Tuesday, May 6, 2008

Accepted Wisdom That Will Lose You Money

When I read a lot of accepted wisdom by so called experts, I wonder if these people have actually traded in their lives.

Here is some common advice that I see all the time, that if you follow it you will lose.

Don’t fall into the trap of accepting it or following it.

Here are 6 of my favorites:

1. Day trading is a low risk high reward way to trade

How many writers do you see talk about day trading and how successful they are at it?

Lots!

Now:

How many of them can show a real time track record of profits over the long term?

None.

This is simply the dumbest way to trade there is.

All short term volatility is random.

You can never get the odds in your favor and you will lose and lose quickly.

2. Knowledge is power

No its not.

Only the RIGHT knowledge is power.

Trading is made very complicated by many experts yet, simple systems work best and the real problem for most traders is acquiring self confidence in their own ability and discipline.

Most traders like to follow others and if you do that, you will more often than not lose.

3. Buy low sell high will make you money

Well we all want to do this:

Pick the market bottom and sell the market high but it’s simply not possible.

Take an example:

Prices are moving to support so a trader buys, trying to predict a bottom and hope support holds.

Well, that’s a good way to lose your money trading against price momentum.

You need to wait for the turn and see price momentum move back up.

Sure, you won’t get in at the bottom but the odds will be in your favour.

On the other hand, a breakout occurs of important market highs so the trader thinks:

Can’t buy that and waits for the pullback.

Of course, it never comes and the trader is left watching one of the biggest trends of the year accelerate away from him.

He should of course have bought the first break!

It’s a fact:

Most big trends develop from breaks of important market highs or lows and if you don’t follow them you won’t catch the big trends.

Fact is:

“Buying low and selling high” will never make you money Buying high and selling higher will”

4. Listen to the news.

This is a great way to lose money.

All those experts taking convincingly about where prices should go and it’s all so believable.

Of course, where prices should go and where they do go, are two different scenarios.

Experts are not traders and are there to entertain and give good stories.

More often than not their wrong – don’t listen to an expert, use your own brain and make your own mind up.

5. Paper trade will help you

Use a demo account and you will sharpen your skills. To a degree it’s true, but its use is limited in helping you become a good trader.

As there is no money on the line and no pressure paper trading is easy.

When you’re in the brutal world of real trading and thousands of dollars are on the line the experience is far harder.

6. Trail stops quickly

The idea here is to lock in profits.

Most traders become so obsessed with doing this they simply get stopped out of a trade and are never able to follow a big trend.

The fact is forex trading involves taking a risk.

Try and restrict the risk to much and you will simply never make any big profits.

Traders get so obsessed with avoiding risk they actually create it and guarantee they will lose.

These are 5 of my favorite accepted wisdoms that will see you lose and we will cover some more in part 2 of this article series.

Start Trading The Right Way

So you need a Forex broker. And you have heard about some of the advantages about having your banking in Switzerland. Would it make sense to have a Swiss online Forex broker? Here we look at some of reasons why you may want to go down this route.

Forex brokers are companies or individuals who will execute your trades for you. In practice they will usually provide you with a computer interface or platform that will allow you to monitor the market are place your trades. Everything is done electronically; there is none of the 'I'm getting on the phone to my broker' that you sometimes see on the TV.

Some of the online brokers have based their operations in Switzerland. In this country banking secrecy is considered a civil right. It is similar to the confidentiality agreement between a doctor and a patient. It doesn't matter whether you're a Swiss citizen or a foreign national using financial services in Switzerland, your personal information is considered secret. This level of privacy is one of the main attractions of having a Swiss online Forex broker.

But there have been some changes recently. The Swiss authorities have introduced money-laundering regulations that affect financial institutions in that country. It is important that your broker abides by these regulations. If you are suspected of laundering money, or being guilty of financial criminal act, your right to banking privacy is likely to be removed by a judge in a court of law.

Regardless of where they are based, your broker should be able to offer you a demo account to start practice trading. This will allow you to get a feel for their platform and you can evaluate whether you are comfortable with it. In fact it is not a bad idea to try 2 or 3 companies in this way and you can then select the best one for your needs.

Before making a final decision on your broker do some research online and see what their customers' are saying about their service. Visiting industry specific forums can be very revealing. I've noticed that some of the companies offering the best customer service are Swiss online Forex brokers. Although they are US companies, they have based their operation in Switzerland.

Friday, March 28, 2008

Critical pieces of forex education

One of the critical pieces of forex education for any Forex trader is to understand the concept of standard deviation of price and how to use volatility to their advantage.

If you understand the concept you can easily apply it with Bollinger bands which are an essential tool for all forex traders.

Let’s look at why Bollinger Bands are so useful and profitable, when incorporated in your Forex Strategy.

If you don’t know what standard deviation is simply check our article on the concept – right, let’s take a look at Bollinger bands.

Bollinger Bands Defined

Bollinger bands are simply volatility bands drawn either side of a moving average.

You calculate Bollinger bands using the standard deviation of price over the same period as moving averages the mean price, then the volatility bands are plotted above and below the moving average.

Moving averages are used to identify the underlying trend of currencies and Bollinger bands take this one step further by:

Combining the moving average of the currency with the volatility of the individual market (or the standard deviation) – this then creates a trading envelope – with a middle mean price (moving average and 2 x bands (expanding or contracting) either side that reflect volatility or standard deviation.

As prices move away from the longer-term average, the standard deviation rises - and thus the bands will fluctuate in varying amounts, away from the average.

Why they work

In any market, the value of a currency traded tends to rise slowly over the longer term.

Prices can and do spike quickly in the short term, but will normally return to the longer term moving average - which represents fair value.

The standard deviation of the outer bands (how far they are from the mean) shows how far prices are from longer-term value.

Most price spikes are caused by trader psychology with greed and fear to the fore and this can be graphically seen with Bollinger bands.

So how should you use Bollinger bands?

There are 3 main ways to use them.

1. Spotting price spikes

When the bands are a long way from the mean you can use Bollinger bands as profit taking signal on existing trades or use them to spot contrary trades.

2. Enter exisiting trends

If you have a good trend in the forex markets then you can use dips to the middle band to buy at fair value.

3. Entering new trends

When prices are trading in tight range and start to breakout with a change in volatility a great new trend could be emerging.

Bollinger bands can certainly give you a new dimension to your forex trading strategy and any currency trading system can benefit from the extra insight that they can give you.

A word of warning

Like all technical indicators you should not use Bollinger bands in isolation to enter trades, however combined with timing indicators such as, the stochastic or RSI, then you have a powerful combination for greater FX profits.

With regard to forex education, knowing what standard deviation is and how to apply the concept through Bollinger Bands, will give you a huge trading edge, so make sure you use them.

FREE Resources on FOREX Education

If you want some good FOREX education to help you build and execute a trading method the good news is you don’t have to buy a worthless e-book from a vendor ( with no real time results ) you can get all the info you need free.

Here are some tips on the best FREE FOREX education.

You Need a PROVEN method

This should be technically based.

All you need to do is search technical “analysis of FOREX markets” and “support and resistance” and you will find everything you need.

Once you have done this, you need a methodology to trade with.

The simplest method to understand is:

A breakout methodology search “FOREX Breakouts”

Once you understand the above, you will need to decide if breakouts are valid.

You need to calculate price momentum i.e. is it failing at a breakout, or is it accelerating?

The former indicates resistance or support will hold, the latter it will fail and a breakout occur.

Get a good free chart service like futuresource.com

Pull up the charts on the indicators and look at the studies at the bottom.

There are three that we find useful and you will to – look up their logic and try using them in conjunction with support and resistance.

Price momentum indicators that are good are:

Relative Strength Index RSI and the ultimate indicator for timing trades: The Stochastic.

We also like Bollinger bands for targets and to see volatility

Look up the logic of both. Using these in association with support and resistance is a great way to trade.

Other useful indicators to look at are: Moving averages, MACD and the ADX

Breakouts trading them for profit

It’s a fact that most major moves start from new market highs NOT market lows and that is why a breakout method is so effective.

To check if a breakout will fail or break you simply need to get some momentum indicators to gauge strength of price.

We like the stochastic and RSI, But indicators used are matter of preference.

A SIMPLE METHOD FOR PROFIT The above may sound simple and it is – the best methods are.

You don’t make money in FOREX trading for being clever you get paid for being right.

There is no correlation between how complicated a method is and how successful it will be.

In fact, simple methods are best and you should focus your FOREX education on them because:

They are easy to understand, easy to apply and more robust in the face of brutal market conditions.

The PROOF

We have used a simple system and demonstrated how profitable it can be in numerous articles and we have applied the above tools to spot big moves – check them out.

Before you

Waste money on a worthless e-book from a vendor who has simply put together a system with a simulation of profits (he is probably no smarter than you), take a few hours to research and build your own method.

Keep in mind only you can make yourself successful and if you think you can buy success for $100 or so – think again!

If you do the above, you will have something that you can have confidence in and apply with discipline for profits.

One final point:

When trading breakouts only trade ones that are significant i.e. on weekly and daily charts (forget day trading it doesn’t work)

If you trade only the best breakouts and trade with momentum you will have huge profit potential.

Finally, have patience and only trade the best set ups.

That’s it.

Research the above FREE FOREX education, build and test your method and then go and make some profits!

GRAB 2 X FREE TRADER PDF'S AND MUCH MORE!

Friday, March 14, 2008

Access Of Trade By Online Forex Broker

Having an online Forex broker can give you better access if you are an individual who does not like to trade directly. This is because the online foreign exchange broker is a person who advises the trader. They are an intermediary that provides information, such as trading strategies, real time quotes, and news feeds. There are also a lot of web-based Forex brokers who also provide the service of making charts for the traders, which can help the trader make a better decision.

One of the best benefits of an online Forex broker is that it has the benefit of overcoming the fact that in the past only banks had access to the Forex market. But because of web-based Forex brokers individual traders now have that access as well. This means that the online foreign exchange broker can now trade on behalf on any individual, allowing them complete access to Forex rates, news and other information. This can only benefit individual clients in helping them gain a better position in the market and able to buy or sell at any time of day.

The better online foreign exchange broker will usually have set up an excellent online brokerage firm. These firms that have been set up provide a good variety of services. These services include training beginners all the way up to more detailed advice for those who are more experienced in the Forex market.

Most of the web-based Forex brokers are able to help individuals set up mini Forex accounts as well as trade for them. Having a mini account is great because you can start trade with as little as only two hundred and fifty dollars. Any leveraging that is gained by these accounts is used to help them better make trades. This frees the individual up from worrying about the smaller details, because the online Forex broker takes care of it for them.

There is a very large selection of online brokers to choose from, making it hard to find one that is right for you. There are two options you have in choosing the right web-based Forex broker for you and your needs. One is to get recommendations from people you know, this will help you find one that you can trust. Of course the other way to find one is to research thoroughly on your own, the services and they offer and the fees they may charge for them. Shop and compare, and look for any complaints that may have been lodged against them.

Other than the fact that it may take some hard work to look for the correct online broker for you and your needs, the benefits are always something to look at as well. The advantages offered by having an online broker could definitely make it worthwhile in the end.

Money Making By Online Forex Trading

For many Forex Trading beginners, after many days and nights of learning and digesting Forex courses, purchasing of various Forex Trading Software and System, you still find yourself with a huge hole in your initial capital.

As times go by, slowly, your dreams of financial freedom and success begin to fade. You will begin to ask yourself, are you a failure? Are you not intelligent enough to become a profitable trader? After all, there are many successful trading experts out there who are living their Online Money Making dreams....

So the money making online million dollar question - Are you cut out to be a profitable Forex Currency Trading trader? Yes, you can become a profitable Forex trader! You just need to treat your online Forex Trading like running a successful online money making Business.

Forex Trading Style

Similar to Stock Trading or any form Investment Trading. You must ask yourself - what is your trading style - news trading, swing trading, momentum trading, pattern trading and intraday or longer term trading? It is alright to have a "library" of trading style or setups, but what most profitable trader does is to concentrate on a niche or particular trading style. Learn to do one thing consistently well instead of trying to master too many trading methodologies. You have to pick a style that suits you.

Online Forex Trading Plan

What is your foreign currency trading plan? Before any trade entry, you have to ask yourself is this the right set up entry for your trading style? Where is your exact trade entry point? What are your Stop Loss target? What is your profit target?

Anyone involves in Foreign Currency Trading and not having a well defined stop loss is going to have their entire online trading account wipe out before they even realized it. I knew someone did just that recently. A US$10,000 account was wiped out within a week without Stop Loss trading a few currency pairs. You also need to know what is your profit target point is. What is the point of having an winning trade but your trading account does not make money. For one simple reason, you didn't take the winning money from your trade and market reversal against you.

Forex Trading Profit & Loss Plan

Lots of beginners don't realized the important of reward to risk factor in Forex Trading. You will never make money online if you risk $500 but make $100.

Follow your Well-Defined Forex Trading Plan

Once you have written down a well-defined trading plan, you must have the discipline to stick to it. All beginners must remember that Discipline and Money Management are the two most import aspects of trading. Even the greatest Forex Trading System or methodologies will fail if you can't stick to it.

Sunday, February 24, 2008

Basic Requirements For Online Forex Trading

Forex trading is one of the money-earning activities that anyone can get into. Many people, some not even full-time or heavily experienced brokers, have gained a lot of profit from trading foreign currencies. And with the intensive use of information technology, more and more people are finding it easier to try their hands at forex trading.

Online forex trading requires only that you have access to the Internet as well as some initial capital to buy currencies. Your initial investment need not be too big. A small amount, when invested wisely, can go a long way. To be more successful in this endeavor, you may also need to be updated in the fluctuations of the exchange rates of the different currencies. Fortunately, forex charts are available for free in almost all forms of media. Monitoring of forex is done by major news agencies, and they often flash these data as running headlines during their broadcasts. The previous day’s forex chart, as well as projections for the day, is printed in the financial section of daily newspapers. And, of course, you can also find or procure up-to-date forex charts from providers on the Internet.

For first time online forex traders, it is recommended that they begin by concentrating on a few foreign currencies first before venturing into keeping a more complex, multiple-currency portfolio. Some established forex traders and brokers are willing to assist neophytes by offering free consultative services and the use of their forex charts. There is also forex software available to aid in the faster computation of forex gains and losses and in the more accurate projection of trends.

Online forex trading is also the most practical way to expand your experience and network in forex trading. Through the Internet, you can keep pace with the forex markets of the world since they open in real time.

Online Forex Trading And Software Tools

Currency trading has become such a popular investment tool that it has fuelled the creation of many offline and online forex trading software. Without software, it is difficult for anyone to be able to make accurate assessment of the currency movements in the Forex market.

While there could be different forex trading platforms, they are generalized into online and offline. You may also come across them as web-based and desktop respectively. Though both have their pros and cons, it does seem apparent that this is more highly favoured. This could perhaps be due to its more powerful features.

One key difference between the offline and online tools is the way it operates. Since online forex trading software is web-based, it can stream in new real-time information from the market directly as long as the internet connection is live. Desktop application on the other hand runs on your computer and requires installation, a hard disk to support the software data, as well as your computer's capabilities.

These are the way a desktop application may be less beneficial than the online forex trading software. Since the software is installed on the computer, the monitoring of the market condition relies solely on your computer's capabilities. Also, storing all these information on your disk can also mean that the level of protection is low unlike the close security enjoyed using the web-based client. This data can be stolen, manipulated or affected by virus and hacks.

However, there is an advantage of using the offline version over the web-based tool. Since the desktop application runs well on practically any internet connection speed, it can be done using a dial-up or broadband. But with the web-based application, you do need to have a broadband connection before it works properly. Not everyone has the luxury of owning a broadband internet connection.

One obvious plus point of the online version is with its mobility or rather availability. Depending on your job nature, you may have to travel a lot. With the online forex trading software, whether you are on the train, at a café or in a restaurant, you can simply watch the market from there as long as you can get online.

The web-based version also promises tighter security, a guaranteed access to the market data as well as a strong backup system. On the overall, using this can prove to be a better option in most cases than using the desktop version.