Tuesday, November 6, 2007
Before spending any amount of money on any Forex trading course or Forex training program there are some important aspects you need to take in consideration. There are many training programs available, but not every one of them suits the needs of every trader.
The first thing you should be looking in a Forex training program is the content of the material. Unfortunately, most courses or training programs focus or spend most of the time on basic concepts. Though these basic concepts are important, spending most of the course on them won’t help the trader to make consistent results.
The following subjects are what I consider the most important aspects of trading and every training program or trading course should address:
Forex trading basics. Review basic concepts such as: margin, type of orders, a little background, bid/ask, rollover, etc. You need to make sure you understand every single concept to perfection.
Main drawbacks of Forex traders. Being aware of the common mistakes made by Forex traders and knowing how to handle them will prevent new traders from making those mistakes.
Technical and fundamental analysis. These are the two main approaches adopted by Forex traders. Knowing how to properly apply each concept will definitely put the odds in your favor.
The three pillars of Forex trading. I consider that these three subjects have the most impact on every trader trading account.
Forex trading system development. Having the right system is a must if you want to have consistent profitable results. Having a system that doesn’t fit you will cause a series of problems that will make your trading account vanish away (second guessing the system, not following your system, etc.)
Money management. This is considered by many successful traders to be the most important single aspect of trading. Money management helps to increase your profits geometrically and at the same time limit your losses (i.e. a good risk reward ratio of about 2:1 will make you money in a Forex trading system that is right only 38% of the time.)
Trading psychology. Being aware and knowing hot to handle the psychological barriers that affect every trader decision will put the odds in your favor.
Other important aspects every training program should include are: Developing habits for success (such as discipline patience, taking responsibility of every action, commitment, etc.,) understanding and taking our trading as a business, risk and trade management.
Let’s look at how to achieve currency trading success by learning forex trading the right way.
Use the Internet
You can get all the Forex education you need for free on the net, you simply have to look in the right areas, which we will explain in more detail in a moment.
A fatal mistake
Is to think you can buy success from a guru or mentor on the net.
Most of the information sold is junk or available free anyway.
Many traders are duped by attractive advertising copy, claiming that you can make huge regular profits by buying an e-book for $100 or so, but the reality is:
If the information was so good it would not be sold; these vendors would simply trade for themselves and the fact is they don’t.
They make money from selling you forex education NOT trading and their forex trading systems simply don't work.
If you can find a trader with a real time track record of profits, their information may be worthwhile, but trust me, there are not many who can provide this.
The best way is to do it on your own and you can get it all the Forex Education you need for free.
Working smart not hard
Trading is very different to many other ventures in life, in that the effort you put in has no relation to the money you make.
You get paid for getting market direction right not how much effort you put in.
You should as beginner either start with long term trend following strategy or try swing trading – NEVER attempt day trading.
Forex day trading simply doesn’t work, as the data is to short to be reliable and is meaningless.
More novice traders start with forex day trading than any other method and they lose – don’t fall into this trap.
Long term trend following suits the patient trader, while forex swing trading suits the trader who likes to trade a bit more and is less patient.
To start get an understanding of support of resistance and technical analysis.
Next, you need to integrate a few indicators to confirm price momentum into support and resistance levels and see the odds of them holding.
Below find some indicators that are great for triggering forex trading signals and determing price momentum:
Stochastics, Relative Strength Index (RSI), Average Directional Movement (ADX)
Below find some indicators to determine help you spot support and resistance (in addition to trendlines) and determine targets and strength of the trend.
Bollinger Bands, MACD and moving averages.
If you learn about all the above indicators, support and resistance and also how a breakout strategy works, you will have ALL the forex education you need.
Most what you need to know is FREE on the net. Let’s look at where to get the best advice to forward your forex education.
Tip 1 - Look For Proof
Don’t buy an e-book from a vendor on the net unless they present a real time track record that they have made money with their system.
There are many e-books sold that use great copy or lies, to appeal to naive investors don’t fall for this – If they have made no money don’t buy their product – period.
Most of the systems sold by vendors are junk or you can get the information free on the net anyway – more of that later. Now another important point!
Beware of the hypothetical track record this is meaningless.
Their done in hindsight knowing the closing prices so of course it’s going to make money but you don’t trade backwards in real life – you trade forwards and that’s much more difficult!
Instead of buying overpriced e-books with no evidence of success, go to your bookstore and pick up books from traders who have walked the walk rather than simply talk the talk.
Here you can learn from the real pro’s (we have done a top list check out our other articles) and there are some great bargains to be had.
Tip 2 Take advantages of FREE Sources
You can learn forex trading for free and get a forex trading strategy without spending any money.
If you are novice trader you will probably want to trade with forex charts and use technical analysis.
Just look up the phrase and you will find all you need.
The simplest way to trade is using “support and resistance” and a “breakout methodology” so search those two phrases as well.
You will need some “momentum indicators” to confirm you’re trading signals so look them up and in particular “Relative Strength Index” and “stochastics”.
That will give you a simple powerful method to trade with and give you a forex system based on sound logic.
THE BEST FOREX EDUCATION
Is easy to get if you follow the above two tips – All the basics are free and you can get a few good books from the great traders to inspire you and help you – you need spend no more than $100 maximum and you will learn forex trading the right way and get the best forex education.
Finally, leave the e-books with their over hyped copy and no proof to the other 95% of forex traders who lose.
That’s it good luck and good trading.
What are forex trading signals?
Forex trading signals are tips and recommendations about whether to buy or sell or liquidate given by a third party. This party could be your broker, trader, analyst, brokerage company, etc. The signal can be a single indicator or a group of indicators, including breakouts, envelope patterns, stochastic lines, Fibonacci levels, oscillators, currency pairs that are almost at moving averages and support and resistance levels, among others. Forex trading signals can vary depending on the source and they also follow certain market patterns and trends, depending on the demand and supply of the world's major currencies.
Since there are many indicators to watch out for, it is important for many investors to rely on more experienced forex brokers for reliable trading signals. Of course, the more seasoned investors can always try to get a feel of the market by themselves just by watching the trends, but there are so many indicators that it's sometimes a lot easier to rely on trading signal services. Besides, trading signal providers have to perform detailed study of the markets and make technical analyses of whatever operating forces come into play, something that many investors don't have the time for.
Where are trading signals derived from?
The currency chart is one of the sources for technical studies and market analysis that lead to trading signals. They include:
Simple Moving Average (SMA) – when the moving average line is surpassed by currency prices, this is a buy signal. If the price goes below the average line, it's a sell signal.
Moving Average Convergence Divergence (MACD) – uses a single line to indicate a buy or sell signal, depending on whether the line is above or below the average line.
Bollinger Bands – these point to possible market changes. When Bollinger bands tighten, you can expect prices to change sharply.
Volume – a high volume may signal a new trend. A low volume means uncertain times ahead for investors.
There are other indicators such as momentum and volatility that are often used to help reinforce trading signals obtained from many other sources. If you study them in relation to one another, you'll have a pretty much reliable information source on the behavior of the market.
What kind of currencies is being offered by trading signal services? Most forex signal services offer trading signals on USD/JPY, EUR/USD, USD/CHF and GBP/USD. However, there are also services that provide specialization in other minor currency pairs.
Foreign exchange, true to its name, involves companies from around the world. Traders buy all sorts of assets that belong to companies, regardless of the companies location geographically. Foreign exchange systems allow one to conduct these transactions on a global level. Wherever the system and the companies exist, one can participate in the worldwide foreign exchange trading. Examples of such countries in Asia, North America, Europe and Africa. One does not have to have any formal connection to a country in order to invest in it. Residence in a country is immaterial to your opportunity to participate in its foreign exchange trading system.
The internationality of the system is a major part of its unique appeal. Traders are completely free to invest their assets in whichever locality they desire.In general, the rules of the trading game and the typical results one can expect from foreign exchange trading systems are identical regardless of whether you trade with an internet based system or not. However, a web based system has many advantages over any competitors, as it allows swift and efficient transactions.
A good way to increase your wealth is to invest your assets with the help of a broker. When you work with a broker to handle your investments, make sure that you have a trustful relationship with that person. No matter what type of trading system you use or assets you invest, trusting your partners is a key to successful investing. Transactions should only be carried out with individual and companies that seem loyal and honest to you. You can usually tell if you are dealing with a straightforward enterprise if they express openness and availability to answer your needs. Look for an entity that caters to global clients and speak with some of the clients.
Wednesday, October 3, 2007
There are many benefits and advantages to trading Forex. Here are just a few reasons why so many people are choosing this market as a profitable business opportunity:
1. Powerful forex leverage
In Forex trading, a small margin deposit can control a much larger total contract value. Leverage gives the trader the ability to make extraordinary profits and at the same time keep risk capital to a minimum.
Because the Forex Market is so large, it is also extremely liquid. This means that with a click of a mouse you can instantaneously buy and sell at will. You are never 'stuck' in a trade. You can even set the online trading platform to automatically close your position at your desired profit level (limit order), and/or close a trade if a trade is going against you (stop order).
3. Forex trading online is instant.
The FX market is fast. Orders are executed, filled and confirmed usually within 1-2 seconds. Since this is all done electronically with no humans involved, there is little to slow it down!
4. Zero forex commissions
Because you access the market directly through electronic online forex trading you pay zero commissions or exchange fees.
5. Limited risk
Your risk is strictly limited. You can never lose more than you have in your forex account. This means you can never have a negative equity balance. You can also define and limit your risk with stop-loss orders, which are guaranteed by stocks on all forex orders up to $1 million in size.
6. Guaranteed prices and Instantaneous Fills
You get instantaneous execution and total price certainty on all orders up to $1 million in size. This allows you to trade forex with confidence off real-time, two-way quotes. And this price guarantee applies to stop-loss and limit orders as well.
7. 24-hour market
Forex is a 24-hour-a-day market that literally follows the sun around the world, from the U.S. to Australia and New Zealand to Hong Kong, the Far East, Europe and then back again to the U.S. The huge number and diversity of forex investors involved make it difficult even for governments to control the direction of the forex market. The unmatched liquidity, and around-the-clock global activity make forex the ideal market to trade.
8. Free 'demo' accounts, news, charts and analysis
Most Online Forex firms offer free 'Demo' accounts to practice trading, along with breaking Forex news and charting services. These are very valuable resources for traders who would like to hone their trading skills with 'virtual' money before opening a live trading account.
9. 'Mini' trading
One might think that getting started as a currency trader would cost a lot of money. The fact is, it doesn't. Some Forex firms now offer 'mini' trading accounts with a minimum account deposit of only $200 with no commission trading. This makes Forex much more accessible to the average individual, without large, start-up capital.
We know that the FX market is the largest in the world and that your broker or institution that you are trading with is collecting quotes from a centralized feed or individual quotes comprising of interbank rates.
So how are these forex quotes made up? Well, as we previously mentioned currencies are traded in pairs and are each assigned a symbol. For the Japanese Yen it is JPY, for the Pounds Sterling it is GBP, for Euro it is EUR and for the Swiss Frank it is CHF. So, EUR/USD would be Euro-Dollar pair. GBP/USD would be pounds Sterling-Dollar pair and USD/CHF would be Dollar-Swiss Franc pair and so on.
You will always see the USD quoted first with few exceptions such as Pounds Sterling, Euro Dollar, Australia Dollar and New Zealand Dollar. The first currency quoted is called the base currency.
When you see forex quotes you will actually see two numbers. The first number is called the bid and the second number is called the offer (sometimes called the ASK).
If we use the EUR/USD as an example you might see 0.9950/0.9955 the first number 0.9950 is the bid price and is the price traders are prepared to buy Euros against the USD Dollar. The second number 0.9955 is the offer price and is the price traders are prepared to sell the Euro against the US Dollar.
These quotes are sometimes abbreviated to the last two digits of the currency such as 50/55. Each broker has its own convention and some will quote the full number and others will show only the last two.
You will also notice that there is a difference between the bid and the offer price and that is called the spread. For the four major currencies the spread is normally 5 give or take a pip.
To carry on from the symbol conventions and using our previous EUR quote of 0.9950 bid, that means that 1 Euro = 0.9950 US Dollars. In another example if we used the USD/CAD 1.4500 that would mean that 1 US Dollar = 1.4500 Canadian Dollars.
The most common increment of currencies is the PIP.
Currencies in the FOREX market are traded on a price interest point (pip) system. Each currency pair has its own pip value.
Since we have a currency PAIR such as EUR/USD, we need a way to talk about its price value. Whenever you see a FOREX price quote, you will see something listed along the lines of the following:
USD/JPY: 112.46 - Seconds later - 112.51
The first part before the first dash refers to the bid price. In other words it's what you obtain in JPY when you sell USD. In example above, the bid price is 112.46. The second component, which comes after both dashes and usually occurs minutes or seconds later, is used to obtain the ask price, this is what you have to pay in JPY if you buy USD.
In this example, the ask price is 112.51. The difference between the bid and the ask price is called the spread. In the example above, the spread is .05 or 5 pips.
When you see a Forex currency pair price quote, like the one above, just remember that that last digit of the price (after the decimal point) is referred to as the pip. So if you see a quote (118.50) and then a qu.ote in one minute of (118.51), then you should automatically know that the price rose by 1 pip.
Similarly, if you see a price quote of 118.58 and then after 5 minutes it's 118.50, the price dropped by 8 pips. The pip is always the last decimal place of the currency price quote.
In the FOREX market your main objective is to capture as many profitable pips as possible!
In the "Majors", this would include USD/JPY, USD/CHF and USD/CAD. For these currencies and many others, quotes are expressed as a unit of $1 USD per the other currency quoted in the pair such as JPY.
In the example above, a quote of USD/JPY 123.50 means that one U.S. dollar is equal to 123.50 Japanese yen.
When the U.S. dollar is the base unit and a currency quote goes up, it means the dollar has appreciated (become stronger) in value and the other currency has deppreciated (become weaker). If the USD/JPY quote increases to 124.01, the dollar is now much stronger than the JPY because with that same $1 USD you will be able to buy more yen than you could earlier.
Of course there are exceptions to this rule and these are the British pound (GBP), the Australian dollar (AUD) and the Euro (EUR). In these cases, you might see a quote such as GBP/USD 1.4366, indicating that one British pound equals 1.4366 U.S. dollars. These currency pairs are like this because they are stronger than the USD in value.
With these three currency pairs, where the U.S. dollar is not the base rate, a rising quote means that the USD is weakening, because it now takes more U.S. dollars to equal one pound, euro or Australian dollar.
To sum up this point, if a currency quote goes up then it increases the value of the base currency. A lower quote means that the base currency is weakening.
There are some currency pairs that do not involve the U.S. dollar. These currencies are called cross currencies, but the idea is exactly the same. For example, a quote of GBP/JPY 210.95 signifies that one GBP is equal to 210.95 Japanese yen.
Nearly all the brokers you will deal with will work all this out for you. They may have slightly different conventions, but it is all done automatically. It is good however for you to know how they work it out. In the next section we will be discussing how these seemingly insignificant amounts can add up.
In summary, currency traders must become familiar also with the way currencies are quoted. The first currency in the pair is considered the base currency; and the second is the counter or quote currency. Most of the time, U.S. dollar is considered the base currency, and quotes are expressed in units of US$1 per counter currency (for example, USD/JPY or USD/CAD). The only exceptions to this convention are quotes in relation to the euro, the pound sterling and the Australian dollar - these three are quoted as dollars per foreign currency.
Forex quotes always include a bid and an ask price. The bid is the price at which the market maker is willing to buy the base currency in exchange for the counter currency. The ask price is the price at which the market maker is willing to sell the base currency in exchange for the counter currency. The difference between the bid and the ask prices is referred to as the spread.
The cost of establishing a position is determined by the spread, and prices are always quoted using five numbers (for example, 134.85), the final digit of which is referred to as a point or a pip.