Important Tips For Forex Traders

Why is it that very few traders succeed in the Forex trading environment while the grand majority of traders fail to achieve success? There is no hard answer to this question, there are a few things that will put you one step ahead and will definitely put the odds in your favor.

The main purpose of this article is to guide you through some important aspects of Forex trading. But in a different way, instead of telling you what to do or the best way to do it, it will tell you what to avoid. Sometimes it is better to identify the main drawbacks on a discipline and then isolate them so we have the best results at a certain level of development.

The Holy Grail

Many traders spend years and years trying to find the Holy Grail of trading. That magic indicator or set of indicators, only known by a few traders, that will make them rich in a short period of time.

Fact: Well, there is no magic indicator, nor a set of indicators that will make anyone rich in a short period of time. The main reason of this is because market changes, every single moment is unique. Every Forex trading system will fail from time to time. Our work here is to find a Forex trading system that fits our personality as traders, otherwise the trader will find it hard to follow it.

Looking for Easy Money

Unfortunately most traders are attracted to the Forex market for this reason. Mainly because of the publicity showing or rather trying to show how easy is to trade and make money in the Forex market.

Fact: Yes, it is very easy to trade, anyone can do it. It is as hard as one click. But the second part of it isn't that easy. Making money or achieving consistent profitable results is hard. It requires lots of education, patience, discipline, commitment, and this list could go to infinite. In a few words, it is possible to have consistent profitable results, but definitely it is not easy.
   


Looking for Excitement

Some other traders are attracted to the Forex market or any other financial market because they think it is exciting to be a trader.

Fact: Yes, it is very exciting to trade the Forex market. But if this is the main reason you are still trading the Forex market, sooner or later you will discover the most expensive adventure you have ever known. Do some thinking on it.

Not Using Money Management

Most traders forget about this important aspect of trading. They think they shouldn't be using money management until they achieve consistent profitable results. They totally forget about the risk side of trading.

Fact: Money management allows your profits to increase geometrically, but also limits your risk on every single trade. Money management tells you how much to risk on each trade. Using money management is a must if you want to achieve your trading goals. By using money management you make sure you are going to be able to trade tomorrow, the next week, month and the following years.

Not Being Psychology Tuned

This is one of the most underestimated subjects when it comes to trading. One of the main principles of financial markets is that the price of each instrument is based on the perception of each individual participant “the crowd.” In other words the price of each instrument is determined by the fear, greed, ego and hope of all traders.

Fact: Being aware of all psychological issues that affect the decisions made by traders will definitely put the odds in your favor.

Lack of Education

Education is the base of knowledge on every discipline. As lawyers and doctors require several years of college until they get their degree, Forex traders also require long years of study. It is better to have someone experienced to guide you through your trading, since some information could take you in the wrong path.

Fact: The market teaches us invaluable lessons on every single trade made. The process of education for a Forex trader could take for ever. That's right, we never stop learning. We should be humble about the markets and our knowledge; otherwise the market will prove us wrong.

These are some of the most important barriers every trader faces when trying to trade successfully.

Trading successfully the Forex markets is no easy task, it requires a lot of hard work to do it right, but with the right education, you will put yourself closer to your trading goals.

Forex Traders Rules

Forex Traders Rules

1. Rule #1 - Don't be overconfident:If you are somewhat a newbie at Forex trading, don't rest on your laurels too soon after you've had good profits in a day. Don't pool all your money and invest heavily. Instead, trade using small, modest margins. Use a small portion of your Forex trading funds to purchase reliable online Forex trading platform. Do not be tempted to trade what you are ready to lose as you can actually spend much more than what's in your Forex trading coffers. Don't let greed rule your mind and most importantly, you should only increase your Forex trading margin once your experience and expertise grows.
2. Rule #2 - Increase your thirst for knowledge: Don't be afraid if to crave for more information on Forex trading. Stay informed by subscribing to the right financial and political periodicals. The Internet is a good place to start. In fact, it's one of the best places that will offer Forex trading information for free. You are free to Google for reviews on the best online Forex trading platform available.
3. Rule #3 - Economics for Dummies? You bet! It's never too late to sign up a college course. If you lack the time, money and commitment, another alternative is to read the Wall Street Journal as regularly as you can.
4. Rule #4 - Stand on your own two feet Be independent and don't be afraid to rely on your gut feelings. Don't rely too heavily on gossips heard over the grapevine or depend too much on unfounded tips. However, if you need help, there are very user-friendly online Forex trading platform out there that you can rely on in your path to further understand and master the complex Forex business.
5. Rule #5 - Practice, practice, practice! Test the waters before you fully immerse yourself in Forex trading by creating a demo account using online Forex trading platform.
6. Rule #6 - Keep your friends close and your brokers closer It pays to have trustworthy brokers close by. Strike up a good relationship with them and take advantage of their expertise. After all it's a win-win situation! It also never hurts to be chummy with other traders who know what they're doing.
7. Rule #7 - Keep your eyes peeled for historical trends : Study and scrutinize Forex charts whenever you can. Most good online Forex trading platform will provide these at little or no cost at all.
8. Rule #8 - Know when to leave : The trouble with most Forex traders is that they do not know when to exit trades. If you have been suffering heavy losses, it is best that you pack your bags and leave that particular trade. Don't hope for the tides to turn so quickly. Likewise if you are on a winning streak, don't retreat so soon due to fear that things will go sour.
9. Rule #9 - Know your geography ... and what happens in other countries. This can be very advantageous to you once you gain insight about the financial and political activities in these countries where issues like inflations can influence your Forex trading profits.
10. Rule #10 - Shut out the stress Lose your head and you'll lose your funds. Keep your cool and you'll see those cash rolling in.

Creativity in Forex Trading

“Is it important to be creative in your trading?”

I’m not sure I can describe it in terms of importance. The creative process is somewhat of a mystery, even to scientists who study it. There are a few common characteristics that all creative persons possess (such as an openness to a variety of internal and external experiences and a driving need to express one’s sense of individualism), but for the most part, exactly how the creative mind makes earthshaking discoveries is unknown.
A few prerequisites are necessary, though. The mind must be focused, for example.
New ideas must flow through the mind freely, and there must be a wide range of ideas, so that they can be combined and re-combined in new ways. New and creative trading ideas are necessary to stay ahead of the crowd, so doing whatever you can to prepare your mind to brainstorm new ideas will help you develop creative trading strategies that are the foundation of profitable trading.

Many great scientific discoveries were made almost by accident, through a serendipitous observation. Had an untrained eye made the observation, it would have been missed. But because the scientist’s mind was continuously running through a wealth of ideas, he or she saw a new discovery in a seemingly ordinary event. Discovering new trading ideas is also a creative, intellectual endeavor.
You must get your creative juices flowing in order to see the next new idea. It’s essential that you “prime” your thinking processes, get your mind ready to make a creative observation.

In some ways, your mind is like a well. You prime a well to get the water flowing, and once it’s started, it flows continuously. You must similarly prime your mind to get ideas flowing.
Various ideas in your mind are stored in a hierarchical structure. Information is stored together in a clump, depending on its meaning. When you aren’t thinking of a particular topic, it’s hard to bring information about that topic into consciousness; it lies their stagnant and hidden.
However, when you make a concerted effort to think carefully about a specific topic, or a closely related topic, and start running through a bunch of possibilities, all kinds of new possibilities become apparent. Your mind quickly scans various concepts and ideas, almost unconsciously. Suddenly this wealth of information combines and you see something new.

For example, suppose you develop a vague trading idea about how a set of indicators may forecast the price of a particular stock. Once you get the basic idea in your mind, you can prime your mind to get the creative juices flowing.
For example, you can scan a set of charts to back test and find support for your hypothesis. As you look through the charts, the information you see will prime other related information. Soon idea after idea will coalesce, and you’ll make a new discovery that will serve as a basis for a new trading strategy.
The main point is that you must set your thinking processes in motion to come up with a creative new idea. Some traders even suggest putting on a small trade based on a hunch in order to set your creative processes in motion.

When you put on a trade, your adrenalin starts to rush, your attention starts to focus, your senses are heightened, and you suddenly change your perspective until you see new ideas. The more your mind is active, the more likely you’ll make creative new discoveries. Knowing about the creative process and how to set it in motion gives you power.

Some people are down on themselves because they can’t seem to think creatively. But they can. They just need to know how to do it. It’s vital to be relaxed and free of anxiety. But it’s also essential to prime your mind in order to start the process.
So when it’s time to think of a new trading idea, think creatively. Set your creative processes in motion. You may come up with a big idea that will make you huge profits.

Critical Factors For Successful Forex Trading

Success in any profession can be broken down into a number of critical factors. Trading is no different. Does your trading tick all 6 boxes or are there any areas you need to work on:

1. Do you have an edge? Trading futures is a zero sum game - you must have an identifiable edge over the other market participants. Have you identified a high probability pattern that can be exploited time after time? Remember though, the only constant in trading is change - you will have to constantly evolve your trading edge to stay ahead of the crowd.
2. Disciplined Execution. There is no point in identifying an edge if you can’t execute the trade. Measure your trading success against your trading plan not the actual outcome of the trade. If you make a loss but you executed your trade exactly according to your plan than pat yourself on the back, don’t beat yourself up over it. 
3. Money Management. If your risk per trade is too aggressive then you run too high a risk of blowing your account, too conservative and you will not optimize returns from your system. It is essential to establish the maximum expected draw down of any system and set money management rules accordingly. 
4. Have a Trading Plan. A trading plan will dictate what you will do in any given situation during the trading day. When the market is open you do not want to have to think - just concentrate on executing your plan. When the market is closed you need to be preparing for the next session to ensure you have a clear plan prepared.
5. Accountability. You are responsible for every trade. Ultimately the decision to put on a trade is yours. If your stop is hit and the market immediately reverses then you are responsible, not the ‘big boys’ gunning for stops - it happens, move on. If you get huge slippage on your trades then does your trading plan account for it or is your plan unrealistic for the market you are trading?

6. Commitment. Trading is not like a regular job, you don’t pick up a pay check at the end of the month even though you did no work and spent the whole month surfing the web and emailing your friends. You must be committed to placing every trade according to your plan, even through the losing periods where every trade seems to end up a loser. Trading seems to throw up extremes of good times and bad times, you must not get over confident during the good times and you must not give up in the bad times - remember it is all part of the plan. You must set aside adequate time every day to compare your actual performance against your trading plan. You must be committed to continuous testing of new ideas and regular monitoring of your existing plan. Research into future ideas is essential - remember the only constant in trading is change.

Vin Hoston runs Online Forex Trading, a website that provides information and resources for traders. Vin also provides a Free Demo trading system, the results of which are updated daily on the site.


Copy Righted Vin Hoston - SigmaForex LTD

5 Questions For Forex Traders

90-95% of new forex traders lose money within the first 3-6 months this article helps to guide new forex traders by asking 5 questions that the forex trader needs to know prior to back-testing their forex system.

Let us jump right in…
1. What data type are you using (or going to use)?

I know this sounds strange, especially if you have experience from another market such as stocks as their generally is only one type of data source available. However, in the forex market you can have up to 4 different data types: bid, ask, mid and indicative. Each have their own little nuances.
If you would like to know more about the data types then visit the article written about the perils of indicative prices. As this will save me from having to repeat the information again and boring those who’ve already read it.

So, if you know you have indicative prices then you know you’re in for some good results! However, if you have any of the other three you need to be careful on how stop and limit orders are placed.
As an example: If we had bid price history and we were looking to place a buy entry stop at 0830 EST according to the day’s high, then we know that the bid price will not accurately reflect what the actual price of our order should be. You would have noticed that if you placed a buy entry stop at the exact same price as that of the day’s high you would have entered prematurely - you would have entered 4 or 5 pips before the high or the low of the day was touched (the exact same amount as the spread your broker offers!).

This leads me into the next most important question…

2. What spread is your broker offering on the currencies you are bask-testing?

You need to know this as this can help you set your slippage settings on each currency.
As our example in question 1 pointed out. We found that our buy at the day’s high method did not exactly work because we bought at the BID PRICE high, not the ASK PRICE high - the price that we need when we place our order TO BUY.
Therefore, we enter in a slippage setting representing the spread that would be exhibited by this trade on this currency.
But knowing at what price to buy is only half the problem… how do we know what quantity to buy?

3. What margin does your broker offer?

If we know at what price to buy our currency at we need to inform our broker on what quantity to buy to fulfill the order. We only know what quantity to buy by the margin that the brokerage firm offers.
Most brokerage firms offer 100:1 leverage, however, some firms offer mini accounts with 200:1 leverage, others only 50:1 leverage.
Find out the margin required.

4. What restrictions does your broker impose?

Now, I don’t just mean margin and spread restrictions as I have mentioned above. These are important in their own right, what you need to find out are the details.
This is probably the most important question of all as the fine line between success and failure can be found in the details. Now you can have this questioned by one of two ways:

1. You can find out through experience (generally the most expensive way unless done through the demo account!); or

1. You ask your broker (the cheapest and best way).

Why is this so important? I hear you ask. Well let’s say you have a system that trades any gaps that might form on Sunday at 1700 EST, but your broker does not open until 1730 EST. You either need to factor this restriction in to your system, or move onto another system completely. Or, you may have a system that has 10 pip stops, but you find out that your broker will only let you place 15 pip stops from your initial entry price. Once again you will need to change your system to see whether it still performs well, or throw out your system (or change your broker)!

In fact one of the most devastating restrictions imposed by SigmaForex LTD is that they do not accept stop entry orders if price never happens to trade at your entry stop price! Sigma Forex LTD will honor and “take the loss” of your OPEN stop positions, but if the liquidity is not there and price has shot straight through your stop price then you will miss out. This can have disastrous effects on your system results as you are left wondering on trades where you made good returns - “Would SigmaForex LTD have got me in?”. You may want to read of some of the quirks I use when placing entry stop orders on SigmaForex LTD that could be of huge benefit to you to help you possibly get around this problem.

The restrictions by your broker are only half your systems’ success, you also need to find out about another more important restriction… yourself. This leads me to the final point…

5. What restrictions do you have?

This is a vitally important question. Most people test their systems and fall in love with the results but find when they trade their system they have lost their account and that most of the best signals occurred while they were sound asleep!
As the forex market is a 24 hour market, you need to put into place restrictions in your system that will be realisticly conducted by you during the course of a normal trading day. There is no use operating a trailing stop method that changes your stop points during times when you are asleep and cannot possibly do so.
I hope this article has made you aware of some of the important things that need to be known prior to testing your system.
Article written by Vin Hoston from Currency Secrets In SigmaForex LTD. Where you will find reviews on forex data vendors, signal providers, brokers, and popular forex resources, along with more quality articles… all for free!

Advanced Forex Trader In 10 Steps | SigmaForex

Everyone trades a little differently. The trading method outlined below is MY personal approach to trading. This method has worked for me for the last 20 years, and has helped me to avoid big draw downs since the mid 1980’s. My trading strategy has helped me to make a good living trading.
It takes some time to learn my method of trading because it’s based on tape reading and getting a “feel” for the market. This is *not* about a fast,easy formula to “get rich quick” while you sweat out every trade. Instead, this is about developing confidence and trading consistently without fear and without big draw downs.

Here is my 10 Step Approach to Learning My Style of Trading:

1. Practice exiting trades at break-even, using a one-tick target, a two or three tick soft stop (mental stop) and a 1.5 point hard stop. Never *allow* the market hit your hard stop. Exit by moving your target toward your hard stop, not by moving your hard stop towards your target. With time, all of this must become a reflex. You won’t always be able to keep your losses down to 2 ticks, but only on rare occasions should you find yourself letting the market hit your hard stop. (”Rarely” means only about once every 50-100 trades after you get the hang of it.)

Even though your entries won’t be good enough in the beginning to make a profit trading these tight soft stops, your entries will gradually improve until you turn the corner and become profitable.
Learn exits and entries separately. Don’t let the one influence the other.

Taking losses this way takes dedication and discipline, so stick with it. It’s the key to confident trading. If you never take large losses (and rarely medium size ones), the fear of loss pretty much goes away, and your confidence grows. Especially after your entries improve enough to support a “scalping” type exit strategy.

2. Every trade *in all market conditions* begins as a scalp. Let me clarify this: if you’re in a choppy market and you’re looking to get small gains, like a point or so, manage your initial hard and soft stops *exactly* the same way you would in a quick trend or any other type of market. That means keeping losses as close to 2 ticks as possible, taking lots of break even trades and exiting every time the market doesn’t give you *instant gratification* (within a minute or so).

No matter what the market is doing, you must demand that it moves in your favor right after you enter, otherwise you get out as close to break even as possible. This means you’ll be closing a lot of trades near break-even within the first minute. This is the foundation of learning to trade for consistent gains.

3. Don’t worry about the commissions on break-even trades. If you do, you’ll hold on to losing positions, begging them to turn around for you. This is called *hoping.* In this business, this type of *hoping* is the kiss of death. Your money-making trades must move your way in the first minute or less. When trades don’t act right in the first minute, most of them will hit your hard stops.
So don’t get hung up on the fact that your broker loves you. Who cares if he/she makes a living?
Your concern is *limiting losses*. I care more about this than anything else in trading.
(Well-timed entries make my tight soft stops possible, so they’re almost as important as the exits.)

4. Practice your entries until your timing is so good that you can *reasonably expect* the market to go your way immediately, before it goes more than 2 ticks against you. This is not easy at first, but if you stick with it, you’ll get it.

5. Practice fading the emotional extremes on your entries. (Fading means entering in the opposite direction of the market’s last move.) When an extreme NYSE-Tick (often above 1000 or below -1000) occurs at the same time the market accelerates into a support or resistance area, look for a price stall or reversal and fade the move. Fade the emotion.

6. Rarely, if ever, *chase* the market on your entries. Wait for a pullback to get onboard a trend.
I favor shorts over longs… I can get out of a short position quicker than I can get out of a long position. I don’t know why. I like to say that I “see gravity better than helium.” In the rare strong-trending markets where I may chase an entry, it’s going to be a down trend, not an uptrend. I don’t trust up trends enough to chase them. Maybe it’s just a personal quirk and maybe not. I honestly don’t know.
But it’s interesting to note that most (not all) professional traders I’ve met are Bears and prefer short positions over longs. You should give it some thought and find out which direction works better for you. Are your losses bigger on shorts or longs? Specialize in one direction and trade the other direction only when things are looking real good.

7. Never let a gain turn into a loss. This will mean getting out of most trades a little (or a lot) too soon. You just have to live with it. Swing for home runs (greed) will ruin your trading. There is no mechanical formula that I know of, (such as, “move your stop to break even after you get 3 ticks gain”) that will work. You have to develop a feel for how the market is acting at the moment, and use your feel to reduce your target or advance your hard stop. This comes with experience.

8. Develop a feel for the big picture movements of the market, not just the intraday action. Use the end-of-day market internals to analyze the market’s mood and develop a daily bias.

9. Practice does *not* make perfect. Only *perfect practice* makes perfect. I learned this in my younger years, pursuing a professional baseball career. Perfect practice will keep your losses smaller than your gains in the trading business.
There are a lot of things involved in perfect practice. When you get tired, or when the phone rings, or whatnot, *don’t trade*. Always, *always* exit trades exactly the way I’ve outlined above on every trade in every market condition. Always *wait* for your pitch, the well-timed setup for entering. Don’t practice sloppy entries just because you’re bored. Only perfect practice will help you. Anything else just amounts to practicing bad habits.

10. Get a mentor. I traded for 6 years before I learned to keep my losses small. My trading turned around immediately after I met my mentor and talked to him on the phone for one week. Is there any serious profession that you can learn without a mentor? Maybe there is, but I don’t know of any. It’s certainly not trading.

Mike Reed is author of SigmaForex LTD Trader’s Updates. He has been trading the Market for 23 years. His support and resistance numbers have been published on the internet since 1996. Mike’s nightly support and resistance zones are specific and incredibly accurate. He offers an unlimited free trial of his nightly SigmaForex LTD Trader’s Updates. He will be offering “live” training online as well. http://www.SigmaForex.com

Copyright 2008 Mike Reed