Cold Hard Cash

Choosing Your Trading Style

2009-11-16T15:42:00.000+02:00

Before you get involved in actively trading the forex
market, take a step back and think about how you want
to approach the market. There is more to currency trading
than meets the eye, and we think the trading style you choose
is one of the most important determinants of overall trading
success.
There are few points to consider as you define your own approach to trading currencies.

I review the characteristics of some of the most commonly
applied trading styles and discuss what they mean in concrete terms.

I also run you through the essential elements of developing and sticking to a trading plan.
Finding the Right Trading Style for You
I'm frequently asked, “What’s the best way to trade the forex market?”

That’s a loaded question that seems to imply
there’s a right way and a wrong way to trade currencies.
Unfortunately, there is no easy answer.

There is no standard answer — one that applies to everyone.

The forex market’s trading characteristics have something to
offer every trading style (long-term, medium-term, or shortterm)
and approach (technical, fundamental, or a blend). So in terms of deciding what style or approach is best suited to currencies, the starting point is not the forex market itself,

but your own individual circumstances and way of thinking.
Real-world and lifestyle considerations
Before you can begin to identify the trading style and approach
that works best for you, give some serious thought to what
resources you have available to support your trading. As with
many of life’s endeavors, when it comes to financial-market
trading, there are two main resources that people never seem to have enough of:

Time and money. Deciding how much of each
you can devote to currency trading helps to establish how you pursue your trading goals.
If you’re a full-time trader, you have lots of time to devote to
market analysis and actually trading the market. But because
currencies trade around the clock, you still have to be mindful
of which session you’re trading, and of the daily peaks and
troughs of activity and liquidity.

Just because the market is always open doesn’t mean it’s necessarily always a good time to trade.
If you have a full-time job, your boss may not appreciate your taking time to catch up on the charts or economic data reports while you’re at work.

That means you’ll have to use your free time to do your market research.

Be realistic when you think about how much time you’ll be able to devote on a regular basis, keeping in mind family obligations and other personal circumstances.
When it comes to money, we can’t stress enough that trading
capital has to be risk capital and that you should never risk any money that you can’t afford to lose. The standard definition of risk capital is:

money that, if lost, will not materially affect your standard of living.

It goes without saying that borrowed money is not risk capital .

You should never use borrowed money for speculative trading.

When you determine how much risk capital you have available for trading, you’ll have a better idea of what size account you can trade and what position size you can handle. Most online trading platforms typically offer generous leverage ratios that allow you to control a larger position with less required margin.

But just because they offer high leverage doesn’t mean you have to fully utilize it.

Making time for market analysis
So how can an individual trader possibly keep up with all the
data and news?
The key is to develop an efficient daily routine of market analysis.
Thanks to the Internet and online currency brokerages,

independent traders can access a variety of information.
Your daily regimen of market analysis should focus on:

Overnight forex market developments: Who said what, which data came out,

And how the currency pairs reacted.

Daily updates of other major market movements over the prior 24 hours and the stories behind them: If oil prices or U.S. Treasury yields rose or fell substantially,find out why.

Data releases and market events

(for example, the retail sales report, Fed speeches, central bank rate announcements)

expected for that day: Ideally, you’ll monitor data and event calendars one week in advance,
so you can be anticipating the outcomes along with the rest of the market.

Multiple-time-frame technical analysis of major currency pairs: There is nothing like the visual image of price action to fill in the blanks of how data and news affected individual currency pairs.

Current events and geopolitical themes: Stay abreast on issues of major elections,

political scandals, military conflicts,and policy initiatives in the major currency nations.

Forex Day Trading Tips

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1. Trade Pairs, Not Currencies: Like any relationship, you have to know both sides. Success or failure in Forex trading depends upon being right about both currencies and how they impact one another, not just one.

2. Knowledge is Power: When starting out trading Forex online, it is essential that you understand the basics of this market if you want to make the most of your investments. The main Forex influencer is global news and events. For example, say an ECB statement is released on European interest rates that typically will cause a flurry of activity. Most newcomers react violently to news like this and close their positions and subsequently miss out on some of the best trading opportunities by waiting until the market calms down. The potential in the Forex market is in the volatility, not in its tranquility.

3. Unambitious Trading: Many new traders will place very tight orders in order to take very small profits. This is not a sustainable approach because although you may be profitable in the short run (if you are lucky), you risk losing in the longer term as you have to recover the difference between the bid and the ask price before you can make any profit and this is much more difficult when you make small trades than when you make larger ones.

4. Over-cautious Trading: Like the trader who tries to take small incremental profits all the time, the trader who places tight stop losses with a retail Forex broker is doomed. As we stated above, you have to give your position a fair chance to demonstrate its ability to produce. If you don't place reasonable stop losses that
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allow your trade to do so, you will always end up undercutting yourself and losing a small piece of your deposit with every trade.

5. Independence: If you are new to Forex, you will either decide to trade your own money or to have a broker trade it for you. So far, so good. But your risk of losing increases exponentially if you do either of these two things: - Interfere with what your broker is doing on your behalf (as his strategy might require a long gestation period) - Seek advice from too many sources - multiple inputs will only result in multiple losses. Take a position, ride with it and then analyze the outcome - by yourself, for yourself.

6. Tiny Margins: Margin trading is one of the biggest advantages in trading Forex as it allows you to trade amounts far larger than the total of your deposits. However, it can also be dangerous to novice traders as it can appeal to the greed factor that destroys many Forex traders. The best guideline is to increase your leverage in line with your experience and success.

7. No Strategy: The aim of making money is not a trading strategy. A strategy is your map for how you plan to make money. Your strategy details the approach you are going to take, which currencies you are going to trade and how you will manage your risk. Without a strategy, you may become one of the 90% of new traders that lose their money.

8. Trading Off-Peak Hours: Professional FX traders, option traders, and hedge funds posses a huge advantage over small retail traders during off-peak hours (between 2200 CET and 1000 CET) as they can hedge their positions and move them around when there is far small trade volume is going through (meaning their risk is smaller). The best advice for trading during off peak hours is simple - don't.

9. The Only Way is Up/Down: When the market is on its way up, the market is on its way up. When the market is going down, the market is going down. That's it. There are many systems that analyze past trends, but none that can accurately predict the
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future. But if you acknowledge to yourself that all that is happening at any time is that the market is simply moving, you'll be amazed at how hard it is to blame anyone else.

10. Trade on the News: Most of the really big market moves occur around news time. Trading volume is high and the moves are significant; this means there is no better time to trade than when news is released. This is when the big players adjust their positions and prices change resulting in a serious currency flow.

11. Exiting Trades: If you place a trade and it's not working out for you, get out. Don't compound your mistake by staying in and hoping for a reversal. If you're in a winning trade, don't talk yourself out of the position because you're bored or want to relieve stress; stress is a natural part of trading; get used to it.

12. Don't Trade Too Short-term: If you are aiming to make less than 20 points profit, don't undertake the trade. The spread you are trading on will make the odds against you far too high.

13. Don't Be Smart: The most successful traders I know keep their trading simple. They don't analyze all day or research historical trends and track web logs and their results are excellent.

14. Tops and Bottoms: There are no real "bargains" in trading foreign exchange. Trade in the direction the price is going in and you're results will be almost guaranteed to improve.

15. Ignoring the Technical s: Understanding whether the market is over-extended long or short is a key indicator of price action. Spikes occur in the market when it is moving all one way.

16. Emotional Trading: Without that all-important strategy, you're trades essentially are thoughts only and thoughts are emotions and a very poor foundation for trading. When most of us are upset and emotional, we don't tend to make the wisest decisions. Don't let your emotions sway you.

17. Confidence: Confidence comes from successful trading. If you lose money early in your trading career it's very difficult to regain it; the trick is not to go off half-cocked; learn the business before you trade. Remember, knowledge is power.

Top 7 Mistakes Beginners Make When Forex Day Trading Online

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Learning to master Forex day trading online for someone who has no background in the financial markets can be intimidating. Generally, much patience and time are needed. However, by looking at the most common mistakes we can at least shorten the learning curve and get past the first few hurdles as quickly and painlessly as possible. The financial rewards once the skills are learned are certainly worth it!

1. Thinking they can generate huge amounts of money in a short time. This is not a get-rich-quick scheme. An individual approaching day trading online with that mindset best look somewhere else.

2. Going by gut feeling instead of calmly assessing market conditions using technical indicators and selecting high probability trades.

3. Chasing the market. A typical scenario: The new trader feels certain price is going up so puts in a long position. Unexpectedly price pulls back. The new trader gets nervous and doesn’t want to lose too heavily so comes out with a 15 pip loss. Shortly after that price resumes the uptrend. The new trader thinks, “I was right in the first place” and puts in a second long position to try and make up for the 15 pip loss and make a profit on top. Low and behold, price doesn’t go where the new trader was expecting, pulls back, and takes out the position at a 25 pip loss.
Score for the day: -40 pips.
Chasing the market is one of the surest ways to blow your account.

4. Lack of thorough preparation before the start of a new trading session. It is crucial a trader examines the charts from a higher time frame down to a small time frame (e.g. weekly, daily, 4 hour, 1 hour) to pick up significant candle or chart patterns and understand the direction of the overall trend. Additionally, consulting the daily calendar for Fundamental Announcements will ensure the trader is not caught off-guard by sudden market moves at news time.

5. Poor or non-existent equity management. New traders often fail to educate themselves on how much they can risk on any one trade according to how much capital they have in their account. Many are tempted to trade multiple lots far too early only to get wiped out. Multiple lots can result in big profits. They can also eat you alive when a trade goes against you. Only strict, almost paranoid,
Tight equity management will ensure the account survives and grows.

6. Floating from one system to the next, trying indicator after indicator, becoming a ‘jack of all trades, but master of none.’ Find a proven system that fits with your trading personality and style and stick with it until you make it work for you.

7. Thinking they can learn by themselves, find the secret code and ‘crack the system.’ Most successful traders learned from someone who is already a professional successful trader, preferably with years of experience. It is so important to have a mentor or tutoring program to get up to speed more quickly.

Psychology of Trading

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Trade with a DISCIPLINED
Plan The problem with many traders is that they take shopping more seriously than trading. The average shopper would not spend $400 without serious research and examination of the product he is about to purchase, yet the average trader would make a trade that could easily cost him $400 based on little more than a “feeling” or “hunch.” Be sure that you have a plan in place BEFORE you start to trade. The plan must include stop and limit levels for the trade, as your analysis should encompass the expected downside as well as the expected upside.

Cut Your Losses Early and Let Your Profits Run
This simple concept is one of the most difficult to implement and is the cause of most traders demise. Most traders violate their predetermined plan and take their profits before reaching their profit target because they feel uncomfortable sitting on a profitable position. These same people will easily sit on losing positions, allowing the market to move against them for hundreds of points in hopes that the market will come back. In addition, traders who have had their stops hit a few times only to see the market go back in their favor once they are out, are quick to remove stops from their trading on the belief that this will always be the case. Stops are there to be hit, and to stop you from losing more then a predetermined amount! The mistaken belief is that every trade should be profitable. If you can get 3 out of 6
trades to be profitable then you are doing well. How then do you make money with only half of your trades being winners? You simply allow your profits on the winners to run and make sure that your losses are minimal.

Do Not Marry Your Trades
The reason trading with a plan is the #1 tip is because most objective analysis is done before the trade is executed. Once a trader is in a position he/she tends to analyze the market differently in the “hopes” that the market will move in a favorable direction rather than objectively looking at the changing factors that may have turned against your original analysis. This is especially true of losses. Traders with a losing position tend to marry their position, which causes them to disregard
the fact that all signs point towards continued losses.

Do Not Bet The Farm
Do not over trade. One of the most common mistakes that traders make is leveraging their account too high by trading much larger sizes than their account should prudently trade. Leverage is a double-edged sword. Just because one lot (100,000 units) of currency only requires $1000 as a minimum margin deposit, it does not mean that a trader with $5000 in his account should be able to trade 5 lots. One lot is $100,000 and should be treated as a$100,000 investment and not the $1000 put up as margin. Most traders analyze the charts correctly and place sensible trades, yet they tend to over leverage themselves. As a consequence of this, they are often forced to exit a position at the wrong time. A good rule of thumb is to never use more than 10% of your account at any given time.

Swing trading

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can be a great way to profit from market upswings and downswings,
but as I’ve always said, it’s not easy. Mastering the swing- trading techniques takes
time and effort. To help get you started, I am giving you 20 Rules to think about as
you begin – and ultimately master – swing trading.
Rule 1: If you have to look, it isn’t there.
Forget your college degree and trust your instincts. The best trades jump out of
nowhere and create a sense of urgency. Take a deep breath, then act quickly before
the opportunity disappears.
Rule 2: Trends depend on their time frame.
Make sure your trade fits the clock. Price movement aligns to specific time cycles.
Success depends on trading the right ones. The clear trend of the 15 min frame may bring you a desaster if you look at the 1h frame.
Rule 3: Price has memory.
What happened the last time a stock hit a certain level? Chances are it will happen
again. Watch trades closely when price returns to a battleground. The prior action can
predict the future.
Rule 4: Profit and discomfort stand side by side.
Find the setup that scares you the most. That’s the one you need to trade. Don’t
expect it to feel good until you take your profit. If it did, everyone else would be
trading it. Wisdom from the East: What at first brings pleasure in the end gives only
pain, but what at first causes pain ends up in great pleasure.
Rule 5: Stand apart from the crowd at all times.
Trade ahead, behind or contrary to the crowd. Be the first in and out of the profit
door. Your job is to take their money before they take yours. Be ready to pounce on
ill-advised decisions, poor judgment and bad timing. Your success depends on the
misfortune of others.
Rule 6:

Buy the first pullback from a new high. Sell the first pullback from a new low.
Trends often test the last support/resistance before taking off. Trade with the crowd
that missed the boat the first time around.
Rule 7: Buy at support. Sell at resistance.
Trend has only two choices upon reaching a barrier: Continue forward or reverse. Get
it right and start counting your money.
Rule 8: Short rallies, not selloffs.
Shorts profit when markets drop, so they start to cover. This makes it a terrible time
to enter new short sales. Wait until they get squeezed and shaken out, then jump in
while no one is watching.
Rule 9: Manage time as efficiently as price.
Time is money in the markets. Profit relates to the amount of time set aside for
analysis. Know your holding period for every trade. And watch the clock to become a
market survivor.
Rule 10: Avoid the open.
They see you coming, sucker.
Rule 11: Trades that work in hot markets destroy accounts in cool ones.
Stocks trend only 15% to 20% of the time. Price ranges cause grief to momentum
traders the rest of the time.
Rule 12: The best trades show major convergence.
Watch for the bull’s eye. Look for a single point in price and time that points
repeatedly to a trade entry. The market is trying to tell you something.
Rule 13: Don’t confuse execution with oppo rtunity.
Save Donkey Kong for the weekend. Pretty colors and fast fingers don’t make
successful careers. Understanding price behavior and market mechanics does. Learn
what a good trade looks like before falling in love with the software.
Rule 14: Control risk before seeking reward.
Wear your market chastity belt at all times. Attention to profit is a sign of immaturity,
while attention to loss is a sign of experience. The markets have no intention of
offering money to those who do not earn it.
Rule 15: Big losses rarely come without warning.
You have no one to blame but yourself. The chart told you to leave, the news told you
to leave and your mother told you to leave. Learn to visualize trouble and head for
safety with only a few bars of information.
Rule 16: Bulls live above the 200-day moving average, bears live below.
Are you flying with the birds or swimming with the fishes? The 200-day moving
average divides the investing world in two. Bulls and greed live above the 200-day,
while bears and fear live below. Sellers eat up rallies below this line and buyers come
to the rescue above it.
Rule 17: Enter in mild times, exit in wild times.
The big move hides beyond the extremes of price congestion. Don’t count on the
agitated crowd for your trading signals. It’s usually way too late by the time they act.
Rule 18: Perfect patterns carry the greatest risk for failure.
Demand warts and bruises on your trade setups. Market mechanics work to defeat the
majority when everyone sees the same thing at the same time. When perfection
appears, look for the failure signal.
Rule 19: Trends rarely turn on a dime.
Reversals build slowly. Investors are as stubborn as mules and take a lot of pain
before they admit defeat.
Rule 20: See the exit door before the trade.
Assume the market will reverse the minute you get filled. You’re in very big trouble
when it’s a long way to the door. Never toss a coin in the fountain and hope your
dreams will come true.

The Forex market

2009-04-03T10:37:00.003+02:00

The popularity of foreign exchange trading (Forex, or FX)
has accelerated rapidly in recent years as the prospect of 24-hour, high-leverage,
highly liquid trading (more than $1.5 trillion in daily turnover)has caught the interest of many traders.

Previously,
access to this market had been restricted to corporations,hedge funds,large Commodity Trading Advisors and other institutional
investors. However, with the ascendancy of online trading,manyfirms have
opened up the “cash” currency market to individual traders, providing leveraged trading as well as full-feature execution platforms, charts and
real-time news.

Unlike the U.S. currency futures markets,
which have fixed daily trading hours, the Forex market is a seamless, 24-hour market. Trading occurs between large banks (which is why Forex is sometimes referred to as the“interbank” market), with numerous broker-dealers providing access to this
market for individual traders. At 2 p.m. ET each Sunday, trading begins as
markets open for the week in Wellington, New Zealand, followed by Sydney
and Singapore. At 7 p.m. ET the Tokyo market opens, followed by London at
2 a.m. and, finally, New York at 8 a.m. This overlapping movement of currency
trading among market centers allows traders to react to news immediately, and also provides the added flexibility of determining their trading schedules।

If important overseas news occurs
while the U.S. currency futures markets are closed, the next day’s opening could be a wild ride.Many(but not all)currency broker-dealers do not charge outright commission fees to individual traders. Instead, they profit from the bid-ask
spread they set.

As a result,
many currency firms promote their low spreads
rather than their low commission rates. Whether this is a good deal or not
depends on the size of the spread in a given currency.