Posts Tagged ‘Forex Markets’
Trading the Markets
Trading the markets for speculation purposes is a challenging task that numerous amounts of people have embarked on. Do you know anyone who successfully makes money trading? The answer is most likely no. If you do I recommend you become as friendly as possible with the person and learn everything you can from him, unless he is charging for his services. That usually means he is not a successful trader.
With the type of leverage that is offered in the futures, options and forex markets, I personally find it hard to believe that anyone who has a successful system that is right for them will be too eager to teach it. Why should they teach if they can be trading the daylights out of it and be making millions with the 400:1 leverage that some forex platforms offer.
On the other hand numerous people have made millions trading. Look at the list of CTA’s on IASG.com, look at John W. Henry, Max Ansbacher, Warren Buffet, Peter Lynch and all the Market Wizards. I recommend reading the market wizards book for some inspiration.
The problem is that most traders go into trading with the wrong attitude. Have you ever heard this phrase “I am tired of working I need to trade to get rich.” It takes 7 years to complete medical school and there is no green arrow red arrow system for performing heart surgery. Trading will pay you much more than doctors make so you should expect to have to do more work than doctors do for a longer period of time to get wealthy and become a market wizard. While you start and practice it is imperative that you do so at a low cost, meaning you don’t blow out your account on bad trades due to poor risk management.
It has been hypothesized that, with proper risk management, a simple system like flipping a coin to buy or sell could be successful. However having the slightest edge should enhance the traders chances a great deal. By edge, I mean something that will make the trader make more money than he looses. An edge can be discretional or algorithmic as long as the trader makes money in the long run.
A perfect example of this is the game of blackjack. The house has a very slight edge less than not more than 2%. But by repetitive play they consistently end up profitable. This is because they have a set approach, and edge, and they don’t get emotional when a player goes on a winning streak. Good traders put themselves in the position of a casino.
Traders can make money discretionally by following support and resistance levels, watching the volume, size and market action. Or, traders can create a trading system by back-testing a certain edge. Calculate the systems expectancy, develop trading and risk management rules, and follow those rules religiously to generate profits. Numerous people will try to sell systems.
It is very important that with any system traders create a reevaluation point. By reevaluation point I mean a point where the trader starts to question the systems effectiveness and begins to look for other systems that he expects to fair profitable over time. The reevaluation point should be decided upon before trading begins. It should be based on the back tested data, and you must take into account concepts that we will discuss such as a drawdown, consecutive loosing sessions, reward risk ratio.
Want to learn more about systematic trading? The key is to develop and utilize a system that fits your trading style and personality. We can help you with finding profitable trading systems, backtesting them, and our programmers will even code your system into your trading software for you!
By: Alex Nekritin
Many benefits of using Forex robots have been recognized and championed by the experts. There are many trading professionals who have testified as to the effectiveness of automated systems (Expert Advisors or EA’s) in improving their trades and increasing profits. But what else is there to Forex trading that one needs to know or possess to be a winning trader?
Before you can become an elite trader and join the best traders in the market, you will need more than just your luck and kick butt software. They all started somewhere and there are basic steps that you must perform. You should start out by working smartly. You must still work hard and put a lot of effort into your trading. However you will maximize much of the time and effort you put into your trading, if you can start by trading smartly.
Anyone can learn Forex trading. There are numerous books and training courses where you can learn the different systems and strategies that you will need. Automated systems can be a valuable training aide in helping you develop your skills. In addition to providing support and making your task easier, automated trading tools will often prove to be very instructional.
Importantly, a healthy trading mind set is needed by every successful trader. Your success depends on how you think, solve problems and how you approach trades. Of course this does not just apply to the Forex markets you need the proper mind set for whatever endeavor you are attempting to succeed at.
Your mind has the power to give you control over just about any situation. Your trading results are dependent and proportional to the amount of effort and focused thought you put into your trading. We all know that you can expect very little in the way of results from an exercise you are not putting your best mental effort into. Napoleon Hill wrote extensively about the power of the mind in his famous book “Think and grow Rich”.
There are many risks involved with Forex trading. It is very often compared to gambling. This is not exactly accurate. The market is very volatile and therefore good timing and a calm demeanor is essential in making sure that you are making the best trades.
As a trader you need to have good control over your emotions and muster a fair amount of courage to stay cool headed and make swift decision during the close calls. That being said, there are many people who have difficulty controlling their emotions when the trading is heated. For this reason these individuals will happily take advantage of the assistance provided by a forex robot. They can be very helpful and often keep the trades on the winning side.
In addition to courage, you also need to have plenty of patience. Major trends or obvious trades do not appear everyday. Even though these trends do occur in the Forex market, it will not always be the case. It is when the trading seems flat that your patience will come into play for you. Even if you are using an automated trading system to make consistent earnings most of the time that will not always be the case. Patience is indeed a virtue for the successful trader. Being successful at Forex trading involves more than knowledge, skill and software, but character as well.
Be aware that automated trading systems and forex robots can help you make money but you must be determined to stay focused to avoid losing. This is where you bring your personal dedication, proper mind set and ongoing education to bear.
The good thing for us is that these systems are constantly being improved upon and the latest incarnations are allowing more and more hands off operation.
By: Jason Inks
Pips and ‘pips values’ represent one of the most misunderstood concepts in Forex trading. Newbies, especially, often have trouble grasping the idea behind pips — but, a solid understanding of pips is crucial to successful Forex investing.
If you have had trouble with pips, then today may be your lucky day. I’m going to attempt to clarify things once and for all with a brief pips tutorial.
Hopefully you are already familiar with the concept of ‘basis points’. One basis point is equal to one one-hundredth of one percent, and represents the smallest increment of change measured for any financial instrument.
Take interest rates as an example. If the interest rate on your credit card rises from 10.12 percent to 10.13 percent, then it has risen by 1 basis point.
Pips are the Forex markets version of basis points. Let’s say that the exchange rate for the EUR/USD pair move from 1.4465 to 1.4468. This movement represents a shift of 3 Pips, and may be good or bad depending on which currency you are holding.
Here’s the catch, though. Notice that the shift took place on the 4th decimal, which is the ten-thousandths place, or 1/10,000 of a percentage point? You have a shift of one ten-thousandth instead of one one-hundredth.
The reason for this is that most currencies (with the exception of the Yen) are quoted out to four decimal places. This means you get to take advantage of even the most minute shifts as you trade on high volume.
In order to calculate Pips for the common, four decimal currency pairs, you must divide the value of 1 Pip by the exchange rate:
1 Pip = 1/10000th / exchange rate
Now, what happens when you are dealing with the Japanese Yen? In this currency pair, we find an exception to the rule because the Yen is quote out only to the hundreds place, or 1/100.
For the USD/JPY pair (or vice versus), your formula would be:
1 Pip = 1/100th / exchange rate
Now that you know how to calculate Pips for any currency pair, you must look at what an actual Pip is worth to you in real dollar terms. This value is known as “pips value’. In order to do this, we must bring ‘lot size’ into the equation.
If you purchase a standard lot of 100,000 pairs of EUR/USD at 1.4465. , your formula will be as follows:
Pip Value = (0.0001 / 1.4465) x 100,000 = 6.91
So, a pip at this exchange rate is worth 6.91 Euro. Do not look for exact numbers here. What you need to pay attention to is the fact that ‘6.91′ represents the average gain or loss per change in pips.
In other words, a fluctuation of 2 pip from 1.4465 to 1.4467 isn’t going to raise your profit or loss by a full Euro or more. Try doing the calculation for a 2 pip rise, and you’ll see that your pips value goes up only to 6.192.
I recommend getting comfortable with these basic calculations first, and then moving on to the calculations of actual profit and loss, which will require you to factor in bid price and ask price.
Also, remember that your online broker usually calculates pip and pips values for you, and you do not have to know how to do the math. It’s just good business to be able to do it yourself.
By: Karen Kaminski
What is Forex Trading?
Forex, or Foreign Exchange, is the simultaneous exchange of one country’s currency for that of another. This market of exchange has more daily volume, both buyers and sellers, than any other in the world. Taking place in the major financial institutions across the globe, the forex market is open 24-hours a day.
Currencies are quoted in pairs. The first listed currency is known as the base currency, while the second is called the counter or quote currency. In the wholesale market, currencies are quoted using five significant numbers, with the last placeholder called a point or a pip.
The forex market is one of the most popular markets for speculation due to its enormous size, liquidity, and tendency for currencies to move in strong trends. An enticing aspect of trading currencies is the high degree of leverage available.
Advantages of forex trading
Leverage. Huge leverage is available in Forex trading, often up to 100:1 meaning that large profits can be generated from small margin deposits.
Liquidity. The enormous size and global trading of the forex markets means that the markets in the major currency pairs are very liquid making trade executions almost instant with little slippage.
Ability to go short. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. This means a trader has equal potential to profit in a rising or falling market.
Trends. Fundamentally, the value of a country’s currency is determined by interest rates and the strength of the economy in relation to other countries. Currencies, therefore, have a greater tendency to trend until the fundamentals change.
Disadvantages of forex trading
Leverage. With huge leverage available to forex traders the danger is that positions which carry too much risk for the account size can be taken on, leading to margin calls. Effective money management rules must be adhered to.
Brokers. Retail traders must use a broker rather than dealing directly in the interbank market. The broker will be the counterparty in all transactions and is, effectively, making the market. They can, therefore, widen spreads or even refuse to trade during volatile trading conditions. To avoid dealing with brokers an alternative to forex is to use futures. See online futures trading for more details.
Spreads. As the retail trader must use a broker to trade, they cannot deal at the interbank rates. A broker will generally quote a fixed spread of 3-20 pips depending on the currency pair. The underlying interbank rate might be as little as 1 pip.
Forex is a very large market but for most retail traders dealing with brokers the odds are shifted against them. Online futures trading provides a much more level playing field for most traders who want to take part in forex trading.
By: Tim Wreford
