Money Management Strategies For FX Traders

December 7, 2009 by  
Filed under Forex Articles

Money Management Formulas

Survive First, Prosper Later

Money management has two goals: survival and prosperity. The first priority is to survive, then to make small gains consistently and finally to make spectacular gains. Beginners tend to have these priorities reversed. They aimed for spectacular gains over short time frame but never think about long term survival. Professional traders are always more focus on minimising losses than growing equity.

No one could have said it better than Warren Buffett, the world’s greatest investor,

“Be a Risk Averse Investors”

Trading is a business. Like any business, it will need the right amount of cash reserves at the right time in order to profit from the right opportunities. In trading, your equity in your investment account is your life. You lose it, you are out of business.

The market will always be there so long as you have available capital. One thing is guaranteed in trading, that is losses. We look at the different types of losses.

Businessman Risk’s Vs Loss

Businessman’s Risk

Businessman’s risks are risks that are anticipated by the businessman and losses to these kind of risks are expected. Since they would have anticipated to a certain degree the probability of the loss occurring, they could have taken a sound measure. Businessmen treat this particular risk as an expense of the business.

Losses

The difference between a businessman’s risk and a loss is its size relative to the size of your equity. These are losses that threaten your prosperity and survival. And this is the last thing a trader will want to experience.

A business operating in an office building will face the risk of fire occurrence. Any fire will disrupt the business for months. The potential of fire damaging your property and disruption of your business may just put you out of business. This is a loss that you will never want it to happen, don’t you? So businesses will buy insurance to protect themselves against such losses if it happens.

In trading, the insurance for protection against such losses is free. You do not pay premium for it. However, you owe it to yourself and be responsible for the degree of risk you take. You must draw a line between them and never cross it. Drawing that line is a key task of money management.

Over-trading

It is defined by taking on more trades than you are required to which are out of your system rules. This mistake will benefit your broker and not the trader.

Revenge Trading

It is also another form of over-trading. Traders will tend to make a trade immediately after a loss, seeking to recover the loss. This is done just after he made a bad decision, and wanted to remedy the situation by making a ‘reverse’ trade relative to his first trade. Often, he will see the market reverse against him causing a double loss.

Solution

Markets kill traders in one of two ways. If your equity is your life, a market can snap it with a disastrous loss that effectively takes you out of the game. Or it can also kill you slowly and strip your account to the bone.

These two money management rules are designed and served as an ‘insurance’ to protect you from going out of your trading business.

2% Risk Per Trade

It meant that you will never risk more than 2% of your equity in any trade. This is to protect you from a disastrous loss that may put you out of the business. If you adhere strictly to this rule, the most you will lose from any trade will be a maximum 2% of your account equity.

6% Risk Per Month

Whenever the value of your account dips 6% below its closing value at the end of last month, stop trading for the rest of this month. The 6% rule protects you from a series of losing streaks. If you took 2% risk per trade, assuming you have not had any winning trade for the month, you can only lose a maximum of 3 trades before you stop trading for the month.

6% rule encourages you to increase your size when you’re on a winning streak and stop trading early in a losing streak.

Position Sizing

Position sizing answers the question on how much to buy or how much to sell so that I risk a maximum of 2% in a single trade?

Contract Size =

Account Equity X Risk Per Trade / Stop loss in pips / 10

( Contract Size for 1.00 means trading 100,000 of base currency. Assume 4th digit broker )

Example

Buy at $1.5050

Account Size = $10, 000

Risk Per Trade = 1%

Stop Loss in pips = 50 pips

Calculation

Contract size = 10,000 X 0.01 / 50 / 10

= 0.20

You will Buy 0.20 contract size at $1.5050, and your stop loss will be at $1.5000. If this trade was to go against you, the maximum you will lose is $100.

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Simple Forex Trading Strategy – An Easy to Learn One the Pros Use For Triple Digit Profits!

December 7, 2009 by  
Filed under Forex Articles

The simple Forex trading strategy enclosed is the one that is used by some of the top traders in the world; it’s simple to understand, easy to apply and will get you on the road to currency trading profits, in just 30 minutes a day, let’s take a look at it.

This strategy is ignored by most traders but don’t forget most new traders lose, so that’s of no concern but the pros use it because it works and will always work and it’s based upon the way every new bullish trend starts and continues and that’s, by breaking to new market highs. If you look at any currency pair, you will see this is true therefore, if you buy breakouts you have the odds on your side and make a lot of money – so why don’t most traders try this simple Forex trading strategy?

The reason is they think they can predict the exact low and believe all the nonsense, written by so called experts that markets move to some hidden order when they don’t – there not predictable! Prediction is just another word for guessing and that won’t get you far in Forex trading. Breakout trading allows you to trade the reality of price change and when a good breakout occurs, the odds are firmly on your side.

So how do you go about making money from breakout trading?

The answer is to be patient and selective and only trade levels that have provided strong resistance in the past before the break. You should really be looking for as many tests as possible and ideally, two of these tests should be widely spaced apart in terms of time. I like to trade a minimum of 4 tests and two of them, should be at least a few weeks apart.

When you get your trading signal and the break occurs you put your stop under the breakout point which gives you low risk and wait for the trend to unfold. In breakout trading you are getting 10 times the reward to your risk on many trades, so you can be wrong a lot of times and still make huge gains!

The good thing about breakout trading is as long as markets trend it will work, you never have to guess, your trading signal to enter the market is right above the resistance level and you have great risk to reward which is a combination all Forex traders want.

So forget prediction and trade the odds via breakouts and you will make a great second income in around 30 minutes a day.

An eToro Forex Broker Review

December 7, 2009 by  
Filed under Forex Articles

eToro is a popular online forex that has made inroads in the forex markets. They are an aggressive online advertiser of their services. eToro have selected an interesting route in that their trading platform is more akin to a computer game than a standard platform. Due to this, forex traders are offered a enjoyable in addition to unique means of trading while still offering skilled clients an extensive collection of tools with their “expert mode”.

There are four main areas forex trading is done with eToro. Forex Marathon is the first method. Here, cartoon figures represent currencies as they race against other currencies. Characters consist of a sumo wrestler (yen) along with Uncle Sam (usd). Every currency is visualized by a character that properly represents that currency. This offers clients an fascinating and fun visual depiction of the currency pairs performance over time.

Customers naturally are able to open a lot of currency trades at the exact time. Numerous running orders will have their own cartoon raceways. To look at a overview of all your open trades, “My Open Trades” area will sum up them out for you. The next game eToro has for its customers is the dollar trend. It involves buying or selling the US Dollar against one or numerous other currencies. Very comparable to the forex marathon, except the currencies are now represented by coin.

The third game is named the Global Trader. This game is represented by the globe with wire signals running between various countries. And finally, the last type of trading is dubbed the Forex Match. A plain representation that involves a tug of war between warring currencies.

As little as $50 gets you a live account and should you have to test their platform you can get a free forex demo account. eToro is the only online broker that offers such as interesting means to trading currencies. They just might be the first in the industry to attempt this. And it is paying off well with more and more people choosing eToro over other brokers simply because they take pleasure in the visual interface.

Easy Techniques to Learn to Trade Forex

December 3, 2009 by  
Filed under Forex Articles

Apparently, millions of people are shifting their entrepreneurial skills and interests online and there are innumerable stories of filthy rich Internet millionaires making decent living using legal techniques. There are also many ways of making money online without breaking a bank although time commitment, diligence and patience are some of the key elements that determine success or failure. Want to start a smart business online? If yes, get on a mission to learn to trade Forex right now yet with full knowledge that this has never been an overnight course for anyone. Forex refer to foreign exchange, Forex market involves foreign currency exchanges while trading Forex is all about buying and selling shares of foreign currency based on personal projections.

These are just some of the few terms that everyone looking forward to this type of business online must get used to. Actually all a person needs is determination and a focused mind because the entire learning can be real fun by just observing on a daily basis various currency movements and using that entrepreneurial aptitude to discover the ones to buy or sell at a near future. Experts state that high education levels or a lot of funds in the bank account is pretty unimportant, learn to trade Forex first without committing any asset or money to avoid unnecessary losses that cannot be understood in the first place. So how does learning start? This is the easiest step of all considering the countless resources available to provide guidance offered by several websites and brokerages including online workshops or tutorials outlining basics of Forex trading.

A big percentage of people who actually become very successful traders start to learn to trade Forex by using free trial dummy accounts because they do not stand a chance of loosing money. They are actually symbolic of the real thing featuring all the practices and guidelines of Forex Trading such that one can execute paper trades with no dollar committed to that whatsoever. Take all the time needed on those papers and evaluate if there are any profits achieved and that alone can pave the way forward to the next stage. That is being involved squarely in the exchange markets and by that time will have learnt how to make close to or correct predictions on how particular foreign currencies bought or desired are likely to alter in the near future.

As experience is gained progressively, a person can later predict in the long run and win hot deals and to achieve that they would need to use some predetermined strategies or create a few on their own. Such may include charts and reading them is a big step on how to learn to trade Forex although an easy way out is using Forex brokers because they have ample knowledge on everything. Pay for a course online only on reputable websites because the instructors take students through every step they require to be equipped with. Most importantly also, search for forums and discussion groups online and post any questions since they are immeasurable numbers of people looking for or searching for seekers of Forex Exchange market knowledge.

Forex Automated Trading As a Full Time Job From Home?

December 3, 2009 by  
Filed under Forex Articles

Forex has become a magnitude in the trading industry, which is the largest liquid market in the world, averaging over three trillion dollars daily. Forex far exceeds both the NASDAQ stock market and the New York stock exchange, resulting in a thirty times larger trading system then both combined. Forex currency trades are preformed between banks, forex investors and the currency dealers.

There is no centralized location for forex trading.

All the trading is done through automated methods, such as computers and telephones. In addition, there are brokers who are available to help and council the thousands of investors on their buying and selling questions.

Forex has been around for decades, but has only been available to the average Joe for the last few years. Most of all forex trades were within banks, financial institutions, or individuals with an extreme amount of disposable income. Back then, unless you had a very large sum of money to invest, the forex market was not available to you.

But thanks to technology……..anyone with a computer, an internet connection and of course a few hundred dollars that they can invest can be their own forex trader. Getting set up as a trader is the easy part, but educating yourself on how to not only trade, but trade successfully is the difficult part. Wouldn’t it be nice to take home some of that 3+ trillion every day from home?!?!

If you are new to forex trading, this should start as a part time investment. Quitting your job right away is not a wise decision. You want to start with small, educated steps, and make sure you are comfortable with your investments.

Please remember that forex is like any other market. Currencies will go up and down, so you’ll need to be a smart investor and know how to read the market trends and makes successful, profitable trades. Once you are confident that you can make money and are aware of the market trends, you can start adding more time to your forex trading.

If you ever read forex articles (which I hope you are doing) you will quickly notice the phrase “trend is your friend”. This is something you want to apply to your trading methods. Analyzing the trends is essential in foreign exchange trades.

During the past few months I’m sure you have seen dozens of computer software programs advertising that they can assist in trend monitoring. I’m sure you’re thinking that a human being would be better at following trends, especially when we are directly involved in economic changes. We can incorporate factors that computer programs wouldn’t be aware of, and make a more accurate decision………

………..But you would need to be at your computer all day, everyday, as the forex trading market is active during the day and night 24hrs a day Mon-Fri.

I know as well as you do, that you cannot be at your computer all day and night. Programs like forex Nuke or forex A. I are available to help you make profitable decisions when you are not at your computer. These programs will essentially be you when you’re not at your computer.

Below are just a few advantages that forex has over other markets.

  • Low start up investment! – You can start with as little $50 to $500 in forex markets!

  • Deregulated! – has non-stop fluctuations with huge opportunities to profit fast

  • 24 hour a day action! – Markets are open from Monday to Friday 24hrs a day.

  • No Monopoly! – Impossible to manipulate forex markets making it even for all investors

  • Free Demo Money! – Before you begin to use your real hard earned money, you can access free demo money accounts to practice with.

  • No human interaction! You have the ability to integrate an automated tool to create hands off trading system.

It might seem confusing at first, but forex trading is much simpler to understand than its buddy, the stock market. There are five major currencies that are currently dominating the forex market.

They are the US dollar, the Euro, the Japanese Yen, the Swiss Franc and the British Pound.

Trades are processed in pairs of currencies which are known as crosses. This is where you would make money. When an investor buys Euro/USD he expects the euro to increase in value against the US dollar. In addition if he wishes to sell the Euro/USD he is selling the euro against the U.S dollar. Of the five Major currencies, the US dollar is the most dominant, absorbing 83% of all transactions world wide.

Make sure you are completely comfortable before you invest. This will be the difference between losing your investment or achieving financial freedom.

Thank you for reading. Good Luck, and happy trading.

Foreign Currency Trading Education – An Explanation of Rollover

December 3, 2009 by  
Filed under Forex Articles

Newcomers to foreign exchange trading can be bewildered by an array of new terminology that makes learning Forex trading a little daunting. One concept that can confuse new traders is rollover. In this article we are going to explain the idea behind Forex rollovers, how they are calculated and what this means for the average trader.

A foreign currency trade involves the simultaneous purchase of one currency and the sale of another currency in what’s called a “currency pair”. The size of each transaction is related by the current exchange rate so that one transaction is balanced by the other.

Since Forex pairs are traded in units down to 4 decimal places, accounts are usually leveraged – traded using margined accounts. The reason is simple – the exchange rate for most currency pairs will usually move in the order of 1% per day. Since many Forex trades are conducted using short term trading, the trader must leverage his funds to control a larger investment amount and increase his return on capital.

A standard lot size or standard contract with most brokerage firms equates to $100,000. Leverage on your Forex account varies from around 50:1 (2% margin) up to the higher levels of 200:1 (0.5% margin) or more which allows a trader to control a standard lot using only $500 of their own funds.

For example, buying 1 lot of the AUD/USD currency pair would actually involve buying AUD $100,000. The purchase of this AUD lot would be offset by a simultaneous sale of USD currency. The amount of currency sold would be calculated such that the value of the USD side of the trade is equal to AUD $100,000 at the time the trade is made.

If our account uses 1% margin and the current exchange rate was 0.9000, our broker would set aside $1000 from our margin account as the “used margin” for this trade. Our account would then be long AUD $100,000 and short USD $90,000.

Our contract with the broker is such that they will pay interest on the currencies that are held “long” in your account and charge interest for the currencies that are “short”. The rate of interest is usually the base interest rate for that currency with a small fee differential. This fee will depend on a number of factors such as your account leverage and lending rates amongst others. Check your broker’s contract for details in relation to your account.

In our example above, if the base rate for AUD was 3% and the rate for USD was 0.5%, we would be paid interest on AUD $100,000 at a rate slightly lower than 3% per annum and charged interest on the USD position at a little above 0.5% per annum. In this case we would actually earn interest on our position.

However, there is one last complication. Since the Forex market is a 24 hour market, when does our interest period start and finish? What about positions that I hold for less than a day? As it turns out, interest is neither earned nor charged on your account unless your trading positions are open at your broker’s “cut-off time” (usually 5pm in New York).

If your position is open at that time you will be credited or debited one day of interest on your open amounts. This is true whether your trade has been open for one minute, one hour or two weeks. If your trade is closed at cut-off time you will not be charged interest for that day regardless of how long your trade was held for.

Understanding margin and rollover is an important part of your trading education. Unless your position sizes are very large you are unlikely to get rich off the interest. However, at least now you will understand your brokerage account statement completely.

Forex ETFs and the Forex Markets

December 3, 2009 by  
Filed under Forex Articles

Exchange Traded Funds (ETF) on the global foreign exchange is one way to trade Forex without having to depend on a broker to do your trading. Indeed, depending on what sort of investor you are, there may be some distinct advantages to not trading forex with a dealer, but in turn, turning to a particular currency’s Exchange Traded Funds instead.

Many traditional foreign exchange market traders would likely argue the benefit of ETFs versus spot currency trading; however, it’s always a good position to know your options and the ETFs offer benefits similar to that of traditional stock trading. Similarities include the ability to control the size of your position, ability to diversify, and the ability to choose multiple currency pairings.

Currency ETFs trade like stocks, and shift in sequence with the underlying exchange rate, but for pricing convenience, the fund moves the decimal place on the exchange rate two places to the right. ETFs, as with spot trading, are just as susceptible to economic announcements and it behooves any investor to spend time researching the various options available to you in any given market.

Again, currency ETFs trade similar to stocks which means the leverage is capped at 2 to 1 because you are actually buying a share of the fund. You will not need margin, which also means your risk is fixed to the actual amount you are comfortable investing, which is a good place to be especially if you are a beginner just learning about foreign exchange markets. Another advantage for a beginner is that you do not have to maintain two different accounts in order to participate in the currency markets.

No matter how you choose to participate in the Forex Market, whether through ETFs or a combination of both unique trading positions within this fast paced and dynamic market it pays to have an understanding of other options available to you to be able to further diversify your portfolio and increase you understanding of the various market options available to you as an investor. Exchange Traded Funds offer another opportunity for investment in the Forex market and can give the beginner an experience that is similar to trading stocks.

Japanese Candlestick Charting Techniques – Candlestick Patterns

December 3, 2009 by  
Filed under Forex Articles

Japanese candlestick charting techniques have been around for almost as long as candlestick charts themselves. This method of tracking price movements was invented by a Japanese commodity trader named Homma Munehisa who was also known as Sokyu Homma and Sokyu Honma and traded rice in 18th century Japan. He needed a way of marking not just price but open, close, high and low prices over a time period that was easy to read at a glance and the first candlestick trading technique was born.

It was quickly found that this method of recording price values could also give rise to various techniques for predicting future demand, that is, whether the price is going to rise or fall in the near future. Clearly, this intelligence is very valuable for commodity traders, as well as traders in stocks and foreign currency traders. Seeing the potential, Charles Dow of the Dow Jones company picked up the method around 1900 and introduced it to the American stock market.

A very important and popular Japanese candlestick charting technique uses what is known as support and resistance lines. These lines are of most use when the price is fluctuating in steady waves.

So at a time when there is no real upward or downward trend, but the price is moving between certain parameters, you can draw a line through the top point of the highest candlesticks on the one hand, and through the bottom point of the lowest candlesticks on the other. In this situation these two lines will be more or less horizontal and parallel.

You can then expect that for as long as current market conditions continue, the price will remain within these boundaries. Therefore you can trade on this basis.

Candlestick Trading

In a different situation where there is a steady trend, you may still be able to use support and resistance lines to gauge the fluctuations within the trend. Even in the steadiest of upward trends there will be moments when the price falls a little, and vice versa. In this situation the support and resistance lines will be sloping, but provided they are more or less parallel, they can be used in the same way as if they were horizontal.

In candlestick trading where support and resistance lines are converging, that is, they are not parallel but are closing together as if to join at a point, then a breakout is indicated. In this scenario you should not trade on the premise that the price will always form a retracement back from the resistance and support lines. It is normally better to wait for a breakout and go with the new emergent trend that it indicates.

On the other hand if the lines diverge, this suggests a market that is becoming more unstable. It may be better to stay out of this market for a while.

Support and resistance indicators will be very useful to you but they should not be your only indicator. Be sure to consult other signals before opening a trade, and try out your system in demonstration mode for a reasonable amount of time before going live. Remember that prices can sometimes behave unpredictably and that can upset even the best Japanese candlestick charting techniques.

Contrarian Trading With Price Action

December 3, 2009 by  
Filed under Forex Articles

Forex markets are inherently contrarian. This means that they are regressive and have a natural tendency to pull back to the mean price. This is a big reason why so many beginning traders lose all their trading money and give up. The fact is that most of the time when it feels safe to enter the market it is probably not. When a move in the market is greatly extended in one direction and looks like it will keep going this is usually the exact time it is about to fall back and correct itself. This extension also happens to be the time most beginning traders tend to enter the market. It often takes months or years of losing money before traders learn that they have to wait patiently for the market to contract before entering, and many traders give up before they finally realize this truth.

Most indicator based trading systems simply do not work in strongly trending markets. They will give you a sell signal long after a market has started correcting back down and the correction is almost over. Sometimes they give you a sell signal at the very time the correction is over and you should be looking to get long again, or vice versa. If you know how to tell based off pure price movement when a market is exhausted or when it is ready to break out then you have the keys to building a highly profitable and consistent trading method.

Price action analysis is the best technique for learning to profit from the forex market. There are usually tell-tale signs a market is ready to correct or the trend is ready to resume that are readily apparent through the analysis of price action. All you really need to know are a few simple patterns and basic chart support, resistance, and trend lines and you have enough information to put together a profitable trading method. Some people try to program indicators and even develop new ones because they mistakenly believe if they put more math and study into their trading technique they will be further ahead of other traders. This simply is false. While you do need some sort of education in technical analysis and price action, it doesn’t need to be complicated or involve programing expert advisors and other fancy nonsense.

Once you develop a keen eye for price action setups you will be able to tell if it’s unsafe to enter a trend or that the trend is ready to resume. It’s all right there on the chart, you just need to be shown the way by someone who has walked in your shoes and made it down the path to trading success. Price action can be a great aid to developing your discipline in the market and shaping a relevant market perspective. If you are just starting out and this is one of the first trading articles you have read than I strongly urge you to check out an education in price action. Go to YouTube and type in “forex price action” or “forex price action strategies” and see if you like what you find; there are many good free sources of price action information on YouTube. Price action analysis has been the key to my success in the markets and I hope it will be the key to yours.

Bob’s Forex Classroom Vs FAP Turbo

December 3, 2009 by  
Filed under Forex Articles

There are many currency trading products on the market these days. Sometimes, it’s difficult to decide which one you should use yourself. In this article I want to compare two prominent products which are totally different from one another: Bob’s Forex Classroom and the Fap Turbo trading robot. Which one of them is better for you?

Amount of work

There’s no doubt that there’s something very appealing about trading with an automatic robot like FapTurbo. It’s pretty much a hands-off, hassle free operation. You just set the robot and let it run. From time to time you may have to tweak it a bit, change the basic parameters, or even install an update, but other than that, it’s pretty effortless.

In addition, this particular robot has excellent reviews long after it has been out on the market. A lot of people say great things about it so it’s particularly appealing.

However, there is also a downside to using an automatic robot like Fap Turbo: you’re essentially working with a black box. You have no idea how it works or why it works. Some day, it may not work as well anymore as the market changes. The problem is that if and when this happens, you haven’t a clue as to what’s going on and how to trade manually. You’re clueless when it comes to actual trading. You’re a dependent trader.

The way to become an independent trader, capable of trading with a number of methods, or even developing some of your own, is to acquire high quality Forex education and knowledge. Bob’s Forex Classroom, the online interactive course by Bob Iaccino can provide that for you. There’s no doubt that Mr. Iaccino is an expert in Forex. There is no doubt that this kind of interactive course can help you improve your trading skills dramatically. In addition, you’ll actually enjoy trading.

This is the choice you have to make: using an automated tool which, although it is of high quality, will not get you anywhere near to being a proficient trader, or investing your time and some effort into a course like Bob’s Forex Classroom and becoming your own trader. You can do either, or you can do both. There is no right or wrong here. It’s a matter of choice and what you want to do.

I recommend getting proper knowledge in Forex even if you’re using an automated tool. However, this is entirely up to you.

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