Dealing With Your Losses
           
One of the most important rules of Forex trading is to keep your losses as small as you possibly can. With small Forex trading losses, you can stick it out longer than those times when the market moves against you, and be well positioned for when the trend turns around. The one proven method to keeping your losses small is to set your maximum loss before you even open a Forex trading position.

The maximum loss is the greatest amount of capital that you are comfortable losing on any one trade. With your maximum loss set as a small percentage of your Forex trading effort, a string of losses won’t stop you from trading for any particular amount of time. Unlike the 95% of Forex traders out there who lose money because they haven’t begun to use wise money management rules to their Forex trading system, you will be ok with this money management rule.

To use as an example, If I had a Forex trading float of $1000, and I began trading with $100 a trade, it would be reasonable for me to experience three losses in a row. This would reduce my Forex trading capital to $400. It would then be decided that they’re going to bet $200 on the next trade because they think they have a higher chance of winning after having lost three times already.

If that trader did bet $100 dollars on the next trade because they thought they were going to win, their capital could be reduced to $250 dollars. The chances of making money now are practically nil because I would need to make 150% on the next trade just to break even. If the maximum loss had been determined, and stuck to, they would not be in this position.

In this case, the reason for failure was because the trader risked too much money, and didn’t apply good money management to the play. Remember, the goal here is to keep our losses as small as possible while also making sure that we open a large enough position to capitalize on profits and minimize losses. With your money management rules in place, in your Forex trading system, you will always be able to do this.

More Forex Trading Tips

1. It’s always easier to enter a losing trade.
2. During the blowout stage of the market, up or down, the risk managers are usually issuing margin call position liquidation orders. They don’t check the screen for overbought or oversold; they just keep issuing liquidation orders. It is best to make sure that you don’t stand in the way.
3. Follow your instincts.
4. Buy the news that you hear, sell the fact based news.
5. News is only important when the market doesn’t react in the direction of the news.
6. It helps for you to read today’s paper tomorrow too. When you read yesterday’s paper each day with the knowledge of what the market already did.
7. You should never enter a new trade in the direction of a gap. Never let the market make you make a trade.
8. The first and last tick are always the most expensive. Get in late and out early.
9. When everyone else is in, it’s time for you to get out.
10. Never trade when you are sick because it inhibits your instincts.

Quick Trading Tips

There is no doubt that trading requires more than a few quick tips for success. You need experience, capital and, most importantly, a solid trading system. However, for the average beginner and those who perhaps are losing their focus because of significant draw-downs, keeping things simple can help to introduce much needed focus into your trading. Here are some tips that you can use for trading that can help you in your efforts:

1. Never add money when you are losing.
2. Always determine a stop and a profit objective before you start entering a trade. Place stops that are based on market information, and not your account balance.
3. Remember the power of a position. You should never make a market judgment when you have a position.
4. Your decision to exit a trade means that you are able to perceive changing circumstances.
5. In a Bull market, you never want to sell a dull market, in Bear market, you should certainly never buy a dull market.
6. There are times, due to a lack of liquidity, or excessive volatility, when you should not trade at all.
7. Trading systems that work in an up market may not work in a down market.
8. There are at least three types of markets like up trending, range bound, and down trading, and you should have a different trading strategy for each.
9. Up market and down market patterns are always there, and it is only that one is always more dominant. Select trades that move along with the trend.
10. A buy signal that fails is really just a sell signal. A sell signal that fails is a buy signal.

Getting to Know the Forex Spreads

Forex is always priced in pairs between two different types of currencies. When you make a trade, you have to buy one currency and sell another at the same time. If your pair is EUR/USD and you want to exit the trade, you must buy/sell the opposite position. If you want to leave the trade, you will have to sell Euros and buy back US Dollars.

These days just about every forex broker is claiming to have the tightest spreads in the industry. But marketing does have the ability to be deceiving. The topic of spreads in the forex spot market is very complicated and often not easy to understand. However, nothing affects your trading profitability more.

First of all in order to understand the spread, you need to know what it is. A spread is the difference between the ask price (the price you buy at) and the bid price (the price you sell at) that is quoted in the pips. If the quote between EUR/USD at a given moment is 1.2222/4, then the spread equals 2 pips. If the quote is 1.22225/40, then the spread is going to equal 1.5 pips.

The spread is how the brokers make their money. Wider spreads will result in a higher asking price and a lower bid price. The consequence to this is that you have to pay more when you buy and get less when you sell, which makes it more difficult to realize a profit

Spreads are important because they affect the return on your trading strategy in a big way. As a trader, your sole interest is buying low and selling high (like futures and commodities trading). Wider spreads means buying higher and having to sell lower. A half-pip lower spread doesn’t necessarily sound like much, but it can easily mean the difference between a profitable trading strategy and one that isn’t profitable.

The tighter the spread is the better things are going to be for you. However tight spreads are only meaningful when they are paired up with good execution. Quality of execution will decide whether you actually receive tight spreads. A good example of this is when your screen shows a tight spread, but your trade is filled a few pips to your disadvantage or is mysteriously rejected.

Oddly enough, when it comes to economies of scale, forex doesn’t even act like most other markets. On the inter-bank market, for example; the larger the ticket size, the larger the spread is. So when you see a 1-pip spread on an ECN platform, you have to wonder if that spread valid for a $2M, $5M or $10M trade, which it probably isn’t.

Choosing Your Forex Strategy

Most of the successful traders in Forex will develop a strategy and perfect it over a specific period of time. Some people will focus on one particular study or calculation, while some others use broad spectrum analysis as a means of picking their trades. Most experts would probably suggest that you try using a combination of both fundamental and technical analysis, with which you can make long-term projections and also determine entry and exit points. Of course, in the end, it is the individual trader who has to decide what works best for him/her.

When you are ready to get started in the FOREX market, you should open a demo account and paper trade so that you can practice trading until you can make a consistent profit.  Many people who fail do so because they have a tendency to jump into the FOREX market and quickly lose a lot of money because they just don’t have the experience. It is important to take your time and learn to trade properly before you start committing any of your capital.

You also need to be able to trade without feeling. You can’t keep track of all stop-loss points if you don’t have the ability to execute them at the right time. You must always set your stop-loss and take-profit points to execute automatically, and don’t change them unless you absolutely have to. You have to make your decisions and stick to them.  If you don’t you will drive yourself and your brokers crazy.

You should also realize that you need to follow the trends.  If you go against the trend, you are just messing around with your money because the FOREX market tends to trend more often than anything else and you will have a higher chance of success in trading with the trend. The FOREX market is the largest market in the world, and every day people are getting to be increasingly interested in it. But before you begin trading, make sure that your broker meets certain criteria, and take the time to find a trading strategy that works for you.

When it is time to choose your broker, you will have to take your time as stated before and choose a broker that sticks to one particular formula. It just makes it easier for you to learn and begin your forex ventures.

Basic Forex Strategies

Technical analysis and fundamental analysis are the two basic areas of strategy to use when it comes to the FOREX market which is the exact same as in the equity markets. The difference however, is that the technical analysis is by far the most common strategy that is used by individual FOREX traders. Here is a brief overview of both forms of analysis and how they directly apply to forex trading:

Fundamental Analysis
If you think it’s hard enough to value one company over another, you should try valuing a whole country instead. Fundamental analysis in the forex market is an extremely difficult one, and it’s usually used only as a means to predict long-term trends. But it is important to mention that some traders do trade short term strictly on news releases. There are a lot of different indicators of the currency values that are released at many different times in the day. Here are a few of them to get you started:

• Non-farm Payrolls
• Purchasing Managers Index (PMI)
• Consumer Price Index (CPI)
• Retail Sales
• Durable Goods

You need to know that these reports are not the only factors that you have to watch out for either. There are also quite a few different meetings where you can get some quotes and commentary that can affect markets just as much as any report. These meetings are often brought out to discuss any interest rates, inflation, and other issues that have the ability to affect currency values.

Even changes in how things are worded when they are addressing certain issues such as the Federal Reserve chairman’s comments on interest rates; can cause the market to get very volatile. Two important meetings that you have to watch out for are the Federal Open Market Committee and Humphrey Hawkins Hearings.

Just by reading the reports and examining the commentary, it can help FOREX fundamental analysts to get a better understanding of any and all long-term market trends and also to allow short-term traders to be able to profit from important happenings. If you do decide to follow a fundamental strategy, you will want to be sure to keep an economic calendar around you at all times so you know when these reports are released. Your broker may also be able to provide you with real-time access to this kind of information via the internet.

Technical Analysis
Technical analysts of the FOREX trading market analyze price trends. The only real difference between technical analysis in FOREX and technical analysis in equities is the general time frame that is involved in that FOREX markets are open 24 hours a day.

Because of this, some forms of technical analysis that factor in time have to be modified so that they can work directly with the 24 hour FOREX market. Some of the most common forms of technical analysis used in FOREX are:

• The Elliott Waves
• Fibonacci studies
• Parabolic SAR
• Pivot points

This is the point where you will actually choose your basic strategy. Basically it is best to simply choose whichever that you are the most comfortable with. Your broker can help you in making the right choice here.

The Broker

When it comes to getting started in forex trading, there are quite a few things that you have to consider first. The first thing that you need to do is to find and choose the right broker that is going to help you in making your trades. When you are choosing a Broker you need to know that there are many FOREX brokers to choose from, just as in any other market. Here are some things that you need to look for in making the right choice:

Low Spreads
The spread, which is calculated in pips, is the difference between the price that currency can be bought and the price at which it can be sold at any specific point in time. FOREX brokers don’t charge a commission for this, so this difference is how they are going to make money. You will want to look for a broker that offers low spreads.

Institution Quality
Unlike equity brokers, FOREX brokers are usually attached to large banks or lending institutions because of the large amounts of capital that is needed. Also, FOREX brokers should be registered with the Futures Commission Merchant (FCM) as well as regulated by the Commodity Futures Trading Commission (CFTC).

Tools and Research
FOREX brokers offer many different trading methods for their clients just like brokers in other markets do. These different trading methods often show real-time charts, technical analysis tools, real-time news and data, and even support for the various trading systems.

Basically, you will want to find a broker who will give you everything that you need to succeed.

Many Different Leverage Options
Leverage is a key necessity in FOREX trading because the price deviations are just set at  fractions of a cent. Leverage, which is expressed as a ratio between total capitals that is available to actual capital, which is the amount of money a broker will lend you for trading. Basically if you have limited capital to start with, you need to make sure that your broker offers high leverage.

If capital is not a problem, you can rest easy knowing that any broker that has a wide variety of leverage options should suffice. A variety of options lets you vary the amount of risk you are willing to take. For example, less leverage (less risk) may be more preferable if you are dealing with highly volatile currency pairs.

Account Types
Many brokers will offer you two or more types of accounts. The smallest account is known as a mini account and it requires you to trade with a minimum of maybe $300. The standard account allows you to trade at a variety of different leverages, but it also requires a minimum initial capital of $2,000 to get you started.

Finally, there are premium accounts, which often require significant amounts of capital to get you started. It also lets you use different amounts of leverage and often offers you additional tools and services.

The Broker

When it comes to getting started in forex trading, there are quite a few things that you have to consider first. The first thing that you need to do is to find and choose the right broker that is going to help you in making your trades. When you are choosing a Broker you need to know that there are many FOREX brokers to choose from, just as in any other market. Here are some things that you need to look for in making the right choice:

Low Spreads
The spread, which is calculated in pips, is the difference between the price that currency can be bought and the price at which it can be sold at any specific point in time. FOREX brokers don’t charge a commission for this, so this difference is how they are going to make money. You will want to look for a broker that offers low spreads.

Institution Quality
Unlike equity brokers, FOREX brokers are usually attached to large banks or lending institutions because of the large amounts of capital that is needed. Also, FOREX brokers should be registered with the Futures Commission Merchant (FCM) as well as regulated by the Commodity Futures Trading Commission (CFTC).

Tools and Research
FOREX brokers offer many different trading methods for their clients just like brokers in other markets do. These different trading methods often show real-time charts, technical analysis tools, real-time news and data, and even support for the various trading systems.

Basically, you will want to find a broker who will give you everything that you need to succeed.

Many Different Leverage Options
Leverage is a key necessity in FOREX trading because the price deviations are just set at  fractions of a cent. Leverage, which is expressed as a ratio between total capitals that is available to actual capital, which is the amount of money a broker will lend you for trading. Basically if you have limited capital to start with, you need to make sure that your broker offers high leverage.

If capital is not a problem, you can rest easy knowing that any broker that has a wide variety of leverage options should suffice. A variety of options lets you vary the amount of risk you are willing to take. For example, less leverage (less risk) may be more preferable if you are dealing with highly volatile currency pairs.

Account Types
Many brokers will offer you two or more types of accounts. The smallest account is known as a mini account and it requires you to trade with a minimum of maybe $300. The standard account allows you to trade at a variety of different leverages, but it also requires a minimum initial capital of $2,000 to get you started.

Finally, there are premium accounts, which often require significant amounts of capital to get you started. It also lets you use different amounts of leverage and often offers you additional tools and services.

The Advantages of Forex Trading

There are many different advantages over futures or stocks. The advantages are what makes this type of trading so popular. These advantages are where you will find the greatest comfort in trading Forex and they are:

1. Lower Margin
Just like with 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 needs for trading futures are usually around 5% of the full value of the holding.

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.

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.

You are going to have to compare both online forex and your specific futures commission charge to see which commission is the bigger one.
 
3. Limited Risk
When you are trading futures, your risk can be unlimited. For example, if you thought that the prices for orange juice were going to continue their upward trend, just before the Florida Hurricanes. 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. Because 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. Position Rollover
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. 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, Australasia 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.

Why do Forex Trading?

The cash/spot FOREX markets have certain unique attributes that offer an unmatched potential for profitable trading in any market condition or any stage of the business cycle. It leaves one to wonder why bother in the first place? The answer to that is very simple. Forex trading offers people who trade:

A 24-hour market: A trader has the chance to take advantage of all of the profitable market conditions at any time; which means that there is no waiting for the start like the New York Stock exchange.

Highest liquidity Possible: The FOREX market is the most liquid market in the world. That means that a trader can enter or exit the market whenever they want during almost any market condition, minimal execution barriers or risk and no daily trading limit.

High leverage: It has a leverage ratio of up to 400 is normal when compared to a leverage ratio of 2 in the equity markets. Of course, this makes trading in the cash/spot forex market awkward as well because it makes the risk of the down side loss much higher in the same way that it makes the profit potential on the upside much prettier.

Low cost per transaction: The retail transaction cost is actually less than 0.1% under the normal market conditions. At larger dealers, the spread could be less than 5 pips, and may expand a great deal in fast moving markets.

Always a good market: A trade in the FOREX market means selling or buying one currency against another. In essence, a bull market or a bear market for a currency is defined in terms of the outlook for value against other currencies. If the outlook is positive, you get a bull market where a trader profits by buying the currency against other currencies.

Inter-bank market: The foundation of the FOREX market consists of a global network of dealers that communicate and trade with their clients through electronic networks and telephones. There are no organized exchanges like in futures that are there to serve as a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets.

No one can corner the market: The FOREX market is so large and has so many participants that no single trader, even a central bank, can control the market price for an extended period of time.

It is not completely Unregulated: The FOREX market is seen as an unregulated market although the operations of major dealers like commercial banks in money centers are regulated under the banking laws.

For the average person who is willing to get into forex trading, this market is just a better bet. With it being so wide open like it is, you have a higher gross potential than with any other trade type.