5 Simple Steps to Turn You Into an Elite Forex Trader
These 5 simple steps will help turn you into a confident, disciplined Forex trader. By using the steps outlined below you can be in the top 10% of all Forex traders. That would be the few that actually make money.
There are going to be two things you notice about these steps:.
They are obvious.
They are simple.
All aspects of Forex trading should fall into those two categories. In fact, one of the biggest mistakes I see Forex traders make is trying to learn and use too much.
However, that is for a different discussion. Back to the 5 simple steps.
Step 1 - Get Yourself Ready To Trade
In my experience with hundreds of traders I have been amazed with how few of them know how to get their game faces on.
They forget trading is a job. The greatest one in the world, but a job nonetheless. It’s difficult for them to be self motivated. Like the majority of the world they need someone over their shoulder telling them what to do.
So, find anything in or around you that can be used to prepare to trade.
Take a shower
Drink coffee
Stretch
Read a book
Do Yoga
Anything to clear your mind
Once your mind is clear, move on to Step 2.
Step 2 - Look over your last few trades
Your trading success, just like the Forex itself, will have momentum and patterns. As you gain experience you will learn to see YOUR patterns. You might catch yourself making the same mistakes time and time again.
As you will learn later, you should be keeping a journal of all your trades. I don’t mean the records that come with your trading software. Your journal should be as specific as it can be.
Why did I enter a trade? Why did I exit a trade? Was I near support? Was I near resistance?
Just to mention a few of the questions that your journal should answer for every trade. Take note of any repeated mistakes you have made over the last few trades.
Once you have recognized any trading trends, move on to Step 3.
Step 3 - Fundamental and Technical Analysis
Fundamental analysis refers to anything other then price action. In our case it means news.
Technical analysis refers to anything that is related to price action. Price itself, formulas, patterns, etc….
There is a reason why I mention both of those in one step. I wouldn’t waste an entire step on fundamental analysis. It doesn’t take me 3 minutes. I look to see what piece(s) of news are being released today in order to determine what kind of volatility to expect in the upcoming session.
This helps me when determining which support and resistance levels I expect to come into play.
As far as technical analysis goes. I don’t care what tools, indicators, charts you look at. However, be consistent. Don’t use MACD and CCI one night, and RSI and Stochastics another. Don’t keep changing the length of your moving averages, or switch from simple to weighted to exponential.
The fact is, find what makes the most sense to you. I think it’s great to understand what these indicators mean, but there is no need to over analyze.
I would like to add one thought here…use Fibonacci Lines.
Once you have finished your analysis, both fundamental and technical, move on to Step 4.
Step 4 - Money Management (Determine your trade size)
You should have a very well defined money management system. For example, never risk more then 4% / 5% / 10% of your account on one trade. Increase your trade size by one mini for every $400 / $800 / $1,200 in profit.
It has always astonished me how randomly some traders make these decisions. They change their approach day after day. This is a sure fire path to failure.
Determine what makes the most sense to you and stick with it.
Again, I’d like to add in a thought here. You shouldn’t be trading a live account until you can consistently make money in a demo account. At least 2 straight weeks of profit, and not because you made $10,000 one day while losing money in 9 out of 10 days.
So, assuming you are trading a live account, adjust your position size to meet your predetermined formula.
Once you have determined your trade size, move on to Step 5
Step 5 - Make the Trade!!!
You have done all your homework. You have used all your skills and knowledge. The only thing left is to make the trade.
By now, you know exactly what you expect to happen with the currency pair you are watching. You just have to stay patient until your opportunity arises.
However, once it does, pounce on it like a lion on its prey. Do not hesitate when you see exactly what you expected to see.
Be sure, of course, to place a stop order either with your entry order or immediately after. Also, if you have one, be sure to place your profit target.
Once you enter or exit your trade, start writing. Record your trade in a journal, with all reasons for entry and exit. Be as specific as possible. You will be amazed how much valuable information you will gather over time.
Using these 5 steps you should be able to make drastic strides in your Forex trading. If, however, you are not comfortable with any part of your trading it is imperative that you consider a Forex trading course.
Remember, you are only as good as your knowledge and your knowledge is only as good as your education.
Fibonacci Forex Trading - Application to the Forex Market
The Fibonacci number series is ubiquitous. It is everywhere, whether one is aware or not.
Not only was it prevalently found in older cultures (Greek, Egyptian, and Hebrew), in elements of life (DNA molecule and the human body), and even in recent studies of the entire universe, Fibonacci numerical relationships play a very significant yet subtle role in market action and hence, trading.
Even more, Fibonacci Forex trading has actually become the platform of a majority of Forex trading systems and is used by numerous professional Forex brokers all over the world.
Yet, it may well be asked why a relatively simple series of numbers would play such a strong role in the Forex market with traders quite often separated by culture and great distances.
The difficulty in perceiving the possibility of this at least in part comes from a human tendency to believe itself to be independent and somewhat separated from nature.
Certainly, when we are injured, sick, or close to death, the influence of nature in our lives is quite obvious.
However, under ‘normal conditions”, our intelligence gives us a sense of being “above” the control of nature, especially in a collective sense and blinds us to elements of the truth.
The truth under discussion is that changes in market prices largely reflect human opinions,expectations, and valuations.
A series of studies, published in the 1980s by mathematical psychologist Vladimir Lefebvre, demonstrated that humans exhibit positive and negative evaluations of the opinions they hold with 61.8% positive and 38.2% negative.
If you recall, these two numbers (61.8%/ 0.618 and 38.2%/0.382) are important Fibonacci ratios. This as well as other related studies suggest that Fibonacci numbers are intrinsically rooted in a trader’s psychology.
Furthermore, other research has shown that markets are perfectly patterned, explaining that human traders, being part of nature, create geometric like relationships in their behaviors, even if they are not aware of it.
Therefore, the real truth here is that Fibonacci ratios affect all traders, whether they consciously apply the numbers or not in their trading !
This has a very important implication for the Forex Trader !!!
Since these ratios as well as other Fibonacci numerical relationships appear frequently enough in the timing of highs and lows and price resistance points, adding Fibonacci evaluations to technical analysis of the markets may help identify key turning points, and significantly improve trading results.
Forex traders can greatly benefit from such mathematical proportions due to the fact that the currency price fluctuations observed in Forex charts, where prices are visibly changing in an oscillatory pattern, are known to follow Fibonacci ratios very closely as indicators of resistance and support levels.
Additionally, it is important to understand that Fibonacci analysis is a LEADING indicator. This means that such analysis will provide a direction where the market will advance to, not where it has gone to date, as most other indicators yield. This can be a very real advantage.
What does this means in practical terms ? How does a trader actually apply Fibonacci Forex trading in whatever plan he uses?
As can be seen on a typical Forex chart, the currency prices are constantly changing, following an oscillatory pattern with peaks and valleys. The limit of the peak is called resistance while the valley is known as support.
In order to find, say, the 0.328 ratio level in an example, the size of the drop (or rise) is measured over the time of interest. That value is then multiplied by 0.328 and then added to the total drop (or subtracted from the total rise). This defines the anticipated retracement level and provides good numerical probability of where the market will retrace to and find new support or resistance.
Once this level has been determined, the strategy can be planned which theoretically will allow a trader to yield a high probability profit.
Successful application of Fibonacci analysis has the potential to allow traders to earn an excellent income. Two very well known traders who effectively used Fibonacci especially in the Stock Market are W. D. Gann and R. N. Elliott.
Gann made his fortune using methods which he developed for trading instruments based on relationships between price movement and his work was heavily influenced by applying Fibonacci in his analysis.
Elliot developed the so called Elliot Wave Theory where all major market moves are defined by a five-wave series, adding to the potential to identify the turns. The Classic Elliot Wave series consists of an initial wave up, a second wave down (typically retracing 61.8 % of the initial move up), then the third wave (the largest) up again, another retracement, and finally the fifth wave,which completes the cycle.
It is very likely for a new Forex trader to become initially overwhelmed by this kind of numerical applications in their market analysis. Such traders if truly interested in applying Fibonacci numbers in their trading plan, should be encouraged to learn the basics well first and practice as much as needed
before actually risking any of their capital.
Since this discussion has hopefully demonstrated the importance (and strong influence) of Fibonacci ratios on the Forex market, it seems quite logical than to achieve the ultimate success as a trader, it is essential to understand and effectively apply Fibonacci Forex trading in the trader’s plan.
To totally ignore Fibonacci analysis in trading the Forex market would be like walking into traffic blindfolded.
The cars may not be seen, but they could kill nonetheless.
MACD (Moving Average Convergence Divergence) in Forex Trading
Moving Average Convergence Divergence (MACD) is a tool for analyzing trends in the Forex market and is often used in many markets. It is considered one of the most reliable trend following momentum indicators currently available.
MACD illustrates the association between two moving averages of prices. The formula involves subtracting the 26 day EMA (exponential moving average) from the 12 day EMA. The “signal line” is plotted over the MACD. The signal line is the nine day EMA of the MACD and it functions as a trigger for buy and sell indicators.
When charting the MACD, the zero line is a base. It supports the indicator and provides an area of resistance. When there is a move above or below the zero line, it is indicative of the position of the short term average as it relates to the long term average. When the MACD rises above the zero line it suggests upward momentum.
This is because the short term average is above the long term average. When the MACD falls below the zero line, the opposite is true. When interpreting the MACD in Forex trading, there are three methods that are most common.
Crossovers
When watching the MACD, a drop below the signal line is a likely indicator to sell, meaning it is a bearish signal. On the other hand, when the MACD rises above the signal line, it is suggestive of the likely onset of upward momentum of the price of the Forex currency.
This would mean it is a bullish signal. Quite often, traders will wait before entering into a position for a confirmed cross above the signal line. Entering into a position too early can result in a false rise.
Divergence
A divergence signals the end of the current trend. It occurs when the price of the Forex currency deviates from the MACD.
Dramatic Rise
When the MACD experiences a dramatic rise, meaning that the shorter moving average is further distanced from the long term moving average, it is an indication that the Forex currency is overbought and will fall back to normal levels soon.
MACD can be found on most contemporary charting software. It is displayed as a simple chart, but only two different colored lines. One line is solid and the other is dotted, typically indicating the 12 and 26 period EMAs using the 9 period EMA as the signal line. It is one of the simplest form of trend indicators.
MACD is most beneficial because it offers characteristics of both trend and momentum in one indicator. It is most often dead on as a trend following indicator. There may be a brief lag because of the use of EMAs instead of SMAs (Simple Moving Averages).
MACD in Forex trading can be used to indicate momentum, foreshadowing moves in the underlying currency. However, while the moving averages are a benefit, they can also pose as a drawback to MACD.
This is due to the lag in the indicator. Prudent Forex traders, though, become skillful at reading the indicators, waiting out the lags and following the trends.
Beware of High Cost Stock Market & Currency Trading Seminars
Over the last four years, I must have attended five or six seminars, paying upwards of 800 US dollars each time. The seminars covered such topics as Fibonacci, Writing Covered Calls, Moving Averages and other well known applications of statistical methods to trading; what are commonly known as technical trading or charting techniques.
Once home, I would excitedly go over the material in the free attendee info pack. Invariably, I would find most of the information contained within the format of these seminars to be mere recycled material. The same, if not better, information is in fact available online, occasionally for free, but if not, at a much reduced cost.
You might point to the notion that if anything of value is desired, one has to pay for it. Granted, that for anything worthwhile and of substance, there will be a price tag attached; this should be even more valid for trading systems and information, after all one is expected to make some money using the information.
But, and make that a BIG BUT! there is so much more useful and appropriate information available online, for so much less than the costs of seminars: these run into the hundreds of pounds or dollars! These seminars charge you a small fortune, but the value that they return to you is a big letdown.
At all the seminars I attended, I even had to sign confidentiality agreements. Why? These people say they have something new and secret; yet they run hundreds of seminars exactly like the one they are giving, and they tell all the attendees of their seminars to keep quiet about what they are saying. Do they really expect that to happen?
Well, these clever people who run the seminars, say they are the Gurus. They take age-old techniques (there is nothing much that is new) and write their own copy or presentation style, package it as a new Secret Trading System, organise seminars at some glamorous hotels, and then charge big bucks for teaching their secret trading system or systems to a group of awe-struck attendees. I will hand it to them though; the professionals behind these seminars really know a thing or two about the human State of Mind; or they know someone who does.
From what I observed by attending seminars, the alleged unique or secret trading system is only classified as such because Gurus put together a bunch of two or more standard trading indicators, describe the behaviour in their own way, and bingo!, they announce to all and sundry that they have a unique and secret trading system. The hard part is the effort, time, gathering of and putting together the resources required, but most have staff to do this for them. The sad part is that they ask you to pay so much for their seminars and they give you so little in return.
Once in London in 2006, I went to one seminar (albeit a free taster) at which the so called Guru was not even present. OK, it was a free one, but there was such a strong and obvious sales pitch running throughout, with all the usual software and additional course promos fired at us towards the end. From my point of view the presenter was no more than a flashy salesman. He padded out 10 to 15 minutes of seminar time, telling us about his family history and other salacious details, as if anyone cared.
Of course, one had the option of leaving halfway through the free seminar if one was not pleased or captivated by the spiel; but, in case you have not noticed, they structure the seminars so that any information of value is kept under wraps and revealed only during the second half anyway.
After enduring seminars like these, I always find out that there is enough information that you can get online that will more than cover anything and everything that the core courses in the seminars contained. It may be that I would not get any free refreshments when I research things from home, but I can live with that. I will grant there were a couple of well spent outside excursions, where I learned of a method and a fresh approach to trading of which I had not previously heard. But again, you will realise that with sufficiently extensive and creative searching you are bound to dig up a trading system that will suit your personal trading style.
Seminars can sometimes become a venue for like-minded trading people to meet each other and talk shop. That is all really fine, but it surely does not seem right that you are required to shell out so much money just for the chance to chat with people.
Seminars are supposed to give us information of value, which is what they promote themselves to be; that is what they should give to us. Sadly, few seminars, if any, are not worth the fees you pay for them. But if you are still keen on attending trading seminars, perhaps for the possible research value, by all means you should. But I do not think it is wise to spend more than 10% of your trading budget on any one of these.
Forex Trading History
In 1967, a Chicago bank refused a loan in pound sterling £ sought by a college professor by the name of Milton Friedman. He had intended to use the funds to short the British currency. Mr. Friedman had perceived sterling to be priced too high against the dollar, and wanted to sell the currency, then later buy it back to repay the bank after the currency declined, thus pocketing a quick profit. This is what’s known as ‘Selling Short’. The bank’s refusal to grant the loan was due to the Bretton Woods Agreement, established twenty years earlier, which fixed national currencies against the dollar, and set the dollar at a rate of $35 per ounce of gold.
The Bretton Woods Agreement, set up in 1944, aimed at installing international monetary stability by preventing money from fleeing across national borders, and restricting speculation in the world currencies. Prior to the Agreement, the gold exchange standard–prevailing between 1876 and World War I–dominated the international economic system. Under the gold standard, currencies gained a new phase of stability as they were backed by the price of gold. It abolished the arbitrary practice used by kings and dictators of arbitrarily debasing money and triggering inflation.
But the gold standard wasn’t without faults. As an economy strengthened, its imports would heavily increase until it ran down the gold reserves required to back its money. This would cause the money supply to shrink, interest rates would rise and economic activity could slow to the extent of recession. Eventually, prices of goods had to hit bottom, and become attractive to other nations, which would rush into buying frenzies that injected the economy with gold until it increased its money supply, thus driving down interest rates and recreating wealth in the economy. Such boom-bust patterns prevailed throughout the gold standard until the outbreak of World War I interrupted trade flows and the free movement of gold. This of course was followed by ‘The Great Depression’, which arguably was ended by World War II.
After the Wars, the Bretton Woods Agreement was established, whereby participating countries agreed to try and maintain the value of their currency with a narrow margin against the dollar and a corresponding rate of gold as needed. Governments were prohibited from devaluing their currencies to their trade advantage and were only allowed to do so for changes of less than 10%. Through the 1950s, the ever-expanding volume of world-wide trade led to massive capital transfers generated by post-war construction. This destabilized foreign exchange rates that had been set up in The Bretton Woods Agreement.
The Bretton Woods Agreement was finally abandoned in 1971, and the gold window was closed on the US dollar. By 1973, currencies of major industrialized nations became more freely floating, mainly controlled by forces of supply and demand acting in the foreign exchange market. Prices were floated daily, with volumes, speed and price volatility increasing through the 1970s These fluctuations gave rise to new financial instruments, market deregulation and trade liberalization.
Beginning in the 1980s, international capital movements accelerated with the explosion of computer technology and high speed communications. The world wide markets became virtual ‘local market’ through Asian, European and American time zones. Transactions in FOREX zoomed from about $70 billion a day in the 1980s, to more than $1.5 trillion a day two decades later.
THE EUROMARKET
A major catalyst to the increase in foreign exchange trading was the rapid development of the Eurodollar market, where US dollars are deposited in banks outside the US. Similarly, Euro markets are those where assets are deposited outside the currency of origin.
In the 1950s Russia’s oil revenues– all in dollars — were deposited outside the US in fear of being frozen by US regulators. This gave rise to a vast offshore pool of dollars outside the control of US authorities with the attendant creation of The Eurodollar market. The US government imposed laws to restrict dollar lending to foreigners. Euro markets were particularly attractive because they had far fewer regulations and offered higher yields. From the late 1980s onwards, US companies began to borrow offshore, finding Euro markets an advantageous center for holding excess liquidity, providing short-term loans and financing imports and exports.
London was the principal offshore market, as it remains even now. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds. This allowed them to maintain their leading position in global finance. London’s convenient geographical (Time Zone) location (operating during Asian, Pacific and American markets) is also instrumental in preserving its dominance in the Euromarket.
Copyright © C. R. Ellsworth 2006
FOREX: There Is No Free Lunch. Know The Risks
Though many people will try to convince you otherwise FOREX is not risk free. The majority of the people trying to convince you that it is risk free have some FOREX product that they want you to buy. When you trade you are dealing with substantial amounts of money and there is always the possibility that a trade will go against you. You can minimize your risk, there are many trading tools available that will help you trade successfully and profitably while minimizing your losses.
A few years ago the FOREX market abounded with scams, currently the industry has cleaned up significantly but there is still a risk of being scammed. You will need to use some common sense and exercise some caution when you sign up with a broker. Take your time and be sure to investigate a broker before you sign up with them. A reputable broker will be associated with some sort of large financial institution such as an insurance company or a bank. They will also be registered with the proper government agencies. Here in the US they will be with the Commodities Futures Trading Commission or they may be a member of the National Futures Association.
Even once you find a reputable dealer to work with there are still some risks involved in the FOREX exchange. All trades are susceptible to sudden rate changes, radical political events and market changes.
Exchange Rate Risks: This is the fluctuation of currency prices during the time of the trade. Prices can fall suddenly which can lead to unexpected losses, stop loss orders can be used to help mitigate this risk. Stop loss orders are used to close a trade if the currency passes below a set price level. By using stop loss orders in conjunction with limit orders you can greatly automate the process of FOREX trading. Limit orders are used to open a trade when it falls to a certain price or close it when it rises to a specified price or profit level.
Interest Rate Risk: This can result from differences in the interest rates in the two countries involved in the currency trade. This can cause differences in the expected profit or loss level of a trade.
Credit Risk: This is possibility that one of the parties will not honor their debt when the trade is closed. This is usually only an issue when a financial institution declares bankruptcy. You can greatly reduce this risk by only dealing with regulated exchanges that monitor the credit worthiness of the members.
Country Risk: This refers to when the government in a country becomes involved in the currency exchange by limiting the availability of the currency in the market. This is a greater risk when involved with the more exotic currency than if you stick to the major currencies that allow their currency to be freely traded.
This outlines some of the most common risks in currency trading. All of these risks can be reduced to manageable levels even though they cannot be completely eliminated.
Enter The Realm Of The Automated Forex Trading System
Just how important is an automated system to the Forex trading system?
Before we answer that question, let us first determine how large Forex trading market is. From there, we will know the importance of automated systems for the Forex market.
It is true that the Forex market is the largest market around the world not just in terms of average daily turnover and average revenue per trader. It is also the largest market in terms of participants.
You name it, weve got it. Take a look at the following:
BANKS- they are not just for saving money and lending capital to entrepreneurs, but they are one of the major players in Forex market. Banks cater both to large quantity of speculative trading and daily commercial turnover. Well-established banks can trade billions of dollars worth of foreign currencies everyday. Some of the trades are undertaken on behalf of their clients, but most are through proprietary desks.
COMMERCIAL COMPANIES- these commercial companies trade small quantities of foreign currencies compared to larger banks and their trades produce small and short-term impact on the market rates. However, the trade flows from transactions made by commercial companies are essential factors with regards to the long-term direction of the exchange rate of a certain currency.
CENTRAL BANKS- central banks play an important function in the Forex market. They have the control over the supply of different currency, inflation, and interest rate. In addition, they have also official target rates for the currencies that they are handling. They are responsible for stabilizing the Forex market through the use of foreign exchange reserves. Their intervention in the market is enough to stabilize a certain currency.
INVESTMENT MANAGEMENT FIRMS- these firms commonly manage huge accounts on behalf of their clients such as endowments and pension funds. They are using the Forex market to facilitate transactions, specifically in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases.
RETAIL FX BROKERS- they handle a fraction of the total volume of Forex market. A single retail Forex broker estimates retail volume of between 25 to 50 billion dollars each day, which is estimated to be at 2% of the total market volume.
SPECULATORS- these are individuals who purchase and sell foreign currencies and profit through fluctuations on its price as opposed to popular methods such as interest and dividends. They perform the important role of transferring the risk to individuals who do not wish to bear it.
In Forex market alone, there are already six major players partaking on the $1.8 trillion worth of daily turnover. With a large number of Forex players, there is really a need in switching from manual to automated Forex trading system.
Among the aforementioned major Forex players, the automated trading system is of great advantage to the speculators. Since they focus on the price fluctuations of various foreign currencies in order to profit, the real time data analysis will help them determine trades that will give advantage to them.
There are several automated Forex trading systems available in the market. There are also automated Forex systems that are offered for free or as part of their trading account acquired from their Forex brokers or agents. Such complimentary system packages are typically elementary trading system. Thus, if you are looking for more features, you can avail of it through additional payments.
There are two types of automated Forex trading system. These are discussed in the following:
Desktop-based system- all Forex-related data are stored on your desktops hard drive. This system is unpopular to Forex traders because all data are susceptible to computer virus contamination and other security problems. Worse, when the computer malfunctions, all essential information might be lost and cannot be retrieved (unless you have some back-up files of your own). However, it is little expensive compared to the other types of automated trading system.
Web-based system- the security of your Forex account and other data are provided by your web-based provider. These are hosted on secured servers. It is also convenient in the sense that there will be no software required and it is universally compatible with your Internet browser.
You may also try different automated trading system demos first so that you will be able to determine the automated Forex trading system that suits your personal preference and needs.
Even if you are just a small-time Forex player, it will be to your advantage if you will use an automated Forex trading system for your future trades.
How To Identify The Major Economic Factors That Are Important In Forex Trading
Unlike other trading exchanges such as the NYSE, NASDAQ, and other major stock trading organizations, trading in the foreign exchange market can be extremely volatile on a day-to-day basis. It is crucial that anyone who is going to invest in the Forex market be as informed as possible on the global economic news of the day that influences the market. There are numerous economic factors that influence the movement of a particular currency.
When you are considering investing in the foreign exchange market there are many economic indicators and factors that governments, as well as privately owned companies provide that can give an inside look at possible economic performance. When countries issue economic reports they not only show the country’s particular policies and current events but also reveal the economic health of the country.
Many times a responsible and reputable broker can be a good source of economic news and give good advice on what particular trades may be good at a particular time. If you don’t have the time to stay up on the most current reports, a good broker can be crucial to your Forex trading success by studying these reports and determining whether a particular country is in an economic decline or enjoying a major increase. The great thing about Forex is that you can make money either way.
News that is necessary for the Forex trader is of much greater detail than the typical investor is interested in or even cares to follow. When you are considering investing in a particular country’s currency, a few of the main factors to look at include current events and the state of the economy in that given nation. Statistics such as housing, unemployment, inflation, budget deficits, and current political climate can all affect the value of the currency. As mentioned before, money can be made in positive as well as negative political climates. You can make money from countries that are experiencing tremendous political unrest and rampant inflation as easily as one that is fiscally responsible and experiencing great economic growth.
The Gross Domestic Product, known more commonly as the GDP, is another huge economic indicator that experienced traders look at intensely when considering trades. The GDP is the total market value of all goods and services that are normally produced within a particular country. Normally this figure is an annual one and is not given in shorter periods. Because of the volatility of the Forex market this is considered a lagging indicator that becomes more measurable after the particular country’s economy has started to follow a unique trend.
Other important factors for Forex trading include retail sales reports, which are the total sales receipts of all the retail stores in the country, industrial production that includes factories, mines, utilities and more, and the CPI or consumer price index. The CPI is the measure of the change in the prices of consumer goods in 200 different categories. This report can show whether or not a country is making a profit or losing money on their products and services. The exports a country contributes is are very important when looking at this indicator because the amount of exports can reflect a currency’s weakness or its strength.
As you can see there are a lot of factors that need to be considered when investing in foreign currencies. It can be fun and exhilarating, but doing your homework will always pay the largest dividends.
A Closer Look At Some Of The Investment Myths In The Foreign Exchange Markets
A common misconception among many newcomers to the Forex market is that they think just because they have seen people making huge sums of money trading currency that they can accomplish the same results just as quick. Just like anything else there is a learning curve plus there is a lot of research and strategy that goes on behind the scenes to make a trade successful. I have written this article to help you avoid some of the more common investment myths so you will know what to realistically expect when you begin trading.
Just like any other market investing, you must be disciplined to be successful in foreign currency trading if you intend to be successful at it. Another key point that you must always keep in mind is that your investments are open to risk just because of the nature of trading. Forex trading can be very volatile and things change rapidly throughout the day so you have to constantly stay on top of what is happening to protect against loss. Forex trading is not a get rich quick scheme; it can be a get poor quick scheme if you aren’t careful though.
All trading brings with it inherent risk. If it were totally risk free everyone would be doing it and everyone would be wealthy. Obviously this is not the case. If you intend to make a large profit then you will have to assume risks. The larger the potential windfall, the larger the risk is that you take. Do not enter the Forex market if you are not prepared to accept the risk of loss that comes along with it. With that said, there is a lot that you can do to minimize the risk. For starters, you should educate yourself on the systems and study the market before you invest. Another good strategy is to set up a demo account that works just like a real one, except you are not investing with real money. Once you get comfortable with it and you are picking way more winners than losers you can move into actual trading with real currency.
Another misunderstood investment technique is that of leveraging, which can be very good or very, very bad. Many people who don’t have much money to invest will often get a credit line to trade with so they can increase the potential profits. However, it also comes with the greatest risk of loss. The problem is that people think this is something than can be done easily by anyone and that is simply not the case. Only those who have been trading in the market for a number of years best use this principle. All it takes is one bad pick and then not only have you lost money, you now owe money.
Forex trading is for discretionary funds, money that you don’t need. If you are barely paying your bills you don’t belong in the Forex market. It is a volatile and rapidly changing market that will eat you up if you don’t know what you are doing. Take the time to learn the market before you jump in and make sure you get with a reputable company who is willing to teach you the ropes before you commit your resources.
How To Avoid Some Common Forex Scams
There is an old saying that states, “A Fool and his Money are Easily Parted”. With the proper strategy and resources from which to educate yourself, there is no reason to be foolish. With all of the opportunities to make money from home there are plenty of people who can’t wait to get right in and get started. The problem is, there are also plenty of scam artists out there who are all too willing to rip you off if you give them half a chance. In the Forex industry, experienced traders don’t fall for the scams, but people who are new to the industry are ripe targets. Therefore, you need to know what to look out for.
The government agency that regulates Forex trading, as well as other futures and commodities markets, cautions newcomers to watch out for the scammers that try to paint unrealistic pictures of huge profit potential in Forex and other trading markets. Recently they have also put out numerous fraud alerts for consumers specifically about scams involving the foreign currency exchange market. Here are a few of the tips from the CFTC to give you some insight on how to avoid scams.
First off, you always need to be wary of people who promise huge returns at low or no risk. If you see ads that say things like, “Make $2500 in minutes” that is a pretty good sign that they are not a reputable company. A reputable company will always temper the allure of large profits with warnings that you can also lose just as big or bigger. The Forex market is not a cash cow; there are risks just as there is with any investment opportunity. People who are unaware of the risks involved usually quit trading when they begin losing money.
You were equipped at birth with the ability to question and reason. Use it and be suspicious of everything until you verify that a company is reputable. Use the CFTC and investigate the company or broker you are thinking of doing business with by checking their fraud alert pages. Another good thing to do is see if the company is registered with the CFTC or if they belong to the National Futures Association. By using these resources you can easily find out if there have ever been disciplinary actions taken against the company you are investigating. You can also verify addresses and phone numbers. With the ease of access on the Internet, it has become increasingly easy to run fraud scams with false credentials and fake names.
Just think about how easy it is to have an online presence now. A Domain name is less than ten bucks and you can get web hosting for less than $10 a month. That is a pretty cheap investment for the opportunity to reach millions of people and part them and their money. Be sure to take the time to investigate and verify the people you are considering with the agencies I mentioned above before you give them any private information or credit card numbers. Forex trading can be a wonderful experience and business. Just make sure you work with a reputable company and do your homework.
Demo Accounts-One Of The Best Ways To Get Started In Forex
One of the best ways to check out Forex trading and see if it is truly something that you like and feel that you can make money in is to open a Forex demo account. This strategy allows you to view the account online and see how the account would perform if it were a real account. It’s kind of like how the military plays war games where they can test strategies without losing any soldiers. In the same way, you can use a demo account to make “pretend” purchases and sells just as if you were really doing them. Through the wonders of modern technology, the software used for these accounts brings realism to the account and shows whether you would have profited or lost at the end of your trading day.
Here’s a closer look at how this method works. Let’s say that you start with an imaginary amount of five thousand dollars in your demo margin account. After watching the news reports closely and studying the currency markets, you think the U.S. dollar will increase in value versus the Yen. Since your margin account allows you to buy at a ten to one margin you buy (theoretically) fifty thousand worth of USD and sell fifty thousand dollars worth of the Yen. The difference between the two called the spread is what gives you your profit.
So why would someone want to have a demo account instead of just jumping right in? It’s quite simple really; it makes it easier and less stressful to learn the strategies and techniques without risking real money. It’s like playing with Monopoly money! Why do you think pilots are trained in flight simulators instead of real airplanes before they are allowed to get at the controls of an actual aircraft? I can’t think of anyone who would want to attempt to fly a plane without spending quite a bit of time in a flight simulator first, can you? Look at learning Forex trading the same way. You wouldn’t want to risk your money on something that you know nothing about. So operating a demo account allows you to learn the business without losing money. Achieving success in the Forex trading market depends upon your own instincts and abilities. After trying a demo account, you may find that you don’t have what it takes to be successful at this business. Or you may find you excel at it. It is far better to find out with a demo account how you would fare with real money.
The vast majority of reputable brokerage houses offering Forex Trading make these accounts available because they know that if you study and learn how to trade effectively you will be comfortable making larger trades, which in turn will make them more money. Some charge for the service and some offer them for free but even if you have to pay a small fee while you are learning it is a small price to pay if you are able to learn the skills to earn huge profits in the Forex market.
A 24 Hour Market: Forex Trading
The Forex trading market cannot actually be found physically. Instead, the market is a large network of central banks and individual investors all caught up in the process of currency exchange. Because the Forex market deals with countries all over the world, the market must remain open 24 hours a day. The market follows the three markets, the United States of America, Europe, and Asia.
This presents a problem to even the more successful investors. It is simply not possible for any human being to stay up 24 hours a day so that they have up to date information of the market. Often the market changes will the investor sleeps or goes about their daily routines. If statistics are not checked often, opportunities to gain profits may be lost.
An alternative is hiring a professional broker. This takes the pressure off of the investor, but presents a whole new range of problems itself. Profits are cut due to the fact that the professional broker must be paid, and again, professional brokers are human as well, and must sleep. This still presents the possibility of missing out on profit gains.
A key to becoming a successful Forex trader is finding tools and services that aide you in making informed decisions. The internet allows investors to access an almost unlimited amount of information.Whether it is a program, chart, or article, successful Forex traders rely on any reliable tools they can get their hands on.
Training Tutorials- Several types of online training tutorials are available for little or no cost.
Typical training tutorials take you from the very basics to the more advanced portions of Forex trading.
By reading, studying, and following the training programs as instruction, you gain knowledge and experience in the Forex market, which will help you make informed decisions later.
Simulated Trading- Simulated trading programs allow you to work within the actual Forex market without the risk of loosing your hard earned money in the process. Most simulated programs work in real time, allowing you to learn about the real market. Simulated programs often use paper money and work exactly the same as a real trade service. By gaining and losing as you would in the real market, you gain real world experience.
Statistic Analyzers- Programs are available that actually analyze information for you. When you are new to investing, the statistics and information may seem to be in gibberish. Statistic analyzers take the information and make it readable by even the newest investor.
Real Online Trading Programs- If you prefer to trade without the pressure of learning the trade, you may consider an online trading program. Online trading programs allow you to determine your settings, then the program controls your portfolio for you. Since programs do not rely on human emotion, profits are easily obtainable.
Finally, the best alternative is allowing a program to do the work for you. Seems strange, but a program can run 24 hours a day, constantly checking statistics and charts which will allow the program to make a decision and complete the transaction before the time in which profits can be gained runs out.
