FOREX AND TRADING: June 2010

Wednesday, June 30, 2010

International Forex Markets

Just about every country in the world is involved in the forex trading markets, where money is bought and sold, based on the value of that currency at the particular time. As some currencies are not so strong, it is not going to be traded heavily, as the currency is stronger and worth more, more investors and traders are going flock to invest in that market at that particular time.

FX trading takes place twenty four hours every day, where about two trillion dollars exchange hands every day. That amount of money eclipses other investment markets such as the stock markets and the futures markets. For example, the US stock market trades about 200 billion dollars everyday, while the commodities markets trade over 400 billion dollars each day. These figures give a good picture of how large and liquid the forex market is.

The currencies that are traded on the forex markets are from countries all over the world, though most of the investors’ trade on a few major currencies such as the US Dollar, Euro, the British Pound, the Japanese Yen, the Swiss Franc, as well as the Australian and Canadian Dollars. Every currency has it own three-letter symbol that will represent the particular currency that is being traded. For example, the Japanese Yen will be shown as JPY, the United States Dollar will be shown as USD, the Euro is EUR, and the British Pound will be displayed as GBP, while the Swiss France will show as CHF. You can trade among many currency pairs in one day, or you can just trade only one currency pair. The advantage of trading forex is there is not that much currency pairs to keep track of. Compare it to the stock market where there are thousands of different companies that offer their stocks in the market. Trying to research even a small number of all the companies listed will take a very long time.

Getting started in forex trading is not hard. In fact, setting up a forex trading account costs less than setting up say, a stock trading account. Many forex market makers allow individuals to create a trading account for only $300. The reason this is possible is because forex trading involves a lot of leverage, more leverage than other investment markets. The leverage can start at 100:1 and can get as high as 400:1. This means you can control a large amount of currency with a smaller capital outlay. For example, in a 100:1 leverage, you can trade $10,000 amount of currency using only $100. Though it needs to be reminded that though the use of leverage can generate high returns, it also means that it can cause spectacular losses. What’s more important that minimum account size, however, is to get educated in forex trading, such as learning technical trading tactics and keeping track of forex News.

Another advantage in trading forex, and a very important one at that, is the absence of brokerage fees. Over time, this will save you a lot of money, especially having in mind that forex trades are executed regularly. All said, forex trading provides a proven method of making huge profits, as long as you keep an eye on the pitfalls and get yourself educated.

please read related articles:

http://forexandtrading24.blogspot.com/2010/06/theory-when-to-exit.html

http://forexandtrading24.blogspot.com/2010/06/theory-trend-lines.html

http://forexandtrading24.blogspot.com/2010/06/theory-trading-news.html

Forex trading examples

Example 1

An investor has a margin deposit with Saxo Bank of USD 100,000.

The investor expects the US dollar to rise against the Swiss franc and therefore decides to buy USD 2,000,000 - 2% of his maximum possible exposure at a 1% margin Forex gearing.

The Saxo Bank dealer quotes him 1.5515-20. The investor buys USD at 1.5520.

Day 1: Buy USD 2,000,000 vs. CHF 1.5520 = Sell CHF 3,104,000.

Four days later, the dollar has actually risen to CHF 1.5745 and the investor decides to take his profit.

Upon his request, the Saxo Bank dealer quotes him 1.5745-50. The investor sells at 1.5745.

Day 5: Sell USD 2,000,000 vs. CHF 1.5745 = Buy CHF 3,149,000.

As the dollar side of the transaction involves a credit and a debit of USD 2,000,000, the investor's USD account will show no change. The CHF account will show a debit of CHF 3,104,000 and a credit of CHF 3,149,000. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the profit calculation.

This results in a profit of CHF 45,000 = approx. USD 28,600 = 28.6% profit on the deposit of USD 100,000.

Example 2:

The investor follows the cross rate between the EUR and the Japanese yen. He believes that this market is headed for a fall. As he is not quite confident of this trade, he uses less of the leverage available on his deposit. He chooses to ask the dealer for a quote in EUR 1,000,000. This requires a margin of EUR 1,000,000 x 5% = EUR 10,000 = approx. USD 52,500 (EUR /USD 1.05).

The dealer quotes 112.05-10. The investor sells EUR at 112.05.

Day 1: Sell EUR 1,000,000 vs. JPY 112.05 = Buy JPY 112,050,000.

He protects his position with a stop-loss order to buy back the EUR at 112.60. Two days later, this stop is triggered as the EUR o strengthens short term in spite of the investor's expectations.

Day 3: Buy EUR 1,000,000 vs. JPY 112.60 = Sell JPY 112,600,000.

The EUR side involves a credit and a debit of EUR 1,000,000. Therefore, the EUR account shows no change. The JPY account is credited JPY 112.05m and debited JPY 112.6m for a loss of JPY 0.55m. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the loss calculation.

This results in a loss of JPY 0.55m = approx. USD 5,300 (USD/JPY 105) = 5.3% loss on the original deposit of USD 100,000.

Example 3

The investor believes the Canadian dollar will strengthen against the US dollar. It is a long term view, so he takes a small position to allow for wider swings in the rate:

He asks Saxo Bank for a quote in USD 1,000,000 against the Canadian dollar. The dealer quotes 1.5390-95 and the investor sells USD at 1.5390. Selling USD is the equivalent of buying the Canadian dollar.

Day 1: Sell USD 1,000,000 vs. CAD 1.5390. He swaps the position out for two months receiving a forward rate of CAD 1.5357 = Buy CAD 1,535,700 for Day 61 due to the interest rate differential.

After a month, the desired move has occurred. The investor buys back the US dollars at 1.4880. He has to swap the position forward for a month to match the original sale. The forward rate is agreed at 1.4865.

Day 31: Buy USD 1,000,000 vs. CAD 1.4865 = Sell CAD 1,486,500 for Day 61.

Day 61: The two trades are settled and the trades go off the books. The profit secured on Day 31 can be used for margin purposes before Day 61.

The USD account receives a credit and debit of USD 1,000,000 and shows no change on the account. The CAD account is credited CAD 1,535,700 and debited CAD 1,486,500 for a profit of CAD 49,200 = approx. USD 33,100 = profit of 33.1% on the original deposit of USD 100,000.

please read related articles :

http://forexandtrading24.blogspot.com/2010/06/theory-trade-logs.html

http://forexandtrading24.blogspot.com/2010/06/theory-stop-loss-placement.html

http://forexandtrading24.blogspot.com/2010/06/theory-pivot-points.html

http://forexandtrading24.blogspot.com/2010/06/theory-moving-averages.html

Looking To Jump Into Forex

Looking To Jump Into Forex

Those wishing to invest their cash, for a profit, should continue to checkout Forex Facet for plenty of info on the simplest way to leap right into the foreign exchange market.

FX makes reference to ‘foreign exchange’ market ; this is the forex trading market that large banks and investment firms use to exchange trillions of dollars with one another daily. Its feasible to make a profit by exchanging your currency on the marketplace for foreign currency and making the trade back when the foreign currency is worth much more compared to the foreign currency you traded for. You will find plenty of info about the forex market. The site details the fundamentals of getting started in the currency markets for as little as $25, and offers a simple way to enroll for the foreign exchange trading platform this site has a link to.

We provide articles that are complete and detailed on reasons to trade currency exchange rather than stocks, broker registries, a day in the life of the currency exchange trader and even a starter course to currency trading. Have the need to make your cash work for you, rather than you working for it? There are masses of methods to invest your money and sure some are less dangerous, but there’s not the maximum amount of an opportunity to make profit in a really short period of time. The currency market trades 24 hours a day that means there’s a load more opportunity for making trades than on the exchange. The currency market is the way banks increase their profits, why not you? The forex market can at times appear complex and dodgy. Its in your interest to do the research on this investment methodology so you’ve got an understanding of the foreign exchange market and how it works before you jump in with both feet.

There are potential swindles that you can fall prey too when beginning to take an interest in the foreign exchange market and Forex Facet provides helpful tips and paths to avoid all of these swindles and the stress of losing money in them. Once you’ve familiarized yourself with currency exchange trading and technical terms like pip, bid, ask and margin you can be in a position to find yourself a broker or market maker to help trade currency with. Forex Facet offers links to the latest deals in currency trading systems and even other foreign exchange trading internet sites that permit you get into the foreign exchange trading market for very little capital.

please read related articles:

History

Brief history of Forex trading

Initially, the value of goods was expressed in terms of other goods, i.e. an economy based on barter between individual market participants. The obvious limitations of such a system encouraged establishing more generally accepted means of exchange at a fairly early stage in history, to set a common benchmark of value. In different economies, everything from teeth to feathers to pretty stones has served this purpose, but soon metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.

Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies.

Before World War I, most central banks supported their currencies with convertibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessarily a need for full cover in the central reserves of the government.

At times, the ballooning supply of paper money without gold cover led to devastating inflation and resulting political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility.

In the latter stages of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favour of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilising monetary crises which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent.

The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.

The following decades have seen foreign exchange trading develop into the largest global market by far. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.

But the idea of fixed exchange rates has by no means died. The EEC (European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nevertheless, the quest for currency stability has continued in Europe with the renewed attempt to not only fix currencies but actually replace many of them with the Euro in 2001.

The lack of sustainability in fixed foreign exchange rates gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates, in particular in South America, looking very vulnerable.

But while commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD 3,000 billion is traded every day, far more than the world's stock and bond markets combined.

please read related articles:

http://forexandtrading24.blogspot.com/2010/06/theory-stop-loss-placement.html

http://forexandtrading24.blogspot.com/2010/06/theory-pivot-points.html

http://forexandtrading24.blogspot.com/2010/06/theory-moving-averages.html

Working with statistics

Trade Balance

The trade balance is a measure of the difference between imports and exports of tangible goods and services. The level of the trade balance and changes in exports and imports are widely followed by foreign exchange markets.

The trade balance is a major indicator of foreign exchange trends. Seen in isolation, measures of imports and exports are important indicators of overall economic activity in the economy.

It is often of interest to examine the trend growth rates for exports and imports separately. Trends in export activities reflect the competitive position of the country in question, but also the strength of economic activity abroad. Trends in import activity reflect the strength of domestic economic activity.

Typically, a nation that runs a substantial trade balance deficit has a weak currency due to the continued commercial selling of the currency. This can, however, be offset by financial investment flows for extended periods of time.

Gross Domestic Product

The Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity available. Reported quarterly, GDP growth is widely followed as the primary indicator of the strength of economic activity.

GDP represents the total value of a country's production during the period and consists of the purchases of domestically produced goods and services by individuals, businesses, foreigners and the government.

As GDP reports are often subject to substantial quarter-to-quarter volatility and revisions, it is preferable to follow the indicator on a year-to-year basis. It can be valuable to follow the trend rate of growth in each of the major categories of GDP to determine the strengths and weaknesses in the economy.

A high GDP figure is often associated with the expectations of higher interest rates, which is frequently positive, at least in the short term, for the currency involved, unless expectations of increased inflation pressure is concurrently undermining confidence in the currency.

Consumer Price Index

The Consumer Price Index (CPI) is a measure of the average level of prices of a fixed basket of goods and services purchased by consumers. The monthly reported changes in CPI are widely followed as an inflation indicator.

The CPI is a primary inflation indicator because consumer spending accounts for nearly two-thirds of economic activity. Often, the CPI is followed but excludes the price of food and energy as these items are generally much more volatile than the rest of the CPI and can obscure the more important underlying trend.

Rising consumer price inflation is normally associated with the expectation of higher short term interest rates and may therefore be supportive for a currency in the short term. Nevertheless, a longer term inflation problem will eventually undermine confidence in the currency and weakness will follow.

Producer Price Index

The Producer Price Index (PPI) is a measure of the average level of prices of a fixed basket of goods received in primary markets by producers. The monthly PPI reports are widely followed as an indication of commodity inflation.

The PPI is considered important because it accounts for price changes throughout the manufacturing sector.

The PPI is often followed but excludes the food and energy components as these items are normally much more volatile than the rest of the PPI and can therefore obscure the more important underlying trend.

Studying the PPI allows consideration of inflationary pressures that may be accumulating or receding, but have not yet filtered through to the finished goods prices.

A rising PPI is normally expected to lead to higher consumer price inflation and thereby to potentially higher short-term interest rates. Higher rates will often have a short term positive impact on a currency, although significant inflationary pressure will often lead to an undermining of the confidence in the currency involved.

Payroll Employment

Payroll employment is a measure of the number of people being paid as employees by non-farm business establishments and units of government. Monthly changes in payroll employment reflect the net number of new jobs created or lost during the month and changes are widely followed as an important indicator of economic activity.

Payroll employment is one of the primary monthly indicators of aggregate economic activity because it encompasses every major sector of the economy. It is also useful to examine trends in job creation in several industry categories because the aggregate data can mask significant deviations in underlying industry trends.

Large increases in payroll employment are seen as signs of strong economic activity that could eventually lead to higher interest rates that are supportive of the currency at least in the short term. If, however, inflationary pressures are seen as building, this may undermine the longer term confidence in the currency.

Durable Goods Orders

Durable Goods Orders are a measure of the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. Monthly percent changes reflect the rate of change of such orders.

Levels of, and changes in, durable goods order are widely followed as an indicator of factory sector momentum.

Durable Goods Orders are a major indicator of manufacturing sector trends because most industrial production is done to order. Often, the indicator is followed but excludes Defence and Transportation orders because these are generally much more volatile than the rest of the orders and can obscure the more important underlying trend.

Durable Goods Orders are measured in nominal terms and therefore include the effects of inflation. Therefore the Durable Goods Orders should be compared to the trend growth rate in PPI to arrive at the real, inflation-adjusted Durable Goods Orders.

Rising Durable Goods Orders are normally associated with stronger economic activity and can therefore lead to higher short-term interest rates that are often supportive to a currency at least in the short term.

Retail Sales

Retail Sales are a measure of the total receipts of retail stores. Monthly percentage changes reflect the rate of change of such sales and are widely followed as an indicator of consumer spending.

Retails Sales are a major indicator of consumer spending because they account for nearly one-half of total consumer spending and approximately one-third of aggregate economic activity.

Often, Retail Sales are followed less auto sales because these are generally much more volatile than the rest of the Retail Sales and can therefore obscure the more important underlying trend.

Retail Sales are measured in nominal terms and therefore include the effects of inflation. Rising Retail Sales are often associated with a strong economy and therefore an expectation of higher short-term interest rates that are often supportive to a currency at least in the short term.

Housing Starts

Housing Starts are a measure of the number of residential units on which construction is begun each month and the level of housing starts is widely followed as an indicator of residential construction activity.

The indicator is followed to assess the commitment of builders to new construction activity. High construction activity is usually associated with increased economic activity and confidence, and is therefore considered a harbinger of higher short-term interest rates that can be supportive of the involved currency at least in the short term.

Read This :

http://forexandtrading24.blogspot.com/2010/06/forex-trading-examples.html

http://forexandtrading24.blogspot.com/2010/06/looking-to-jump-into-forex.html

http://forexandtrading24.blogspot.com/2010/06/history.html

How to Trade Forex

Trading foreign exchange is exciting and potentially very profitable, but there are also significant risk factors. It is crucially important that you fully understand the implications of margin trading and the particular pitfalls and opportunities that foreign exchange trading offers. On these pages, we offer you a brief introduction to the Forex markets as well as their participants and some strategies that you can apply. However, if you are ever in doubt about any aspect of a trade, you can always discuss the matter in-depth with one of our dealers. They are available 24 hours a day on the Saxo Bank online trading system, SaxoTrader.

The benchmark of its service is efficient execution, concise analysis and expertise – all achieved whilst maintaining an attractive and competitive cost structure. Today, Saxo Bank offers one of Europe's premier all-round services for trading in derivative products and foreign exchange. We count amongst our employees numerous dealers and analysts, each of whom has many years experience and a wide and varied knowledge of the markets – gained both in our home countries and in international financial centres. When trading foreign exchange, futures and other derivative products, we offer 24-hour service, extensive daily analysis, individual access to our Research & Analysis department for specific queries, and immediate execution of trades through our international network of banks and brokers. All at a price considerably lower than that which most companies and private investors normally have access to.

The combination of our strong emphasis on customer service, our strategy and trading recommendations, our strategic and individual hedging programmes, along with the availability to our clients of the latest news and information builds a strong case for trading an individual account through Saxo Bank.

Terms of trading are agreed individually depending on the volume of your transactions, but are generally much lower in cost when compared to banks and brokers. Your margin deposit can be cash or government securities, bank guarantees etc. Large corporate or institutional clients may be offered trading facilities on the strength of their balance sheet. The minimum deposit accepted for an individual trading account depends on the account type. Trade confirmations and real-time account overview are built into SaxoTrader, while further account information can be produced in accordance with your specific requirements.

Read this articles :

http://forexandtrading24.blogspot.com/2010/06/when-oprah-stops-you-trading.html

http://forexandtrading24.blogspot.com/2010/06/theory-when-to-trade.html

http://forexandtrading24.blogspot.com/2010/06/theory-when-to-exit.html

Wednesday, June 16, 2010

When Oprah Stops You Trading

Hi all,

It's been a while, I was kept away from the markets for a while, then after that deliberately hid away. Trading can be a taxing endeavour (in both senses of the word), the market is a real moody beast, and any guy that is married will know, pay attention to those that are moody! It was because of this I had to step back, stop writing here, halt the alerts for a while, stop updating beginnertrader.com unless someone else contributed and just take stock, I wasn't paying attention.

One of my weaknesses is over-exuberance, not really outwardly if you meet me in person, quite a calm fellow really, but inside my head many an idea will spawn. Sometimes it take a smack over this same head to realise when I am doing too much, in this case, a couple of weeks of poor trading (not losing weeks .. just but poor trading weeks) did the trick. My entries were early, my exits were late, my decisions rushed and my big toe hurt to buggery thanks to another over-exuberant teammate on the soccer field.

So I took some time off .. stepped away from the markets, did some reading and got back to the basics. I didn't even bother trading demo accounts or paper trading, instead I got outside, played some sport, spent some time with the better half and mini me, and just got away from it all. The result? ... a +450 pip week this week and a much clearer mind. Everything is about balance, good old Newton told us that way back when, so you would think we would have got it by now.

"Screen time" as it is called around the web (i.e. staring at charts for extended periods), is beneficial, don't get me wrong, getting the repeatable patterns into the subconsience can help, but once screen time becomes, mindless staring, it is probably time to shut the trading platform and take an extended break.

For me I knew I had reached that point when my trading behaviour became very sloppy, for others it could be when you start visiting the Oprah website, or start thinking Porn sites are educational, and you go there only for the articles. Whatever the sign is, drag your tired, bloodshot eyes from the screen and get some sunshine, it is a wonder what the outside world contains, and believe me you'll trade better for it.

Happy Trading!

for please visit also here

Theory: What To Trade?

http://forexandtrading24.blogspot.com/2010/06/theory-forex-101.html

http://forexandtrading24.blogspot.com/2010/06/theory-fibonacci.html

http://forexandtrading24.blogspot.com/2010/06/theory-divergence.html

http://forexandtrading24.blogspot.com/2010/06/theory-compounding.html

Theory: When To Trade?

The question quite often comes up about when are the best times to trade? Everyone has their own ideas on what they think is the best time to trade, and quite often it depends on what type of system you are using. If you run a system that looks for trends, the best time for you would be different for a system looking for breakouts.

Rather than get into all that however (again just google "best forex trading times" for plenty of info on that) let's look at the best times to trade based on your experience instead.

A beginner, I would think, would be someone new to the forex markets, someone who has yet to fully develop their trading system, or, if they have, find it hard to maintain the discipline to stick to it no matter what. Some things that might identify a beginner trade could be:

Unaware of stop losses
Unsure of trend identification
Looking at one timeframe only (probably the 5M or 15M)
Quick to jump into a trade, slow to get out
Hazy on when to exit a profitable trade

Please don't think I am talking down to anyone, as some of the above applies to us all at times but these are things that I see encapsulate beginnner traders.

With those points in mind, the safest trading time would be one where:

The chances of big losses are low
You have time to think you trades through
There are some defineable trends to help you out in getting on the right side of the trade
Sharp, quick movements in the opposite direction to your trade aren't common

The markets can move so quickly, and any trade placed without a stop loss, is open to a sharp reversal and a big loss. Head out for a cup of tea, come back and your +10 could now be -50 by the time the kettle has boiled.

So when is the best time to trade based on the above? Well lets look it another way, what are the times where the above points are not met. My opinion? The opening of the different markets! There are three major markets to look out for, the Asian market, the European market and the US market. The opening and closing of these markets are often the most volatile, with sharp movements up and down with no apparent order quite often seen and many a beginner trader crying foul over a sharp reversal on their trade they have just been watching for the last hour.

Look at the above chart, this is a 15M chart from late last week of the EUR/USD. I have highlighted two areas, which is the opening of the European and US markets. Notice, how just before the opening of the price was slowly trending in one direction, but then, as the respective markets opened a sharp reversal sprung up in the opposite direction, taking with it many peoples profits I am sure, and spoiling many a traders tea. You find this espectially on the opening of Europe.

The best times for quiet, trending activity tends to be in the middle third of the trading sessions, the middle of the Asian session is a less volatile time, but can be too quiet for some. Approaching the opening of the European sessions, activity tends to pick up, but remember, be careful come opening time. I prefer the mid European session, but rarely get to trade it due to the time differences here in Australia, the mid US session can also be good but usually I am so buggered by that time, my decision making is shocking.

So pick what you prefer, if you are in it for a fast buck and don't care about making it a possible career, then opening and closing times can be right up your ally, but if you want to test out a system you are developing, look at the mid session times that suit you. Remember though news releases and data can effect everything, so always keep an eye out on the news anytime you trade.

Remember, this is not necessarily the most profitable time to trade in terms of pip movement, but while you are picking things up, minimising the chance of your account being wiped out is always a good idea.

I hope this helps someone, you can get the current times in the different areas by using this great little forex clock here. For my fellow countryfolk in Australia, below are the opening and closing times in AEST (thanks to aaron on Marketiva for these):

[AUS open 8:00am close 4:00pm]
[JYP open 10:00am close 6:00pm]
[EUR open 4:00pm close 12:00am]
[GBP open 5:00pm close 1:00am]
[USD open 10:00pm close 6:00am]

Ill leave it with a quote I read somewhere:

"Ametuers open the markets, professionals close them"

Please Read This Articles :
http://forexandtrading24.blogspot.com/2010/06/when-oprah-stops-you-trading.html

http://forexandtrading24.blogspot.com/2010/06/theory-when-to-trade.html

http://forexandtrading24.blogspot.com/2010/06/theory-when-to-exit.html

http://forexandtrading24.blogspot.com/2010/06/theory-trend-lines.html

Theory: When to Exit

...you actually make bugger all money if you can't execute and exit as precisely as you entered...

Hi all,

Welcome to another article, this time on when to exit a trade. When beginner traders start looking for that magic "make me a bucket load of cash" trading system, quite often the last thing thought about is their exit strategy. Usually the first and most important thing on a traders mind is when to enter a market, forgetting that you actually make bugger all money if you can't execute and exit as precisely as you entered.

There are three main scenarios that a trader will find themselves thinking of their exit:

A trade has moved as expected and they are in profit
A trade has moved opposite to what they expected, and they are in loss
A trade is dancing around the neutral zone of their trade

At first glance, you would think the easiest scenario of the three to exit under is number 1, i.e. when you are in profit, after all you are "cashing in" so how hard can it be. In fact, in reality all three can be as hard as each other. The reason?, like most things with trading, it comes to emotion. Below I have added the underlying emotions that might stop you closing a trade under these three scenarios:

A trade has moved as expected and they are in profit (GREED)
A trade has moved opposite to what they expected, and they are in loss (OPTIMISM)
A trade and dancing around the neutral zone of the trade (FEAR)

Let's look at them one by one.

Cannot close a profitable trade (Greed)

Everyone fights greed every day in life, always "wanting" rather than sticking to what you actually "need". It is part of a materialistic modern day culture that most of us are subject to. Trading is no different, and it is usually greed that can turn a nice logical, well planned and profitable trade into a losing one. When this happens, a trader reacts two ways, one, they are distraught at themselves for letting it all get away, or two, they tell themselves "well I was right with my prediction, the market just had it in for me".

Think of this, you set up a trade, monitor the setup closely, wait for the exact time to enter a trade, calculate your stop loss, your order is hit and you are in the trade. The price action moves beautifully, moving quickly towards your scantily thought about target (if you set one), and the sense of delight sends your brain into overdrive, working out the profits, imagining the ferrari soon to be in the drive-way, wondering if 2000 pips has ever been done in one day. This is when you know you are in some trouble, this is when greed has started to set in, you remove your profit target thinking "let's see how long this goes", you don't move your stop loss, cause you don't even contemplate that it might reverse, and you "go for the ride".

A common saying is "cut your losses, and let your profits run" (or something like that ;)), and it is a very good theory that should be followed. However, how do you ride your profits, without risking a reversal that you will undoubtedly put down to "a correction that will soon move back my way".

Personally I look at it this way:

Move your stop loss to break even or better as soon as is logically possible without risking being whipsawed out, that will ensure you will not lose money on the trade, ease the stress, and bring peace to the world (ok maybe not that). I take the view of never let a winning trade turn into a losing one so at least lock in 1 pip if it makes you feel better.
If the move was stronger that you anticipated, and you had a 20 pip profit target. Remove your profit target, and move your stop loss to the profit target as soon as possible. What you effectively have done is close your trade (because your stop loss is at your original target) and you are letting your profits run at the same time, two for the price of one, bargain!
Continue to follow the trade with your stop loss, and remember, 20 pips was your target, be satisfied with whatever you can get after that, but don't take any less. You can use one of the many trailing stop techniques to do this or look at the parabolic SAR indicator.

Cannot close a losing trade (Optimism)

I was tempted to use the word "Dillusion" for this one but felt perhaps that is a little harsh, you know the deal, you enter a trade, you set a 25 pip stop loss, the trade moves the wrong way and you are -20 on the trade, you look at the chart again frantically, and optimistically think "Oh of course ... I should have set the stop loss beyond that resistance level from the year 1967, what was I thinking" and you change your stop loss, making it -35. The price continues to move in the wrong direction, and you either cop a -35 pip loss instead of -20, or you remove your stop loss all together and spend the next week driving everyone nuts asking "will the EUR/USD go up?" to every trader in the chat room.

... Some may say, that they removed their stop loss and eventually, their -100 pips turned into +10, so there .. stick that up your jumper ...

What you do when you move a stop loss further away from entry, is completely change the ratio of the trade you entered. What was originally a 2:1 trade, i.e. your potential gain was twice as large as your potential loss, becomes a 1:1 trade, which is just asking for a margin call very quickly.

My advice on this? NEVER NEVER (I think that is pretty clear) move a stop loss further away from your entry, you can move it closer or break even if you wish, as this improves your risk/reward ratio, but never away. Some may say, that they removed their stop loss and eventually, their -100 pips turned into +10, so there .. stick that up your jumper ... the only problem is, that while they waited the week out waiting for the price to turn around (sometimes it never does .. look at the USD/JPY at the moment) they have tied up the entire margin, meaning they are locked out of many many more potentially profitable trades. So while you might end the week at +10, in the meantime other trades cut their losses at -20, entered 15 more trades in the week, and finished +100 for the week and at the same time learnt a hell of a lot more.

You want to close a trade dancing around the neutral zone (Fear)

This one is different, this is when you have a trade at +1, 0 or -1 pips, right around your entry, and it hangs there for quite a while, what do you do? Do you take a really small gain of +1 "just in case" it turns? Personally, and this one is up to you, I say never close a trade around the neutral zone of a trade, the ultimate aim of a trader, is to see a movement before the majority of others, you can then get in early, and when the others have caught up, let them make you money.

If you have spent the time analysing a trade, trust your judgement, if you analysed correctly, you may have got in early and it will take some time for the others to catch up. Don't be fearful of a losing trade, instead trust what you saw in the first place when you placed the trade. Sure there will be times when you end up losing, but if you cut your losses and let profits run, then you will be well in front in the end.

... If a trade has moved 1 pip past your target (that you have not automatically set), why close it? ...

So that is it, to summarise:

Always assess your potential profit target, and close, or lock it in as soon as possible with your stop loss.
Never move a stop loss away from your entry price.
Don't be fearful you could be wrong, instead be trusting in that you are probably right.

One last little tip, I personally never manually close a trade when it goes my way, my trades are closed either by my profit target being hit as set, or preferably, because I have moved my stop loss to my target and I am following the trade from their on in. If a trade has moved 1 pip past your target (that you have not automatically set), why close it?, why not move your stop loss to the target point, at which point you the price will either close you at your target as you originally wanted (congratulations, well done, bravo!), or it will continue it's run and you are essentially "playing with the markets money". This exact strategy turned my trade last night on the USD/CAD from a +45 target trade to eventually it being closed out at +93, it won't work all the time but you have nothing to lose if your target is locked in.

Happy trading!

Read This articles:

http://forexandtrading24.blogspot.com/2010/06/theory-forex-101.html

http://forexandtrading24.blogspot.com/2010/06/theory-fibonacci.html

http://forexandtrading24.blogspot.com/2010/06/theory-divergence.html

http://forexandtrading24.blogspot.com/2010/06/theory-compounding.html

Theory: What To Trade?

... I can't tell you what to trade as much as the next person, essentially you need to make that decision yourself ...

Hi there!

Time for another theory article while the markets are quiet, this time on the first question asked by every new trader I see in the chat rooms, "Can someone tell me what to trade?". Now I can't tell you what to trade as much as the next person, essentially you need to make that decision yourself, not rely on others to tell you what to do, but we can look into how some currency pairs behave to give us a hint into what will suit you.

There are a multitude of currency pairs out there, pick a countries currency, and there will probably be a broker out there trading it, but what we want to look at is the most commonly traded pairs, or the majors as they are refered to. Below is a list of the major currency pairs most commonly offered:

EUR/USD (Euro/US Dollar)
GBP/USD (Pound/US Dollar)
USD/CHF (US Dollar/Swissy)
USD/JPY (US Dollar/ Yen)
AUD/USD (Australian Dollar/US Dollar)
USD/CAD (US Dollar/Canadian)

Now what do you notice is the common theme through them all? Yep the USD, all the majors either have the USD as the base currency or are matched against the USD. You will find the above list will also have the tightest spreads (see Forex 101 for an explanation on spreads) with most brokers, and will have the biggest daily ranges (difference between the daily high and low).

So what to trade?, if you are a beginner trader, without a tested and trusted system in place, it would be best to choose a couple of these pairs only. More than 2 or 3 will more than likely confuse the buggery out of you, and the last thing we need is to trade confused (I live my life confused, so I would rather not trade that way ;)).

The GBP/USD (known as the "cable") is very popular amongst traders as it tends to have the highest daily range, giving up more pips in it's moves than any other on average. The EUR/USD is also popular as it tends to have the smallest spread with most brokers, why the USD/CHF is another that has some substantial movements.

... as you trade you will start to notice the relationship between the different majors ...

Quite often which pairs you choose might be to do with when you trade. If you tend to trade the asian session the most, the pairs that include asian or oceania currencies would be a good choice such as the USD/JPY, AUS/USD or even, while not a major, the NZD/USD. Those trading the european session of course might choose teh EUR/USD or the GBP/USD, which just about all the majors are ok to trade during the US session.

As you trade you will start to notice the relationship between the different majors, such as how the EUR/USD and GBP/USD tend to mimmick each other, and that if the EUR/USD is going down, then more than likely the USD/CHF is going up. This of course is because they both have the USD as part of their pairing, so if the USD is getting stronger, the EUR/USD will be moving down (Euro getting weaker against a strengthening USD) and the USD/CHF moving up (USD strengthening against the Swissy).

The only exceptions to this relationship will be when country specific news is released, such as a good economic meter reading in switzerland might move the USD/CHF but not the GBP/USD and so forth.

Whichever you choose, there is money to made and lost just as quickly, so be sure to keep your money management tight and your head clear.

Happy trading!

please read related articles :
http://forexandtrading24.blogspot.com/2010/06/theory-pivot-points.html

http://forexandtrading24.blogspot.com/2010/06/theory-moving-averages.html

http://forexandtrading24.blogspot.com/2010/06/theory-indicator-types.html

http://forexandtrading24.blogspot.com/2010/06/theory-forex-101.html

Theory: Trend Lines

Hi all!

Time for a new theory article, this time on a very basic, but incredibly usefull tool of trend lines. Now for Marketiva users, at present you cannot draw freehand trend lines on their charts, but I have it on good authority that this feature is not too far away, so you may need to look at some online charts or other charting packages to use this tool.

Trend lines form the basis of my trading system presently (along with support and resistance lines), and can give you a good insight into where prices are going, and in which direction. They can also be used to see when a trend might be breaking but I'll go into that a little later.

Ok first a chart from Friday just gone (click on it to see the animation):

What you seeing here (click on the thumbnail to see it animate) is the USD/JPY daily chart, and on it I am drawing four different trend lines. In a down trend, i.e. when the price is making lower lows, and preferable lower highs, you draw your trend line across each peak, the opposite applies for an uptrend, where you draw a line across the troughs. Look at the above chart to see what I mean.

... never consider a break of a trend line to be valid unless the prices closes outside the trend line ...

The basis of trend line studies, is to see what the overall trend is, and also to identify areas were the trend may be failing. In the above chart, there are four areas where a trend line was broken, in this case, you can see clearly that for a time the price then moved in the other direction, netting a very tidy profit if you read your exit correctly. Another way to trade using the trend lines is to use them to identify where the price may turn back towards the underlying trend, especially if it coincides with a support or resistance level, or a fibonacci line.

Now granted, that every trend line break does not prove to be valid, so be sure to confirm it with other tools, and I never consider a break of a trend line to be valid unless the prices closes outside the trend line on the timeframe my trend line was drawn on. You can draw trend lines on any timeframe, and a useful thing to do is draw your trend lines a timeframe or two above what you trade off, for example, if you trade off 1H charts, draw your trend lines from the 4H or daily charts. This will show you the underlying trend, and keep you in the right side of a trade more often than not.

Best of luck with this simple yet effective tool.

Happy trading!

Read This Articles :
http://forexandtrading24.blogspot.com/2010/06/international-forex-markets.html

http://forexandtrading24.blogspot.com/2010/06/forex-trading-examples.html

http://forexandtrading24.blogspot.com/2010/06/looking-to-jump-into-forex.html

http://forexandtrading24.blogspot.com/2010/06/history.html

Theory: Trading The News

... to ignore major economic news releases is asking for a slap in the face with a dead fish, quite unpleasant ...

News, most people watch it, many want to be in it, but how many trade it? I am writing this a day after some poor housing data in the US saw the USD get kicked, mashed, belly flopped, chinese burned (the most painful) and jumped on to the tune of 200 or more pips against the majors within a couple of hours, bringing many to wonder just what in the world happened!

While I consider myself a technical trader, it is became apparent very early in the piece, that to ignore major economic news releases is asking for a slap in the face with a dead fish, quite unpleasant. The problem is, if you are like me and read the newspaper back to front (i.e. Sport, Comics, News), then you don't really want to read the latest financial news to keep up with things. Well instead of doing that, I will run you through the main fundementals, what they typically mean for a currency, and where you can get the results.

It is essentially a pretty bland subject, but here we go in real simple terms:

Unemployment figures
What: Measure of unemployed people in the country looking for work.
Better than expected: Currency may strengthen
Worse than expected: Currency may weaken

E.G. Japanese unemployement figures worse than expected, JPY to weaken against other currencies, so the USD/JPY would go up (USD strengthening against the Yen/Yen weakening agains the Dollar).
GDP
What: Gross Domestic Product, a broad measure of economic growth of a country.
Better than expected: Currency may strengthen
Worse than expected: Currency may weaken

E.G. US GDP figures show the economy is growing, investors take this as a positive sign for the country as well as a hint that interest rate rises may be needed at some point, investment in the US dollar follows, pushing up pairs such as USD/JPY, USD/CHF and bring down EUR/USD and GBP/USD.

CPI
What: Consumer Price Index, derived from comparing a set basket of goods over a period of time to see if prices have increased, resulting in increased inflation for consumers.
Increases: Currency may strengthen
Decreases: Currency may weaken

E.G. Australian CPI figures come in lower than previous, this indicates that the economy is slowing by itself, meaning the Central Bank will not need to increase interest rates to slow it artificially. Would result in the Aussie dollar losing some of its value as funds are moved elsewhere, resulting in the AUD/USD dropping.

Consumer Confidence
What: A measure of near term spending habits of a countries consumers.
Up: Currency may strengthen
Down: Currency may weaken

E.G. German Consumer Confidence shows an increase from previous, this is a sign that the people of that country feel positive about the economy and their financial situation, indicating that there will be increased spending, which would strengthen the economy and push something like the EUR/USD up.
Retail Sales
What: As the name suggests, measures the retail activity, ties in with Consumer confidence somewhat.
Up: Currency may strengthen
Down: Currency may weaken

E.G. Japanese Retails Sales are up, showing that their is increased spending, showing the economy is in good shape, consumer confidence must be good, and so the currency will strengthen, so USD/JPY would go down (USD weaker against a strengthening JPY).
Trade Balance
What: It measures the difference between total imports and total exports of goods in a country.
Up: Currency may strengthen
Down: Currency may weaken

E.G. US shows a positive Trade Balance reading, this means that more goods were exported from the US, which is a good thing for the economy, therefor strengthening the USD, so EUR/USD would go down, the USD/CHF would go up.
Interest Rates
What: A tool to slow an economy or encourage spending.
Up: Currency may strengthen
Down: Currency may weaken

E.G. Like all of us, we want to invest cash into high interest earning areas, so if a countries interest rates are increased, money is moved to that country, resulting in it's currency strengthening substantially usually. So if US interest rates are increased, then the USD/CHF for example would rise.

So there are some basics, there are so many data releases, barometers and speaches it is not funny, and quite frankly, I couldn't be bother keeping up with what they all actually are, as I have better things to do than listen to some old bugger spitting figures at me, but I do take note, and tend to think of data releases in terms of interest rates. If the data release is indicating the economy is speeding up, it hints that there will be a need to increase interest rates to slow it down before inflation takes hold. Of course the opposite applies as well.
Ok finally, here is yesterday's chart to demonstrate what I am talking about:

Here you can see the effect of another data release not listed above, US House Sales. The release was much worse than expected, with US House Sales dropping considerably, this mean to some that it is a sign people don't have as much money to spend, hence a slowing economy and less chances of interest rate hikes in the near future. This meant a sharp reversal of the short term trend, and, coupled with a positive speach in Europe of possible interest rate increases there, the EUR/USD moved over 200 pips in a couple of hours!

This movement was spread across the board across all pairs with the USD, and was really a "no brainer" trade for those awake to see it.

So you can see that there is value in keeping one eye on upcoming releases, one to cash in on the moves if you are experienced with money management and the fundamentals, and two to tighten stops on any open trades that are in the perceived wrong direction to the data release. Be sure to check that your broker has a guarenteed stop policy otherwise this will not work.

One final and very important note, remember that figures are always compared to the "expected" figures, so while a release might come in below the previous, if this was expected anyway, it may already be figured into the price and the movement may be small or non existant. In some case, price can move in the opposite direction if an underlying fundamental is stronger than the data released. Confused? .. if so ... then you probably shouldn't trade the news just yet.

Best of luck with it, below are some links to economic calendars that will help you keep up with things (also in the menu on the right):

Forex Factory Economic Calendar
Forexnews.com Economic Calendar

Happy trading!

Read This :

http://forexandtrading24.blogspot.com/2010/06/looking-to-jump-into-forex.html

http://forexandtrading24.blogspot.com/2010/06/history.html

http://forexandtrading24.blogspot.com/2010/06/working-with-statistics.html

http://forexandtrading24.blogspot.com/2010/05/how-to-trade-forex.html

Theory: Trade Logs

Hey all,

Well we spend so much time working on our trading systems, on when to enter, exit, move stop losses, take profits etc. etc. but how much time do we spend reviewing trades we have placed. I dare say many of us (me included at times) kind of forget about this part of the process, especially when you are on a series of profitable trades, the last thing you are thinking about is looking back at past trades.

... the irony is, if you are using any type of indicator in your trading system, you are actually trading the present based on the past ... so why shouldn't you review your trades in the same way? ...

A lot of traders only bother thinking about the past when things start going wrong, and usually it is something like "Ah yes, I remember back when I used to make money from the markets ... those were the days ...". So why should we bother looking back, living in the past so to speak? Aren't we supposed to be living in the present, looking to the future? The irony is, if you are using any type of indicator in your trading system, you are actually trading the present based on the past, as all indicators take past data, compare it to present conditions, apply some odd formula like, x+y/2*45 + your dogs age - your height, and then draw a squigly line or an arrow of some sort based on that historical data. So why shouldn't your review your trades in the same way?

The simplest and easies method of keeping track of how things have gone, and how they are going is through a trading log of some sorts. There are many ways you can do this, you could simply just write your trades on paper, or keep them in a spreadsheet, or simply add comments to your trades if your trading platform allows it and print out a monthly report. Whichever way you do it, the important thing to ensure is that what you put in your log is useful, so let's look at that.

So what should we include? Well I can only speak for myself, but here are things I have contained in a simple excel spreadsheet, with an explanation on why I include them:

Open date
This is the date that a trade was opened, useful if you want to look back and see if you are more successful on one day more than others.
Open time
The exact time of the trade, like above, to see if your trades a more successful during different times of day. You could use this to see if you trade better in a certain session, such as Asia, Europe or the US sessions. I used this to notice my strategy worked great during the Europe and US session, but performed miserably during the Asian session, which brought me to adjust things and now things are much better.
Mood
Never underestimate the power your mood can have on your trades. Write it down and be honest, you can then look to see if you have more success trading when you are happy, sad, angry, tired, alert or constipated (I don't trade well constipated trust me ;).
Pair
Of course keeping track of what currency pair you trade will soon identify your favourites, your most profitable and your most hated.
Direction
Long or short, you may be surprised by which one you favour more, for example last month 83% of my trades were short!
Open price
Price you opened your trade, a basic thing to keep track of.
Stop loss
Very useful to see what your stop loss to wins ratio is. If you are finding your wins are much smaller than the potential stop losses, it may keep you aware that a string of losses could wipe you out, so some adjustments may be needed with either riding the trade longer, adjusting your entries, or tightening your stop losses.
Take profit
As per above.
Close price
The price you closed your trade at, useful to see what your average winner versus average loser is.
Closed date
I like to keep track of these to see how long I am keeping my trades for and what it means for profits or losses.
Closed time
Again, useful to see if there is a certain time of day you seem to be closing your trades at the most, are you closing them cause you are tired and it is late at night for example?
Balance
What you made on that trade, if it is a profit, make it nice, big and green, visual reward can really be satisfying and a good motivator.
Comments
Can be potentially the most useful part, be honest with yourself, and jot down anything about the trade you liked or didn't like. Some people will only focus on the things they did wrong in a trade, but be sure to put things you did right as well, as they are just as useful if not more so for future trades.

So that is how I keep track of my trades, while it takes a little effort, it really is worth the trouble, and your trading will benefit for it. Remember though! look back on it, no use keeping your trades logged but never looking at it. The markets are closed over the weekend, so that is a good time to have a quick look through and ready your mind for the upcoming week.

Ok, I have attached a sample trading log for you all, it is a simple, unformatted excel spread but it might help someone. If anyone is good with programming excel, you can program the balance etc. to update by themselves, and please, if you make improvements, let me know so we can share it with everyone.

Read This Articles :

http://forexandtrading24.blogspot.com/2010/06/theory-trade-logs.html

http://forexandtrading24.blogspot.com/2010/06/theory-stop-loss-placement.html

http://forexandtrading24.blogspot.com/2010/06/theory-pivot-points.html

http://forexandtrading24.blogspot.com/2010/06/theory-moving-averages.html

Theory: Stop Loss Placement

Anyone who has chatted to me or written me emails will know that one of my big things is stop losses and the importance of them. I have many a debate about the topic, a classic conversation would go (usually from the same trader a couple of days in a row):

TraderJoe: Akuma ... do you think the EUR will rise today?
Akuma99: Not to sure just yet ... need to wait for support to hold
TraderJoe: What about tomorrow .. you think it will rise tomorrow?
Akuma99: Well there is some US data tonight that could effect that
TraderJoe: How about by the end of the week?
Akuma99: TraderJoe are you holding a long position?
TraderJoe: Do you think it will go to 1.2300 by the end of the week?
Akuma99: What trade do you have? What was your entry?
TraderJoe: 1.2290
Akuma99: Long or short? ... What was your stop loss traderjoe?
TraderJoe: Well long, and I don't use stop losses, I don't like to confine my trade
Akuma99: Well there is a fair way to go before we see 1.2300, need to see if 1.2200 holds for now
TraderJoe: So you think it will rise right?

... and so it goes on, usually every day for rest of the week as prices make up their mind .... this is usually then followed by this conversation around a week later

TraderJoe: Hey Akuma ... remember me?
Akuma99: Ummm yeh sure
TraderJoe: Remember that EUR long position I had at 1.2290 last week, I closed it this morning at +10 .. see that is why I don't use stop losses, eventually it comes around.
Akuma99: Well done :) ... how did your other trades go?
TraderJoe: I didn't take any other trades ..

.... so we end that conversation with TraderJoe convinced a no stop loss policy is the best way to go, and look if it works for TraderJoe, then all power to him, but what is the main problem with the above scenario?

... suck it up, place your stop losses and be prepared to be wrong, there is no pride to be stuck in losing trades that keep you out of the most lucrative market in the world ...

The main problem with this scenario is time! While TraderJoe did eventually close in profit, it took him out of the market for a week. In essence, TraderJoe traded a whole week for a +10 profit, sure his trading log looks better cause there are no minus figures this time, but the results are far from impressive and what has he learnt? For traders starting out on a highly leveraged account, as most are while they try to build an account quickly, margin calls become a real danger, so if a trade moves the wrong way and you find yourself in a trade sitting at -100, two things happen:

You are locked out of the market as you risk a margin call if another trade goes the wrong way, meaning you miss a multitude of other opportunities for profitable trades
You live in perpetual fear your account being whiped out by a news event.

TraderSally happened to be trading at the same time, with stop losses in place for all her trades, and she ended the week with 10 winning trades, 8 losing trades, for a balance of +10 for the week, which trader do you think learnt the most about trading that week? Sure the results are the same, but down the track I really believe TraderSally will be further down the trading road to profitability. Stop losses I think are vital to keep your risk definable and your enjoyment levels up. Believe me your last losing trade is forgotton easily when you close your next profitable trade (a reason to keep trading logs).

So onto placing stop losses, there are many many theories on how to place stop losses, and rather than plowing through them all here, i'll point you to a great article written over at Globetrader's site here that spells it out better than I could. Instead I'll just explain how I think of my stop loss placement. I read a great comparison somewhere, of likening stop loss placement to a game of hide and seek, and it really is a very good comparison.

I ask myself three things when placing stop losses:

Where can I hide my stop loss that people won't find it?
At what point is my trade no longer valid?
Where do I think things will go to?

Let's run through them:

Where can I hide my stop loss that people won't find it.
This is the hide and seek theory, there are traders, brokerage houses and market makers out there that look for stops, don't let anyone tell you anything different. They look for obvious stop placement areas, and push prices to them looking to trigger those stops for their own benefit. So how do you hide them?

Let's say prices are just below what you deem as a solid resistance level, you want to place your stop just above that resistance for a short trade, think about where all the other stops may be, most likely 1 or 2 pips above that resistance level. In this scenario, I would place my stop loss perhaps 10 pips above that level, on a 3 pip spreaded pair and look for a slightly better entry, perhaps with a stop order a pip below the resistance level to keep my risk the same. If prices honour the resistance, then you are in with a fantastic entry and no drawdown, if they test for stop's just above, you have some chance of them not finding your stop.

This is just one example, and it really is over-simplistic in a complex market, but if you have the mindset of "where can I hide so they won't find me" while still keeping your risk levels in mind, then your stops shouldn't get triggered so often on those trades that end up turning your way.

At what point is my trade no longer valid?
You place a trade because you believe a trade will move in a certain direction, you can picture it in your minds eye, you can imagine how the trade would go. A stop loss should protect you against bad decisions, so place your stops at levels that would tell you your decision was wrong. If that point is too far away from your entry for your risk level, then perhaps you are entering the trade at the wrong time.

Where do I think things will go to?
This question is brought up many times in relation to risk and reward scenarios, however I think of it differently. If I picture that the EUR will be moving 10 pips down in the next hour, but to keep myself safe, I need to hide my stop behind a resistance level 20 pips away, then I don't reject the trade because I don't like the risk reward ratio, I reject the trade because I should actually be thinking about where to enter a long position rather than catching the tail end of a move down.

If in your minds eye you see a pair about to retrace slightly before bouncing, take the bounce trade .. not the last bit of the retracement, if you'r minds eye picture was right, you are in for a much more profitable trade.

There is nothing wrong with being wrong, it is human nature to avoid defeat, to not want to admit you are wrong. It is more prevalent in males, which is why it wouldn't surprise me if females made better traders, but that is a discussion for another time. What matters at the end of the trading day is your pip balance, is it positive or negative, not whether you were right or wrong.

So suck it up, place your stop losses and be prepared to be wrong, there is no pride to be stuck in losing trades that keep you out of the most lucrative market in the world, as they say ... "You gotta be in it to win it".

Read This :

http://forexandtrading24.blogspot.com/2010/06/looking-to-jump-into-forex.html

http://forexandtrading24.blogspot.com/2010/06/history.html

http://forexandtrading24.blogspot.com/2010/06/working-with-statistics.html

http://forexandtrading24.blogspot.com/2010/05/how-to-trade-forex.html

Wednesday, June 30, 2010

Example 1

Example 2:

Example 3

Brief history of Forex trading

Wednesday, June 16, 2010

Theory: Trading The News

Submit