Forex Trading System: Choosing between Mechanical and 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 systems

Advantages

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 systems

Advantages

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).

How to take a loss

There are quite a few books written on how to make money in the market. Some of them are even written by people who have made money as traders! What you don't see often, however, are books or articles written on how to lose money. "Cut your losers and let your winners run" is commonsensical advice, but how do you determine when a position is a loser? Interestingly, most traders I have seen don't formulate an answer to this question when they put on a position. They focus on the entry, but then don't have a clear sense of exit-especially if that exit is going to put them into the red.

One of the real culprits, I have to believe, is in the difficulty traders have in separating the reality of a losing trade from the psychological sense of feeling like a loser. At some level, many traders equate losing with being a loser. This frustrates them, depresses them, makes them anxious-in short, it interferes with their future decision-making, because their P & L is a blank check written against their self-esteem. Once a trader is self-focused and not market focused, distortions in decision-making are inevitable.

A particularly valuable section of the classic book Reminiscences of a Stock Operator describes Livermore 's approach to buying stock. He would sell a quantity and see how the stock responded. Then he would do that again and again, testing the underlying demand for the issue. When his sales could not push the market down, then he would move aggressively to the buy side and make his money.

What I loved about this methodology is that Livermore's losses were part of a grander plan. He wasn't just losing money; he was paying for information. If my maximum position size is ten contracts in the ES and I buy the highs of a range with a one-lot, expecting a breakout, I am testing the waters. While I am not potentially moving the market in the way that Livermore might have, I still have begun a test of my breakout hypothesis. I then watch carefully. How are the other averages behaving at the top ends of their range? How is the market absorbing the activity of sellers? Like any good scientist, I am gathering data to determine whether or not my hypothesis is supported.

Suppose the breakout does not materialize and the initial move above the range falls back into the range on some increased selling pressure. I take the loss on my one-lot, but then what happens from there?

The unsuccessful trader will respond with frustration: "Why do I always get caught buying the highs? I can't believe "they" ran the market against me! This market is impossible to trade." Because of that frustration-and the associated self-focus-the unsuccessful trader does not take any information away from that trade.

In the Livermore mode, however, the successful trader will see the losing one-lot as part of a greater plan. Had the market broken nicely to the upside, he would have scaled into the long trade and likely made money. If the one-lot was a loser, he paid for the information that this is, at the very least, a range-bound market, and he might try to find a spot to reverse and go short in order to capitalize on a return to the bottom end of that range.

Look at it this way: If you put on a high probability trade and the trade fails to make you money, you have just paid for an important piece of information: The market is not behaving as it normally, historically does. If a robust piece of economic news that normally sends the dollar screaming higher fails to budge the currency and thwarts your purchase, you have just acquired a useful bit of information: There is an underlying lack of demand for dollars. That information might hold far more profit potential than the money lost in the initial trade.

I recently received a copy of an article from Futures Magazine on the retired trader Everett Klipp, who was dubbed the "Babe Ruth of the CBOT". Klipp distinguished himself not only by his fifty-year track record of trading success on the floor, but also by his mentorship of over 100 traders. Speaking of his system of short-term trading, Klipp observed, "You have to love to lose money and hate to make money to be successful.It's against human nature what I teach and practice. You have to overcome your humanness."

Klipp's system was quick to take profits (hence the idea of hating to make money), but even quicker to take losses (loving to lose money). Instead of viewing losses as a threat, Klipp treated them as an essential part of trading. Taking a small loss reinforces a trader's sense of discipline and control, he believed. Losses are not failures.

So here's a question I propose to all those who enter a high-probability trade: "What will tell me that my trade is wrong, and how could I use that information to subsequently profit?" If you're trading well, there are no losing trades: only trades that make money and trades that give you the information to make money later.

Forex Strategy: Trading with Stochastics

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

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

Stochastics consist of two lines:

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

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

Interpretation:

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

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

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

Trending market

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

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

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

Trend-less market

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

Divergence

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

Stochastics can also be used to trade off divergences.

Price behavior

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

I hope this article helps you become a better trader.

Forex Broker: Choosing the right Forex Broker

Sometimes it's hard to make a decision on which Forex broker to open our trading account, there are just too many of them. Most of them have different features, capabilities, weaknesses and advantages, for this reason I have created a checklist that can help you decide the broker to use in your Forex adventure.

1. Is it regulated?

The first question you have to ask yourself is: is the broker I want to use Regulated ? There must be no doubt about this first point. All regulated brokers must submit financial reports to regulatory authorities, and when they fail to do it, authorities have the right to fine them or terminate their membership. This enforces Forex brokers to keep transparent financial reports.

The brokers must be regulated by their local regulatory authorities, for instance, for brokers based in the US , they must be regulated by the NFA (National Futures Association) and CFTC (Commodity Futures Trading Commission), Swiss based brokers must be regulated by the FDF (Swiss Federal Department of Finance) and so on.

Also when a Forex broker is regulated allows investors to dispute any resolution, increasing the investor protection.

2. Trading Conditions

This point refers to the features of the trading platform and the trading conditions with the chosen broker. Amongst the most important factors are:

Spread - Obviously the smaller the spread on currency pairs the better the conditions are for investors and traders.

Platform execution - Trading execution refers to how fast and consistent are the execution of trades. Some brokers guarantee fast and transparent executions during normal market conditions.

Fractional trading - Some brokers allow investors and traders to trade on a fractional basis, instead of trading full lots "100,000 units" or "300,000 units", they allow you to trade "163,345 units" or "325,911 units". This is very helpful for trades risking certain percentage of their balance on each trade.

Safety of funds - We need to make sure our trading funds are kept in a segregated account or at least insured.

Opens versus Closes

Although there is no such thing as a 5-minute open or a 5-minute close, the concept is a simple one to understand. The first price tick of a 5-minute period is arbitrarily defined as the open, and the last tick of the 5-minute time segment is arbitrarily defined as the 5-minute close.

The relationship is a simple one. It is based on the well-established pattern for closing prices in a bull trend to be higher than opening prices and for closing prices in a bear trend to be lower than opening prices. By comparing a Moving Average of the 5-, 10-, or 15-minute openings with a Moving Average of the 5-, 10-, or 15-minute closings, we can quickly detect trend changes either before they occur or very early in their inception.

Figure 13-4a and 13-4b illustrate the ideal signals and relationship to which I am referring using a 5-minute chart of S&P futures. Examine my buy and sell signals in relation to price trend changes during the day. Figure 13-5 shows the same oscillator combination and signals on a Swiss franc chart.

As you can see from the illustrations, the signals are very reliable and tend to signal major moves. I call this method the O/C oscillator (O/C). Although the O/C method is wonderful for catching large intraday price swings, it does have its limitations which I will discuss later on. Before doing so, however, Ill review the construction of the O/C oscillator, and then Ill give you rules for using it.

Construction of the O/C for IntraDay Trading

The O/C is constructed as follows:

1. Use two smoothed Moving Averages (MAs) as follows:

a. A smoothed Moving Average of the opening prices consisting of 6 to 10 periods on 5-, 10-, 15-, or 20-minute data.

b. A second smoothed Moving Average which consists of closing prices of 12 to 24 period on 5-, 10-, 15-, or 20 minute data.

2. Buy and sell on crossovers of the two MA lines. When the MA of the close crosses over the MA of the open, a buy is signaled, and when the MA of the close falls below the MA of the open, a sell is signaled.

3. You will need to adjust the lengths used as a function of the time span you are using (i.e., 5-, 10-, 15-, or 20-minute data) and the volatility of the market you are following. There are no hard and fast rules for doing this. You will need to use your judgment; however, after you work with this method for a while, you will become quite adept at making the proper selections. (Formula for smoothed MA is in appendix at end of book.)

4. An important issue which you will need to deal with is the amount of the crossover. In other words, you will need to determine how much of a crossover will be sufficient to generate a signal in either direction. In this respect consider Figure 13-6 As you can see, the minor crossovers, which do occur, are not reliable. They must be sufficiently large. You will need to determine the crossover amount or threshold. You can do this fairly easily be examining recent signals. Be sure to monitor the O/C performance closely.

What is Scalping?

Although the term scalping most likely originated in the heritage of the wild, wild American West, the contemporary trend for outrage at the mere mention of ethnic issues prompts me to side-step the derivation of this term. Simply stated, the scalper attempts to trade futures markets for only several ticks, taking advantage of fairly narrow trading ranges in order to "buy the bid and sell the offer". The scalper, who is usually a floor trader, attempts to capitalize on relatively quiet times in the markets, buying at the prevailing price (the bid price) or hopefully at one or two ticks below the anticipated fair price and selling at a slightly higher price or what is called the offer price. The best way I can drive home the point of what it is that scalpers do is to state succinctly that scalpers attempt to buy at wholesale and sell at retail.

As you can understand, the price markup from wholesale to retail, although very high in some businesses, is not too high in the scalping business. Frequently, the markup amounts to only one or two price ticks. However, at $30 or more per price tick in Treasury bond futures, the prospects for profitable scalping are considerable. If the trader is paying very small commissions ($14 or lower per trade), then a good portion of each price tick per contract is profit. What the scalper may give up in the way of price movement, he or she can compensate for in terms of position size. From the scalpers point of view, a trade of two ticks profit on 500 contracts works out to 1000 ticks-1000 ticks after approximately $15 in costs (which is a very high cost for the floor trader) works out to roughly $16,000 profit. Assuming a commission rate of $8 and often much, much lower for the floor trader, the profits are even more substantial.

It is now possible for traders who are not on the floor of the various exchanges to trade in a fashion very similar to what floor traders do when they scalp the markets. Using some of the techniques discussed in this book, the average trader who is willing to sit at the computer screen and watch the market tick-by-tick all day long can scalp in a fashion similar to floor traders. During the last few years, many floor traders, realizing that scalping is possible without being on the floor of the exchange, have left to become upstairs traders. An upstairs trades as if he or she were on the floor but is, in actuality, trading from an office, usually located in the exchange building.

Rules for Scalping

In order to scalp the markets effectively, you must apply certain rules which do not necessarily apply to other forms of Day Trading. You will need to know and observe these rules carefully and consistently if you plan to become a successful scalper:

1. To compensate for the relatively small size of moves which you will attempt to be capturing as a scalper, you will need to trade considerably larger positions.

2. If you are not willing to accept the risk of trading larger positions, then you cannot scalp the markets in a fashion which makes trading worth your while. After all, if you plan to scalp bonds for one or two ticks at a time three or four times a day, and if you are unsuccessful in your efforts one or two times a day, then the bottom line of your trading on a one-contract basis may only be one tick. Subtracting from this commission costs, your Scalping will prove to be a losing proposition or a minimally profitable venture, above and beyond what you have lost in terms of time. Therefore, it is necessary for you to make a commitment to larger positions, perhaps 5 or 10 contracts at a time, and to increase your position size once you have mastered the various Scalping techniques.

3. To be a successful scalper, you will need to take your losses as well as your profits very quickly. If, for example, you are long T-bonds at $105.20 expecting a move to $105.22, then you must enter orders to sell at $105.22, since you have set yourself a two-tick target. To expect $105.23 or $105.24 would not be consistent with your Scalping goals. The idea is to take numerous small profits of several ticks on large positions throughout the day. Only by following this goal will you achieve success as a scalper.

4. You must pay close attention to the market you are trading at all times. This means that you will be able to trade only one market at a time, since you will need to be at the screen watching every tick. If you have a multiple screen monitor, it may be possible to scalp more than one market at a time; however, I think that pragmatically this would be difficult. In addition to these rules, which are more operational rather than methodological, important techniques are explained in the next section.

Suggested Methods of Forex Scalping

To scalp a market effectively, you must first isolate a specific trading range which is clearly defined in terms of support and resistance or in terms of bid offer. As you know, the bid is the price at which buyers are willing to buy; the offer price is a price at which sellers are willing to sell. In most cases, there is a spread, or difference between the two, sometimes of one tick in size and other times several ticks in size, depending upon the market. In Treasury bonds, the bid offer spread is usually one tick. Therefore, by knowing the bid and the offer, the scalper will attempt to buy at the bid price and sell at the offer price, otherwise known as buying the bid and selling the offer.

Here is a suggested technique for taking advantage of the bid-offer spread. Assume that Treasury bond futures have been trading in a fairly narrow trading range after the initial opening volatility has been digested. The market begins to trade between $103.15 and $103.17, a two-tick range. As long as the market continues to trade in this range (and this could change at virtually and time), you will want to buy at the lower end of the range and sell at the higher end of the range. In order to do this, you will enter specific price orders to buy at $103.15 fill or kill. Within several minutes, you will know whether you have been filled. If you have been filled, you will then enter an opposite order to sell, perhaps at $105.16 or $105.17 which is within the asking price range.

This is the very basic technique of buying at the bid and selling at the offer. As you can see, it is considerably more difficult to do off the floor than it is on the trading floor, since floor traders know immediately whether they have been filled without having to wait for a third party to confirm the price execution. The on-the-floor trader, who must await confirmation of order fill. Depending upon the firm with which you are doing business, the use of fill-or-kill orders may, if used too frequently, alienate brokers as well as floor traders. Therefore, the fill-or-kill order should be used only when absolutely necessary or in cases where the firm you are dealing with has no objections.

Another technique would be to use a price order and to give the market sufficient time to fill your order. In this case, I recommend working with a brokerage firm that will report your fills back to you as quickly as possible. The problem with Scalping away from the pit is not knowing whether you have been filled.

Understanding the Basics of Currency Trading

Investors and traders around the world are looking to the Forex market as a new speculation opportunity. But, how are transactions conducted in the Forex market? Or, what are the basics of Forex Trading? Before adventuring in the Forex market we need to make sure we understand the it, otherwise we will find ourselves lost where we less expected. This is what this article is aimed to, to understand the basics of currency trading.

What is traded in the Forex market?

The instrument traded by Forex traders and investors are currency pairs. A currency pair is the exchange rate of one currency over another. The most traded currency pairs are:

USD/CHF: Swiss franc

GBP/USD: Pound

USD/CAD: Canadian dollar

USD/JPY: Yen

EUR/USD: Euro

AUD/USD: Aussie

These six currency pairs generate up to 85% of the overall volume in the Forex market. So, for instance, if a trader goes long on the Euro, she or he is simultaneously buying the EUR and selling the USD. If the same trader goes short or sells the Aussie, she or he is simultaneously selling the AUD and buying the USD.

The first currency of each currency pair is referred as the base currency, while second currency is referred as the counter or quote currency. Each currency pair is expressed in units of the counter currency needed to get one unit of the base currency. If the price or quote of the EUR/USD is 1.2545, it means that 1.2545 US dollars are needed to get one EUR.

Bid/Ask Spread

All currency pairs are commonly quoted with a bid and ask price. The bid (always lower than the ask) is the price your broker is willing to buy at, thus the trader should sell at this price. The ask is the price your broker is willing to sell at, thus the trader should buy at this price.

EUR/USD 1.2645/48 or 1.2645/8

The bid price is 1.2645

The ask price is 1.2648

A Pip

A pip is the minimum incremental move a currency pair can make. A pip stands for price interest point. A move in the EUR/USD from 1.2545 to 1.2560 equals 15 pips. And a move in the USD/JPY from 112.35 to 113.40 equals 105 pips.

Margin Trading (leverage)

In contrast with other financial markets where you require the full deposit of the amount traded, in the Forex market you require only a margin deposit. The rest will be granted by your broker.

The leverage provided by some brokers goes up to 400:1. This means that you require only 1/400 or .25% in balance to open a position (plus the floating gains/losses.) Most brokers offer 100:1, where every trader requires 1% in balance to open a position.

The standard lot size in the Forex market is $100,000 USD.

For instance, a trader wants to get long one lot in EUR/USD and he or she is using 100:1 leverage.

To open such position, he or she requires 1% in balance or $1,000 USD.

Of course it is not advisable to open a position with such limited funds in our trading balance. If the trade goes against our trader, the position is to be closed by the broker. This takes us to our next important term.

Margin Call

A margin call occurs when the balance of the trading account falls below the maintenance margin (capital required to open one position, 1% when the leverage used is 100:1, 2% when leverage used is 50:1, and so on.) At this moment, the broker sells off (or buys back in the case of short positions) all your trades, leaving the trader "theoretically" with the maintenance margin.

Most of the time margin calls occur when money management is not properly applied.

How are the mechanics of a Forex trade?

The trader, after an extensive analysis, decides there is a higher probability of the British pound to go up. He or she decides to go long risking 30 pips and having a target (reward) of 60 pips. If the market goes against our trader he/she will lose 30 pips, on the other hand, if the market goes in the intended way, he or she will gain 60 pips. The actual quote for the pound is 1.8524/27, 4 pips spread. Our trader gets long at 1.8530 (ask). By the time the market gets to either our target (called take profit order) or our risk point (called stop loss level) we will have to sell it at the bid price (the price our broker is willing to buy our position back.) In order to make 40 pips, our take profit level should be placed at 1.8590 (bid price.) If our target gets hit, the market ran 64 pips (60 pips plus the 4 pip spread.) If our stop loss level is hit, the market ran 30 pips against us.

It’s very important to understand every aspect of forex trading. Start first from the very basic concepts, then move on to more complex issues such as Forex trading systems, trading psychology, trade and risk management, and so on. And make sure you master every single aspect before adventuring in a live trading account.

The Seven Most Traded Currencies in FOREX

Currencies are traded in dollar amounts called “lots”. One lot is equal to $1,000, which controls $100,000 in currency. This is what is known as the "margin". You can control $100,000 worth of currency for only 1,000 dollars. This is what is called “High Leverage”.

Currencies are always traded in pairs in the FOREX. The pairs have a unique notation that expresses what currencies are being traded. The symbol for a currency pair will always be in the form ABC/DEF. ABC/DEF is not a real currency pair, it is an example of a symbol for a currency pair. In this example ABC is the symbol for one countries currency and DEF is the symbol for another countries currency.

Here are some of the common symbols used in the Forex:

USD - The US Dollar EUR - The currency of the European Union "EURO" GBP - The British Pound JPN - The Japanese Yen CHF - The Swiss Franc AUD - The Australian Dollar CAD - The Canadian Dollar

There are symbols for other currencies as well, but these are the most commonly traded ones.

A currency can never be traded by itself. So you can not ever trade a EUR by itself. You always need to compare one currency with another currency to make a trade possible.

Some of the common PAIRS are:

EUR/USD Euro / US Dollar "Euro"

USD/JPY US Dollar / Japanese Yen "Dollar Yen"

GBP/USD British Pound / US Dollar "Cable"

USD/CAD US Dollar / Canadian Dollar "Dollar Canada"

AUD/USD Australian Dollar/US Dollar "Aussie Dollar"

USD/CHF US Dollar / Swiss Franc "Swissy"

EUR/JPY Euro / Japanese Yen "Euro Yen"

The listed currency pairs above look like a fraction. The numerator (top of the fraction or "left" of the / however you want to SEE it) is called the base currency. The denominator (bottom of the fraction or "right" of the /however you want to SEE it) is called the counter currency. When you place an order to buy the EUR/USD, for instance, you are actually buying the EUR and selling the USD. If you were to sell the pair, you would be selling the EUR and buying the USD. So if you buy or sell a currency PAIR, you are buying/selling the base currency. You are always doing the opposite of what you did with to base currency with the counter currency.

If this seems confusing then you’re in luck. You can always get by with just thinking of the entire pair as one item. Then you are just buying or selling that one item. Thinking like this will still enable you to place trades. You only need to be aware of the base/counter concept for Fundamental Analysis issues.

So why is it important to know about the base/counter currency? The base/counter currency concept illustrates what is actually taking place in a Forex transaction. Some of you reading this, know that short-selling was restricted in the stock market *(Short-selling is where you sell a stock/currency/option/commodity first and then try to buy it back at a lower price later). But in the FOREX you are always buying one currency (base) and selling another (counter). If you sell the pair you are simply flipping which one you buy and which one you sell. The transaction is essentially the same. This allows you to short-sell with no restrictions.

You want to be able to short-sell with no restrictions so you can make money when the market drops as well as when it rises. The problem with traditional stock market trading is that the market has to go up for you to make money. With FOREX trading you can make money in all directions.

Forex trading basics

Forex Market Basics

The Foreign Exchange market (also referred to as the Forex, FX market, "Cash" Forex or Spot Forex market ) is the largest financial market in the world, with more than $1.5 trillion changing hands every day — 30 times larger than the combined volume of all U.S. equity markets. Another major feature of the Forex market is that it operates 24 hours a day, corresponding to the opening and closing of financial centers in countries all across the world, starting each day in Sydney, then Tokyo, London and New York. At any time, in any location, there are buyers and sellers, making the Forex market the most liquid market in the world.

What to trade in Forex Market?

In the forex market, currency trading is always done in currency pairs, such as EUR/USD or GBP/USD. Accordingly, all trades result in the simultaneous buying of one currency and the selling of another. The base currency is the "basis" for the buy or the sell. It is useful to consider the currency pair as an instrument, which can be bought or sold.

Understanding Forex quote

• Base currency: The first currency in the pair.
• Counter Currency: The second currency in the pair. Also known as the terms currency.

The US dollar is the centerpiece of the Forex market and is normally considered the ’base’ currency for quotes. This includes USD/JPY, USD/CHF and USD/CAD. For these currencies and many others, quotes are expressed as a unit of $1 USD per the second currency quoted in the pair. For example, a quote of USD/CAD 1.1302 means that one U.S. dollar is equal to 1.1302 Canadian dollar.

BID and ASK Prices

When trading forex you will often see a two-sided quote, consisting of a ’bid’ and ’ask’. The ’bid’ is the price at which you can sell the base currency (at the same time buying the counter currency). The ’ask’ is the price at which you can buy the base currency (at the same time selling the counter currency).

Commission-free, but with spreads

Most Forex brokers offer commission-free Forex trading. Spread - The difference between the bid and ask price of a currency. Normally 3-5 pips on the Majors.

Rollover - What happens to my open positions at the end of the trading day?

Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies. Most brokers will automatically roll over your open positions, allowing you to hold a position for an indefinite period of time.

Leverage & Margin

The leverage available in forex trading is one of main attractions for many traders. Leveraged trading, or trading on margin, simply means that you are not required to put up the full value of the position. Forex brokers provide more leverage than stocks or futures. In forex trading, the amount of leverage available can be up to 400 times the value of your account.

What makes a good Trading Strategy?

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

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

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

In my view: You absolutely MUST specialise.

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

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

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

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

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

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

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

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

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

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

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

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

Good luck and enjoy your trading.

Mini Forex Account

A mini forex account is designed for those new to online trading and those with limited investment capital. Those with less than US$5,000 often favour mini accounts although regular accounts may be opened with a minimum of $2000-$5,000. The amount varies from broker to broker.

A mini forex account can be opened with a minimum of US$300-500 and this figure varies between brokers.

A mini forex account is intended to introduce traders to the excitement of forex trading while minimising risk.

• A mini forex account can be opened at anytime but many traders practice on a demo account first to test their trading strategies and techniques.
• Trading size is normally 1/10th the size of a regular account. Some brokers have smaller lot sizes. This reduces the risk associated with forex trading.
• Margin requirements differ depending on the broker. The NFA states the margin should be no less than 1% of the base currency traded. However not all brokers follow these guidelines. Some brokers offer margins as low as US$50 per lot on their minis.
• Some brokers have software in their Trade Stations that automatically calculates the required margin while others manually set the margin and vary it accordingly.

The CFTC is enforcing a 1% margin requirement for registered FCMs and their affiliates that only offer trading in the Forex Market.

The new NFA rule requires a minimum 1% margin at all time to maintain an open trade. (Note this may change from time to time so although we use 1% as the example at some stage in the future the margin maybe different. However using similar calculations one can easily calculate the new margins)Some deal stations automatically calculate this according to the formula and hence the margin requirements are continually varying.

Based on a 1% margin requirement

Example 1:

GBP/USD rate: 1.7442/1.7447

Account type: $10 000/lot

1% leverage: 10 000x0.01 (1%) =100units

With the GBP/USD, the margin required is:

1.7447 (GBP/USD) x100 (units of base currency GBP) = USD174 for each lot.

Example 2:

EUR/USD rate: 1.2326/1.2331

Account type: $10 000/lot

1% leverage: 10 000x0.01 (1%) =1000units

With the EUR/USD, the margin required is:

1.2331 (EUR/USD) x100 (units of base currency EUR) = US$123 for each lot.

• On a mini forex account where the margin is only US$50 per lot, a trader with $500 can withstand a larger market swing than a trader with a regular account with higher margins but if they have a margin call will lose more capital. A margin call occurs when the balance of the trading account falls below the required minimum balance required. The broker then closes all open trades.
• Mini forex accounts have become very popular as many stock investors are taking positions in the forex market to spread their risk.
• It pays to compare mini forex accounts at different brokers to find the best rates on overnight positions and the most competitive spreads.
• Pip values vary between the different currency pairs. Based on a US$ 10K account, a 25 pip profit on a mini account Euro trade is $25 and since this is a small amount, a mini account allows traders to focus on technical analysis instead of the profit and exit at the right point rather than take profits early. On a regular account (100K), 25 pips would give US$250 profit.

Why Trade Forex

• Take control of your own finances.Beat the returns from mutual funds, hedge funds or managed funds.
• Start-up costs are low when compared with day trading stocks or futures.
• Forex is the world’s largest market. No one can corner the market.
• With a trading volume of around $3.2 trillion dollars a day( Bank for International Settlements April 2007), no single entity can control the market for an extended period of time.
• You can make money when the market is going up or down.
• Forex markets trade 24 hours a day. There is no waiting for the opening bell.
• Technical analysis works very well and the market trends well.
• Forex offers up to 100:1 leverage but it is wise avoid very high leverage if you can afford it. Stocks offer 1:1 or 2:1.Futures offers 15:1 leverage.
• The forex market is the most liquid in the world. Traders can almost always open or close a position at a fair price.
• You can make money working only a few hours a day or week on your computer.
• You can trade from anywhere in the world where there is an internet connection.
• You can gain experience without risking your own money by using a free demo account.
• When trading stocks, there are over 40,000 stocks to choose from. In forex, you can choose one or two currency pairs and focus your analysis.

Trading Price Action and Pin Bar Reversals in the forex market

in my Opinion, learning to trade forex with candlestick patterns is the key to long term success.

Follow just the price, and riches will follow

For today’s article, I will be introducing traders to ‘price action signals for Foreign Exchange (FOREX)

Today I am presenting an introduction to what price action is, and will provide a basic price action pattern for traders to use in their trading.

What is price action?

Price action can be simply defined as trading from a naked price chart, with no other inputs. We display a bar or candle chart on time frames such as daily, weekly or hourly etc. The term price action signal will be given to any pre determined pattern/trigger which develops from a single price bar or series of price bars.

Most traders will remember my core philosophy is to KISS,’ keep is simple stupid’. Price action is trading from a first tier piece of information. Our decisions are based on 1 input i.e.: price. Conversely, when we trade from indicators and fancy patterns etc, there is subjectivity and multiple inputs. Trading price action is trading the here and now, with no lag or delay. Price action allows the trader to trade what he is seeing first hand, without subjectivity.

How can a trader make life easier?

When a trader has to make fewer decisions in regards to every trade, his life becomes livable and stress free. Contrary to what most so called experts say, it is very possible to trade with fewer inputs. Inputs would be areas like financial, economic news, world news etc etc. Another input might also include the number of indicators and charting tools that are used for discovering and managing trades. Another input that could be avoided is listening to friends opinions about what or when to make a trade (except us of course)

Whenever you listen to the news and the opinions of others, you then have to filter that data through your thinking process. You actually have to make some kind of decision concerning all those bits of information you come across. Attempting to understand how all those various inputs will affect the markets is usually difficult to manage. Predicting how traders will react to the plethora of news items is often a haphazard and illogical process to go through. It is really a guessing game that most so called experts are unable to consistently figure out.

The best alternative is trading price action!

In a nutshell, great forex traders, always go back to the very foundation of a price chart, (a raw blank candle or bar chart), and make decisions based on the truest information available.

Observe the price behavior

Without any indicators, a market can be seen as trending, hitting resistance or support, congesting sideways, etc etc. No computer or indicator, or news item will provide this information perfectly, except the human brain.

Brining it together to trade.

This article was not designed to teach a complete method of price action entries, but merely introduce you to the concept of trading from raw price charts and to remove all other variables.

The remainder of the article will help you discover one pattern which has a statistical edge in trading.

Example of a price action entry in 3 steps

Refer to the daily AUDJPY currency chart below.

1. We have observed price behavior as trending UP. We can see over the last 30 days prices had been moving higher and higher,. There was clearly, low volatility and no trading congestion, the market was in a runaway trend.

Step 2. With our assumption that the trend is up , we naturally would be happy to go long (buy), if a price action signal developed. We are now on the look our for [U][B]a trigger bar, or series of bars.[/B][/U]

Step 3 Find an entry trigger -

A pin bar reversal is a key reversal candle or price bar on a chart which shows an obvious change in sentiment during that period. The candle typically has an obvious shadow (long tail), with the close near or above the open.

A logical example is when a market opens, moves down 1 percent and then rallies hard to close above the open.

The bar looks like a “Pinocchio Nose”, thus the term “Pin Bar”.

See below

AUDJPY daily

Where to trade a pin bar

The pin bar is traded best from support or resistance, trendline or from a key moving average , potentially even a 55% retracement of some form.

Keep a look out for the obvious pin bars, and trade in the opposite direction of the tail. If the price moves up to recent highs and prints a pin bar with tall upper shadow, then the signal is to short. The opposite is true for longs.

Pin bars are often created near extremes in price swing, and often occur at false breaks, but thats another article in itself.

See below EURUSD

Below, the EURUSD charts has 2 examples.

1. A very large bearish pin bar after prices broke to a new false high. Subsequent behavior was negative. False break outs to new recent highs or lows often result in pin bars.

2. Trading a very large pin bar from the 50% retracement zone, subsequent behavior was bullish.

3. Pin Bar within Trend

In summary,

Price action is a golden tool, because we can combine very simple multiple price inputs together.

I.e.:
Support and Resistance in conjunction with a pin bar.
A trend retracement level with a pin bar.
Or simply, follow a short term trend with pin bar entry.

Try to back test past occurrences of these pin bar reversal patterns on your daily and weekly charts at first, do research on them and begin master them. Continue to learn the art of price action trading and you will surely advance your trading career 10 fold.

The best candlestick patterns | price action forex strategies

Inside Bar Entry

An inside bar is a bar or series of bars which is/are completely within the range of the preceding bar, or , i.e. it has a higher low and lower high than the bar immediately before it (some traders use a more lenient definition of inside bars to include equal bars). On a smaller time frame it will look like a triangle.

An inside bar indicates a time of indecision or consolidation. Inside bars often occur at tops and bottoms, in continuation flags, and at key decision points like major support/resistance levels and consolidation breakouts.

They often provide a low-risk place to enter a trade or a logical exit point.

The most logical time to use an inside bar is when a strong trend is in progress. If we play the break out, our stop loss can be defined by placing it below the half way point of the outside bar or mother candle.

See Charts Below

Pin Bar Entry

A pin bar is a 1 bar formation. The pin bar is a price bar which has rejected higher or lower prices. Price will open and move in one direction, and then “reverse” durign the session to close at or past the open.

The candle is easy to spot because it has a “tail” or deep wick. It is a common reversal signal which typically needs to occure near a support or resistance area. Somne traders use them in conjunction with Fibonacci retracemens as well as moving averages or pivot levels.

In a nutshell, Pin bars are the ultimate strategy for picking up major swings in prices. In my experience, the Forex market is most responsive to this entry signal, due to the number of traders in Forex, the pattern becomes self fullfilling.

See Chart Below

The ‘ Fakey ‘ Entry. (Inside Bar “false break pattern”)

This pattern is where we have a false break on the inside bar. Instead of the market going with the intial break of the inside bar pattern, the market “fakes out” and reverses back above the open and makes new session highs.

This initiates a solid burst of momentum which can last 1 or more days.

see chart below

Trading forex using confluence and price action

Theres a serious argument to use forex trading strategies which follow the current broader trend, and I for one agree with this type of forex trading strategy. If you where to fight the technical trend over and over, you would soon realise just how unprofitable your forex trading will be.

Theres solid proof in my own trading results that using trends in cobination with price action signals, will increase the expectancy of winning any one trade..

So the lesson we have learned for today is when learning to trade, or when developing a trading plan, you could start with using 2 filters.

Forex Trading Strategies Filter 1, use a basic trend definition tool such as the 8 and 21 day exponential moving averages, or a simple visual trend analysis to pick the current monentumand direction. This filter will enable you to at lease have some form of clarity before entering a trade. So filter 1 is to have a method to decide the direction.

Forex Trading Strategies Filter 2, pick 1 or 2 price action signals and learn to master them (refer other articles), and use these to enter a trades in the direction of the trend.

I believe the price action signals themselves are much more important to learn , because the trend is interpretable.

How to become a full time forex trader

You only need to master one trading setup to be a consistently profitable trader.

Screen time will allow you to master one setup.

After you have mastered one setup “own it” you can add another setup. This can be an ongoing process developing your own style.

The best setup to begin with is the one that you see and understand easiest. If you are forcing yourself to learn a setup because you believe another person is successful using it you may be taking the longer route to profitability. We are all different . Our brains and personalities will gravitate to different setups. This is also true of exit techniques. Most traders I hear from lengthen their road to profitability by trying to apply too many concepts before owning the first one. They have studied a myriad of techniques but have yet to master any. This allows them to talk about trading but unable to consistently trade profitably.

The first decision to make is; do you desire to be a counter trend trader? or a with the trend trader? Eventually, you can be both. At the beginning, or a new beginning perhaps, you will do best choosing to master a setup and follow the trend. If you have been at this game for awhile and are not yet consistently profitable you know what I am saying is correct.

Forex Trading Is A Business

Many forex traders lose their shirt and this is mainly because they are not really prepared to put the time and study into their dayto day trading activities. The concept of Trading and investing in the forex market is like any other business, what you get out of it is relative to what you put into it.

In other businesses you find a market, you learn a skill or develop a product, and then develop that skill or product until it is better than other people in the same business or niche. Trading is the same - it is a business - and if you want to be one of the financially secure you will have to work at it, in the exact same manner as an astute business person. In conventional business you have to be patient, focused, disciplined, very committed, hard working, forceful, and in complete control of yourself and in control of your plans.

To be successful in your forex trading business you can’t be forceful or control the market, all you can do is identify what is happening and go with it to profit, thats not to say that you cant be confident with your trading, but you need to realise early in your career, that you are not bigger than the market, and although you run a trading business within this large market, you are never truly in control of whats happening, or what will happen in the day to day forex market movements and events.

You can never be reliant on tips or one lucky trade to secure your future, nor can you build a trading business using a mechanical autopliot kind of system. You have to continuously work at it until you have developed a trading strategy, and even when you have developed that strategy, it will require ongoing effort and monitoring.
Once you have a forex strategy that works for you don’t keep messing around with it, try to remain very consistant and subject yourself to the trading opportunites it identifies. I have read in so many articles out there on the web that you should keep searching for a different method or system to improve your trading, and I respond to that by saying, ‘ this is complete rubbish’ … rather, I strongly suggest trying to stick with what you have and see it through, you need to give things a chance to work and prove itself.

Successful forex traders know the main part of their trading business is the development of their trading skills not continually looking for the ‘Holy Grail’. When you have a set of trading rules that suit you and you are happy with what you have, you need only improve your skills to implement them, this will take much of the stress and anxiety out of trading and it will become enjoyable. That’s right, trading can become enjoyable once you have faith in your rules and your method.

How to Become Successful at Forex Trading

Most people’s experience in the Forex Market is relatively short and in no way profitable. They hear about the currency market and think it is an easy way to make a lot of money in a very short space of time. Now, I am not saying this can’t be done, because for some this is true, but for the majority it’s certainly not the case. Let me explain in more detail …

In the early stages of most FX trader’s career, the first trading decisions generally come from tips and recommendations from brokers, alert services, forum threads or sometimes even mutual novice trading friends. Then, at some point, traders decide to study the market and attempt to find the perfect system or method to trade with. I am sure you can relate to the following statement; for many traders, the forex market and it’s nuances truly become an obsession that takes up countless hours of searching on the internet and books, forums and DVD’s , in the hope to find the holy grail forex trading system, which they eventually find out, simply does not exist.

Traders develop or buy a system and start trading way to soon. Sometimes it is profitable, but when it has a few losing trades (which is normal), they change the system, read a new trading book, etc. or go back to looking for tips and advice, back to the forums, back to Google, searching for more information. After some time, and after more losses and frustration, most give up and stop trading altogether. Or, they go on the analysing merry-go-round, keep paper trading and never get any financial success from their trading; this is the case for 90% of newbie and intermediate traders.

A few realise that the trading method they are using is not the actually problem and the most important ingredient in their trading is actually they.
In addition, they soon realise that a sound set of trading rules is essential to trading profitably. But if the rules are not followed, they are of no value, and an average trader will have difficulty making a profit with a good trading system. Ironically, a good trader who has skill and a good mind can make a profit with even an average system. Put simply, even with a perfect system, the human mind can stop it making money!

Statistics from surveys of US traders indicate that once a trading methodology is developed by a forex trader, then 80% of the effort in trading is actually trading skills (that includes things like trading psychology and money management).

When the trading system is developed and trading skills are learned, a person starts finally trading properly. Most traders encounter a setback at some stage; either the market conditions change or they don’t follow their rules. However, if good money management is followed, this is not a serious problem. Often, even after winning for several months, after a small set back, many great traders stop trading to evaluate what has happened. This is often a mistake, and is again, the ever-present emotional element which plays in the back of our minds every day we trade. It’s a mistake to interfere with the consistent day to day trading routine, even in the face of losses, the trader has to press on and believe in what they are doing.

Here Some Common Traps Traders Fall Into:
This is where the real decision about the trader’s future is made:
1. They stop trading all together
2. They find a new system, read a new book, and do another course. This can go on forever and successful trading will never happen.
Or
3. They evaluate what really happened. Mostly it will be that market conditions had changed or they didn’t follow their rules.
Then the forex traders who go on to achieve greatness:
(a) Monitor the markets and start trading again but trade small amounts and don’t force trades, they then resume trading normally once they get back on track.
(b) Wait for market conditions that suit their trading style.

This is an important process to go through. Most traders go through this experience 2 or 3 times before they develop the skills to achieve their trading objectives.

Trading success is a result of consistency, discipline and patience and most importantly self belief… When you have a trading plan that involves clean price action strategies, and that is built on practical workable parameters and it suits your personal and financial requirements, and you stick to it, then your forex trading will become more enjoyable and more profitable.

Draw Up A Set Of Forex Trading Rules And Stick To Them

One of the biggest problems with Forex trading for many novice traders (and quite a number of experienced traders) is that they are no real rules to follow. In one sense this is of course one of the advantages of Forex trading and it is good to be able to trade when you want to, to open and close trades when you feel like it, to increase or reduce an existing position and indeed not to trade at all if you don’t feel like it.

But this very freedom can also make Forex trading dangerous.

Whatever we do in life there can be little doubt that we do much better when we know exactly where we are going and have a roadmap to get us there. But, even if we have a map to follow, it is also vital that we have a set of instructions to keep us on course.

In foreign exchange trading those traders who follow a set of rules undoubtedly enjoy far greater success than those who simply ‘wing it’ and, if you talk to those traders who do follow a set of rules, they will tell you that when they follow the rules they generally have a good day and when they don’t follow the rules they often run into trouble.

Now, since the Forex market doesn’t have any rules, you will have to create your own. Just what rules you draw up will very much depend on your trading strategy but what sort of rules are we talking about?

l, one very good rule which you might set for yourself is that of not entering a trade without first putting a stop loss order in place. You might also set down a number of rules detailing the specific conditions which must be met before you will enter a trade. In other words, you clearly specify that you will not enter a trade simply because you have a good feeling about it, but will only do so if your market analysis, as defined by your set of rules, tells you that you should enter a trade. Finally, you might stipulate that whenever you find yourself in a profitable trade you will always protect your position by moving your stop whenever your profit reaches a pre-determined level.

These are just a few ideas of the type of Forex trading rules you might lay down and your own list will of course have to be drawn up to meet your own particular trading strategy.

Whether you have a long or a short list of Forex trading rules is not important, but it is extremely important that you draw up a list and that that you then stick to it.

Fundamental And Technical Analysis Forex Trading

There are two different ways to study the foreign exchange market. The first of which, is fundamental analysis which relies on studying the impacts of the world economy on exchange rates. The second of which is technical analysis, which employs studying charts to make profits.

There is no right or wrong way to trade

There is absolutely no right or wrong way to trade the foreign exchange market as both fundamental analysts and technical analysts find the possibility of profit near equal. The different types of analysis have sparked an ongoing debate among the trading community, however, it is our belief that no matter how you profit, you’re still profiting! Making money is making money, no matter how you do it.

Find What Works for You

We’d like to offer you the opportunity to read up on both technical and fundamental analysis and decide for yourself what works better for you. Both trading types can be profitable and both can produce both long and short term results.

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Methods or Techniques for Trading the Forex Market

The Forex market offers the trader numerous opportunities and can be very profitable to trade and also very exciting. The most important Forex market is the spot market as it has very large volume. The market is called the spot market because trades are settled immediately, or "on the spot".

With Forex trading there are also considerable risk factors. It is seriously crucial that you fully understand the implications of margin trading and the particular pitfalls and opportunities that foreign exchange trading offers. There are unique benefits to trading the Forex market, but you need to understand exactly how each trade you enter works. In other words, why you are entering into a trade, and being able to keep a calm easy mind. Fear and greed are, without a doubt, the enemies of the successful Forex trader.

There are two common methods or techniques of trading the Forex market. Firstly, technical analysis focuses on price patterns and uses charting to distinguish them. Technical analysis focuses on price action and market behavior. With the use of various indicators, you will be able to recognize and combine pattern recognision with your favorite indicator for confirmation to take a trade. It is not necessary to use a large variety of indicators, usually 2-3 are quite adequate, especially if you are combining indicators with price patterns.

The indicators are available on most trading software, and all calculations are done automatically within the software. The problem with trading indicators only is that, firstly they are lagging price, and then you are only looking at the right side of your chart, waiting to see what will happen. What about the left side, or the side of your chart that is telling you what has already happened? This is a very important aspect of trading, I call this the bigger picture. A good chart is priceless if it helps to identify a great opportunity.

Momentum analysis is a measure of the change in Forex trading trends over a certain period of time. Certain momentum indicators will show if a currency is overbought or oversold, and these are common and very useful tools for technical analysis.

The second - fundamental analysis - regards price behavior as a product of economic and political events. Fundamental analysis involves the use of economic data, critical political decisions or the different social issues that influence prices. Interst and employment are major economic data that could move the market substantially.

Fundamental trading is a very effective way to forecast economic conditions, but not necessarily exact market prices.

Don't fill your mind with too much information, the best way to trade is the simple way. However, it is very important to understand fundamental and technical analysis in order to use them for your forex trading.

Your Mother Could Make Money In Forex Trading

The question would be not whether she could but rather would she enter the Forex trading market. The Forex day trading arena is a veritable snake pit ripe for scam artists to bilk money out of unwary investors. On the other hand, it is a forum for educated traders with the correct education, tools, and trading strategy to make a handsome income.

Becoming a successful Forex trader basically comes down to four things; 1) attaining the correct education, 2) using Forex tools which 3) use your own personal trading strategy, and 4) finding the correct Forex broker to fulfill your requirements. Let's look at these individually:

Attaining the correct education. Your Mother may not know the difference between a Forex PIP and one of the backup singers for Gladys Knight. So would you send her to one of those infomercial Forex riches classes to find out? We hope not! There are literally hundreds of training courses and materials out there for proper training. Word of mouth recommendations might be the best path to follow here.

Forex tools can also do many things like send trading signals and various buy/sell alerts to your desktop or mobile device based on what your personal trading philosophy dictates. Many of these tools are software based and some are provided via your favorite Forex trading sites. Not all people base decisions based on these signals though and use things like technical and fundamental analysis to determine when to buy or sell.

It also is essential to develop your own personal trading strategy. Your ability to assume certain risks might not exactly be what other traders or your broker recommends. A Forex trading strategy is not something generic and involves your personal game plan.

Before trading Forex you need to set up an account with a Forex broker. You may feel overwhelmed by the number of brokers who offer their services online. Deciding on a broker requires a little bit of research on your part, but the time spent will give you insight into the services that are available and fees charged by various brokers.

One of the most important ways to make the greatest return (and, also carry a greater loss risk) in Forex trading is with the use of a margin account. These accounts may let you trade as much as $100k in currency for as little as $1000. Margin accounts are the lifeblood of Forex trading, so be sure you understand the broker's margin terms before setting up an account. You need to know the margin requirements and how margin is calculated. Does margin change according to the currency traded? Is it the same every day of the week? Some brokers may offer different margins for mini and standard accounts.

Used correctly and together, the above items can lead to a comfortable part or full time income. If you don't use all the information available to you, though, you may as well let Mom take the weekend visit to Vegas with her money to see Gladys Knight. Make sure that she has developed her own Forex trading strategy and has used "paper trades" many times before actually beginning trading for real. Better that ole Mom is equipped to make some real money rather than throwing it away on the gaming tables.

How To Get Started In Forex Trading

You may have been hearing about the foreign exchange market (Forex) and the investment advantages it offers. You would like to try it out, but don't know where to start. This short guide will give you the basics in Forex and tell you what you need to participate in this fast growing field.

Foreign exchange used to be limited to large players such as national banks and multi-national corporations. In the 1980's the rules were revised to allow smaller investors to participate using margin accounts. Margin accounts are the reason why Forex trading has become so popular. With a 100:1 margin account, you can control $100,000 with a $1,000 investment.

Forex is not simple, however, and education is needed to make wise investment decisions. Although it is relatively easy to start trading on the Forex, there are risks involved, so finding out as much as possible about the market is a good move for any beginner.

Forex traders usually require a broker to handle transactions. Most brokers are reputable and are associated with large financial institutions such as banks. A reputable broker will be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) as protection against fraud and abusive trade practices.

Opening a Forex account is as simple as filling out a form and providing the necessary ID. The form will include a margin agreement that states that the broker can interfere with any trade it deems to be too risky. This is to protect the interests of the broker — most trades, after all, are done using the broker's money. Once your account has been established, you can fund it and begin trading.

Many brokers have different types of accounts to suit the needs of individual investors. Mini accounts allow you to get involved in Forex trading for as little as $250, while standard accounts may have a minimum deposit of $1000 to $2500 depending on the broker. The amount of leverage — using borrowed money — varies with accounts. High leverage gives you more money to trade for a given investment.

HOWEVER — beginner traders are advised get accustomed to Forex by doing paper trades for a period of time. Paper trades are practice transactions that don't involve real capital. They allow you to see how the system works while learning how to use the various software tools that are at provided by most Forex brokers.

Most online brokers have demo accounts that allow you to make free paper trades for up to 30 days. Every new Forex investor is strongly advised to use these demo accounts at least until they are showing consistently steady profits.

Each broker has their own set of software tools to aid in making transactions, but there are a few tools that are common to all Forex brokers. Real time quotes, news feeds, technical analyses and charts, and profit and loss analyses are some of the features you should expect to see on most online brokers' web sites.

Almost every broker operates on the Internet. To access their online services you should have a reasonably modern computer, a fast Internet connection, and an up-to-date operating system such as Windows XP. Once your account is set up, you can access it from any computer — just enter your account name and password. If for some reason you are not able get access to a computer, most brokers will allow you to make trades over the phone.

Trades are commission free, meaning that you can make many trades in one day without worrying about incurring high brokerage fees. Brokers make their money on the 'spread' — the difference between bid and ask prices.

The 6 Advantages Forex Trading Has Over Other Investments

There are many different advantages to trading forex instead of futures or stocks, such as:

1. Lower Margin

Just like futures and stock speculation, a forex trader has the ability to control a large amount of the currency basically by putting up a small amount of margin. However, the margin requirements that are needed for trading futures are usually around 5% of the full value of the holding, or 50% of the total value of the stocks, the margin requirements for forex is about 1%. For example, margin required to trade foreign exchange is $1000 for every $100,000. What this means is that trading forex, a currency trader's money can play with 5-times as much value of product as a futures trader's, or 50 times more than a stock trader's. When you are trading on margin, this can be a very profitable way to create an investment strategy, but it's important that you take the time to understand the risks that are involved as well. You should make sure that you fully understand how your margin account is going to work. You will want to be sure that you read the margin agreement between you and your clearing firm. You will also want to talk to your account representative if you have any questions.

The positions that you have in your account could be partially or completely liquidated on the chance that the available margin in your account falls below a predetermined amount. You may not actually get a margin call before your positions are liquidated. Because of this, you should monitor your margin balance on a regular basis and utilize stop-loss orders on every open position to limit downside risk.

2. No Commission and No Exchange Fees

When you trade in futures, you have to pay exchange and brokerage fees. Trading forex has the advantage of being commission free. This is far better for you. Currency trading is a worldwide inter-bank market that lets buyers to be matched with sellers in an instant.

Even though you do not have to pay a commission charge to a broker to match the buyer up with the seller, the spread is usually larger than it is when you are trading futures. For example, if you were trading a Japanese Yen/US Dollar pair, forex trade would have about a 3 point spread (worth $30). Trading a JY futures trade would most likely have a spread of 1 point (worth $10) but you would also be charged the broker's commission on top of that. This price could be as low as $10 in-and-out for self-directed online trading, or as high as $50 for full-service trading. It is however, all inclusive pricing though. You are going to have to compare both online forex and your specific futures commission charge to see which commission is the greater one.

3. Limited Risk and Guaranteed Stops

When you are trading futures, your risk can be unlimited. For example, if you thought that the prices for Live Cattle were going to continue their upward trend in December 2003, just before the discovery of Mad Cow Disease found in US cattle. The price for it after that fell dramatically, which moved the limit down several days in a row. You would not have been able to leave your position and this could have wiped out the entire equity in your account as a result. As the price just kept on falling, you would have been obligated to find even more money to make up the deficit in your account.

4. Rollover of Positions

When futures contracts expire, you have to plan ahead if you are going to rollover your trades. Forex positions expire every two days and you need to rollover each trade just so that you can stay in your position.

5. 24-Hour Marketplace

With futures, you are generally limited to trading only during the few hours that each market is open in any one day. If a major news story breaks out when the markets are closed, you will not have a way of getting out of it until the market reopens, which could be many hours away. Forex, on the other hand, is a 24/5 market. The day begins in New York, and follows the sun around the globe through Europe, Asia, Australia and back to the US again. You can trade any time you like Monday-Friday.

6. Free market place

Foreign exchange is perhaps the largest market in the world with an average daily volume of US$1.4 trillion. That is 46 times as large as all the futures markets put together! With the huge number of people trading forex around the globe, it is very hard for even governments to control the price of their own currency.

Explosive Profits: 7 Reasons to Trade Forex

There are many money-making opportunities out there and we've been involved with quite a few, namely property marketing, web development, residential construction security, multi-level marketing businesses etc.

We've come to a few conclusions with the help of some well-known properity coaches.

Often people with the income they desire don't have the time to enjoy it. Those that have time don't often have money. You don't have to sacrifice your life-style to earn an above-average income. If you focus on the for a few months you can make that dream a reality and create time and money to do what you REALLY want.

To earn a living money is given in exchange for a product or service rendered. It needs to be sold continuously otherwise your income stops abruptly unless it's a repeat type of product or service.

Money is a medium of exchange. There's no magical formula to possess it, you need to exchange something of value for it.

What if, you could have access to thousands of customers who are ready, willing and able to buy from you whenever you wanted? Wouldn't it be great to avoid any hassles like money collection problems (just had a delayed payment from my web business), keeping difficult customers happy (we all know what that's like), competition stealing your business without providing the same value etc.

All that is possible with . You can also trade from anywhere. Take your laptop with you, find an internet connection and away you go.

Another advantage is that you don't need experience to get started. Get a traditionally job involves accumulating specialized experience, having a well-polished resume and having the right contacts. With the right training course, you can get started straight away.

Here's 7 more reasons to trade :

1. It never closes. It's open around the clock, worldwide. Trading positions open at Monday 7am, New Zealand time and close 5pm New York time on Friday. During this time, you can enter or exit the market whenever you like. It's a continuous electronic currency exchange. This is great because you can trade whenever you have spare time.

2. Leverage. Standard $100 000 currency lots can be traded with as little as $1000. This is mainly because of the ease with which you can buy and sell, some brokers will leverage up to 200 times, so with $100 you can control a 200 000 unit currency position. It's the best use of trading capital around, even banks lending on property investments don't come close.

3. Accurately predict the outcomes. Currency prices generally repeat themselves in predictable cycles so you can see what the trends are. 'Technical Analysis' helps to see these trends and profit from them.

4. Low Transaction Cost. In other words, you mistakes won't cost you a fortune. Good brokers won' charge commissions to trade or maintain an account even if you have a mini account and trade small volumes.

5. Unlimited Earning Potential. has a daily trading volume of over 1.5 trillion, the largest financial market in the world. It dwarfs the equities market (50 billion daily) and the futures market (30 billion).

6. You can make money in any market conditions. Each market is one currency against another, so when you buy in one, you're selling in another so there's no biase towards either currency moving up or down. This means it's up to you to choose which currency to buy or sell with. Yu can make money going up or down.

7. Market transparency. This is an advantage in any business or trading environment. It means you can manage risk and execute orders within seconds. It's highly efficient and allows you to avoid unexpected 'surprises'.

I hope you're now convinced that is the best investment and income opportunity around.