Forex Trading Tips
Why do hundreds of thousands online traders and investors trade
the forex market every day, and how do they make money doing it?
This two-part report clearly and simply details essential tips
on how to avoid typical pitfalls and start making more money in
your forex trading.
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.
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 which 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.
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.
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 allow your trade to do so, you will
always end up undercutting yourself and losing a small piece of
your deposit with every trade.
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 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 input will only
result in multiple losses. Take a position, ride with it and
then analyse the outcome - by yourself, for yourself.
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.
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.
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.
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 which
analyse past trends, but none that can accurately predict the
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.
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.
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.
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.
Don't be smart - The most successful traders I know keep their
trading simple. They don't analyse all day or research
historical trends and track web logs and their results are
excellent.
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.
Ignoring the technicals- 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.
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.
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.
The second and final part of this report clearly and simply
details more essential tips on how to avoid the pitfalls and
start making more money in your forex trading.
Take it like a man - If you decide to ride a loss, you are
simply displaying stupidity and cowardice. It takes guts to
accept your loss and wait for tomorrow to try again. Sticking to
a bad position ruins lots of traders - permanently. Try to
remember that the market often behaves illogically, so don't get
commit to any one trade; it's just a trade. One good trade will
not make you a trading success; it's ongoing regular performance
over months and years that makes a good trader.
Focus - Fantasising about possible profits and then "spending"
them before you have realised them is no good. Focus on your
current position(s) and place reasonable stop losses at the time
you do the trade. Then sit back and enjoy the ride - you have no
real control from now on, the market will do what it wants to do.
Don't trust demos - Demo trading often causes new traders to
learn bad habits. These bad habits, which can be very dangerous
in the long run, come about because you are playing with virtual
money. Once you know how your broker's system works, start
trading small amounts and only take the risk you can afford to
win or lose.
Stick to the strategy - When you make money on a well
thought-out strategic trade, don't go and lose half of it next
time on a fancy; stick to your strategy and invest profits on
the next trade that matches your long-term goals.
Trade today - Most successful day traders are highly focused on
what's happening in the short-term, not what may happen over the
next month. If you're trading with 40 to 60-point stops focus on
what's happening today as the market will probably move too
quickly to consider the long-term future. However, the long-term
trends are not unimportant; they will not always help you though
if you're trading intraday.
The clues are in the details - The bottom line on your account
balance doesn't tell the whole story. Consider individual trade
details; analyse your losses and the telling losing streaks.
Generally, traders that make money without suffering significant
daily losses have the best chance of sustaining positive
performance in the long term.
Simulated Results - Be very careful and wary about infamous
"black box" systems. These so-called trading signal systems do
not often explain exactly how the trade signals they generate
are produced. Typically, these systems only show their track
record of extraordinary results - historical results.
Successfully predicting future trade scenarios is altogether
more complex. The high-speed algorithmic capabilities of these
systems provide significant retrospective trading systems, not
ones which will help you trade effectively in the future.
Get to know one cross at a time - Each currency pair is unique,
and has a unique way of moving in the marketplace. The forces
which cause the pair to move up and down are individual to each
cross, so study them and learn from your experience and apply
your learning to one cross at a time.
Risk Reward - If you put a 20 point stop and a 50 point profit
your chances of winning are probably about 1-3 against you. In
fact, given the spread you're trading on, it's more likely to be
1-4. Play the odds the market gives you.
Trading for Wrong Reasons - Don't trade if you are bored,
unsure or reacting on a whim. The reason that you are bored in
the first place is probably because there is no trade to make in
the first place. If you are unsure, it's probably because you
can't see the trade to make, so don't make one.
Zen Trading- Even when you have taken a position in the
markets, you should try and think as you would if you hadn't
taken one. This level of detachment is essential if you want to
retain your clarity of mind and avoid succumbing to emotional
impulses and therefore increasing the likelihood of incurring
losses. To achieve this, you need to cultivate a calm and
relaxed outlook. Trade in brief periods of no more than a few
hours at a time and accept that once the trade has been made,
it's out of your hands.
Determination - Once you have decided to place a trade, stick
to it and let it run its course. This means that if your stop
loss is close to being triggered, let it trigger. If you move
your stop midway through a trade's life, you are more than
likely to suffer worse moves against you. Your determination
must be show itself when you acknowledge that you got it wrong,
so get out.
Short-term Moving Average Crossovers - This is one of the most
dangerous trade scenarios for non professional traders. When the
short-term moving average crosses the longer-term moving average
it only means that the average price in the short run is equal
to the average price in the longer run. This is neither a
bullish nor bearish indication, so don't fall into the trap of
believing it is one.
Stochastic - Another dangerous scenario. When it first signals
an exhausted condition that's when the big spike in the
"exhausted" currency cross tends to occur. My advice is to buy
on the first sign of an overbought cross and then sell on the
first sign of an oversold one. This approach means that you'll
be with the trend and have successfully identified a positive
move that still has some way to go. So if percentage K and
percentage D are both crossing 80, then buy! (This is the same
on sell side, where you sell at 20).
One cross is all that counts - EURUSD seems to be trading
higher, so you buy GBPUSD because it appears not to have moved
yet. This is dangerous. Focus on one cross at a time - if EURUSD
looks good to you, then just buy EURUSD.
Wrong Broker - A lot of FOREX brokers are in business only to
make money from yours. Read forums, blogs and chats around the
net to get an unbiased opinion before you choose your broker.
Too bullish - Trading statistics show that 90% of most traders
will fail at some point. Being too bullish about your trading
aptitude can be fatal to your long-term success. You can always
learn more about trading the markets, even if you are currently
successful in your trades. Stay modest, and keep your eyes open
for new ideas and bad habits you might be falling in to.
Interpret forex news yourself - Learn to read the source
documents of forex news and events - don't rely on the
interpretations of news media or others.
Fiorenzo Fontana Forex & Online
Currency