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.
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.
