Five Costly Beginning Forex Mistakes
Five Costly Forex Mistakes Or ... How Not to Begin Trading Forex
Mistake Number One
Broker Selection Modern Day Bucket Shops
This is a very critical error. I didn't review any of the brokers that I was considering, and ended up paying a lot for that mistake. The problem is something like "I don't want to risk a lot of money initially, so the mini account looks good." The problem with the mini account is that I don't think it hooks up very well with the big players, therefore your broker often takes the opposite side of your trades. The analogy that comes to mind is like the baby pool, at your local country club. Yes, it is a pool and you can get wet in it, but it is not connected to the big pool and you are not going to do many laps in the baby pool. How many times did I watch the price go after my stop, hit it and then reverse significantly, the other direction. It gets very discouraging when you pick a winning trade, and lose anyway.
One of the best sites I have seen yet to help you evaluate brokers is ForexPeaceArmy.com. For more on bucket shops please read "Reminiscences of a Stock Operator" by Edwin LeFevre, if you haven't already. This is a classic about the life of Jesse Livermore, who even today is still considered to be the world's greatest trader. It is definitely worth your time, especially if you are trading or contemplating trading. His insights into not only trading but how to interpret the news are amazing. A lot of brokers these days are in essence "Modern Day Bucket Shops." This is especially true for the smaller accounts at these brokers, the minis and micros.
Mistake Number Two
Learn Charting Japanese Candles MACD
Don't try to determine market direction without being able to look at a candle chart and understand it. I would simply watch the number and then "guess" the direction, without looking at any charts. This was a huge mistake. Your chance of ever being right approaches zero at the speed of light. Japanese candles tell you a lot about market sentiment. Also, learn to use at least the MACD (moving average convergence divergence) indicator. This is one of the more reliable indicators used daily by most traders. The 200 EMA and Bollinger Bands are also very helpful. Some traders feel that the 200 EMA (exponential moving average) is the most important indicator in all of trading.
Mistake Number Three
Watch Out For The News
I remember once having just placed a trade (fortunately for me it was a demo account) when all of the sudden the trade was moving against my position so fast that I couldn't even get out it. I was not really "news" wise at that time and was actually trading during the non-farm payrolls announcement, of which I was not aware. That is a huge mistake. Always, before you place any trade be sure of what news is coming when. Generally speaking, unless you want to play news announcements, it is best not to trade too close to news time which is usually 8:30 am Eastern. Occasionally there will be news announcements such as the FOMC which usually comes out around 2:15pm Eastern.
Mistake Number Four
Software
When I first started I didn't have a preference as I didn't know any software well. Big mistake! You need to be familiar with the trading interface so that you can quickly get in and out of trades. I now prefer Metatrader, but this is an individual choice. This software gets fair reviews, is very intuitive and can be customized to your liking. It is very easy to switch from daily charts to five minute charts, quickly.
Mistake Number Five
World Hours
Before I kept the world hours running on my desktop, I would often get caught in a bad losing position usually around 9:30 to 10:00 am (Pacific Time). After becoming aware of world market hours I realized that this time was right at the London close. It is a well established fast that there is usually a lot of trading at both the London open and the close. Some traders prefer the London open and do very well with this. Peter Bain is one of them.
COT Charts
The commitment of traders charts are very helpful to find out where the "big dogs" are putting their money. I have to thank Peter Bain for this tip.
Your Own Style
No two traders, trade the same. Over time you will find yourself more comfortable with some trades and not so interested in others. Some are good at short swings and others like to take a more long term approach. Don't ever feel like you have to trade exactly like anyone else.
Summary
It is possible to waste a lot of money "learning" to trade forex. You can take the "dumb" approach (like I did) -trade a demo account till you "win" a few trades and then open a live account and lose a lot of money. Or, you can be smart -open the demo account and simultaneously spend the money you would waste on your first live account on Peter Bain's program. There is no 100% assured path to success in forex trading -but this is as close as it gets. Only 5-10% of traders consistently have positive trades while 90% have lost their initial deposit within six months. Forex trading is a "zero sum" game with some really big players (the banks, trust funds, hedge funds and large corporations) and some really small players, individuals like you and me. Not really an even playing field. Knowledge is your best bet to try to level this playing field. There is no better place to discover that knowledge than with a successful veteran trader like Peter Bain.
At Pacific4x.com we have tried to bring together as much of this information as possible on one site.
http://www.pacific4x.com
Candles Reflecting Market Sentiment
Discussion:
The above candles (5 minute charts) came from the FOMC interest rate announcement on Tuesday 8/08/06. The USD/CHF shows a morning star pattern soon followed by an evening star. The GBP/USD shows just the opposite. One lesson I have had to learn the hard way is that your own interpretation of the news is not what is important ... It is what the Market thinks about the news. The initial red candle (USD/CHF) is the market's reaction to the FOMC pause on interest rate hikes. This is followed soon by a shift in market sentiment (hammer) and a reversal (green candle) as indicated by the morning star pattern. This was the market's reaction to the wording surrounding the rate hike pause (ie promise of further rate hikes soon in the fall). This sentiment, however, was not too long lasting either (spinning top) as the green candle soon reversed as indicated by the evening star. Just the opposite occured with the GBP/USD currency pair. This was a nice display of some really pretty spinning tops and a hammer.
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FOREX Software: A Critical Element for Success
FOREX Software: A Critical Element for Success By Steve Welker
Article Word Count: 634 [View Summary] Comments (0)
In most cases when you sign up with a FOREX broker they will provide you with software to execute transactions as well as get market information. Since online trading has been around for quite some time now, the brokers have a pretty solid understanding of what the traders need from trading software. There are two primary classifications of software provided by the brokers; web based and client based.
One of the mandatory services needed by all FOREX software is real time market updates. Since the FOREX market is so fast paced and volatile traders must have data that is accurate to a few seconds to make decisions on when to enter and exit their positions. All brokers make claims that their software will remain updated with a minimum of delay but the reality is that there are a variety of factors that can delay the software displaying updated information.
The users internet connection speed as well as their geographical distance from the broker are probably the two primary issues that can affect the update time. If you wish to be successful trading FOREX it is highly recommended that you have a high speed internet connection and a fairly up to date computer. You might also consider selecting a broker relatively close to you; if you are trading from the US you might want to avoid a broker based out of Australia. During times of extreme market volatility this distance could cause a delay significant enough to cause issues with your trades.
Web Based or Client Based?
Web Based software is not actually installed on your computer it runs on the brokers web site. You only need to have a browser compatible with the software to access and use this software. Client based software is loaded directly on your computer; in most cases you are able to download the software from the brokers site and then install it. Web based software is rapidly growing in popularity as more and more brokers offer it. The primary advantages to web based software are convenience and security. With web based software you can log in to your account and get market updates and place trades from any computer with an internet connection. If you use client based software you are only able to make trades from the computer that you have the software installed on.
As well as being more convenient web based software also offers a higher level of security. During the actual transmission of data both web based and client based software encrypt the transmitted data with a high level encryption. On client software though there is the risk of data being stolen from the client pc by hackers or Trojans.
The most basic software packages will provide you with real time quotes and information as well as allowing you to enter and execute trades. Up to date quotes are provided for most currency pairs and the software will allow you to open or close a position at market prices. The software should also allow you to set up trades with limit orders and stop loss orders. More advanced packages will also offer charting capability that can show you many different viewpoints.
Any good broker will provide you with basic software free of charge just for using them as your broker. Many of your better brokers will offer an advanced version of their software for a fee. The advanced version will give you extra capabilities such as executing trades right from the chart and enhanced analytical ability.
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Seven Keys For Successful Part-Time Trading
Seven Keys For Successful Part-Time Trading By Billy Williams
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Stock and option traders are often inundated with promotional material in the form of direct mail, seminar promoters, software vendors, and the occasional infomercial late at nite that implies if you just had the secrets they contain that you too can build your fortune by trading stocks, options, and the like. However, one thing that many of the authors of these materials don’t consider is the fact that many people have jobs, families, and businesses that require your attention. While many people are drawn to the markets and sincerely have the desire as well as the will to apply themselves many of these promoters and authors are unable to understand the needs of part-time traders. This, unfortunately, leads many aspiring traders to the false conclusion that they cannot trade profitably since they are unable to trade full-time but this doesn’t have to be the case if the individual keeps certain key fundamental criteria to make money trading the markets.
First, you have to trade your own time frame. It is critical that you adopt a trading style that fits your own time frame. Don’t choose to be a intermediate stock trader but then try to be a daytrader too. Part-time traders have a limited time and its best to find an approach that complements both. By trying to utilize several different methods a part-time trader will rarely find the success that he or she is looking for. One trader that I know of was deeply involved with another business and had to stop trading short term options but adopted an intermediate stock momentum method. He only made 8 trades that year but made a 200% return.
Second, adopt a method that suits your personality. Time is typically a factor with part-time traders and many find that swing trading, trading in the intermediate time frames, and trading options can give them the potential returns they look for while fitting the methods to their own personalities. One trader I know of is a writer but trades momentum stocks off of the weekly charts. On the weekends he checks his charts, adjusts any stops if he has any positions, and enters buy orders for any setups that may show up in only 5-10 minutes on the weekend. In the last 8 years, he has never reported a losing year and in 4 out of the last 8 years has had returns of 100% +. Another trader I know of swing trades stocks on a simple pullback method he developed using a simple indicator while still working as an engineer at one of the major auto manufacturers and during his first year he reported profits of over $200,000. Each of these traders found methods that work along with their personalities.
The third thing that aspiring part-time traders must do, as well as professional traders, is to absolutely have a system of risk control in place. It is almost universal trait that traders of all levels of experiences focus more on entries rather than exits. Containing your losses is going to 90 percent of the battle for part-timers because many will not be in front of the screen and must learn how to set stop loss points, learn when to reduce or increase the size of the position, and how to use diversification to control risk. If a trader loses his capital then can’t play this game and, in some instances, without proper risk control a trader can end up owing a lot of money if they traded on margin!
The fourth key that’s important for aspiring part-time traders to keep in mind is to identify low-risk trades and be more selective. If there are a handful of stocks that are offering compelling reasons for a long position spend some time and research them closely to select the best one or two. Which ones are in the strongest industries? Which ones are in the strongest sectors within those industries? Which ones are the strongest subsectors within those sectors? Is there a stock that has the strongest fundamentals or gives the strongest technical setups to trade? By spending a few more minutes and examining the key criteria that you look for in a trading setup you can potentially lower your risk and raise the probability for a profitable trade by becoming more selective in identifying low-risk trades.
The fifth key for part-time traders need to have is an edge. An edge is any trading technique, method, or tool that gives that trader an advantage that can be exploited for trading profitably. An edge can be how a trader reads charts, studies price/volume relationships, selects stocks to trade, a system of trade management, or reads price patters. One very famous swing trader uses technical analysis, chart patterns, and volume studies to trade. In the late 1990, he turned an $11,000 account into $43,000,000 in only 23 months! Edges can be very simple tools that a trader has refined and has great skill in trading with.
The sixth key is learn how to be at peace with the inevitable losses that come from being involved with the market. When we are young we learn how to exist within a structured environment thru a series of rewards and punishments. In your home as a child, your parents would reward your good behavior and punish your bad behavior. As a result, you learned your boundaries and how to exist within that structured environment. When aspiring traders come to the market, however, they find that there is no structured environment and that the rules they learned when they were young no longer apply. The keys listed here are to help you survive and eventually prosper but you must relearn your own behavior in order to find the success you seek in the markets. If you can learn to love your losses while sticking the rules of trading you have set up for yourself then you are on your way to financial success. But if you lose sleep at night or in a constant state of anxiety because you fear taking a loss or have experienced a loss then you need to stop trading till you find the kind of peace that successful traders have come to understand that losses are just part of the business.
Finally, the seventh fundamental key for successful part-time trading is developing self-awareness. Every trader, beginner or professional, must be aware of personal weaknesses that may impede trading success and make the appropriate adjustments. From my own experiences, observations, and research, I have come to the realization that all traders experience confusion, frustration, anxiety, and the pain of failure. Self-discipline, determination, and self-control are key attributes one must have or develop within themselves in order to reach the pinnacle of success they seek in trading or any part of their life. Fortunately, these key attributes are not inborn but can be learned and strengthened much like you exercise a muscle which becomes stronger in time. You only have to spend some times developing your self-awareness and then once you have a grasp of your strengths and weaknesses you can create a plan to take action on them. This is fundamental for you to be at peace with the daily swings in the market as well as your own emotions in dealing with the market.
These seven keys for successful part-time trading are going to be fundamental truths to discover the kind of success you desire in trading the markets. Part-time traders often have many advantages over those traders who watch the markets all day and it has been proven that many part-timers are just as profitable. However, many would-be traders spend a lot of time on the external things like trading systems, stock newsletters, hot tips, and the like but rarely do the fundamental truths in real trading. Sadly, even rarer do they succeed with their own trading goals because these simple keys aren’t as flashy as the latest $7,000 trading software or $5,000 daytrading seminar. By devoting some time to work on these seven keys now and throughout your trading you will build a stronger foundation for your success.
Mr. Williams is a businessman and who has been trading stocks, options, and futures for almost 15 years. He has extensive training in systemic trading and technical analysis along with the insight that comes from suffering the highs and lows from trading for many years. He trades professionally and operates an educational website with the goal of helping aspiring traders as well as experienced traders achieve their goals in the stock market.
Visit StockOptionSystem.comArticle Source: Ezinearticles.com
Make Money with Currency Trading
FOREX 101: Make Money with Currency Trading By Rich McIver
Article Word Count: 1171 [View Summary] Comments (0)
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
Forex Blog: Currency Trading News Article Source: Ezinearticles.com
Welcome ...
Welcome to the Pacific4x.com blog. Winning at forex can be problematic at best. Information may be king elsewhere, but nowhere else is it more important than in forex trading. We will try to put as much information as possible on this blog as well as links to other significant information such as COT Charts, Japanese candles and world market hours.
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John Mericle
