest % loss would be your drawdown.
You would then need to look at this drawdown figure and determine whether or not it fits your risk profile. Would you be okay mentally if your account was down the drawdown % figure? If not, then you're going to have to re-create another system. As a rule I don't like systems that generate more than 30% drawdown.
One other statistic that incorporates drawdown that I like to check to determine whether the system is profitable or not is the recovery factor. The recovery factor divides the net profit by the drawdown (without the negative sign). As an example, if the net profit were $5,659 and the drawdown were -$3,542 dividing the net profit by the drawdown would result in a recovery factor of 1.597 (get rid of the minus sign). I generally prefer systems to have this statistic above 3.
So even though we have created our system that fits our personality and risk tolerance level well trades can still fail by not heeding the third and final statement...
3. Don't fall in love with the system
Most traders once they have designed a system cannot believe that their system is making a loss, or worse yet, a loss greater than the system's historical drawdown.
So, to combat this they dig their head in the sand hoping that the problem will go away. Just as trades fall in love with their position, at their own peril, falling in love with their system is also to their detriment.
Treat this as a business with your system as one of your salesmen. If the salesman is costing more than he is bringing in then you need to fire him and find another one.
How do you know if your system is no good?
As a rule I look at the historical drawdown of my system and add 10%. As an example, if my system had historical drawdown of 20% once the system reached 20% x 1.1 = 22% I would stop trading this system and move onto another. And sometimes you can still trade the same system, just with different variables, or a minor tweak.
Be sure that you fully understand the implications presented to you in this article. Trading is a business, therefore conduct it like one, as it is one of the most difficult endeavors you could ever undertake.Ryan Sheehy is the author of Currency Secrets.com and Forex Zoo
If we look at all traders who participate in the market: we have one group that fails to plan and therefore plans to fail; another group whose plan is failed; and a third group who properly plans and therefore does not fail.
Is it any wonder that the success rate for forex traders is so slim?
Well it doesn't have to be.
Here's a list of reasons why those whose plan is destined for failure fail:
1. They become emotionally attached to their ideas about how the market should be with minimal or inadequate testing;
2. They fall in love with their back-tested net profit results without fully understanding other key statistical data;
3. They don't admit they're plan is wrong.
Let's explore each point in a little more detail.
1. Becoming emotionally attached to your ideas without adequate results
Most new traders when they realize the importance of obtaining a trading plan and sticking to that plan immediately begin to use the knowledge they have been taught and haphazardly throw it all together into what they deem their "trading plan".
When they are questioned on whether they have a trading plan most of these traders answer with an unequivocal "Yes!".
Most of these traders are destined for failure because their strategy is untested. They rely on blind faith to guide them through the trading jungle to make their untold millions. Would you walk from one length of the Amazon jungle to the other blind-folded? Of course not! You'll have to watch out for all the snakes, tarantulas, and other creepy things that go bump in the night, so why would you approach trading in the same fashion? I mean all you're really doing is placing the blind-fold on your capital!
Why do traders do this?
Because it's easy. That's right... it's easy. They don't need to learn a computer language to type their system into some piece of software that will take them the better part of 6 months to a year to learn, and they don't have to spend any money on buying historical data. Therefore it's easy and it's cheap and it also conserves time!
So does success meet lazy people like this?
Not many! However I will admit that it does meet a fortunate few - only those lucky enough to start their trading during roaring markets where even a monkey can make money! To repeat again: don't wear the blind-fold. Your success may be great at the start, but given time and trades, you'll be the one out of the game - having depleted all your capital.
So what do you do if you KNOW that your method is untested?
If you have the time, the money and the learning capacity I would strongly encourage you to purchase some back-testing software (such as Wealth-Lab Developer), acquire some forex data, ask heaps of questions on the Wealth-Lab forum on how to code your ideas and within 3-6 months you'll be safely coding your own forex system and testing adequately.
If you do not have the time, the money nor the learning capacity I would strongly suggest that you manually write down your system into clearly defined steps that you MUST follow. Then, after opening a DEMO forex account you would trade your system according to the rules you have set out. Trading your rules until about 20 trades have been completed.
After traders obtain their results from their testing period they unfortunately look at only one figure and make a rash conclusion about the system based on that one performance figure, namely, the net profit. This then leads us into the next problem of why traders plans are failed prior to placing their first live trade...
2. They fall in love with the net profit result and no longer question it any further!
The net profit is only one statistic among thousands, however, to keep things simple we will look at the top 3 results that you need to make sure you fully understand.
Here are the other statistical pieces of data that you should look at when your system has completed its testing period:
I. How many trades did it have? If you have made a nice profit, but have only had 3 trades during the testing period you do not have a sufficient sample space to arrive at any safe conclusions. Can you imagine what would happen to Neil Armstrong if NASA had only done 3 computations on how they would arrive on the moon??!! If it's not good for NASA then it's probably not good for you either, however, as NASA do zillions of computations you would only need to conduct about 20 trades as the bare minimum before you can arrive at any safe conclusions;
II. What was your money management procedure during the testing phase? This is by far the most important point, however, you need to make sure your system is properly working prior to even embarking on this difficult area (hence the reason why it is a CLOSE second to the above point). Be sure you fully understand what I am about to explain (read it several times to absorb it if need be)... If you test a method whereby you rely on a percentage amount of capital on a trade you can be biasing your results!
How?
Let us look at the following comparison sheet where we plot 21 trades with their pip return (we'll assume that each pip = US$1), and compare the returns against using 10 contracts per trade, 10% capital per trade, or 2% risk per trade...
Example Trade Sheet
Now as you can see from the results they can easily be doctored according to the different type of money management technique you use and what variable you decide to use it on (i.e. who is to say that we not use 20 contracts per trade, or 20% capital, or 5% risk per trade - all of these would inflate the net return figures).
It is best when you trade to stay at a fixed quantity. If you use any results that require a percentage calculation of the equity balance prior to the trade quantity being calculated you will BIAS the last trades more than the trades at the start. Hence, using a fixed quantity throughout the entire sample is one of the true indications of whether your system is profitable or not.
III. What was the drawdown? This is the largest peak to trough distance on your equity curve. In other words, if you were to enter in on the day the equity curve made a peak, how much would you have lost if you bailed out at the lowest point? To test this manually you would obtain an equity curve peak trace how far the equity curve goes down until it moves higher that the peak you started from - the lowest point made between these two points will be your trough figure which you will then subtract from your starting peak figure. The figure with the largest % loss would be your drawdown.
You would then need to look at this drawdown figure and determine whether or not it fits your risk profile. Would you be okay mentally if your account was down the drawdown % figure? If not, then you're going to have to re-create another system. As a rule I don't like systems that generate more than 30% drawdown.
One other statistic that incorporates drawdown that I like to check to determine whether the system is profitable or not is the recovery factor. The recovery factor divides the net profit by the drawdown (without the negative sign). As an example, if the net profit were $5,659 and the drawdown were -$3,542 dividing the net profit by the drawdown would result in a recovery factor of 1.597 (get rid of the minus sign). I generally prefer systems to have this statistic above 3.
So even though we have created our system that fits our personality and risk tolerance level well trades can still fail by not heeding the third and final statement...
3. Don't fall in love with the system
Most traders once they have designed a system cannot believe that their system is making a loss, or worse yet, a loss greater than the system's historical drawdown.
So, to combat this they dig their head in the sand hoping that the problem will go away. Just as trades fall in love with their position, at their own peril, falling in love with their system is also to their detriment.
Treat this as a business with your system as one of your salesmen. If the salesman is costing more than he is bringing in then you need to fire him and find another one.
How do you know if your system is no good?
As a rule I look at the historical drawdown of my system and add 10%. As an example, if my system had historical drawdown of 20% once the system reached 20% x 1.1 = 22% I would stop trading this system and move onto another. And sometimes you can still trade the same system, just with different variables, or a minor tweak.
Be sure that you fully understand the implications presented to you in this article. Trading is a business, therefore conduct it like one, as it is one of the most difficult endeavors you could ever undertake.Ryan Sheehy is the author of Currency Secrets.com and Forex Zoo
October 17, 2007
E-currency Trading - An Alternative to Futures & Forex Trading
I find it amazing that nearly everyday I receive something online or offline that is the greatest break-through in Trading. You know the stuff. This 'system´ or that 'method´ has been thoroughly tested and back-tested in every conceivable fashion and is wildly successful. Some work for a period of time but most do not. The decades old statistical fact still remains, 90+% of Futures Traders will lose all of their trading capital within their first year of trading. Now there is a new and promising alternative.
Enter e-Currency Trading. In simple terms e-currency is Internet Money. E-Currency allows the purchase of Internet goods and services at lightning speed and most importantly with a high level of security. Much higher than credit cards, bank transfer etc. The demand for e-currency should only grow as Internet Commerce grows.
So what does this have to do with trading? There are literally hundreds of different e-currencies. Each is backed by an underlying Currency or a precious metal. The need arises to exchange between these e-currencies or convert an e-currency to hard cash. Much like the Euro is to the European Union. We can profit from the exchanging process and profit from the fluctuation of the underlying currency value.
The same basic strategies apply to e-currency trading as with futures trading. Supply and demand dictates price primarily. You could buy e-currency that has historically performed well (buying the trend) or go the opposite way and buy those that are under-performing, looking for a turn-around. You can even chart them if you like.
Leverage, that double-edged sword that Futures Traders are so familiar with is also present in e-Currency Trading. You can borrow against your portfolio to buy more e-currency. The compounding affect is almost outrageous. Some would argue that you never have to pay back the leverage. I contend that it is paid back if you closed your e-Currency account, because your final balance would be less the amount leveraged. The point here is the leverage in futures trading is often times the demise of a well intended trader versus the leverage afforded an e-currency trader combined with the daily compounding affect creates portfolio growth at a phenomenal rate. It is not uncommon to see portfolio growth of 20 - 40% per month.
Futures Trading and e-Currency Trading have a common downside. The learning curve is huge and can be frustrating and costly. Each has unique terminology, which is impossible to work around until you have a good understanding of the meaning. Thankfully in this world of information, we are able to find resources online and offline that shorten that curve. How much it is shortened is dependent on how much time you want to dedicate.
Industry experts have debated for years the optimum amount one should fund their futures trading account with. The obvious moving target is enough capital to withstand the drawdown periods. Many factors go into this but I´ve seen numbers range anywhere from $10,000 to $50,000 and up. If this is the case then there is little doubt why most futures traders lose as most are willing to fund only the amount required to cover Margin or the Brokers account minimum usually a few thousand dollars. One of the biggest reasons for small business failure is being under capitalized, the same holds true in futures trading.
E-Currency Trading is different in that the experts recommend starting with a few hundred dollars and let the system build your account. Whatever route you choose, only trade with risk capital.
E-Currency Trading certainly has advantages over traditional futures trading and may well be worth your serious consideration.Merv Thompson is the owner of a website that provides trading tools, resourses and reviews for todays futures trader. http://www.futures-brokers-review.com
Merv has started his own personal e-currency trading account and will periodically post updates - Visit the website to view the results
Additional information about e-currency trading can be found on his website at http://www.futures-brokers-review.com/ecdwnld.html
Enter e-Currency Trading. In simple terms e-currency is Internet Money. E-Currency allows the purchase of Internet goods and services at lightning speed and most importantly with a high level of security. Much higher than credit cards, bank transfer etc. The demand for e-currency should only grow as Internet Commerce grows.
So what does this have to do with trading? There are literally hundreds of different e-currencies. Each is backed by an underlying Currency or a precious metal. The need arises to exchange between these e-currencies or convert an e-currency to hard cash. Much like the Euro is to the European Union. We can profit from the exchanging process and profit from the fluctuation of the underlying currency value.
The same basic strategies apply to e-currency trading as with futures trading. Supply and demand dictates price primarily. You could buy e-currency that has historically performed well (buying the trend) or go the opposite way and buy those that are under-performing, looking for a turn-around. You can even chart them if you like.
Leverage, that double-edged sword that Futures Traders are so familiar with is also present in e-Currency Trading. You can borrow against your portfolio to buy more e-currency. The compounding affect is almost outrageous. Some would argue that you never have to pay back the leverage. I contend that it is paid back if you closed your e-Currency account, because your final balance would be less the amount leveraged. The point here is the leverage in futures trading is often times the demise of a well intended trader versus the leverage afforded an e-currency trader combined with the daily compounding affect creates portfolio growth at a phenomenal rate. It is not uncommon to see portfolio growth of 20 - 40% per month.
Futures Trading and e-Currency Trading have a common downside. The learning curve is huge and can be frustrating and costly. Each has unique terminology, which is impossible to work around until you have a good understanding of the meaning. Thankfully in this world of information, we are able to find resources online and offline that shorten that curve. How much it is shortened is dependent on how much time you want to dedicate.
Industry experts have debated for years the optimum amount one should fund their futures trading account with. The obvious moving target is enough capital to withstand the drawdown periods. Many factors go into this but I´ve seen numbers range anywhere from $10,000 to $50,000 and up. If this is the case then there is little doubt why most futures traders lose as most are willing to fund only the amount required to cover Margin or the Brokers account minimum usually a few thousand dollars. One of the biggest reasons for small business failure is being under capitalized, the same holds true in futures trading.
E-Currency Trading is different in that the experts recommend starting with a few hundred dollars and let the system build your account. Whatever route you choose, only trade with risk capital.
E-Currency Trading certainly has advantages over traditional futures trading and may well be worth your serious consideration.Merv Thompson is the owner of a website that provides trading tools, resourses and reviews for todays futures trader. http://www.futures-brokers-review.com
Merv has started his own personal e-currency trading account and will periodically post updates - Visit the website to view the results
Additional information about e-currency trading can be found on his website at http://www.futures-brokers-review.com/ecdwnld.html
Two Great Forex Indicators: Bollinger Bands and Fibonacci Retracements
Forex trading is a fascinating way of earning a living online, and if you are seriously considering entering this fascinating world of forex trading you must consider, by all means, the learning and understanding of a number of indicators that will give you invaluable help on predicting with a high probability the directions the forex market may take as you carefully analyze the price charts for any currency you are trading at the moment. Two of these important indicators are: "Bollinger Bands" and "Fibonacci Retracements".The basic interpretation of "Bollinger Bands" is that prices tend to stay within the space formed by the tracings of the upper and lower bands. The distinctive characteristic of "Bollinger Bands" is that the spacing between the bands varies based on the volatility of the prices. During periods of extreme currency price changes (i.e., high volatility), the bands widen to become more forgiving. During periods of low volatility, the bands narrow to contain currency prices. The bands are plotted two standard deviations above and below a simple moving average. They indicate a "sell" when prices are above the moving average (or close to the upper band) and a "buy" when prices are below it (or close to the lower band). The bands are used by some forex traders in conjunction with other analyses, including RSI, MACD, CCI, and Rate of Change."Fibonacci retracement levels" are a sequence of numbers discovered by the noted mathematician Leonardo da Pisa during the twelfth century. These numbers describe cycles found throughout nature and when applied to technical analysis can be used to find pullbacks in the currency market. More information here; http://www.1-forex.com"Fibonacci retracement levels" are a quite effective way to see the future (at least in the forex markets), i.e., it involves anticipating changes in trends as prices near the lines created by the Fibonacci studies. After a significant price move (either up or down), prices will often retrace a significant portion (if not all) of the original move. As prices retrace, support and resistance levels often occur at or near the "Fibonacci Retracement levels" (See my articles on "Fibonacci trading" for more detail about this).In the currency markets, the commonly used sequence of ratios is 23.6 %, 38.2%, 50% and 61.8%. Fibonacci retracement levels can easily be displayed by connecting a trend line from a perceived high point to a perceived low point. By taking the difference between the high and low, the user can apply the % ratios to achieve the desired pullbacks.Adrian PabloForex Trader and Freelance Writerhttp://www.1-forex.com
Forex Trading: The Fastest And Greatest Way To Create True Wealth
If you search on the internet you'll find millions of investment programs such as real estate, stock trading, bond trading, mutual funds, CDs, auction programs and various internet programs.I have not done many internet income opportunities or programs or affiliate programs because I had been lucky to discover a very easy way to make money through forex trading, (Foreign currency trading) safely on the internet.Perhaps you know about only stock trading or bond trading which are common, but not forex trading.Forex trading is the most profitable and attractive internet income opportunity because you can do it from home or office and from any country in the world.In forex trading, you don't need to do any marketing or selling or internet promotion to succeed.In currency forex trading, you don't need to spend thousands of dollars to do any internet promotion.In forex online trading, you don't need any stocks or warehousing.In forex online trading , all that you've to do is open an account with one of the brokers with as little as $300 or $2000.Then follow simple instructions to buy and sell the currencies.When the price of the currency is low, you buy.In a few seconds or minutes, the price will go up, and you sell it and make a profit.By so doing , in a day, you can easily make $500-$1000 by just buying, selling and trading these foreign currencies for about 3 or 4 hrs!And get this:You don't even have to be stuck sitting behind your computer buying and selling these foreign currencies.You can enter all your buy trades and specify the sell prices you desire and then log off.Whenever the values of these foreign currencies rise and your selling prices reach, the currencies will be automatically sold for you and you make money!You can do currency forex trading and at the same time keep your day job, because in forex online trading, there is no work to do.In the future when you have made hundreds of thousands of dollars, you may then quit your job and just keep doing currency forex trading forever and go on permanent vacation!To understand the beauty of forex online trading Picture this:In the morning, you get up from sleep at 6 am.You go to your bathroom and have your shower.At 7am, you hurry and eat your breakfast.At 7.20 am, you login into your day forex trading account on the internet and spend 10 minutes to buy about 3 or 4 different currencies, [for example British Pound, Euro, CHF (Swiss Currency) and Yen (Japanese currency).]You can specify the price at which you wish to sell each currency.Then you can log off.By 9 am, you're at work in your office or business place.You do your job as usual and by 5 pm, you're finished and heading home.When you get back home around 6.30 pm, you login into your day forex trading account to see how much money you've made.Holy Molly, there in your account it says you have made $750!"Is this for real?", you wonder…Yes, it is. (Your eyes are not deceiving you…)$750 in a day for just clicking your mouse twice and doing no work?(Whereas at your job, you work 8 hrs, but make only probably $150..)This is how easy it is to make money from day forex trading.But before you use real money to open a live forex system trading account, you have to open a free trial (demo) account (forex simulation trading) and practice first, to understand how it works and to acquire the right skills.This free demo (trial) forex system trading account (forex simulation trading) will help you to reduce a lot of risks that can lead to loss.In forex system trading, you can choose how much money to invest, how much money to make and when to make it.You can make money daily, 365 days all year from forex trading.Your computer can be transformed into an "ATM" machine that cranks out cash for you daily (without large investment or hassles) from forex trading.In day forex trading, you can choose what type of risk you can manage, when to invest and when not to invest.In Currency forex trading, you're the boss. You may do as you please.When day forex trading is compared to other investment programs such as stock trading, bond trading, mutual funds, real estate and regular business, it is evident that forex online trading is the fastest and greatest way to make money in the world.Forex system trading is a 2.5 trillion dollars daily business and it is larger than all the stock trading in the world combined.These are some of the reasons why I believe that forex system trading is the best internet income opportunity.Perhaps from reading this article you'll now come to know why currency forex trading is the secret behind the greatest wealth on earth and why it has been kept hidden from the average people of the world and therefore little known to the masses.May these forex trading insights open your eyes to the possibility of infinite wealth and success that can be yours from day forex trading.Please feel free to print or publish this article anywhere and read and also send to your friends and well wishers and please preserve the author's resource box below.Warmly,Ikey BenneyI-key is the creator of "Mscsrrr, Millionaire Secret Cash System, The Royal Road To Riches, Generate $1,500 Weekly For Life" (http://www.mscsrrr.com ) and "TMT: Transcendental Mental Technology, The 10,000 Yr Old "Secret" Of Infinite Wealth, Infinite Success, Infinite Happiness, Revealed. (http://www.tmtworldwide.org )
October 16, 2007
Are These Simple Trading Mistakes Costing You Money In The Forex Market
The 2% rule is a powerful tool in Forex trading. By adopting this rule you're using a strategy that decreases the size of your losses during losing streaks, an important consideration. There is, however one small caveat that you need to be aware of when using the 2% rule to calculate how many Forex shares you are going to buy. As you know, the number of shares you can purchase is determined by your maximum loss and the size of your stop. This means that by increasing your risk, you can also increase the dollar value of the position you open. By simply shrinking your stop size, that is by setting a tighter stop loss, you can increase the dollar value of the position you open.To avoid a situation where you could end up with excessively large positions that may put your Forex trading float at risk, you can choose to introduce an extra rule. This rule would limit the dollar value of a position to be no more than a set percentage of your entire Forex trading float.For example, you might decide that you'll never open a position that has a dollar value of more than 25% of your entire Forex trading float. This rule would only be executed if, after calculating the formula that determines how many shares you buy, you find the dollar value of that position would greater than 25% of your float. If this happened, you would scale down the position to make sure it did not exceed that 25%.The percentage that you decide upon will depend on the type of system you're trading, the size of your float, and your personal tolerance for risk. Generally, smaller Forex trading floats might use 25%, and larger Forex trading floats might use as little as 10% or even 5%. There are no definitive numbers, and the percentage that you choose will depend on your personal circumstances.Once this tendency is corrected for you will have all your money management rules in place, ready to control your risk in the Forex market. Now you need to take the next step. Test your system to find out which of the variables best suit you, remembering always that position sizing is the most significant part of any system design. It is the lynchpin of money management. Once you've tested your system, and fine-tuned your rules, you will be well on your way to becoming a successful Forex trader.-=-=-==-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=- David Jenyns is recognized as the leading expert when it comes to designing profitable stock trading systems.Discover the "secret formula" of trading that anyone can useto consistently generate BIG profits from the market by downloading your FREE copy of David's new UltimateStock Trading Systems course.Click Here To Download ==> Stock Trading Systemshttp://www.ultimate-trading-systems.com/forex.htm
Forex Trading Systems: Mechanical Vs. Discretionary Systems
There are basically two types of Forex trading systems, mechanical and discretionary systems. The trading signals that come out of mechanical systems are mainly based off technical analysis applied in a systematic way. On the other hand, discretionary systems use experience, intuition or judgment on entries and exits. But which one produces better results? Or more importantly, which one fits better your trading style? These are the answers we will try to answer on this article.We will first analyze the pros and cons about each system approach.Mechanical systemsAdvantages This kind of system can be automated and backtested efficiently. It has very rigid rules. Either, there is a trade or there isn't. Mechanical traders are less susceptible to emotions than discretionary traders.Disadvantages Most traders backtest Forex trading systems incorrectly. In order to produce accurate results you need tick data. The Forex market is always changing. The Forex market (and all markets) has a random component. The market conditions may look similar, but they are never the same. A system that worked successfully the past year doesn't necessary mean it will work this year.Discretionary systemsAdvantages Discretionary systems are easily adaptable to new market conditions. Trading decisions are based on experience. Traders learn to see which trading signals have higher probability of success.Disadvantages They cannot be backtested or automated, since there is always a thought decision to be made. It takes time to develop the experience required to trade successfully and track trades in a discretionary way. At early stages this can be dangerous.Now, which approach is better for Forex traders? The one that fits better your personality. For instance, if you are a trader that finds it hard to follow your trading signals, then you are better off using a mechanical system, where your judgment won't play an important role in your system. You only take the trades that your system signals.If the psychological barriers that affect every trader (fear, greed, anger, etc.) puts you in unwanted scenarios, you are also better off trading mechanical systems, because you only need to follow what your system is telling you, go short, go long, close a trade. No other decision has to be made.On the other hand, if you are a disciplined trader, then you are better off using a discretionary system, because discretionary systems adapt to the market conditions and you are able to change your trading conditions as the market changes. For instance, you have a target of 60 pips on a long trade. But the market suddenly starts trending up pretty strongly, then you could move your target to say 100 pips.Does it mean that trading a discretionary system has no rules? This is absolutely incorrect. Trading discretionary systems means that once a trader finds his/her setup, the trader then decides what to do. But every trader still needs certain rules that need to be followed, such as the size of the position, conditions that have to be met before thinking to get in the market, and so on.I am a discretionary trader. The main reason I chose a discretionary system is that my trades are based on price behavior, and as you already know, the price behaves similar to the past, but it is never identical, therefore the outcome of every trade is unknown. However, I do have rigid rules on my system, certain conditions have to be met before I even think in getting in a trade. This keeps me out of trouble, once my setup is present and in accordance with the rules I have set, then I closely watch the price behavior and finally decide whether it is a good opportunity or not.Whether you choose to be a discretionary or a mechanical trader there are some important points you should take in consideration:1. You need to make sure the Forex trading system you are using totally fits your personality. Otherwise you will find yourself outguessing your system.2. You also need to have some rules and most importantly have the discipline to follow them.3. Take your time to build the perfect system for you. It's not easy and requires time and hard work, but at the end, if done correctly, it will give you consistent profitable results.4. Before going live, try it on a demo account or even on a small account (I will go for the second option, since psychological barriers will be present.)Raul Lopez is a full time Forex trader and founder of http://www.straightforex.com a high quality Forex training company.
What are Your Options Regarding Forex Options Brokers?
Forex option brokers can generally be divided into two separate categories: forex brokers who offer online forex option trading platforms and forex brokers who only broker forex option trading via telephone trades placed through a dealing/brokerage desk. A few forex option brokers offer both online forex option trading as well a dealing/brokerage desk for investors who prefer to place orders through a live forex option broker.The trading account minimums required by different forex option brokers vary from a few thousand dollars to over fifty thousand dollars. Also, forex option brokers may require investors to trade forex options contracts having minimum notional values (contract sizes) up to $500,000. Last, but not least, certain types of forex option contracts can be entered into and exited at any time while other types of forex option contracts lock you in until expiration or settlement. Depending on the type of forex option contract you enter into, you might get stuck the wrong way with an option contract that you can not trade out of. Before trading, investors should inquire with their forex option brokers about initial trading account minimums, required contract size minimums and contract liquidity.There are a number of different forex option trading products offered to investors by forex option brokers. We believe it is extremely important for investors to understand the distinctly different risk characteristics of each of the forex option trading products mentioned below that are offered by firms that broker forex options.Plain Vanilla Forex Options Broker - Plain vanilla options generally refer to standard put and call option contracts traded through an exchange (however, in the case of forex option trading, plain vanilla options would refer to the standard, generic option contracts that are traded through an over-the-counter (OTC) forex dealer or clearinghouse). In simplest terms, vanilla forex options would be defined as the buying or selling of a standard forex call option contract or forex put option contract.There are only a few forex option broker/dealers who offer plain vanilla forex options online with real-time streaming quotes 24 hours a day. Most forex option brokers and banks only broker forex options via telephone. Vanilla forex options for major currencies have good liquidity and you can easily enter the market long or short, or exit the market any time day or night.Vanilla forex option contracts can be used in combination with each other and/or with spot forex contracts to form a basic strategy such as writing a covered call, or much more complex forex trading strategies such as butterflies, strangles, ratio spreads, synthetics, etc. Also, plain vanilla options are often the basis of forex option trading strategies known as exotic options.Exotic Forex Options Broker - First, it is important to note that there a couple of different forex definitions for "exotic" and we don't want anyone getting confused. The first definition of a forex "exotic" refers to any individual currency that is less broadly traded than the major currencies. The second forex definition for "exotic" is the one we refer to on this website - a forex option contract (trading strategy) that is a derivative of a standard vanilla forex option contract.To understand what makes an exotic forex option "exotic," you must first understand what makes a forex option "non-vanilla." Plain vanilla forex options have a definitive expiration structure, payout structure and payout amount. Exotic forex option contracts may have a change in one or all of the above features of a vanilla forex option. It is important to note that exotic options, since they are often tailored to a specific's investor's needs by an exotic forex options broker, are generally not very liquid, if at all.Exotic forex options are generally traded by commercial and institutional investors rather than retail forex traders, so we won't spend too much time covering exotic forex options brokers. Examples of exotic forex options would include Asian options (average price options or "APO's"), barrier options (payout depends on whether or not the underlying reaches a certain price level or not), baskets (payout depends on more than one currency or a "basket" of currencies), binary options (the payout is cash-or-nothing if underlying does not reach strike price), lookback options (payout is based on maximum or minimum price reached during life of the contract), compound options (options on options with multiple strikes and exercise dates), spread options, chooser options, packages and so on. Exotic options can be tailored to a specific trader's needs, therefore, exotic options contract types change and evolve over time to suit those ever-changing needs.Since exotic forex options contracts are usually specifically tailored to an individual investor, most of the exotic options business in transacted over the telephone through forex option brokers. There are, however, a handful of forex option brokers who offer "if touched" forex options or "single payment" forex options contracts online whereby an investor can specify an amount he or she is willing to risk in exchange for a specified payout amount if the underlying price reaches a certain strike price (price level). These transactions offered by legitimate online forex brokers can be considered a type of "exotic" option. However, we have noticed that the premiums charged for these types of contracts can be higher than plain vanilla option contracts with similar strike prices and you can not sell out of the option position once you have purchased this type of option - you can only attempt to offset the position with a separate risk management strategy. As a trade-off for getting to choose the dollar amount you want to risk and the payout you wish to receive, you pay a premium and sacrifice liquidity. We would encourage investors to compare premiums before investing in these kinds of options and also make sure the brokerage firm is reputable.Again, it is fairly easy and liquid to enter into an exotic forex option contract but it is important to note that depending on the type of exotic option contract, there may be little to no liquidity at all if you wanted to exit the position.Firms Offering Forex Option "Betting" - A number of new firms have popped up over the last year offering forex "betting." Though some may be legitimate, a number of these firms are either off-shore entities or located in some other remote location. We generally do not consider these to be forex brokerage firms. Many do not appear to be regulated by any government agency and we strongly suggest investors perform due diligence before investing with any forex betting firms. Invest at your own risk with these firms.John Nobile - Senior Account ExecutiveCFOS/FX - Online Forex Spot and Options Brokerage
Forex Trading Can Be Like Day-trading
Forex trading, or foreign currency trading, has become a bit of a craze of late, especially since it is something available to anyone who owns a computer. And anyone who is willing to put in some training time can profit from forex trading.The forex market finds traders from all around the globe monitoring currency fluctuations, not unlike the way a day trader may monitor a stock's fluctuation on the Dow Jones.In forex trading, a trader will pair two types of currency, for example the U.S. dollar and the British pound. As it requires more of one currency to purchase another, that currency loses value. Not unlike, stock trading, forex traders try to accumulate currency when it weakens in hopes of selling it when it goes up in value. Forex trading is not unlike the buy low, sell high approach found in stock trading.The way a trader on the forex market exchange goes about acquiring currency is by giving a bid/ask quote, saying he is willing to buy, for example 1.6 marks per dollar and sell them at 1.625 per dollar. One must be a market trader to have access to this process. So most people who are forex trading on line buy the currency through a bank, where they'll pay a commission, then have to figure the commission paid to the bank into the calculation of their spread, or profit margin, when they sell it.Forex trading is not an easy path to riches. And some people have lost considerable money in miscalculating the market. With its increased popularity, on some days the forex market exchange can see more than one trillion dollars exchanged. Packages for teaching a new forex trader how to invest in the market can range in price.Fco Segurata is an specialist in forex trading. He helped many entrepreneurs to get more for their money.Get more updated daily articles about Forex in his Forex site.
Forex Trading: Making Money With Money
Forex trading is one of the growing markets for making money in today's world economy. If you are part of the forex trading game, you need well thought out and planned strategies. You also need up to the minute information and reliable data to help you along the way. With this said, in order to be successful at forex, you'll want to invest in high quality products to help you analyze, watch and track the forex market. No little project at all. The good news to you is that there are options out there to help you do just that.First of all, realize that forex trading is an excellent market to trade in. It has the ability to make you money without a whole lot of investing. And, you can trade with whatever you have, not necessarily millions of dollars. To get into the forex market, it makes sense to pay attention to the numbers for some time. Then, you'll have a good feel for it long before your dollars are involved.But, once you do get in, you'll need up to the minute information. Consider the purchase of and use of valuable forex trading software programs. These programs can help you to track what is happening and in some, it will help you to better analyze the information as well. Of course, this in turn will help you to make the right decisions about your investments.While market trading is always risky, many find that forex trading, when done right, is one of the most profitable without much start up investment opportunities out there. With the ability that you have to monitor and respond virtually instantly to the world's market in forex, you are better able to make the right decisions which will then lead to those gains you are seeking.for more information please see http://www.forex-trading-help.co.uk
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