Forex Trading Money Managment - An EYE OPENING Article

Real Source: learntotradethemarket

An Eye-Opening Article on Forex Trading Money Management

IMPORTANT NOTE: This Article will Create Some Disagreements and Debates around the Trading Community. I Remind You> This Article on Money Management is based on My Own Trading Experiences. It was written to expose some truths and some myths surrounding the topic of manageing capital. It is intended to share my perspective. If you want to Disagree , be rude, or Aruge about this article by writing long comments and emails, I won’t be responding or entering a discussion. I repeat, this Article is written from my own experiences and is How I trade and is how many Pro’s trade, what you are taught about money management is usually ‘lies’ invented by the industry to help you lose your money “slower” so that brokers can make commission/ spreads from you. Most information on money management is complete Lies and will not work in the real world, trust me.. everything I talk about on this website is based on real world application, not theory.

I will warn you that what you are about to read is likely to be contradictory to what you may have read or heard about money management and risk control. I can only tell you that what am I about to divulge to you is the way I trade, it is the way many professional forex traders manage capital. So get ready, open your mind, and enjoy this article on how to effectively grow your trading account by effectively managing your money. If your using the 2% rule, this may put that method into question, which is the point… to make you think about it from all angles and perspectives.

Everyone knows that money management is a crucial aspect of successful forex trading. Yet most people don’t spend nearly enough time concentrating on developing or implementing a money management plan. The paradox of this is that until you develop your money management skills and consistently utilize them on every single trade you execute, you will never be a consistently profitable trader.

I want to give you a professional perspective on money management and dispel some common myths floating around the trading world regarding the concept of money management. We hear many different ideas about risk control and profit taking from various sources, much of this information is conflicting and so it is not surprising that many traders get confused and just give up on implementing an effective forex money management plan, which of course ultimately leads to their demise. I have been successfully trading the financial markets for nearly a decade and I have mastered the skill of risk to reward and how to effectively utilize it to grow small sums of money into larger sums of money relatively quickly.

Money Management Myths:

Myth 1: Traders should focus on pips.

You may have heard that you should concentrate on pips gained or lost instead of dollars gained or lost. The rationale behind this money management myth is that if you concentrate on pips instead of dollar you will somehow not become emotional about your trading because you will not be thinking about your trading account in monetary terms but rather as game of points. If this doesn’t sound ridiculous to you, it should. The whole point of trading and investing is to make money and you need to be consciously aware of how much money you have at risk on each and every trade so that the reality of the situation is effectively conveyed. Do you think business owners treat their quarterly profit and loss statements as a game of points that is somehow detached from the reality of making or losing real money? Of course not, when you think about it these terms it seems silly to treat your trading activities like a game. Trading should be treated as a business, because that’s what it is, if you want to be consistently profitable you need to treat each trade as a business transaction. Just as any business transaction has the possibility of risk and of reward, so does every trade you execute. The bottom line is that thinking about your trades in terms of pips and not dollars will effectively make trading seem less real and thus open the door for you treat it less seriously than you otherwise would.

From a Mathematical standpoint, thinking of trading in terms of “how many pips you lose or gain” is completely irrelevant. The problem is that each trader will trade a different position size, thus, we must define risk in terms of “Dollars at risk or Dollars Gained”. Just because you risk a large amount of pips, does not mean you are risking a large amount of your capital, such is the case that if you have a tight stop this does not mean your risking a small amount of capital.

Myth 2: Risking 1% or 2% on every trade is a good way to grow your account

This is one of the more common money management myths that you are likely to have heard. While it sounds good in theory, the reality is that the majority if retail forex traders are starting with a trading account that has $5,000 in it or less. So to believe that you will grow your account effectively and relatively quickly by risking $50 or $100 per trade is just silly. Say you lose 5 trades in a row, if you were risking 2% your account is now down to $4,500, now you are still risking 2% per trade, and to get your account back to break even you will have to win nearly 6 trades in a row.

Any trader that has traded real money for any period of time knows how difficult it is to win 6 trades in a row. What ends up happening when traders use this risk model is that they start off good, they risk 1 or 2% on their first few trades, and maybe they even win them all. But once they begin to hit a string of losers, they realize that all of their gains have been wiped out and it is going to take them quite a long time just to make back the money they have lost. They then proceed to OVERTRADE and take less than quality setups because they now realize how long it will take them just to get back to break even if they only risk 1% to 2% per trade.

So, while this method of money management will allow you to risk small amounts on each trade, and therefore theoretically limit your emotional trading mistakes, most people simply do not have the patience to risk 1 or 2% per trade on their relatively small trading accounts, it will eventually lead to over trading which is about the worst thing you can do for your bottom line. It is also a difficult task to recover from a drawn down period. Remember, once you drawn down, using a 2 % per trade method, your risk each trade will be smaller, there fore, your rate of recovery on profits is slower and hinders the traders effort.

The Most important fact is this.. if you start with $10,000 , and drawn down to $5,000, using a fixed % method, it will take you “much longer” to recover because you started out risking 2% per trade which was $200, but at the drawn down period, your only risking $100 per trade, so even if you have a good winning streak, your capital is recovering at “half the rate” it would using “fixed $ per trade risk.

Myth 3: Wider stops risk more money than smaller stops

Many traders erroneously believe that if they put a wider stop loss on their trade they will necessarily increase their risk. Similarly, many traders believe that by using a smaller stop loss they will necessarily decrease the risk on the trade. Traders that are holding these false beliefs are doing so because they do not understand the concept of position sizing.

Position sizing is the concept of adjusting your position size or the number of lots you are trading, to meet your desired stop loss placement and risk size. For example, say you risk $200 per trade, with a 100 pip stop loss you would trade 2 mini-lots: $2 per pip x 100 pips = $200.

Now let’s you want to trade a pin bar setup but the tail is exceptionally long but you would still like to place your stop above the high of the tail even though it will mean you have a 200 pip stop loss. You can still risk the same $200 on this trade, you just need to adjust your position size down to meet this wider stop loss, and you would adjust the position down to 1 mini-lot rather than 2. This means you can risk the same amount on every trade simply by adjusting your position size up or down to meet your desired stop loss width.

Let’s now look at an example of what can happen if you don’t practice position sizing effectively by failing to decrease the number of lots you are trading while increasing stop loss distance.

Example: Two traders risk the same amount of lots on the same trade setup. Forex Trader A risks 5 lots and has a stop loss of 50 pips, Trader B also risks 5 lots but has a stop loss of 200 pips because he or she believes there is an almost 100% chance that the trade will not go against him or her by 200 pips. The fault with this logic is that typically if a trade begins to go against you with increasing momentum, there theoretically is no limit to when it may stop. And we all know how strong the trends can be in the forex market. Trader A has gotten stopped out with his or her pre-determined risk amount of 5 lots x 50 pips which is a loss of $250. Trader B also got stopped out but his or her loss was much larger because they erroneously hoped that the trade would turn around before moving 200 pips against them. Trader B thus losses 5 lots x 200 pips, but their loss is now a whopping $1,000 instead of the $250 it could have been.

We can see from this example why the belief that just widening your stop loss on a trade is not an effective way to increase your trading account value, in fact it is just the opposite; a good way to quickly decrease your trading account value. The fundamental problem that afflicts traders who harbor this believe is a lack of understanding of the power of risk to reward and position sizing.

The Power of Risk to Reward

Professional traders like me and many others concentrate on risk to reward ratios, and not so much on over analyzing the markets or having unrealistically wide profit targets. This is because professional traders understand that trading is a game of probabilities and capital management. It begins with having a definable market edge, or a trading method that is proven to be at least slightly better than random at determining market direction. This edge for me has been price action analysis. The price action setups that I teach and use can have an accuracy rate of upwards of 70-80% if they are used wisely and at the appropriate times.

The power of risk to reward comes in with its ability to effectively and consistently build trading accounts. We all hear the old axioms like “let your profits run” and “cut your losses early”, while these are well and fine, they don’t really provide any useful information for new traders to implement. The bottom line is that if you are trading with anything less than about $25,000, you are going to have to take profits at pre-determined intervals if you want to keep your sanity and your trading account growing. Entering trades with open profit targets typically doesn’t work for smaller traders because they end up never taking the profits until the market comes swinging back against them dramatically. (I think this is very important, go back an re read that last sentence)

If you know your strike rate is between 40-50% than you can consistently make money in the market by implementing simple risk to reward ratios. By learning to use well-defined price action setups to enter your trades you should able to win a higher percentage of your trades, assuming you TAKE profits.

Let’s Compare 2 Examples - One Trader Using the 2 % Rule, and one Trader using Fixed $ Amount.

Example 1 - -you have a risk to reward ratio of 1:3 on every trade you take. This means you will make 3 times your risk on every trade that hits your target, if you win on only 50% of your trades, you will still make money:

Let’s say your trading account value is $5,000 and you risk $200 per trade.

You lose your 1st trade = $5,000-$200 = $4,800,
You lose your 2nd trade = $4,800-$200 = $4,600,
You win your 3rd trade = $4,600+$600 = $5,200
You win your 4th trade = $5,200+$600 = $5,800

From this example we can see that even losing 2 out of every 4 trades you can still make very decent profits by effectively utilizing the power of risk to reward ratios. For comparison purposes, let’s look at this same example using the 2% per trade risk model:

Example 2 - Once again, your trading account value is $5,000 but you are now risking 2% per trade: Remember, you have a risk to reward ratio of 1:3 on every trade you take. This means you will make 3 times your risk on every trade that hits your target, if you win on only 50% of your trades, you will still make money:

You lose your 1st trade = $5,000 - $100 = $4900
You lose your 2nd trade = $4900 - $98 = $4802
You win your 3rd trade = $4802 + $288 = $5090
You win your 4th trade = $5090 + $305 = $5395

Now we can see why risking 2% of your account on each trade is not as efficient as the trader using the fixed $ amount. Important to note that after 4 trades, risking the same dollar amount per trade and effectively utilizing a risk to reward ratio of 1:3, using fixed $ risk per trade, the first traders account is now up by $800 versus $395.

Now, If the trader using 2% rule had a draw down period and lost 50% of their account, they efectively have to make back 100% of their capital to be back at break even, now, this may also be so for the traderusing the fixed $ risk method, but which trader do you think has the best chance of recovering? Seriously, it could take a ver long time to recover from a drawn down using the 2% method. Sure, some will argue that you can drawn down heavier and its more risky to use the fixed $ method, but we are talking about real world trading here, I need to use a method that gives me a chance to recover from losses, not just protect me from losses. With a good trading method and experience, you can use the fixed $ method, which is why I wanted to open your eyes to it.

In Summary

The power of the money management techniques discussed in this article lies in their ability to consistently and efficiently grow your trading account. There are some underlying assumptions with these recommendations however, mainly that you are trading with money you have no other need for, meaning your life will not be directly impacted if you do lose it all. You also must keep in mind that the whole idea of risk to reward strategies revolves around having an effective edge in the market and knowing when that edge is present and how to use it, you can learn this from my price action forex trading course.

While I do not recommend traders use a set risk percentage per trade, I do recommend you risk an amount you are comfortable with; if your risk is keeping you up at night than it is probably too much. If you have $10,000 you may risk something like $200 or $300 per trade.. as a set amount, or whatever your are comfortable with, it may be a lot less, but it will be constant. Also remember, Professional traders have learned to judge their setups based on the quality of the setup, otherwise known as discretion. This comes through screen time and practice, as such; you should develop your skills on a demo account before switching to real money. The money management strategy discussed in this article provides a realistic way to effectively grow your account without evoking the feeling of needing to over-trade which so often happens to traders who practice the % risk method of money management. Learn to use my price action strategies with the power of risk to reward ratios and your trading results will begin to turn around.

If you want to Learn About Strategies I use to Enter Forex Trades - Check out My Price Action Forex Course

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Forex Fundamental Analysis: High Impact Indicators For USD

Real Source : theforexstar

Fundamental Analysis in the forex market is the art of predicting future price movements based on macroeconomic events and political developments. The forex market is the only market that can be traded successfully on both economic news and political news, as the commodity traded, currency, is backed by a nation and not just a company. So any change in the status quo of a nation can and will effect a nations currency. The forex market like all other markets are governed by the laws of supply and demand, thus the question all traders must ask themselves on release of news is: Will this affect demand for that currency positively or negatively?

All countries have a number of key economic and political indicators that have high impact on the market when released such as the Treasury International Capital (TIC) in the USA and the ZEW Survey for the Euro zone countries. To be a successful fundamental forex trader basing your trades on these news, means you must know what they mean and how they impact the market. It is not merely enough to understand the written value of key figures, rather you must know how to put that information into context. It is important to look at economic news compared to how the general expectations and consensus are on that information. Remember you are not trading on your assessment, but against all other traders and how they view the same information as you do.

In this article we will look at some of the high impact economic indicators for USD currency pairs.

The USD is still the worlds dominating currency even amid economic turmoil. Commodities of all sorts are quoted in USD especially the worlds most important such as Oil and Copper. When someone makes a trade anywhere in the world for such a commodity they are quoted a price in dollars even if the trade takes place far from the US exchanges.

Let’s take a look at some important US indicators and when they are released:

Trade Balance:
This is a high impact indicator that measures the difference between the monetary value of all exports and imports in the US. If the Trade Balance is negative or falling that means there is more dollars going out than coming in, thus increasing supply and lowering price. If the Trade Balance is positive or rising the opposite is true, there is a demand for USD thus raising price.

The Trade Balance Report is released monthly around the 10′th of each month.

Treasury International Capital (TIC)
This key figure measures the monthly difference in cross border transactions in securities (long term). If this figure is positive or rising that implies there is a demand for USD to purchase American securities. In turn this means that a positive trend has positive impact on the USD.

The TIC is released monthly around the 15′th.

Gross Domestic Product (GDP)
The classic measurement of economic growth calculates the value of all services and goods produced in a country trough labor and property. A positive trend implies a strong economy which is good for a nations currency.

GDP figures are released quarterly.

ISM Manufacturing Index
This index measures the business activity in the manufacturing segment of the economy and the survey is conducted monthly. Any number over 50 is indicative of growth and vice versa. A positive growth trend is positive for the USD.

ISM is released the first working day of each month.

Philadelphia Fed Index
This is a monthly survey of Philadelphia Federal Reserve District Manufacturers business conditions. A positive trend is a sign of a strong economy and good for the USD.

PFI is released around the 15′th of every month.

Durable Goods Orders
A measurement of the value of current orders for durable goods (Expected life of more than 3 years). One of the indicators of capital investment. Traders watch this one carefully because it predicts future production very well.

Released around the 25′th of each month.

Consumer Price Index (CPI)
Inflation rate development measured from the consumer level. CPI is the major measurement of inflation. Historically, if the inflation rate exceeds 2% pr. Year, the Fed will increase interest rates, which will in turn attract foreign demand for treasury notes and USD.

Released around the 13′th of each month.

Producer Price Index (PPI)
Another index measuring inflation but this time from the producers viewpoint. Since producers usually pass on any production costs to consumer, this one can be seen as consumer inflation as well.

Released in the middle of each month.

Unemployment Rate
As the name suggests, the percentage of Americans currently without a job but still active in the job market. High unemployment is bad for the economy as consumers have less money to spend on goods which affects GDP negatively. Low unemployment means more spending and higher investments which affects both the economy and currency in a positive direction.

Released in the first week of each month.

Federal Open Market Committee (FMOC) Statement
The FMOC is the committee that decides short term interest rates in the US. They vote eight times annually on how to set the short term interest rate (Fed Funds Rate). A very important indicator that traders try to predict for the reason that interest rates are the major driving force behind currency prices.

Released every six weeks.

Federal Reserve Chairman Speech
One of the highly anticipated news of the economy as the Fed Chairman holds large influence over interest rates and therefore this speech gives an insight into the current agenda of the Feds monetary policy.

These are but some of the many economic indicators used in fundamental analysis. Knowing exactly when they take place is paramount for any trader. It is essential for any serious trader to have a forex calender with the dates and times of these events mapped in. There are many interactive calenders available online, with most being provided by the brokers.

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Forex Fundamental Analysis: Using Commodities As Indicators

Real Source : theforexstar

Predicting the next moves in the market is what the art of trading is all about. Of course this isn’t easy and putting this basic concept into action requires a lot of skill and experience. This is especially true in the forex market. Investors and traders have long known that the forex market is influenced by far more than just forex. The truth is, currency is influenced by many factors, political, economic, interest rates, economic growth and much more, and all are interlinked to some extent making it that much harder to isolate one moving factor.

Specifically some currencies are strongly linked to other factors, such as for example commodities. In this article we will show some examples on how you can trade currency based on movements in the commodity market and how you analyze those numbers.

Lets go back to the year 2005, where oil and gold unlike now where at all time record highs. Those two commodities were the big movers in the markets that year. The dollar had very different reactions to other currencies based on those commodity movements and how the foreign currency related to oil and gold. The way a trader can take advantage of this is to figure out how a currency will react when the oil price rices or falls. In the next example we will look at the CAD (Canadian Dollar) and its reaction to the oil price.

In 2005 the Canadian Dollar was very strong. This was a direct result of the high oil prices, rising more than 60% over the year. Because Canada is a net exporter of oil, the extra revenue of oil income greatly improved the CAD as the overall Canadian economy benefited.

On the other hand the other example here is Japan.
Japan is a an oil importing country, importing close to 99% of its oil, virtually all. Because Japan also lacks other natural resources to compensate for this energy problem, the Japanese economy is particularly vulnerable to the oil price. In fact the Japanese imports more than 79% of its total energy need. So stable and low oil prices are of utmost importance for the Japanese economy. So when the oil prices rise it hurts the Japanese Yen.

When we know these two things, how can we capitalize on this knowledge?

We can now accept these to currencies or rather their currency pair CAD/JPY as a prime indicator on oil prices. So, we can trade this currency pair for profits on nothing else but oil information. Or the CAD/JPY can give us additional information on the market sentiment on oil.

Gold is another currency that tends to be linked to especially the dollar. When the dollar weakens, and thus the markets belief in the monetary system, gold rises in value. While gold is no longer the reserve value of the world, it is still a leading storage of value and will likely continue to be so.

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Forex Position Sizing

Real Source: forextradingzone

For many new forex traders, the promise of quick riches is difficult to resist. That is the main reason why every day so many people from all walks of life begin trading the forex market. While some element of this “keep your eyes on the prize” mentality is necessary to get traders through the tough times, on any given trading day one should really focus on other things first. When contemplating any kind of trade set up, a trader MUST understand that no matter how perfect the setup is, it is possible for something to go wrong and the trade may end up being a loser. That’s ok – it happens to everyone. Inherent in the forex market is a certain degree of randomness. That is not to say that the market is completely random – it isn’t – but it is so complex that a certain degree of randomness is unavoidable. This randomness is necessary for the proper functioning of any market. It cannot be eliminated, but it can be managed. So back to our perfect setup that failed: how could this have happened? Well, as luck would have it, as a part of its quarterly internal accounting procedure, some random multinational corporation just happened to be buying the currency that you sold, driving up its value – that is, moving the price against your position and triggering your stop loss order. If you were smart, and you managed this randomness, or risk in a logical manner, you can take the loss in stride and live to trade another day. This is just a part of what every trader may have to go through on any given dog-day afternoon.

So how do you manage this “risk”? There are volumes of books written on the subject, and there are many different methods to accomplish this, but really what we are talking about is “how much are you willing to lose on this trade if it goes against you?” The answer should come from your money management rules, which are a slightly different topic (we will discuss this in an upcoming article). Suffice it to say that most traders live by the rule that no more than 1-2% of your account should be risked on any one position. What we are dealing with here then is how do you make sure that you only risk x% of your account? What many novice traders believe is that you should use x% of your margin on every trade, but that is EXTREMELY DANGEROUS and not in line with proper risk management. The reason is simple: such a calculation does not even take into account your trade setup at all. If you are placing a long-term trade with a 1,000 pip stop loss, you could very well be facing a margin call long before price reaches your stop loss level. On the other hand, if you are placing an intraday trade with a 15 pip take profit, then your profit will be insignificant. There must be a way to take into account your exact trade setup and to choose your position size accordingly. The trade setup must determine position's size, NOT the other way around! This is one of the most critical aspects of retail forex trading, and many traders simply don’t get it (or don’t care). Let’s illustrate this with an example:

Say you have a $10,000 mini account with an MT4 broker that allows you to trade 0.01 lots (minimum trade size would be 0.01 x 10,000 = 100 units). Your broker’s margin requirement is 1% (that is the same as saying your maximum leverage is 100:1). Now say the current price of EUR/USD is 1.2600 and you see a nice setup: you want to go long at 1.2500 because it is a strong support level and your analysis tells you there is a strong likelihood of move upward from there, should price go to 1.2500. Your analysis also tells you that if price drops below 1.2050, the trend is not in your favor and you should exit the trade with a stop loss order. Strong resistance is found at 1.3500 and all signs point to price reaching that level in the coming weeks, so you take this to be your exit target so you set your take profit at that level. You go on to place your buy limit order at 1.2500, but before you do, you need to figure out the optimal position size. How much do you want to buy at 1.2500?

The wrong way:

Then you remember someone, somewhere telling you that using 1% of your available margin is the same as risking 1%. You do a quick calculation and you see that your position should be 1 mini lot, or 10,000 units of EUR/USD. Happy with yourself, you enter your buy limit order at 1.2500, with a stop loss at 1.2000 (just below your threshold of 1.2050, so your trade has some extra room to breathe).

Unfortunately for you, the European economy starts to show quite a bit of weakness over the next few weeks and your support level does not hold up. EUR/USD dips below your stop loss level and you just lost your trade. No big deal, you were risking just 1% of your account. You lost $500 and your balance is now $9,500. But wait, $500 is NOT 1% of your account. It is 5%! The definition of “amount at risk” is the maximum amount you can lose if the trade goes against you… So if you risked just 1% of your account, how is it that you lost 5%? Obviously there is something wrong with your calculations. Aren’t you glad you were trading demo? Otherwise it would have been a very expensive lesson.

The right way:

You have now understood that the “amount at risk” is not the same as “used margin”. In fact, they are two very different things. The amount at risk is the amount you stand to lose if price hits your stop loss. Luckily for you, it is very easy to calculate. Here is how:

Where:
X is the position size (in units of the base currency), and the value we are trying to calculate
R is the % of account you wish to risk
B is the account balance
T is the long/short indicator: -1 if short position, +1 if long position
P₁ is the entry price
P₂ is the stop loss (exit) price

Simply substitute in the values and we get:

And we get a value of:

X = 2,000 units

So the ideal position size for the desired setup would be 2,000 units of EUR/USD. We can run a quick check because we know that all currency pairs with USD as the counter currency have constant pip values of $1 per 10,000 units. So a position of 2,000 units would have a pip value of $0.20. Multiply this by 500 pips, and we get an “amount at risk” value of $100, which is 1% of our $10,000 account, so everything checks out. Please note that the above formula works for all USD/XYZ and XYZ/USD pairs, but does NOT work for crosses (ABC/XYZ) because the pip values for crosses depend on the underlying USD/XYZ pair’s price.

We can also use a variation of the above formula to calculate the “reward”, or the amount you stand to gain if the trade does pan out the way you planned:

(NOTE: the positions of P1 and P2 have been reversed as compared to the risk formula)

Where:

W is the Win, or "Reward" amount and the quantity we are trying to calculate
X is the position size we calculated
T is the long/short indicator: -1 if short position, +1 if long position
P₁ is the entry price
P₂ is the stop loss (exit) price

Knowing the risk amount as well as the reward amount, we can determine a Risk-to-Reward ratio and over a large number of trades, we can also determine the mathematical expectancy of our trading system or strategy. This is one of the most useful, though often statistically unreliable pieces of information we can gather. We will learn more about this concept in our follow up article “Mathematical Expectancy in Forex”.

The above examples also pre-suppose a highly liquid market at all times, meaning that your orders will all get filled at the exact price you want. In reality, this is not always the case. Your orders may or may not get slipped by a few pips, creating an extra loss which may or may not be significant, depending on how big of a chunk of your account those “few pips” are. If you are an intraday trader that trades relatively large positions over short timeframes, then a “few pips” can add up to be quite a bit. If you are a swing or position trader who uses small positions to gain hundreds or even thousands of pips per trade, then a few pips here and there will not make a big difference in the long run. How much of a difference this makes is directly related to the average “amount at risk” of your trading system or strategy.

It should also be mentioned that there are many other ways to manage risk in the forex market, including the use of forex options and other instruments. These function in a slightly different and more complex way, and are beyond the scope of this article

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ECN vs. Market Maker Comparison

Real Source : forextradingzone

This article assumes some knowledge of the way the forex market and forex brokers work. If you are not familiar with this, we recommend that you first read our Structure of the Forex Market and Structure of Forex Brokers articles. Contrary to popular belief, ECN's are not superior to Market Makers in every way. There are advantages and disadvantages on both sides.

Minimum Deposits

There are retail market makers out there today that allow traders to begin with $1 in their accounts. That’s not to say that this is a great feature, but it does present options to people who may not have the kind of money it takes to open a Currenex account. It’s a good thing too, because ECN contract sizes are often multiples of $1 million, and some ECNs expect a daily volume of $25 million. Shackled with those types of minimums, you had better be well Capitalized (with a capital “C”).

Leverage

ECNs don’t allow the type of high leverage that is typical of market makers. To most people this is no great loss, since it is generally not advisable to use anywhere near the leverage that is available at most retail market makers.

Transaction Costs

Whether they call it a spread or a commission is really irrelevant at the end of the day - no matter what, you have to pay to play. ECNs typically give you the prices they are dealt from their liquidity providers, with the exact same spreads, but then charge a commission for every round turn trade. This allows them to give discounts to high volume traders, lowering their costs, but to most traders, it is really irrelevant whether they are made to pay a commission with a tight spread or no commission with a higher spread. It works out to be roughly the same, depending on which brokers you are comparing, and what current spreads are like.

Volatility

The potential volatility is higher on ECNs because of their unfiltered slice of the market. By risking some exposure, market makers can generally mitigate this. Depending on the type of trader you are, volatility may be your friend or your enemy.

Stability of Business Model

The fact that a market maker is the counterparty to many of its clients’ trades, exposes it to market risk. While this risk should be well managed through appropriate hedging with a higher-tier counterparty, this may or may not be the actual case. Furthermore, even if the risk is well managed, it is still a risk. An ECN does not have to worry about this, as it provides only a service for which it charges a commission. At no point is an ECN exposed to market risk. What this means is that the likelihood of an ECN becoming insolvent is much lower than that of a market maker. This has serious implications for client funds which the broker is holding. On the other hand, any market maker worth its salt should keep client funds segregated from the company’s operating capital, itself be well capitalized, and keep risk management tight, therefore keeping clients relatively insulated against the possibility of broker bankruptcy.

Susceptibility to manipulation

While ECNs offer a “truer” participation in the market, the picture there is not necessarily prettier. The added transparency only brings to light the dog-eat-dog world that is the forex market. Trading with a market maker insulates your from that to some degree, but this can also be used to hide things from you. It is nice to have guaranteed stops, though, and you won’t find those on any ECN. Basically, in my view, ECNs are great for experienced day traders and scalpers, while market makers are better for everyone else, as long as they are deemed to be "honest".

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Forex Hedging

Real Source: forextradingzone

There are a number of forex dealers, dare I say even the majority, who allow clients to practice what is commonly referred to as “hedging” in the forex. What this means is that they allow clients to open both long and short positions in the same currency pair, at the same time. Other dealers, on the other hand, automatically close your positions when you enter orders that are exactly opposite to your open positions. There is an ongoing debate among retail traders about whether the practice of “hedging” is useful or not. There are traders out there who swear by “hedging” and others who think it is absolute bollocks.

First off, let’s differentiate this type of hedging from hedging in other markets.

“In finance, a hedge is a position established in one market in an attempt to offset exposure to the price risk of an equal but opposite obligation or position in another market.” (Wikipedia)

An example of this would be someone who believes in the inherent weakness of the Canadian dollar (CAD), but is afraid that escalating violence in the Middle East may push oil prices up. Since CAD has been known to have a fairly strong positive correlation to oil, the investor decides to sell CAD (long USD/CAD) based on his belief that the CAD fundamentals are weakening, but he hedges this position by buying some oil. This way, if oil does spike, driving up the value of CAD, he will lose out on his short CAD position, but this loss will be somewhat offset by his long oil position. Note that hedging is not meant to eliminate the risk, but only to mitigate it. It is a form of insurance against overwhelming loss. What it does, if done properly, is to smooth out the equity curve of a portfolio, which has benefits which are beyond the scope of this article.

The careful reader will notice immediately that the last words of the definition above read “in another market”, which automatically invalidates the buying and selling of the same currency pair as a hedge. There is no other word to describe this practice however, so you will see it in quotes whenever I refer to it, to differentiate it from the real hedging described in the example.

So we have determined so far that “hedging” is not the same as hedging. In order to go further, we should also define several other terms:

Equity – specific to a retail forex account, this word describes the “value” of the account at the present time. It is calculated by taking the total value of all open positions in the market and adding that value to the account balance. For example, if you have a $10,000 account and one open position that is currently losing $1,000, your equity is $10,000 - $1,000 = $9,000. If you have open positions, this value fluctuates every time your positions do. If you were to liquidate all your positions at current prices, your account balance would become equal to your equity.

Balance – the amount of money you have in the account as margin. This amount varies only when positions are closed, but is not a good measure of the total value of your account, as it does not account for open positions. To judge the value of an account, equity should always be used instead of balance.

Understanding the above terms is crucial in judging whether “hedging” is beneficial or not, since they will be affected differently when a “hedge” is applied.

So what does happen when a “hedge” is applied? When an exact “hedge” is applied, meaning that you buy and sell the same amount of the same currency, your net position in the market is zero (you are market neutral). You are buying and selling the exact same thing at the exact same time, so it doesn't matter which way the market moves, the gain in one trade will be exactly offset by the loss in the other trade. The only thing that has happened is that you have paid your broker the commission or spread payment twice. This is also true of "hedged" trades which are not exactly equal. If you buy x units of EUR/USD and you simultaneously sell y units of EUR/USD, then your net position is x-y units of EUR/USD, where a negative value indicates a net short position and a positive value indicates a net long position. You can see from here that if x=y, then we have a net position of 0. Let's study 2 cases where one trader uses the "hedge" option and another trader simply closes his trade in order to become market netural, that is, to close his positions.

Case 1: No "hedging"

$10,000 account

Open 1 mini lot (10,000 units) long EUR/USD at 1.2500/02 (1.2502 is ask price, so this is the one used)

EUR/USD goes to 1.2000/02 and we exit (1.2000 is used)

Total loss of 0.0502 or 502 pips

Total loss is 502 x $1 = $502 ($1 is the EUR/USD pip value on a mini lot)

Equity = $9,498

Case 2: "hedging"

$10,000 account

Open 1 mini lot long EUR/USD at 1.2500/02 (1.2502 is ask price, so this is the one used)

EUR/USD goes to 1.2000/02 and we enter a 1 mini lot short (at 1.2000)

Now we are market neutral (our equity does NOT change regardless of where EUR/USD goes). We have, in effect, closed our position.

However, our platform says we have 2 positions open:

1. -502 pips = -$502
2. -2 pips = -$2 (due to spread)

Equity = $9,496

Then price continues downward to 1.1000 and we have:

1. -1502 pips = -$1502
2. +998 pips = $998

Equity = $9,496 (unchanged because we are "hedged")

Adding our two positions together yields an account equity of -$504. Compared to Case 1, where we lost only $502 and had no trades to worry about any more. Now we have lost $2 more due to paying an extra spread, AND we still have to worry about having open positions.

It may not seem like much, losing 2 pips more than in case 1, but you are in effect doubling your spread, and forex is not a game where you can afford to throw away perfectly good pips. Add to that the fact that you still technically have 2 trades open, and the inherent risk of slippage or other execution problems when it comes to trying to close these 2 trades, and you have another possible disadvantage.

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Cross-rates, pips, figure

Real Soource: forexrealm

Cross rate and pip - are two of the main terms in Forex market.

Cross-rate is when two currencies are equal which follows from their Forex currency exchange rate according to a Forex rate of the third currency. Pairs of non-US dollar currencies are called "crosses." It's possible to withdraw cross exchange rates for the GPB, EUR, JPY and CHF from the mentioned above major pairs. Exchange rates must be firm in all currencies , otherwise it will be possible to "return trip" and make unrisky benefits.

Example

Assume that the following major exchange rates are known:
EUR/USD = 1.0060/65
GBP/USD = 1.5847/52
USD/JPY = 120.25/30
USD/CHF = 1.4554/59

To calculate GPB/CHF
GBP/USD: Bid: 1.5847 Offer: 1.5852
USD/CHF: 1.4554 1.4559
GBP/USD X USD/CHF = 1.5847 X1.4554 1.5852 X 1.4559

"Pips" is a point, or a minimal currency change. Various instruments, or so-called currency pairs, are quoted with various accuracy, or with different number of characters in their quotations. Most currencies are quoted with the accuracy of 0.0001, but some of them such as yen and its cross-rates - with the accuracy of 0.01. Usually Quotations are given in contracted form because big figures of quotations change quite slowly. It looks like this: EUR 10/15, which means, UR/USD 1.1310/1.1315. When quotations change, for instance, USDJPY=121.44 to USDJPY = 121.45 or GBPUSD = 1.6262 to 1.6263 it means that that the price has changed by 1 point. In the previous examples dollar raised by 1 point comparatively to yen which decreased by 1 point, and pound also raised by 1 point.

The value of one point in US dollars differs both for different currencies and for the same currency with various quotations. The amount of the deal also influences the value of one point. On the whole, the scheme for calculating the value of one point of the currency in US dollars can be demonstrated like this: Value of the point = Amount of deal * Point. This scheme lets you get the results in the quoted currency. If you want to calculate the value of one point back from the quoted currency to US dollars, you should divide the result by ASK (Offer) rate of the quoted currency against US dollars in case if the quoted currency has direct rate, or to multiply by BID rate of the quoted currency against US dollar if the quoted currency has reverse rate.

For example:
There's a position USD 200000, on the market of USDJPY
Accordingly, value of one point = 200000 * 0.01 = JPY 2000
If now the current rate is USDJPY 118.62/68, then value of one point in USD will be 2000/118.68 = USD 16.85
There's a position EUR 300000, on the market of EURGBP
Accordingly, value of one point = 300000 * 0.0001 = GBP 30
If now the current rate is GBPUSD 1.6101/07, then value of one point in USD will be 30*1.6101= USD 48.30
There's a position GBP 100000 on the market of GBPUSD
Accordingly, value of one point = 100000 * 0.0001 = USD 30

Another term is "figure". The scheme mentioned below will demonstrate the connection between pips and figures.

Currencies are quoted using four positions after the decimal point, which means that one pip is 1/10,000 of the currency unit. There is a difference of four pips between "buy" and "sell" in this above example (EUR/USD) but there is no difference in the figures' value.

Here the Japanese yen is not the currency which is quoted. The yen is quoted only two positions after the decimal point because of the high denomination of the yen against the USD, for example, 121.23 - 121.39. So one pip = 1/100 of the Japanese currency unit. If you phone the dealer, he or she will tell you only the values of the pips, being sure that you know both the market situation and the value of the figures. If you are not it's better to figure it out.

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forexrealm

Real Source: forexrealm

Of course, every investment is risky but the risks of loss in trading off-exchange Forex contracts are even bigger. That's why once you decide to be the player in this market, you'd better realize the risks connected with this product for make suspended decisions before investing.

In Forex you are operating big sums of money, and it's always possible that a trade will turn against you. The Forex trader should know the tools of advantageous and careful trading and minimizing losses. It's possible to minimize the risk but no one can guarantee eliminating it. Off-exchange foreign currency trading is a very risky business and may not be appropriate for all market players. The only funds that can be used for speculating in foreign currency trading, or any kind of highly speculative investments, are funds that represent risk capital - for example, funds you can afford to risk without worsening your financial situation. There are other reasons why Forex trading may or may not be a suitable investment.

The fraud and Scams in Forex market

A few years ago Forex scams were very usual but since then this business has cleaned up. However it's wiser to be cautious and to check broker's background before signing up any documents with him or her. Reliable Forex brokers work with big financial institutions such as banks or insurance enterprises and are always registered with official government agencies. In the US, brokers should be registered with the Commodities Futures Trading Commission or should be a member of the National Futures Association. You can also check their background in your local Consumer Protection Bureau and the Better Business Bureau.

There's risk of losing your whole investment!

You will be asked to deposit an amount of money, called the "security deposit" or "margin", with your Forex dealer in order to buy or sell an off-exchange Forex contract. A small amount of money can let you hold a Forex position many times bigger than the value of your account. This is called "gearing" or "leverage". The smaller the deposits related to the underlying value of the contract are, the greater the leverage turns out to be. If the price moves in an unpreferrable direction, high leverage can bring you large losses compared to your first deposit. That's how a small move against your position may become the reason for a large loss, and even the loss of your entire deposit. If it's pointed in the contract with your dealer, you may also be required to pay extra-losses.

The market sometimes moves against you!

It's impossible to foresee with a 100%-gurantee how exchange rates will move, and the Forex market is quite unsteady. Changes in the foreign exchange rate between the time you place the trade and the time you close it out influences the price of your Forex contract and the future profit and losses related to it.

There is no main marketplace!

The Forex dealer determines the execution price, so you are relying on the dealer's honesty for a fair price. As unlike adjusted futures exchanges, in the retail off-exchange Forex market there is no main marketplace with lo ts of buyers and sellers.

You are relying on the dealer's reputation credit reliability

There's no guarantee for retail off-exchange Forex trades because of a clearing organization. Besides funds deposited for trading Forex contracts are not insured and never get a priority in case of bankruptcy. Even customer funds deposited by a dealer in an FDIC-insured bank account are not protected if the dealer faces bankrupt.

There's a risk of the trading system break down!

Sometimes a part of the system fails if you are using an Internet-based or any electronic system for executing trades. In case if the system fails, it can happen that for some time one is not may able to enter new orders, execute running orders, or alter or cancel orders that were entered before. The result of a system failure may be a loss of orders or order priority.

You can become a fraud victim!

Keep away from investment schemes that promise big profit with little risk. To defend your capital from fraud you should carefully examine the investment offer and go on monitoring any investment you make.

Risks Types

There are risks to Forex trading even if you work with a reliable broker. Transactions are unexpected and are up to unsteady markets and political events.

Interest Rate Risk is based on differences between the interest rates in the two countries represented by the currency pair in a Forex quote

Credit Risk is a possibility that one party in a Forex transaction may not honor their indebtness when the deal is closed. This can occur if a bank or financial institution goes bankrupt.

Country Risk is connected with governments that take part in foreign exchange markets by limiting the currency flow. The country risks more risk making transactions with "rare" foreign currencies than with currencies of big countries that let the free trading of their currency.

Exchange Rate Risk depends on the changes in prices of the currency during a trading period. Prices can go down quickly if stop loss orders are not used. There are several ways of minimizing risks. Each dealer should have a trading scheme. For example, one should know when to enter and exit the market, what kind of fluctuations to expect. The main rule which every trader should sticks to "Don't use money that you can't afford to lose". The key to limiting risk is education which is necessary for developing successful strategies.

Every Forex trader should know at least the main things about technical analysis and reading financial charts. He should also know chart movements and indicators and understand the schemes of charts' interpretation.

Stop-Loss Orders

Even the most experienced traders can't foresee with absolute certainty how the market is going to change. Therefore one should use these tools to limit losses during every Forex transaction.

The simplest way of limiting risk is to use stop-loss orders. A stop-loss order consists of instructions how to exit your position if the price comes to a definite point. When one takes a long position and expects the price to go up he or she puts a stop loss order below the current market price. When one takes a short position and expects the price to go down he or she puts a stop loss order over the running market price. Stop loss orders are often used together with limit orders to automatize Forex trading.

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You and Forex broker

Real Source: forexrealm

The forex broker is required to become the participant of the world largest market - the forex market. The forex broker can make suppositions of any currency purchase or selling which is not common for stock brokers. Some kinds of technical analysis as well as the tips are sometimes offered by forex brokers to their clients to ameliorate the trading income of the latter.

The broker of the forex market is generally a banking structure able to buy considerable masses of a currency. Banks used to be the only institutions that had a possibility to be forex traders whereas it's easy for any trader to have round-the-clock trade at the market being subscribed with a broker.

The structures like banks, also called the brick and mortar institutions, have fewer opportunities nowadays to give their decisions to individual forex traders who have direct access to the market and latest news by trading from home.

Your needs may be the criteria for choosing the forex broker. There are lots of online forex brokers or houses that offer in-depth research, various demo programs for the newcomers. Other forex brokers, targeted at experienced traders, offer fewer help supposing that you have some skills and knowledge how any particular situation may do good. Before you start dealing with any online broker it is strongly recommended to find out everything about him or her and sometimes to try a demo.

The best forex brokers are characterized by their deep awareness of the techniques of money management. Trading signals understanding, possibility to analyze any market conditions rapid changes, and various market factors comprehension, such as interest rates are the criterion of this characteristic. Traders provided with such information carry out their trades consistently using these time-tested methods.

The positions taken by brokers are intelligent and let them gain their clients' profits.

Statistical tools are widely used by FX (Forex) brokers for trends analyses. FX brokers find the best time to act at the market relying on approximately 26 technical indicators. The principals of dynamic forex trading are carried out by forex brokers by analyzing complicated statistics and charts. FX brokers forecast possible market movements through these indicators. The traders use this ability of brokers to find the correct statistical trends for gaining the profit for the investors.

The most experienced forex brokers are very competent risk managers. The asset market model, which is one of the latest theories, considers currencies to be the asset prices that are dealt with in the financial market. Stock market averages give the basis for Dow Theory. Forex brokers must decide on the trends and market opportunities relying on the experience despite the validity of any theory. The qualities characterizing top FX brokers are: objective, knowledgeable, disciplined, and ethical.

The websites of governmental entities and brokerage firms give the information of such traders. The integrity of traders and firms that propose services to public can be found out due to the investigations. At this very moment you can choose a forex broker but it is recommended for you to get some knowledge of the market before you do it. Being a knowledgeable investor while choosing the broker may do you only good. As far as Forex brokers deal with the Forex market day by bay, you'll come out an emphatic person if you speak to them at their professional language. This gives a chance that you'll be considered separately. Suppose all interaction being just an affair of humans.

The courtesy is valuable among the people involved in investment despite its apparent impersonality. Your financial welfare may depend on the relationship with the broker. You'll find a lot of stories concerning financial success surfing on the web, but we do not advice you to believe this miraculous success. Before you take any decision consider all alternatives objectively and well-thought-out. The honesty in your plans will let you gain a respect form Forex companies. The more straightforward the communication is, the more effective is the strategizing. You shouldn't figure on the stability in such sphere as markets.

Your efforts of the process learning will not be certainly repaid in a day whether the activity undertaken systematically and for a long time can give you a considerable result. So start the game today rising the cost of tour time. There are great opportunities for the European Forex brokers existing nowadays. The European philosophical views have changed due to the combination of international events that affects the strategies taken by the European Forex brokers. The recommendations will help you to decide on which broker to choose.

One of easy ways to do this is to ask for other Forex traders' advice. Special online forums give an access to such expert opinions constantly. Resources triangulation is another way to be aware of the process. It can be done by contacting various firms concerning your certain portfolio and find out their most threatening competitor. Counting the most threatening competitors will get you to triangulating the results. This list is the source to choose the company to be more successful. Moreover your portfolio has a superior agency over it, you shouldn't forget about it.

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Common Sense Guidelines for the Average Trader

Real Source : goforex

Provided by GVI

Common Sense Guidelines for the Average Trader

Look for a reputable broker

• Ability to trade effectively depends on consistent spreads and ample liquidity
• Anyone can establish a position
• Ability to close out a position at a fair market price is more important

Live to trade another day

• Apply prudent money management skills
• Avoid using excessive leverage that puts your investment capital at risk
• Always trade with a stop!

Don’t trade emotionally, stick to your plan and maintain discipline

• Establish a trading plan before initiating a trade
• Set reasonable risk/reward parameters
• Don’t override your stops for emotional reasons
• Don’t react to price action – means don’t buy just because it looks cheap or sell because it looks too high, Have supporting evidence to back up your trade

Don’t punt

• Don't punt( Punting is trading for trading sake without a view)

Don’t leave stops at obvious levels such as “big figures” (e.g. eur/usd 1.20, usd/jpy 110)

• i.e. JUBBS stops = stops at obvious levels and thus are more likely triggered

Don’t add to a losing position in unless it is part of a strategy to scale into a position

• In other words, don’t double up in the hope of recouping losses unless it is part of a broader trading strategy

Trading with and against the trend

• When trading with a trend, consider the use of trailing stops.
• When trading against the trend, be disciplined taking profits and don’t hold out for the last pip

Treat trading as a continuum

• Don’t base success on one trade
• Avoid emotional highs or lows on individual trades
• Consistency should be an objective

Forex trading is multi-currency

• Watch crosses as they are key influences on spot trading
• Crosses are one currency vs. another, such as eur/jpy (euro vs. jpy) or eur/gbp (eur vs. gbp)
• Crosses can be used as clues for direction for spot currencies even if you are not trading them

Be cognizant of what news is coming out each day so you don’t get blindsided

• Be cognizant of what news is coming out each day so you don’t get blindsided
• Beware of trading just ahead of an economic number and be wary of volatility following key releases

Beware of illiquid markets

• Beware of illiquid markets
• Adjust strategies during holiday or pre-holiday periods to take into account thin liquidity
• Beware of central bank intervention in illiquid markets

Jay Meisler, a partner in Global-View.com, says one problem of trading with too-high leverage is that one piece of surprise news can wipe out one's capital. "Those who treat forex trading as if they were in a casino will see the same long-term results as when they go to Las Vegas," he says, adding: "If you treat forex trading like a business, including proper money management, you have a better chance of success." …Newsweek International, March 15, 2004

Treat this business as a marathon and not a sprint so you avoid burnout and maintain stamina for the long haul.

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Rollovers in Forex

Real Source: goforex

by Mark Mc Rae
Surefire Trading

Even though the mighty US dominates many markets, most of Spot Forex is still traded through London in Great Britain. So for our next description we shall use London time. Most deals in Forex are done as Spot deals. Spot deals are nearly always due for settlement two business days later. This is referred to as the value date or delivery date. On that date the counter parties theoretically take delivery of the currency they have sold or bought.

In Spot FX the majority of the time the end of the business day is 21:59 (London time). Any positions still open at this time are automatically rolled over to the next business day, which again finishes at 21:59.

This is necessary to avoid the actual delivery of the currency. As Spot FX is predominantly speculative most of the time the traders never wish to actually take delivery of the currency. They will instruct the brokerage to always rollover their position.

Many of the brokers nowadays do this automatically and it will be in their policies and procedures. The act of rolling the currency pair over is known as tom.next, which stands for tomorrow and the next day.

Just to go over this again, your broker will automatically rollover your position unless you instruct him that you actually want delivery of the currency. Another point noting is that most leveraged accounts are unable to actually deliver the currency as there is insufficient capital there to cover the transaction.

Remember that if you are trading on margin, you have in effect got a loan from your broker for the amount you are trading. If you had a 1 lot position you broker has advanced you the $100,000 even though you did not actually have $100,000. The broker will normally charge you the interest differential between the two currencies if you rollover your position. This normally only happens if you have rolled over the position and not if you open and close the position within the same business day.

To calculate the broker's interest he will normally close your position at the end of the business day and again reopen a new position almost simultaneously. You open a 1 lot ($100,000) EUR/USD position on Monday 15th at 11:00 at an exchange rate of 0.9950.

During the day the rate fluctuates and at 22:00 the rate is 0.9975. The broker closes your position and reopens a new position with a different value date. The new position was opened at 0.9976 - a 1 pip difference. The 1 pip deference reflects the difference in interest rates between the US Dollar and the Euro.

In our example your are long Euro and short US Dollar. As the US Dollar in the example has a higher interest rate than the Euro you pay the premium of 1 pip.

Now the good news. If you had the reverse position and you were short Euros and long US Dollars you would gain the interest differential of 1 pip. If the first named currency has an overnight interest rate lower than the second currency then you will pay that interest differential if you bought that currency. If the first named currency has a higher interest rate than the second currency then you will gain the interest differential.

To simplify the above. If you are long (bought) a particular currency and that currency has a higher overnight interest rate you will gain. If you are short (sold) the currency with a higher overnight interest rate then you will lose the difference.

I would like to emphasise here that although we are going a little in-depth to explain how all this works, your broker will calculate all this for you. The purpose of this article is just to give you an overview of how the forex market works.

Good Trading

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High Probability Trading

Real Source: goforex

This tutorial is provided by Neal Hughes at FibMaster

Even traders with limited experience start to realize that we are not trying to capture every market move. We want to improve our odds and reduce our frustration by filtering, for high-probability trades.

The combination of trend and Fibonacci techniques can provide powerful signals for higher probability trading. We already know that trend-lines have some validity, and so do Fibonacci levels. Combine the two, to improve your chances.

The following charts are the USD/British Pound GBP. First, the daily chart as of October 5th 2005. I have drawn a red down-sloping trend-line joining the two recent swing highs.

The chart has moved down since early September , making a down-trend of consecutive "waves" with lower swing highs and lower swing lows. There were several opportunities to take advantage of the down-move. In this tutorial we will focus on the October 6th opportunity.

In a down-trend we want to short those swing highs, and take profits on swing lows. We don't want to short every time we **think** we have a swing high. If you have tried that, you know about whipsaw and fake-outs already haha. We only want the best trades, those which are more likely to succeed. So how do we choose an optimum entry point?

Our odds are improved if we have a swing high near a down-sloping trend-line (in red on the chart). Markets tend to reverse at Fibonacci levels. So if we have a significant resistance level near a trend-line we have an even better chance of success.

The next chart shows the GBP with Fibonacci resistance levels. Notice the "SK Resistance" level. This represents an area of significant resistance, with a higher probability of a reversal.

If you are new to Fibonacci, those studies look like a confusing series of colored lines. Learning how to use these Fibonacci studies, and which of them are stronger (higher probability), is really easy! I have made two video seminars that explain this. FibMaster.

That "SK Resistance" level, coinciding with a trend-line is an optimum shorting zone. If the market reaches that area (we can't be sure it will), and if the market resists there, we want to take a short position. Once the resistance materializes, it will be difficult for the market to move against us.

Most of us are not trading the daily chart, but we can use the longer-term charts to find **powerful** trends and Fibonacci levels. The next chart is a 60-minute chart. I choose 60-minutes because it clearly shows when resistance has materialized. You may prefer a 30 minute or 5 minute chart.

The following 60-minute chart shows how the Pound rallied to the SK resistance level, and the trend-line. It rallied over those, tested them briefly, then retreated. There are several ways to determine whether resistance has materialized. I have some very powerful techniques for that purpose. However we want this tutorial to focus on some basics. So for now we will use the obvious breaking of the rising trend as our trigger.

During that rally upward, the 60-minute chart has a series of higher swing highs and higher swing lows. Once we broke the highest swing low (see the last bar on the above chart), we know that up-trend has expired. So we want to start shorting rallies and take profits on dips as shown on the next chart (60-minute chart).

Notice how the market broke down, and never looked back! That is what happens when you combine trend-lines with Fibonacci techniques. The best trades go your way and keep on going. That is a characteristic of higher-probability trading.

If this tutorial makes sense, you are ready for my Fibonacci Trading videos! My two introductory videos are inexpensive, and they receive glowing reviews almost daily. You can take your trading to the next level, bring these powerful techniques to your trading just by watching my video seminars. FibMaster.

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Investment in stocks for novices

Real Source : forex1020
Investing in stocks is a great way to build a portfolio and gain cash over a period of time, but there are numerous stocks, bonds and mutual funds on the loose, which one do you choose and how do you resolve? The best way to kickoff investing in stocks is to do the research. Start with companies you trust and get all of the info on those companies.
Guide to Beginner Investing
The first place to begin is with company research, extract the 10K or the 10Q reports, these are the annual filings that companies do for the Security Exchange Committee. Then locate and read the proxy affirmation which tells you about the board of directors, management pay and shareholder proposals. Next the annual report should be read and information on the company going back five to ten years. Another affair to check is the income statements, balance sheet and the cash flow statement of the companies you are interested in; this will give you an idea of how the companies stocks have been doing and the well being of the company.
Once the research is done and the investor has narrowed down the companies to invest in, its time to get a broker by going online or in person to start your investments. Stocks can be purchased online and most brokerage houses have virtual trading for beginners where you can go online and practise dealing and buying stocks with virtual dollars. This is a great way to make errors and learn about the process without using real money. Finding a prestigious brokerage firm is done the same way by doing the research and making sure they have your greatest interest in mine and that there are no covered fees for services.
Stocks
May beginners can start with penny stocks if they don’t want to spend a bunch of money, many of the penny stocks are under five dollars. This can be a little less profitable but it can be a fun way to start. Once a beginner makes the virtual trading, he or she can begin small and invest in stocks that have been doing well and start to build their portfolio of investments. The best thing for beginners to remember is that you don’t have to start big, practice, go online and buy one or two stocks and watch those. There is a lot of helpful info online for beginners so start small and research everything and trading stocks can be gainful and fun.

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Forex Currency Trading System – The Truth The Forex Currency Trading System

Real Source : trading-update

What if I told you there was an simple way to make a real, consistent and very high income from home? Did you know that hundreds of thousands of people are doing just that? One of the best ways you too can make this happen is by entering the Forex market. With the right Forex currency trading system, you can be in business quicker than you realize.

In recent years, software development companies have made powerful trading programs. They’ve taken the skills of the wealthy Foreign Exchange trader and replicated them in a program. Why is this excellent for us? Well, it’s literally like having a profitable FX trader sitting next to you while you trade. Not only that, it’s like having the wealthy trading tell you exactly what to do every single time!

If you are not that familiar with the Forex market, it’s similar to the stock markets. Instead of buying and selling company shares, you buy and sell currency pairs. This market is 100% online and can be accessed anywhere in the world that you have an internet connection. People are joining in this trading business by the thousands every year.

This market is much simpler to trade than the stock market. You only need to monitor 1 to 3 of the top currency pairs for possible trade entries. Plus, the market is so massive that no group can manipulate the prices of currency pairs. This is a major problem with trying to use technical trading techniques in the stock market.

Automated currency trading programs predict the direction that a currency pairs price is heading. It does this with complex mathematical precision. It will prompt you when to trade. Some automatic systems will even make the trade for you. You literally download the software and start trading. You can be making money within minutes.

I like these systems as they can monitor many currency pairs in multiple time frames. You just sit back and relax and let it do all the work. This is light years ahead of how I used to trade using manual trading techniques. I spent weeks and week studying and testing complicated methods. Most of which sounded fantastic on paper but in reality were next to impossible to make consistent profits.

Having the right system is your key to success. I wish I found one before spending thousands of dollars and months of my time on trading courses.

Now get out there and try an automated Forex currency trading system and start making some serious cash!

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FOREX Daily Fibonacci Strategy

Real Source: ehow

The Fibonacci sequence of numbers refers to an ancient system of numbers that that were explained and published by Leonardo Fibonacci in 1202. Fibonacci numbers refer to the relationships that exist between all number patterns and are found throughout nature. The golden ration of the Fibonacci sequence determines ratios of the universal number pattern and is therefore often useful in predicting patterns such as those found in the stock market or in foreign currency exchange. Using Fibonacci numbers for daily Forex trading can often be lucrative if done properly.

Getting Started

1. To use the Fibonacci strategy as a daily Forex trading tool, you should allow for a three to four hour time frame. You will need the Fibonacci tool that comes with most charting packages as this will assist you in finding the crucial high and low patterns and the crucial 50 percent retracement level. Also necessary for determining patterns are EMA 100 charts, SMA 150 charts and RSI (14) on a daily chart. You can use any high/low value currency pairs with this sequence. You will not be setting a profit target as the sequence earns profits through a natural pattern of numbers and an exact number is not predicted, only the guarantee of a rise and fall. To avoid the fall that occurs after the rise you will need to set a default stop loss at around 100 pips which you can later adjust according to the most recent swing.

Rules

2. To begin trading find the area on the chart closest to the current price wave that has a distance from high to low over 100 pips. Use the Fibonacci tool on the wave no matter if it is going up or down. Once you have applied the tool you should wait for the price to enter an area that falls between .382 and .618 retracement levels. These levels are always numbered from the bottom to the top regardless of the chart pattern and you should not attempt exchanging until your price enters this range. You should go short if a full candle is closed below the .250 retracement level. If you are already long at this point you need to close the position and exit. You would go long if a full candle closed above the .750 retracement level. If you have maintained short positions up until this point you will need to close them and exit. You should also note that once the pattern has completed another wave greater than 100 pips will occur and you will need to reset the Fibonacci tool on the new wave.

Read more: Best Way - FOREX Daily Fibonacci Strategy | eHow.com http://www.ehow.com/way_5711887_forex-daily-fibonacci-strategy.html#ixzz0uRiasMyq

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EUR/USD Likely To Face Whipsaw Price Action Ahead of the ECB Stress Tests Results Read more: DailyFX - EUR/USD Likely To Face Whipsaw Price Action A

Real Source : forextv

Markets may face increased volatility leading up to tomorrow’s highly anticipated EU’s stress tests results as uncertainty regarding the consequences surrounding any failed tests lingers. Indeed, the tests will include 91 banks, with two thirds in the public sector, while the outstanding one third will include banks across the private sector. Moreover, the number of banks will be comprised of a minimum of 50 percent of the lenders in the each country and 65 percent of the sector in the region. As of late, Bloomberg News stated that Germany’s Hypo Real Estate Holdings has failed the Europe wide stress tests, while the Portuguese government minister stated that he is awaiting the results of the tests with confidence. From what is understood thus far, lenders may be required to maintain a Tier 1 capital ratio of approximately 6 percent as a condition under the test. The three main scenarios under which the results will be based on include a sovereign risk scenario, an adverse macroeconomic situation, and a baseline macroeconomic forecast for the rest of this year and 2011. If the outcome is worse than expected, European Union Economic and Monetary Affairs Commissioner Rehn said that the union has means to fix any problems that may be found in the stress tests of banks. Indeed, policy makers have been exceptionally optimistic thus far, however, if the outcome shows that banks do not have enough capital to withstand another shock to the financial system, market participants may witness a flight to safety across all asset classes.

EUR/USD: After nearing overbought territory, price action has dipped back below the 100-Day SMA, with the intraday rally hovering slightly above this moving average. Indeed, we are likely to see a lackluster performance in this pair over the next few hours, and price action tomorrow will likely dictate further movements. It is worth noting that our speculative sentiment index stands at -1.34, signaling for additional gains. However, investors should not rule out the ratio flipping into the positive terrain on the back of the ECB stress tests.

Read more: DailyFX - EUR/USD Likely To Face Whipsaw Price Action Ahead of the ECB Stress Tests Results http://www.dailyfx.com/forex/fundamental/article/fundamentals_vs_technicals/2010-07-22-1824-EUR_USD_Likely_To_Face_Whipsaw.html#ixzz0uRiJE0E7

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The Forex Market and the Employment Cost Index

Real Source: earnforex

Fundamental analysis, or the analysis of the market based upon economic indicators, is a huge part of developing Forex market strategies. Most online Forex trading system platforms provide data on economic indicators through their online Forex journals, which are often offered free of charge. One of the more important economic indicators around is the Economic Cost Index (ECI), a major player that shapes and defines Forex market strategies.

What exactly does the Employment Cost Index (ECI) measure?

The Employment Cost Index basically measures the cost of doing business. It measures monthly changes in such crucial variables as employee's wages, employment benefits, and job bonuses. The ECI is so important that it even helps define monetary decisions and policies of the Federal Reserve.

Tie in with inflation

Comparing the inflation rate to changes in monthly employee wages is crucial in accessing whether or not wages are keeping up with current price levels. For instance, if the current inflation rate is 3% per year, and employee wages are increasing at a rate of 2% per year, then even though wages are increasing overall, they're actually decreasing when compared to actual living expenses. That could negatively affect the economy (i.e. less consumer spending), and in the long run, affect a country's currency exchange rate. On the other hand, if wages are increasing at a rate of 3% per year, along with healthy increases in employment benefits and job related bonuses (overall compensation package), and inflation is only at 2% per year, then the overall economy will benefit, as will the nation's currency rate.

It might be a lagging indicator, but it's still important!

Even though the ECI is a lagging indicator (follows after economic change), it's still an important factor to base market strategies upon. The ECI (whether up or down) basically validates a particular economic environment, and can help the investor solidify an overall trading strategy. Let's say the economy is showing signs of weakness for the past few months, but there are overall conflicting reports. The ECI report comes out and validates the economic findings of a weakening economy (i.e. lower employee wages), which in turn, can negatively affect a country's currency exchange rate. With this information, the investor can make the necessary strategic decisions when investing in the Forex market.

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Energy Prices, Inflation and Forex

Real Source: earnforex

Oil futures surged to a record intraday high of $70.85 on August 30th, the day after Hurricane Katrina made landfall on the Gulf Coast. While prices have moderated in subsequent weeks, it's worth examining how higher commodity prices and the specter of inflation impacts the foreign exchange (FX) market, particularly the U.S. dollar.

Traditional supply and demand factors certainly have contributed to the longer term trend in energy prices. The demand side of the equation has been getting plenty of press this year, with focus on the rapidly growing thirst for oil in both China and India. However, the recent spike in oil can primarily be attributed to hurricane related speculation in the futures market and the limited and centralized (on the Gulf Coast) refining capacity of the U.S.

Economic data released in recent weeks has begun to reflect the effects of hurricanes Katrina and Rita, which ravaged the U.S. Gulf Coast in August and September. These data reinforce what the Fed has been implying all along; that the economy is growing at a brisk pace and that inflation, not recession, should be the concern.

September jobs data showed the first net job losses since May of 2003, but the decline of 35,000 jobs was much smaller than the decline that was anticipated. September CPI showed the largest monthly gain in 25 years. However, when the volatile food and energy components are removed, inflation was a rather mild 0.1%. That was quite a bit less than the market was anticipating and suggests that the higher energy prices are not being passed through to the core number yet.

Similarly, the September PPI headline number exceeded expectation and was the largest monthly gain in 15 years. However, again we remove food and energy and see that wholesale prices were up a relatively restrained 0.3%. This core number did beat expectations though, so one might deduce that higher energy prices are starting to impact prices at the wholesale level and it's just a matter of time before these higher prices are passed along to consumers. Weaker than expected retail sales and a new 13 year low in Consumer Sentiment suggests that higher energy prices are indeed weighing on the American consumer's mind. How that will play out, particularly in the retail sector going into the holiday season is now a major focus on Wall Street.

With the word 'inflation' seemingly on everyone's lips these days, we expect the Fed to continue on its tightening schedule. The Fed raised the target for overnight borrowing in September by 25bp to 3.75%, the 11th such hike since June of 2004. Another rate hike is expected in October and at least one additional 25bp bump is all but assured in November or December.

Rising U.S. interest rates and an expanding U.S. economy have been the driving forces behind overseas flows into U.S treasuries and the stock market respectively. These flows translate into demand for the U.S. dollar, which has kept the greenback generally well bid in September and October. While we would contend that the equities market is vulnerable at this stage, the interest rate differential picture should continue to favor the dollar through year end.

High energy prices and inflation fears are not exclusive to the U.S. Central bankers and finance ministers from the Group of 20 industrial and developing nations are meeting in Beijing this month. A statement released on October 16th said, high oil prices "could increase inflationary pressures, slow down growth and cause instability in the global economy.'' This should benefit the dollar as well because in times of global economic uncertainty, the dollar is still considered a "safe haven" currency. While we may see other countries begin to tighten their monetary policies, U.S. interest rates will remain significantly higher.

The definitive move above USD-JPY 115.00 bodes well for additional dollar gains against the yen into the 118/120 zone. On the other hand, the July lows in EURUSD at 1.1868 must be convincingly negated to trigger further dollar gains against the European currency. Such a move would shift focus to the 2004 lows at 1.1759/78 initially, but potential would be for a drop below 1.1500.

In times of inflationary pressures, the U.S. dollar tends to lose ground against the commodity currencies. Commodity currencies are the currencies of countries that derive the bulk of their export revenues from the sale of commodities. Prime examples of liquid commodity currencies are the Canadian dollar, Australian dollar and New Zealand dollar.

The dollar hit a new 17 year low late in September against the Canadian dollar on the back of sharply higher oil and metals prices. While the dollar recovered from those lows, gains are considered corrective in nature and we look for the longer-term downtrend in USD-CAD to continue. Similarly, AUS-USD and NZD-USD are consolidating below important resistances with scope seen for additional short to medium term gains.

At some point, domestic inflation and the rise in the U.S. dollar will return focus to the U.S. trade deficit and balance of payments. As U.S. goods and services become more expensive, both domestic and overseas consumers will look elsewhere. That's the point where the U.S. stock market truly becomes vulnerable. Downside risk in the stock market will result in a negative impact on flows into the U.S. and consequently the long-term downtrend in the dollar would likely start to re-exert itself.

Conventional wisdom in the financial services industry suggests that placing 5-10% of one's portfolio in alternative investments, such as those offered by CFS Capital, is desirable to achieve the diversification necessary to protect against adverse moves in the more traditional asset classes.

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