3 Currency Trading Tips To Help You Make Money

There is a lot of money to be made in foreign exchange trading. Here are currency trading tips to help you maximize your profits.

1. Use weekly charts as well as daily charts

Checking back over the week’s price movements for your chosen currency pair will give you a better perspective on both short and long term trends in the market. It is easy to become blinkered in spot forex trading especially if your method concentrates on day trading. Weekly charts allow you to take a step back.

Sometimes the new perspective that you gain in this way will help you see what went right or wrong with your trading and why. This can help you to refine your systems to make them more profitable. However, do not make changes in a good system every time something goes wrong. There is a need for balance here.

2. Do not trade too much

It is tempting to jump into the market and open a trade whenever you think you spot an opportunity, when really you should have held back. It is often true that the fewer trades you make, the more money you will make. This seems counterintuitive because we tend to think that we need to make a lot of trades to build up big profits. But opening a trade at the wrong moment leads to losses, so in fact the opposite is often true.

You need to be comfortable with risk in order to engage in forex trading. Most traders even enjoy the risk. So it can be difficult to hold back from something that looks like a big opportunity. Remember this is investment, not gambling. You must choose your trades carefully. Taking chances in the hope of making a big killing is likely to lead to your account balance taking a hammering.

If you have a profitable forex trading system that does not often offer the opportunity to trade so it is not making you much money, do not be tempted to widen the criteria so that it lets you trade more often. This will almost certainly turn your profitable system into an unprofitable one.

Instead there are two things you can do. First you can increase the amount of each trade. This increases your risk and is probably not a good idea unless you are very sure of your system. Second you can try to find a different system that is equally profitable that you can operate alongside the first. This is the better option for most people but make sure that you test your new system thoroughly before adopting it.

3. Set realistic targets

When you are thinking about how much money you hope to make with currency trading, it is important to be realistic and accept that sometimes you will lose. You should only be trading with money that you can afford to lose and do not expect to double your money over and over in a short time.

Unfortunately many advertisements lead you to have very high expectations. You may see an ad that suggests you can double your money in 7 days, for example. This does not mean you are certain to double your money, and it definitely does not mean that you can do it every 7 days with no setbacks. Doubling your money in a short time is possible but doing it over and over without losses is not realistic. Expect to take at least one step back for every two steps forward and have reasonable targets by comparing with what you might make if you invested in stocks or bonds.

Before starting forex trading for real, be sure you are armed with sound strategies that you have tested for yourself. Weigh up all of your options and remember that you are entering a risky business. Keep these currency trading tips in mind and give yourself the best chance of succeeding as a forex trader.

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Wednesday, November 24th, 2010 Introduction, Strategy No Comments

How (Not) To Lose Money With FX Currency Trading

Forex or FX currency trading is a risky business. Many people go into it with high hopes of getting rich and quickly find that it is easier to lose money in the foreign exchange markets than to make it. Even if you are ideally financed and have the best system, robot or plan, you may discover the sad fact that the one thing holding many traders back from success is themselves.

So in this article we look at some of the major pitfalls of forex trading and how to avoid them.

1. System hopping

One surefire way to lose money with forex trading is trying a system for a few days and giving up on it because it made a loss or two. Before you even start using a system you should be as sure as a person can be that it is going to be profitable. You have to accept losses and stick with it.

Remember that if you bail out every time that you are losing, you never give your systems a chance to put you back into profit. You will lose your shirt for sure if you hop from one system to another without giving anything a chance to work.

2. Dwelling on ‘what might have been’

One of the worst temptations of trading is being drawn into wasting time and energy on thinking about how much we could have made if only we had acted differently. Often a situation will arise that does not quite meet the requirements of your system. You wait, and perhaps it turns out that you could have made a lot of money if only you had acted.

But thinking this way is dangerous. Another time the same situation will turn against you. We tend to remember all of the lost chances to win and forget that by keeping to the plan, we also miss a lot of losing situations.

3. Impatience

You will lose money if you do not have the patience to wait for the right trading opportunity. A short run of losses can make us feel desperate for a successful trade, but we must still wait for the right market signals. Do not be led into acting too soon by excitement or the fear of missing an opportunity.

4. Hesitation

On the other hand, it is also important not to hesitate too long. When the right moment comes along, act with conviction. Have your plan written down and keep it in front of you at all times so that you know exactly when the signs are right for your trade. Do not wait until you see a trend forming to start thinking about your position size, leverage or stop loss. Everything should be in place so that you can take advantage of a genuine opportunity.

5. Letting emotions drive your trading

We all know the danger of letting our emotions lead us in any trading situation, at least in theory. In practice it can sometimes be hard to tell the difference between fear and caution, or between profit maximizing strategies and greed. Having a written plan will help again here, as will training with a demo account where emotions will not be nearly so strong.

Some people find that they cannot make money with a demo account because they are getting into experimental trades, telling themselves that it does not matter because it is not real money. If they do then start trading with a real account they are completely unprepared for the emotional punch of real time trading and have not learned any discipline to help them handle it.

So whether you are trading in demo mode or for real, take it seriously. Be sure to avoid these traps if you want to make money with FX currency trading.

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Saturday, November 20th, 2010 Strategy No Comments

Forex Trading Signal Providers: What To Look For

As the popularity of trading the currency exchange markets online from home increases, the number of forex trading signal providers is increasing too. In fact they are proliferating to such an extent that it can be very difficult to know how to find the best one.

Signals are the main source of information for some traders who do not have the time, experience or inclination to analyze the markets for themselves but do not want to trust their trading to a robot. Equally they can be a useful source of additional information and trades for those who mainly make their own trading decisions.

You usually have to pay to subscribe to a forex signal service. Fees may be charged per month or per signal. Some companies offer a trial period where you can test their service on a demo account. If not, you will be paying out money from the start so to have a chance of making profits, you need to be trading at a level where you can expect to make more money from the signals than they are costing you.

The first thing that most people look at when considering forex trading signal providers is their recent results. This can be a mistake. Recent results are not as important as performance over the long term. So do not be seduced into signing up with a company who make a huge deal of their last month’s good results but will not tell you what their signals have made over a full year. Also remember that when they show their profits, they do not have to take account of the cost of the signal service itself.

Remember that most traders starting out in the forex markets lose money. Forex is a risky form of investment and you should be prepared for this. Losses are not always the fault of the information. Even if you are receiving profitable signals, you can make losses if you do not have a clear plan for managing your funds. It is very easy to take bigger risks than you should, so that an unexpected loss has a big impact.

Most companies who offer forex signals will send them to you by email and/or SMS text message. It is best to get both, although SMS alone can be enough for some people. The only problem with SMS messages is that it is very frustrating when one arrives and you are too far from a computer to access your account. If you are a serious forex trader relying on signals, you may want to get your PDA hooked up to your trading account so that you can deal with those signals that arrive when you are stuck in traffic or having lunch with a client.

Remember that the foreign exchange is a 24 hour market. Be prepared to be woken in the middle of night by your cell phone bleeping with an SMS that you need to act on right away. You may want to check how your spouse feels about this too. Even the best information from the top forex trading signal companies is probably not worth getting a divorce for!

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Monday, July 6th, 2009 Strategy No Comments

FX Charts: How To Use The MACD Indicator

The MACD or Moving Average Convergence Divergence indicator is one of the most popular tools on FX charts. It can be used either as an indicator in itself, or as a check when you are mainly relying on other tools.

The MACD chart measures faster and slower moving averages and whether they are getting closer together (converging) or farther apart (diverging).

When they are converging you will see the two lines on the chart approaching each other and the bars on the histogram at the bottom of the chart become smaller. This usually indicates that the current trend is coming to an end or has ended.

Of course the faster line reacts to a change in price movements more quickly than the slower line. So when a new trend forms, the faster line will get closer and finally cross the slower line. If it then separates or diverges from the slower line, this is often an indicator that a new trend has formed.

When the two lines cross, the bars of the histogram will be at zero and then cross their axis so that if they were below the axis before, they are now above it, and vice versa. If a strong new trend is forming, the bars will quickly lengthen in the new direction.

So this crossover could be used as a signal to place an order. You have a buy signal when the faster line crosses the slower line from below, and a sell signal when it crosses from above.

However, there are disadvantages to the MACD which make the crossover unreliable as a self standing signal. The main problem is that even the so-called fast line is significantly behind actual prices because it measures averages of the past prices. So when the market is very volatile, trends could be ending before the MACD crossover marks that they have begun.

Generally the MACD is a better indicator of the strength of a trend than it is of its direction. For this reason some traders ignore the crossover and look instead at the length of the histogram bars. However it is not a good idea to enter a trade on the basis of this histogram (measuring divergence) and then leave it as soon as the price goes against you.

So if you decide to trade the MACD, you should probably use it for both your entry and exit signals. This takes a lot of nerve and experience, and it is not recommended for beginner forex traders. So if you are just starting out, you are probably better advised to base your trading decisions on other indicators on FX charts and refer to the MACD only for background.

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Sunday, July 5th, 2009 Strategy No Comments

FX Technical Analysis: What Is An MACD Indicator

The MACD indicator is one of the most useful tools of FX technical analysis but it is not usually well understood. This is a pity because many traders could probably use it more effectively if they understood it better.

The letters of its name stand for Moving Average Convergence Divergence. It is true that the name sounds rather complicated and unfortunately this is often enough to put people off from wanting to know more. So they only use the very simplest applications without understanding the power of the tool itself.

Like most forex tools, this indicator is used to show us when a new trend is forming, so that we can get in on it and make money. The MACD does this by plotting the relationship between two moving averages.

Settings

The settings are usually expressed as three numbers. Commonly you might see 12,26,9.

Traders using FX technical analysis often make the mistake of thinking that the first number on the MACD indicator (12 in this example) relates to the faster moving average line, the second number (26) relates to the slower moving average line and the third number (9) relates to the histogram at the bottom of the chart. That is not quite correct.

In fact the first two numbers (12 and 26) indicate the number of periods used to calculate two moving averages. The faster moving average line, which is often green on the chart, measures the moving average of the difference between the 12 period and the 26 period moving averages.

The slower moving average line is often red on the chart. This line plots the average of the last 9 (or whatever is the third number) periods of the faster moving average line. It usually shows smoother curves because its effect is to smooth out the fast moving average line.

Divergence And Convergence

The histogram that measures convergence and divergence is the series of blocks stretching above and below an axis near the bottom of the chart. This simply records the difference between the faster and slower moving averages.

As the two moving averages separate from each other (diverge), the blocks of the histogram will become longer. As they get closer (converge), the blocks become shorter. If the two lines cross, the blocks of the histogram will switch from stretching above the line to dropping below it or vice versa.

So the histogram measures the convergence and divergence of the two moving averages. And that is why this tool for FX technical analysis is called a Moving Average Convergence Divergence or MACD indicator.

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Saturday, July 4th, 2009 Strategy No Comments