We all have to start somewhere and where better than providing some definitions of what currency trading is commonly known as in trading circles.
Simply put, Forex is the business of buying and selling money. Currency trading is also known as the FX market but the most common usage is the vernacular phrase of Forex.
Within your local area you can see how prevalent this currency trading business has become. From the malls, the streets, and around the commercial district areas, you can find these small booths that carry the label Foreign Exchange Traded Here.
In places that never sleep such as the casinos and other entertainment hubs, foreign exchange trading can also be found. Many people treat currency trading as an on line casino as it can be traded 24 hours each day Monday through Friday.
Currency trading and Forex are two terms that mean the same thing and involve similar practices, which are the buying and selling of their main product: money. They are both over-the-counter markets that are trading money. Hence, they may fairly be used interchangeably.
What Is Currency Trading
Forex means Foreign Exchange and it is also known as FX. In Forex trading, you are buying one kind of currency while selling another kind at the same time. This means that you are exchanging your money for the one that you are purchasing. The basic rule is that every currency has its corresponding value in another currency. Currency exchange rate is the term used for the value of a certain currency that is being exchanged for another.
CURRENCY TRADING CAN BE A HOME BUSINESS
In the Forex business, the different currencies are dealt with in pairs, such as Euro to US Dollar or US Dollar to the British Pound. Although this kind of trade can be said to be one of the largest and widest trading market in the world, you would be surprised to note that it is an unregulated kind of industry. More than $1.9 trillion are being traded every single day, as trading is being conducted throughout the entire twenty-four hours.
Foreign currency trading is the market that has the highest financial liquidity. The most common traders in this business are the banks, central banks of every country, investors in big financial institutions, currency speculators, governments, corporations, the small retail investors, and other financial institutions. There is no formal forex market with an exchange like the London Stock Exchange or the New York Stock Exchange and in this informal global financial market there is more money traded than in all those stock exchanges put together.
Like all the other corporations and business entities around the globe, Forex has also been growing and developing over time. Today, trading of currencies has become simpler and easier because of online forex currency trading. Buying and selling currencies by currency trading can even be conducted through your computer at home utilising an online broker platform like meta trader 4.
Currency trading can therefore become a home based business without the need to commute to one of the city centres.
There are basically two types of currency exchange trading analysis they are forex fundamental analysis and forex technical analysis. There is a lot of debate about which is better. In fact, both are important.
The simplest way of looking at these two methods of analyzing the market is to say that fundamental analysis considers the world economy while technical analysis looks at charts. In this post we will consider the different fundamental or economic factors and how they can affect your trades.
It will be clear to anybody who has even the most rudimentary understanding of the currency markets that a nation’s economic status will have an effect on the value of that nation’s currency. A healthy economy means a strong currency, just as a company’s stocks will rise in value when that company is doing well.
Any time that a major financial or economic report is due from one of the main players in the world economy, you can expect to see an effect on the foreign exchange markets. This includes reports of the country’s Gross Domestic Product, statements of the national debt, inflation, employment levels and trade deficits. Many of these reports are given out regularly at predetermined times and dates, and you will see a lot of volatility in the forex markets around those times.
It is very important to keep track of when these reports are due, not only in your own country but in all of the countries whose currencies you regularly trade. You cannot rely on national newspapers and television for this. They do not carry international economic news at a sufficiently detailed level. You need specialist publications. Many people use the internet for this purpose.
However, it is not only the economy that counts. Social and political forces also have a strong influence on a nation’s currency values. Events such as an election, civil unrest, or a natural disaster can cause fluctuations in values.
Some of these events are difficult or even impossible to predict, but you can still base trades around what is likely to happen after the event. You can use historical analysis to see what happened in the currency markets the last time there was a similar event.
If you want to base your trading around fundamental analysis of the forex markets you will need to be the type of person who enjoys following the financial, political and economic news.
The alternative is to use information about upcoming events to avoid trading at those times. People who prefer to rely mainly on technical analysis will do this. But you still need to know what is happening, in order to keep out of the market. So even for somebody who prefers basing their trades on charts, forex fundamental analysis is important.
Is There A Perfect Forex Trading System
Most traders looking out for a new forex currency trading system are searching for the holy grail.
That is, the one perfect system that will make money, if not every single time, then at least 90% of the time. Reports in advertisements of systems that have an amazingly high success rate support the belief that such a perfect or near perfect forex trading system exists. And yet when the average trader starts using these systems, suddenly the success rate is not so high after all.
The perfect system, like the legendary holy grail, cannot be found.It is easy to become disillusioned when systems turn to dust before our eyes again and again. However, all we have to do is get real and there is every chance of finding a good, workable system rising out of that dust. We just have to lower our expectations and understand that any system will have variable results.
This is partly because of the inconsistencies of the market and partly because of the inconsistencies of human traders.All we need is a system that returns a profit. It does not have to be a big profit, it will add up. It does not have to be always successful, either.
We must just set our risk low enough that even the worst possible series of losses will not wipe us out, and then statistics will take over.The best forex currency trading system is one that is offered and used by somebody who is actually making money with it themselves.
Anybody who has a personal contact with a successful forex trader has a huge advantage here because they can probably point you in the right direction. But keep in mind that they will not necessarily be able to just hand over their success to you on a plate. Often, a trader has taken years or even decades working on their mindset to make them able to use a particular system successfully.
They probably also have a large account balance which gives them a wider choice of broker and more flexibility over lot sizes and leverage.If you are buying a forex currency trading system online, be sure to choose something simple.
Many people make the mistake of thinking that a successful system will be complex and difficult. This is not true. What is difficult in forex trading is implementing the system. This requires a cool head and a good understanding of the tools of technical analysis.
The simpler a system is, the more likely it is that a new trader will be able to implement it well without making mistakes.In fact, it is probably true to say that a beginner is better off with a simple system that does not make money, than a complicated one that does.
Since he can use a demo account, he will not lose any real money. He can learn all the techniques of trading and build his confidence and trading discipline without ever being tempted to go live. In fact, probably the best advice a beginner can receive is to start with the simplest forex currency trading system that he can find.
3 Little Known Currency Trading Tips
All of them have the power to seriously improve your trading performance.
1. Cross check your trading signals
Many systems mention the importance of cross checking your trading signalsagainst another time chart, but it is amazing how many traders go ahead and open a trade without bothering to do this. Yes, it adds a few extra seconds onto your analysis time. Yes, the price may change while you do this. In some cases you may miss out on a pip or two. But a lot of the time, that second chart will save you from a bad trade, so it is worth doing.
The usual method is to start with a shorter time chart and then cross check against the longer. For example, if your system is based on a 5 minute chart you would check with 15 minutes to 1 hour. If your system is based on the 1 hour chart you would check against the daily chart.
In addition, it is worth taking a look at even longer term charts from time to time, not for signals but just to get an eye for the patterns. If you are a scalper focusing in on very short trades, look at the daily chart from time to time. If you go for longer term trades, check over several months or even years.
2. Do not trade too much
It is hard to stay out of the market when you have not had a clear trading signal for a while. The conditions are almost right – but not quite. This is where you really understand the meaning of discipline, and find out whether you have it.
Do not be tempted to trade when the signals are not right. You will almost certainly lose in the long run. You may also drift into a situation where you are trading more on luck or wishful thinking than on a system. Again, this is a sure fire loser.
Keep in mind that less can be more. If you make only one trade and it is a winner, you are in profit. If you make four trades and one is a winner, you probably have a loss.
3. Do not dream of getting rich
We would all love to have that dream house with a couple of fast cars parked in the driveway, but focusing your thoughts on this is likely to lead to taking big risks. Realistically there is no way that the average Joe or Jane with a few thousand dollars in their broker account can make a million in the next few months, so forget it. For every person who gets rich quick with forex there are a hundred or more who lose their shirt because the high risk wiped them out.
So keep your goals realistic and your risk low. That way you have a much better chance of surviving for the long term and making steady money using these currency trading tips.
Currency Trading Account Brokers
Opening a currency trading account is a very important step in becoming a successful forex trader. Some people new to forex trading assume that all brokers are the same and open an account with the first one that they find. This is a mistake… There are many points to consider before you sign up with a forex broker.
Forex brokers may be based in any country in the world. Some countries have tight financial laws while others do not. It is important to check whether the broker you are considering is regulated under the laws of their country, and what those laws actually mean for you. Is the company a member of any regulatory bodies and if so, do they offer you any protection? What would happen to the money in your currency trading account if the company collapsed?
2. Account size
Brokers tend to market their services at a certain level in terms of account size. Some only offer standard accounts with a minimum of $10,000 investment or more. However, more and more brokers these days are targeting their services at the smaller time home investor. In a few cases the minimum investment is less than $100.
The important factor here is to go with a broker who wants clients like you. Do not invest more than you can afford just to get in with a high level broker. There is always a risk that you will lose whatever is in the account. It is better to go with a broker who tailors their services to suit clients at your level.
You will want to use a demo account in the first stages of trading so check that this is available and that it works in the same way as the live account.
You will also want to check the charting services that are available. What you need will depend on your trading system, but you can expect brokers to provide candlestick charts as well as the option of bar and line charts, and several indiators including the Stochastic, Bollinger Bands and MACD.
Leverage varies with different brokers. The most common levels are 100 times or 200 times, meaning that to control a position size of $10,000 you would commit $100 (100 times leverage) or $50 (200 times). Occasionally, 400 times leverage is offered.
High leverage means a greater potential return but also greater risk. If you have a very small balance you may be willing to risk losing it for the chance of greater returns if you are successful, but otherwise it is usually better to keep the leverage relatively low.
In some cases, brokers will offer different levels of leverage to different clients, depending on their balance and other factors such as their trading history.
Your money is accessible via the broker’s website so it is important that they have high levels of security. This can be hard to assess so you may want to check for user experiences in forex forums or ask questions of the broker through their support center. Also, of course, make your password as secure as possible by including upper and lower case letters plus numbers and symbols.
There are many forex brokers available and the number is growing. The choice can be confusing, but it is important. If you take account of all of these factors, you will be in a good position to find the best broker for your currency trading account.
Using A Demo Forex Account
When you first start to learn how to trade forex one of the best pieces of advice is to get yourself a demo forex account.
Why Use A Demo Forex Account?
To be perfectly honest whenever you are learning something new it is always best to practice on something where you can do little damage to yourself or your forex trading account balance that’s why you need a demo forex account.
As a direct example, golfers, even professional golfers, have a practice swing before playing a stroke or go on a putting green or driving range before playing in a tournament in order to sharpen up their technique before a big game or just to generally practice their skills.
It is the same when you use a demo forex account, it will give you the opportunity of trying out new techniques or trading strategies without losing any of the money from your trading account.
IS A DEMO FOREX ACCOUNT FREE?
The other great thing is that the forex demo account comes free when you open up a demo forex account.
Another important aspect is that you get used to the trading platform. I use a metatrader 4 platform for all my trading charts and the charting package that comes with a MT4 account is second to none.
The technical analysis tools that are provided really do help you with your trading.
I have several different accounts and also different spread betting accounts that let me have a free metatrader platform to use as part of the deal for placing my currency trades or spread bets with these brokers.
There is nothing like the feeling of using hard cash for your forex trades or spread bets but as I said above you need to practice before you can effectively and profitably trade forex. Demo trading is an absolute must in my opinion, even if you are following alongside an experienced forex trader who may even be coaching you along or feeding you signals of when to place trades.
There are many types of demo forex accounts out there and two of the best are Smart Live Markets and FXDD.
How Do You Open A Demo Forex Account?
This is very simple to do and you can either sign up online or by phone. I prefer online as I will be trading online and I would want to get a feel for how easy and intuitive the platform is before committing myself to risking money.
There is obviously some paperwork to complete or virtual paperwork at any rate.
The forex broker will want to know that you understand the risks, especially the risks associated with leverage, which is where you can be liable for more money that is in your account and when this happens it is called a margin call.
Unless you have already have a metatrader 4 platform installed on your computer you will then have to download one from the forex broker’s website.
You then have to place your funds with the currency broker that you have decided to trade with and then you are free to trade.
Using a demo forex account is a great way to get into forex trading and is also a great platform for trying out new trading ideas and trading strategies too.
Get yourself a demo forex account and to read up on how to trade forex in a short time click here.
What Risks Are there Risks Forex Managed Accounts?
There are upsides and downsides to Forex dealing. A question to ask yourself is do I want to mange my fund myself or do I prefer an “expert” who will manage my fund for me?
Forex managed accounts present an attractive opportunity for people who want to make money from the lucrative currency trading markets but cannot or do not want to learn to trade for themselves. With a managed account you do not have to do any trading at all. Instead, you entrust your fund to the management company who will act for you.
There are two basic types of forex managed accounts.
1. Standard accounts
With this type of account, your money is kept in your brokerage account in your own name and the manager simply has control over it so that they can trade with it. You can see how much is there and how it is doing at all times. It remains your money.
You have to accept the risk that even a skilled account manager cannot predict the markets 100% and you may have to take some losses. Still, if you are a beginner, he is likely to do better with your money than you would yourself, so it is just a question of whether he can do well enough to cover his fees and make you a good profit.
2. Pooled accounts
Pooled accounts are more risky in that there is more possibility of fraud. Here, your money goes into a pool held by the account manager. You are paid a share of their declared profits.
In theory the pool provides a buffer so that profits and losses are more evenly spread and your income could be a little more predictable than when your money is being managed separately. The problem is that you cannot really know what is happening and an unscrupulous management company could simply be making small regular payments to keep their customers happy while illegally diverting the bulk of your funds into their own pockets.
If a forex account manager using pooled funds guarantees you a certain percentage return on investment, you could be heading for trouble. There are no guarantees with forex trading and any company that makes promises of a 10% return or whatever should be treated with extreme caution.
Of course there are some well run pooled accounts and they have the advantage of a little more predictability than standard forex managed accounts. However, you should research a company offering pooled accounts even more thoroughly than usual before you decide to invest.
Even if you choose a standard account, you need to shop around. Avoid managers who insist on you signing up with their preferred broker. That usually means that they get a commission on all your trades, so they have an incentive to make a lot of small trades even if that is not the most profitable strategy, simply to increase the broker’s earnings from the spread and their own commission rake off.
Even if their commission is worked on a different basis, you probably will not get the best or cheapest broker that way. It is better to sign up with a company who will let you choose your own broker for forex managed accounts, even if they charge a slightly higher fee.
Forex Trading Basics to keep in the back of your mind
Currency exchange trading is easy enough, but making money with forex it is another matter. Many people start out with big dreams only to suffer a resounding crash. Here are 10 essentials that you must have if you want to become a successful forex trader.
You need to be realistic about your goals if you are going to hang on to any profits that you make. Forget about making huge amounts of money in a very short time: that is only possible if you take huge risks, which will see your profits wiped out as fast as they were made. Aim for a realistic profit goal and keep your trades very small while you are learning.
Nobody was born a successful forex trader, we all have to learn. Seek out good solid training in the basics of trading, including analyzing the market, risk management and psychological aspects. Training comes in many forms and at many prices from free to thousands of dollars. Price and quality are not necessarily closely related. Having said that, do not expect to get everything for free.
There is nothing wrong with asking for help when you need it. Just be sure you ask someone who can actually help you, and not a clueless beginner who likes to hang out in forums.
4. Good Trading Practices
Everybody seems to be searching for the perfect system, but there is no such thing. Systems do not work independently of our trading practices. If you have a sound plan, especially regarding risk management, stop losses and profit targets, you can make money with any profitable system.
But having a sound plan and a good system is not the whole story. You also need to develop trading discipline in order to apply your plan and your system. Making erratic decisions or acting on the spur of the moment is a recipe for disaster in currency exchange trading.
You may have to wait around a while for conditions to be right for you to open a trade. It is very tempting to jump in on something that looks good but does not fit your system. Develop patience so that you can avoid those random trades.
7. Stop Losses
Knowing how to cut your losses at the right moment is essential. Never hang on to a losing trade beyond a certain point which should be calculated before the trade is opened. It is a delicate matter finding the balance between having a stop loss that is triggered by small fluctuations, and holding onto your trades for so long that you make a huge loss. It will vary for each system, so make sure you get this right before you begin trading a new system for real.
It is important to remain calm under stress, because there will be a lot of that. Do not allow your trading to be motivated by fear, panic or dreams of huge profits.
Forget what you may see in ads about doubling your money every month. A profit goal of between 5 and 10% per month is an excellent return on any investment, and will keep you out of the most risky situations.
Finally, keep records of all of your trades. Yes it is tedious, but if your trading records are thorough they can allow you to take back control whenever things seem to be going wrong. Having results to analyze gives you a huge advantage in currency exchange trading.
The trend is your friend has got be one of the most famous phrases in stock trading and the Forex market is no different and it relates to forex patterns and probabilities.
Forex Pips, Forex Charts And Forex Trends
- Forex Trends
The Forex markets have been studied for over 100 years and over that time trends have repeated themselves and patterns have become consistent and fairly reliable. It is very important to understand that prices move in trends and those traders who trade with the trend are more successful. Finding the trend will help you become more aware of the market direction and is a fundamental element to the forex patterns and probabilities you will use to formul
ate your trading strategies as a professional trader in currency trading.
Always find the trend and trade with it, not against it. This applies even if it takes days or weeks for a new trend to become obvious.
Looking at the charts and drawing trend lines is the most common form of technical analysis. A trend is usually when 3 or more lows line up. A market that is trending up is making a series of higher highs and higher lows and you can draw a line connecting the bottoms roughly, this is a support line.
The market is trending down when it is making lower lows and lower highs, if you draw a line connecting the tops you have drawn a resistance line, which will be shown in the forex patterns and probabilities book.
- Forex Time Based Charts
Traders have different times they wish to trade in, some are comfortable using 1 and 5 minute time frame charts others prefer 15 min or 1 hour charts placing 4 to 10 trades daily and others prefer to place a trade and let it run for several days, weeks or longer. This is a personal decision. There is not one time period that makes more money than the others.
When reading the charts it is a good idea to look at 3 different time frames. The reason for this is the largest time gives a general over view of what is happening, the direction of the market, then zooming in to the next level shows what is going on more recently and when you should enter the market and the third and closest time frame is the one where you would actually monitor your trade.
The 3 different time frames can be any combination depending on your chosen trading time and this will affect your forex patterns and probabilities.
A daily chart might show a downward trend but the 5 minute charts could show an upward trend and the 1 minute charts show a downward trend, these charts would be of no interest to anyone leaving a trade to run for weeks. Again there are software programs available to help identify trends and placement of orders which will be discussed in forex patterns and probabilities.
Having some knowledge I believe is useful even with automated programs.
FOREX PATTERNS AND PROBABILITIES: TIME BASED FOREX CHARTS
There are 3 main types of charts, the candlestick chart, bar charts and line charts.
They all come in many different time periods, 1 minute, 5 minutes,10 minutes,30 minutes, 1 hour, 2 hours, 4 hours, 1 day, 1 week and 1 month plus others.
With the bar chart each bar represents one period of time (as above) and on each bar there are 4 marks. The highest point reached in that time frame, the lowest point, the opening point and the closing point. Those 4 points tell you what has happened in the market for that time.
The candlestick charts give exactly the same information with the candlestick body changing colour on a high (bullish) and changing back on a low (bearish) market
The line charts simply chart the direction of the market moving up, down or sideways. You usually have a choice of what sort of chart you want from the broker of your choice.
Trade in the time frame you feel comfortable with. There is no right or wrong time frame.
This is the smallest increment the value of the currency can change by. The pricing of the currency is always showing the value of one currency against another. For example EUR: USD 1.4443 ( 1 Euro is worth USD 1.4443). The last number shown on a price (for example the 3 in the following price 1.4443 ) is known as a pip. If the value of the Euro went up 20 pips it would be shown as EUR : USD 1.4463. All value changes are referred to as pip changes.
The main objective of trading is to gain as many profitable pips as possible. The more dollars you are trading and the higher your leverage the higher the value of the pip is worth to you. Trading a full lot of 100,000 with leverage the pip value is around $10 however with a mini account you are trading 1/10th of the size therefore a pip is worth $1.00.
Traders have different goals depending on their forex patterns and probabilities short term traders might look at gains of 20 pips per trade, for a longer term traders will be looking at 100 plus pips.
Forex Pivot Points
When you first learn forex trading there are many technical tools to master, but one of the simplest to use is the pivot point.
Pivot points work with support and resistance levels to give you an indication of entry and exit points for your foreign exchange trades. Here is a link to some forex fundamentalswithin the Great Forex World web site.
The first thing to do when you start to learn forex and decided when you plan to use this forex trading method is to identify whether the currency pair is currently in an upward or downward trend. This would mean you looking at patterns over several days or weeks. Of course, if you regularly trade the pair, then you probably already know which direction the trend is currently headed.
Once you know the trend, you will generally trade in that direction and that is a fundamental and should be a learn forex mantra, like “the trend is your friend”.
So as long as the pivots indicate a long or buy order during an upward trend or a short or sell order during a downward trend, you can trade. But if they indicate the opposite, it is best to leave it well alone as it is extremely unpredictable at this stage and there would be too much risk of the trade going in the wrong direction in that scenario.
Learn Forex – Pivots
Pivot points are calculated from the last day’s trading high, low and closing prices. Most traders use the New York session closing time, but that would be a matter of your own preference. Whatever you choose to do you just must be consistent. So the pivot point is yesterday’s high plus low plus close, divided by 3. A very simple calculation, but it will be done automatically for you in your charting software.
Then the support and resistance lines are calculated in relation to that pivot point. You will see two of each on your chart. The first support line is twice the pivot point minus yesterday’s high. The second support level is the pivot point minus the high minus the low. Resistance lines are the equivalent in the other direction. Again, these calculations will be done for you.
You would then use that pivot point and levels for the whole of the current day’s trading, and recalculate tomorrow on the basis of today’s high, low and close. Support and resistance is the bedrock of any system to learn forex and this was endorsed by none other than David Jones of IG Index who has written a great book on trading forex, click here for more information.
Pivot points and their associated support and resistance lines are used in two main ways by forex traders. If you are trading within the range, you would enter a buy order at or near to the support level, and a sell order at or near to the resistance level. The levels can also be used with other indicators to identify a breakout.
Of course, when you begin to learn forex, as with any system, you should check your signal against at least one other indicator before trading. The MACD (Moving Average Convergence Divergence) crossover or stochastic overbought/oversold levels can be very valuable here. It is also a good idea to check several different time frames to ensure that the direction of the trend is clear.
The basis of pivot point trading is the assumption that prices will tend to fluctuate between the support and resistance levels, bearing in mind the effect of the current trend. The simplicity of this method can be very attractive when you are starting out to learn forex, and it can also be very effective. The above terms may take a while to sink in when you start to learn forex, but when they do they will become second nature to you. For more news and articles of an educational nature log in to the learn forex category.
Candlestick Day Trading
Candlestick day trading is one of the simplest trading strategies used in the forex market. However, by simple we do not necessarily mean easy. As with any trading strategy, a beginner cannot jump in and expect to make money instantly. There is always risk. It is still necessary to practice the strategy in a demo account and become familiar with all of its ups and downs.
Using the candlestick chart more or less on its own is simple because the trader is not required to analyze a huge amount of data before making a trade. This is a big advantage in day trading when decisions need to be made quickly.
Frequently a complex system will trip up a trader who becomes impatient with all of the indicators that need to be cross checked. He cuts corners and ends up shorting out his system, resulting in losses. It is common to blame the trader in this situation, but the system can be criticized too. A complicated system is not well suited to forex day trading.
Doji reversal can provide one simple candlestick day trading strategy. A doji is a candle that has no body, because the open and close prices are the same. In fact it does not look like a candle at all, but like a cross.
A doji is commonly a sign of indecision or reversal in the market. In a volatile market without strong trends or identifiable patterns, the doji will be common and not particularly significant.
However, it is during either an upward or a downward trend that the doji can be significant for candlestick day trading strategies. In this situation, the doji is often a sign that a retracement may be about to occur, or even a full reversal of the trend. In an uptrend it means that buyers are losing confidence. In a downtrend, that sellers are losing confidence.
When you see a doji forming in a trending market, it is always worth checking against an oscillator such as the RSI (relative strength index) or MACD (moving average convergence/divergence) to discover whether the price is in the overbought or oversold range. If it is not, then the doji may not be significant. However, if the indicators do imply an overbought or oversold market, a doji can be a signal to get involved.
It is also possible to use the candlestick chart itself for support for the idea of a doji reversal. Check whether it is approximately in line with recent support or resistance bands. The volume of trading in the currency pair may also be significant. The amount of currency traded is likely to be tailing off if a reversal is about to occur. This is a measure taken from candlestick day trading in the stock market that is little used in forex and could provide an edge.
One of the most important steps in currency trading training is how to apply a successful trading plan by tracking your trades. Applying your plan correctly is very important if you are going to maximize your profits, and very often it makes the difference between profit and loss in the long term. Tracking is a vital part of this process. To learn more about trading forex in 5 hours a day click here.
Many beginners think that they will remember their successes and failures. In fact, it is only the most memorable that stick in our minds. Record keeping is not sexy and at first glance you might not think it is a profitable use of your time. But in fact it is the easily forgotten average trades with their small gains and losses that will determine whether your system is successful in the long run.
Some traders start out with good intentions of recording their successes and failures but quickly lose interest. You may need a large number of trades to build up in either a demo or a real account before you can learn anything useful from your records, so it is hard to keep the motivation going.
In particular, if things are going well, you may think there is no need to keep a record because your system is perfect. But no system is perfect and sooner or later it will go through a bad patch. At that time you will desperately need an accurate record of your trades so that you can see what went wrong. Is it just the kind of blip you can statistically expect, or did you inadvertently start doing something differently that might have thrown the system out? Without records you will have no way of knowing, so if there is a problem, you cannot correct it.
Your forex trading records do not need to be complicated. All you need is a note of each trade that you make. You will need the opening and closing prices, the stop loss that you set, your profit target and your actual profit or loss. It often helps to add comments such as why you opened the trade (the signal that you acted on) and anything that you did that was different from your trading plan, e.g. Opening or closing earlier or later than your system proposes.
You could just write this down in a notebook, but most traders use excel or a similar spreadsheet. This makes it easy to analyze the trades to work out figures such as your average profit or loss per trade, your profit or loss over time or over a certain number of trades, and other statistics that may be useful if you find at a later stage that you need to make changes to the system. Take a few minutes at the weekend to look through your records for the past week and you might notice some interesting and profitable trends.
You will need a different record for each system that you follow, so that the results of individual systems are not hidden in the average. For example, you might be operating three systems and be making regular profits. Sounds like a good situation. But if you separate out the three systems, you could find that one is very successful, another is relatively successful and the third is actually making a loss. You could increase your profits by cutting out that third system. But you will not know this if you record them all mixed together.
So go ahead and set up separate spreadsheets for each of your systems now, and have them open on your computer whenever you are trading, to make best use of your currency trading training.
Which Currency Pairs to Trade
There are two factors that you need to take into account when considering which are the best currency pairs for forex traders to use. The first factor is activity and the second is systems.
1. Most Active Currency Pairs
When you are beginning forex trading you will often be advised to start out with the currencies that are traded most. One reason for this is that high liquidity means that your stops will more often be met without slippage. Another reason is that costs tend to be low. So many people in the market creates a tighter spread, and there is also strong competition between brokers, keeping fees down.
You may be surprised to hear that the trading floor with most activity is not New York, but London. Despite the fact that the US dollar is the most heavily traded currency, London beats New York for the actual volume of trading.
So does this mean that the British pound and the US dollar would be the most active pair? You might think so, but the answer is no. The euro has a much higher volume of trades than the pound. So EUR/USD is the most heavily traded pair, even on the London trading floor.
In fact the Japanese yen also beats the pound. Globally the three most traded pairs are EUR/USD first, USD/JPY second and GBP/USD third.
2. Currency Pairs and Forex Trading Systems
The level of activity in various currencies is probably the most important factor in deciding which pairs are best to trade if other things are equal, but in some cases you will have a system that depends upon other criteria.
If you prefer automated systems, you will probably find that your software is set to work with a small number of pairs and the most active will not necessarily be the best choice. For example, you may know that the best selling forex robot FAP Turbo is set to trade EUR/GBP and EUR/CHF. The more active pair here is EUR/GBP, but most users have found that they get better results with EUR/CHF. In fact, many FAP Turbo users are now only trading EUR/CHF with this robot.
The bottom line is that if you already have a profitable system that is designed for a certain currency pair, you should stick with that pair. You cannot assume that your system will work equally well for other currencies, although you could go ahead and test it if you want to know if it will work with a more active pair.
However if you are developing a new system, and certainly if it involves scalping, you can usually get the most liquidity and trading opportunities together with the lowest costs by working with the most active forex currency pairs.
The word forum comes from the big open square in the middle of Roman cities where citizens would gather to hear the news and discuss important current issues. Formerly known as bulletin boards or message boards, online forex forums are sites where traders can go to discuss issues related to forex trading. A few are restricted to paid members, but most of them are free and can be accessed by anybody who chooses to register a free account.
In an active and popular forum, there are usually several discussions underway. If you post a question or comment you can expect to receive a fast reply. The only problem with this is that you usually do not know whether the replies can be trusted.
Forum members may appear to be experts but they could be anybody at all. It is easy to hang around long enough to pick up the language, then start handing out advice to others. Some might be complete beginners. Is their advice really valuable to you?
Of course in some cases there may be indications that a person is well qualified to help you. For example, you can often see how long the person has been a member and how many posts they have made. Someone who has been an active member for a long time may be a better advisor that someone who just joined. Or so it seems. But what if that long standing member just likes hanging out in forums?
Even the best traders who are actively making money from forex can sometimes give conflicting advice. Traders have different attitudes, systems, strategies and priorities. Oftentimes they may take more of a risk than a beginner would be comfortable with. This means that it may not be possible for a beginner to follow what they suggest.
A forex forum is a useful place for certain types of discussion. For example, it can be great to get feedback from other traders who have used a particular product or service such as a broker or an automated trading system. You still have to keep in mind that different people have different abilities and expectations, of course. Just because somebody could not figure out how to use something, does not mean that anybody else would have a problem with it. Try to get a range of opinions and look for responses from people who are in a similar situation to your own, when checking out reviews on a forex forum.
How To Use The News to your advantage
Using the financial and economic news is an aspect of foreign exchange training that can be profitable for forex traders, and yet for one reason or another it is often neglected. Most people who start out trading are over eager to get into live trading as soon as possible and they skip a lot of important points in the rush to make (or more likely, lose) money. In order to profit with forex trading, just like anything else, it is important to understand the fundamentals that drive the foreign exchange market.
The market is driven by the comparative strength of national economies. This means that if the American economy becomes stronger in comparison to the British economy, the value of the dollar will rise against the pound. However, because the forex market is based on exchange, everything is relative. If the Japanese economy strengthens at the same time and to a greater degree, the dollar could fall against the yen at the same time that it rises against the pound.
In order to predict currency price movements on the basis of fundamental analysis, it is necessary to have an eye on certain factors. Interest rates and the national Gross Domestic Product (GDP) are the strongest influences on the forex market but there are many other indices too. These include the retail price index, manufacturing costs and orders, employment and payroll figures, etc.
Most of these figures are calculated and announced at regular intervals. There may be monthly, quarterly or annual announcements, and it is important to be aware when these are going to happen. Interest rate changes are different in that they will happen whenever a country’s central bank decides that a rise or cut in the interest rate is necessary.
For most retail forex traders working from home, it is difficult to predict the direction of these announcements other than what is reported in the financial press or online. However, it is important that traders keep themselves informed. The announcement itself will tend to be a time of high volatility in the market and even speculation before the figures are released can have a strong influence on the market.
So traders need to know when these financial reports are happening and either understand how to use them, or stay out of the market altogether at those times. For beginners the latter course of action is usually recommended. This means being aware of the forex calendar and closing trades some time before a major announcement is due.
So it is worth taking some time to understand the forex news and how it affects the currency market before starting to trade. Even traders who plan to trade entirely on the basis of technical analysis need to cover this in their foreign exchange training in order to avoid being caught out.