Forex Currency Trading Help Tips, Tools, Rules


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Matching Investing Risk Tolerance To Personality

Having a good understanding of an investor's risk tolerance is crucial to any successful advisor/client relationship.

The CFA Institute's "Candidate Body of Knowledge" lists the four main personality types as cautious, methodical, spontaneous, and individualist. They are categorized below by their willingness to take risk.

Lower Willingness to Take Risk

Cautious - investors make decisions based primarily on feelings and are very sensitive to investment losses.

Methodical - investors follow a disciplined, mechanical investing strategy. They make investment decisions based on hard facts and have the tendency to nitpick about small details. They rely heavily on investment research and are not emotional about their investment decisions.

Higher Willingness to Take Risk

Spontaneous - investors make investment decisions based on feelings and make them frequently. They are always second guessing themselves and the advice of others and often chase investment fads.

Individualist - investors make decisions based on hard facts and do not second guess their investments often. They exercise independent thinking and put a great deal of trust in their investment research.

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Get A Trading Referee and Improve Your Performance

One of the most talked about traits that traders need is discipline. Discipline is a quality that can be created by the individual internally, but can also be fostered by an external source. All traders will benefit from increased discipline, as being able to stick to a profitable strategy is what will allow them to be successful over the long term.

A trading referee will make you answer for the decisions you are making. They will force to answer why you are taking certain actions, and how those actions relate to your trading plan. When you stop following your trading plan under your own will, this person is there to give you support and make sure that you do not deviate from the initial goal. After all, this is not about the trader proving he or she is right, it is about being profitable.

Trading is a tough game, especially when we go at it completely alone. It can be of benefit to invite someone else into our trading experience who will force us to comply with our own methods. The benefits are numerous, not the least of which is the proper execution of a profitable trading plan we took the time to research and develop.

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FOREX CURRENCY TRADERS?

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What are the most common currency pairs traded in the forex market?

There are many official currencies that are used all over the world, but there only a handful of currencies that are traded actively in the forex market. In currency trading, only the most economically/politically stable and liquid currencies are demanded in sufficient quantities. For example, due to the size and strength of the United States economy, the American dollar is the world's most actively traded currency.

In general, the eight most traded currencies (in no specific order) are the U.S. dollar (USD), the Canadian dollar (CAD), the euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian dollar (AUD) and the Japanese yen (JPY).

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Gold and Silver have recently been added as trading instruments to the Forex Currency Exchange and are now available for trading. Let me give you the foundation and proper tools to trade these today!


The Forex Currency Exchange is open 24 hours a day five days a week which enables you to trade at the convenience of your own schedule.


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Top 10 reasons most Currency Traders fail in the Beginning!

  • Not properly set up to trade

  • Failure to plan before placing a trade

  • Setting expectations too high

  • Failure to use risk management

  • Lack of patience and discipline

  • Trading against the trend

  • Letting losing positions spiral

  • Hyper-trading and over-trading

  • Failure to accept responsibility

  • Lacking a big picture perspective


The below featured educational video is Bollinger Bands Trading Range Bound Currency Pairs

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When to trade and when not to trade ?


RULES FOR FOREX CURRENCY TRADING

Never Let A Winner Turn Into A Loser

The FX markets can move fast, with gains turning into losses in a matter of minutes, making it critical to properly manage your capital. There is nothing worse than watching your trade be up 30 points one minute, only to see it completely reverse a short while later and take out your stop 40 points lower. You can protect your profits by using trailing stops and trading more than one lot. For more on this, see Trailing Stop Techniques.

Logic Wins; Impulse Kills

It can be a huge rush when a trader is on a winning streak, but just one bad loss can make the same trader give all of the profits and trading capital back to the market. Reason always trumps impulse because logically focused traders will know how to limit their losses, while impulsive traders are never more than one trade away from total bankruptcy. To get a better understanding of traders, read Understanding Investor Behavior.

Never Risk More Than 2% Per Trade

This is the most common and most violated rule in trading. Trading books are littered with stories of traders losing one, two, even five years' worth of profits in a single trade gone terribly wrong. By setting a 2% stop-loss for each trade, you would have to sustain 10 consecutive losing trades in a row to lose 20% of your account. For more read The Stop Loss Order - Make Sure You Use It and Limiting Losses.

Use Both Technical And Fundamental Analysis

Both methods are important and have a hand in impacting price action. Fundamentals are good at dictating the broad themes in the market that can last for weeks months or even years. Technicals can change quickly and are useful for identifying specific entry and exit levels. A rule of thumb is to trigger fundamentally and enter and exit technically. For example, if the market is fundamentally a dollar-positive environment, we'd technically look for opportunties to buy on dips rather than sell on rallies.

Always Pair Strong With Weak

When a strong army is positioned against a weak army, the odds are heavily skewed toward the strong army winning. This is the way you should approach trading. When we trade currencies, we are always dealing in pairs - every trade involves buying one currency and shorting another. Because strength and weakness can last for some time as economic trends evolve, pairing the strong with the weak currency is one of the best ways for traders to gain an edge in the currency market. For more see Using Currency Correlations To Your Advantage.

Being Right And Early Means You Are Wrong

In FX, successful directional trades not only need to be right in analysis, but they also need to be right in timing as well. If the price action moves against you, even if the reasons for your trade remain valid, trust your eyes, respect the market and take a modest stop. In the currency market, being right and being early is the same as being wrong. Consider a scenario where a trader takes a short position during a rally in anticipation of a turnaround. The rally continues for longer than anticipated, so the trader exits early and takes a loss - only to find that the rally eventually did turn around and their original position could have been profitable.

Differentiate Between Scaling In And Adding To A Loser

The difference between adding to a loser and scaling in is your initial intent before you place the trade. Adding to a losing position that has gone beyond the point of your original risk is the wrong way to trade. There are, however, times when adding to a losing position is the right way to trade. For example, if your ultimate goal is to buy a 100,000 lot, and you establish a position in clips of 10,000 lots to get a better average price, this type of strategy is known as scaling in. To learn more about scaling in, see Tales From The Trenches: Trading Divergences In FX and The Art Of Selling A Losing Position

Risk Can Be Predetermined; Reward Is Unpredictable

Before entering every trade, you must know your pain threshold. You need to figure out what the worst-case scenario is and place your stop based on a monetary or technical level. Every trade, no matter how certain you are of its outcome, is an educated guess. Nothing is certain in trading. Reward, on the other hand, is unknown. When a currency moves, the move can be huge or small.

No Excuses, Ever

The "no excuses" rule is applicable to those times when the trader does not understand the price action of the markets. For example, if you are short a currency because you anticipate negative fundamental news and that news occurs, but the currency rallies instead, you must get out right away. If you do not understand what is going on in the market, it is always better to step aside and not trade. That way, you will not have to come up with excuses for why you blew up your account. It's acceptable to sustain a drawdown of 10% if it was the result of five consecutive losing trades that were stopped out at a 2% loss each. However, it is inexcusable to lose 10% on one trade because the trader refused to cut his losses.


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TIPS FOR FOREX CURRENCY TRADING

a) Gamblers go to casino. All unproved, spontaneous actions in Forex trading — are a part of pure gambling. Any attempt to trade without analysis and studying the market is equal to a game. Game is fun except when you are losing real money.

b) Never invest money into a real Forex account until you practice on a Forex Demo account! Allow at least 2 month for demo trading. Consider this: 90% of beginners fail to succeed in the real money market only because of lack of knowledge, practice and discipline. Those remaining 10% of successful traders had been sharpening and shaping their skills on demo accounts for years before entering the real market.

c) Go with the trend! Trend is your friend. Trade with the trend to maximize your chances to succeed. Trading against the trend won't "kill" a trader, but will definitely require more attention, nerves and sharp skills to rich trading goals.

d) Always take a look at the time frame bigger than the one you've chosen to trade in. It gives the bigger picture of market price movements and so helps to clearly define the trend. For example, when trading in 15 minute time frame, take a look at 1 hour chart; trading hourly would require obtaining a picture of daily, weekly price movements.

If a trend is hard to spot — choose a bigger time frame. Up and down market patterns are always present. Always make sure you know the dominant trend, unless you are a scalper. Scalpers have no need to spend their time studying big trends, what's happening in the market here and now (during 5-10 minute time frame) should be of only importance to a Forex scalper.

e) Beginners should not risk more than 2-3% of the total trading account. One important difference between a successful and an unsuccessful trader is that the first is able to survive under unfavorable conditions on the market, while an unsuccessful trader will blow up his account after 5-10 unprofitable trades in the row.

Even with the same trading system 2 traders can get opposite results in the long run. The difference will be again in the money management approach. To introduce you to money management, let's get one fact: losing 50% of total account requires making 100% return from the rest of money just to restore the original balance.

f) Put emotions down. Trade calm. Don't try to revenge after losing the trade. Don't be greedy by adding lots of positions when winning. Overreaction blocks clear thinking and as a result will cost you money. Overtrading can shake your money management and dramatically increase trading risks.

g) Choose the time frame that is right for you. Choosing wise means that you are comfortable and have time enough to analyze the market, place and close orders etc. Some people can't wait for hours for the price to make a move, they like action and therefore prefer smaller time frames. On the contrary, for others 10-15 minutes is a hustle to be able to make the right decision.

h) Not trading or standing aside is a position. When in doubt — stay out. If it is not clear where the market will move — don't trade. In this case saving present capital is and absolutely better choice than risking and losing money.

i) Learn to use protective stops. Respect them and don't move. Hoping that market will turn in your direction is a very delusive hope. By moving a stop loss further a trader increases his chances to end up with much bigger loss. When holding to a losing trade too long, and even if funds permit, traders as a rule are very reluctant to accept big losses.

j) Choose the right day to trade. This recomendation is often wrongly taken as an optional thing, because everyone knows that Forex market is open 24 hours a day 7 days a week. Yet, choosing the time to trade can make a difference between successful and hopeless trading.

It's proved and highly recommended not to trade on Mondays, when the market has recently awaken and is making first "probation steps" to form a new or confirm a current trend; and on Fridays afternoon, during the huge volume of closing trades. The best days to trade are Tuesdays, Wednesdays and Thursdays.

k) Learn about Fibonacci levels and how to use them for trading. Fibonacci can be very helpful in trading, even partially using the study, for example, to determine the best exit, can bring traders to a new edge of trading.

l) Always ensure that a signaling bar/candle on the chart is fully formed and closed before you enter a trade. A golden rule of trading: "Always trade what you see, not what you would like to see" is the best explanation here.

m) If you ask for someone else's advice as about how and when to trade in other words, choose to rely on live trading signals from other traders, make sure you do it for your benefit, not for disaster. If you use such signals to discover how other traders do analysis and study on the price — you are on the right track and soon you'll be able to do analysis yourself. But if you're just blindly following recommendations and your only task is to push the correct button... think again.

n) Using a highly leveraged account comes at a cost. It will, of course, give a trader more financial gear to trade into more profits quickly, but for inexperienced traders high leverage, and, in fact, any Forex leverage can be disastrous. When a trader signs up for a high leverage without knowing how to accurately use it to his own advantage, he simply signs up for additional risks that multiply.

o) Learn to measure trading success by the end of the day, week and then month and year. Do not judge about your trading success on a single trade. To be successful traders don't need to win every trade, they also don't become rich in one trade — they need to be profitable in a long run.

p)There is no such thing as a secret approach to understanding the market. Take the time to develop a solid trading system and find out that the secret to trading success lies in hard work and constant learning.


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