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Trade Forex For Profit: One Thing You Must Have

If you want to trade forex for profit, there is one thing that you must have and that is a trading plan. The forex market is a fast moving financial environment where a lot of money can be made in a short time, and lost too. This makes it stressful and confusing in the beginning.

If you do not have a plan for your trading strategies you will be making decisions based on the emotions of the moment which could be fear, greed, panic or euphoria. Decisions made from emotion will almost certainly not be good decisions.

First establish your goals and your boundaries. Do you have a clear idea of how much you might expect to make if your trading is successful? It will probably not be millions. Plan for a slowly increasing level of profits and start small. If you have big expectations you will be tempted to take big risks to try to meet your profit targets, and you could end up with nothing but losses.

Boundaries means risk. How much money are you prepared to risk when you trade forex? This should be money that you do not need for any other purpose. Are you confident enough that you have a good chance of making money with it, rather than losing it? Have you already been trading successfully with a demo account?

You also need to be clear about your position size for each trade. This means taking account of the consequences when a trade goes against you. This will certainly happen sometimes.

Your position size will also relate to your system. Some systems aim to provide a very high percentage of winning trades but losses are large when they happen; others have more losing trades but each loss is smaller. What are the chances of your system giving you two, three, or five or more losses in a row? You need to adjust your position size to provide for the worst that can be expected, because sooner or later it will happen.

A forex trader needs to remain as calm as a poker player and accept losses as well as gains. It is all part of the experience. Remind yourself that your trading system is based on sound analysis and if you keep to your trading plan you should profit. At all times you should know how much you have at risk, what is your potential gain and your potential loss, and where you plan to close the trade in both cases.

Your trading plan should also include how you will implement your forex trading system. What sources of information will you use? Which of the indicators are most valuable for your forex trading style? Where will you go for advice when you need it?

Foreign exchange trading requires a clear strategy that you can set out in a written plan. Remember, if you fail to plan you are planning to fail. You can modify your plan if it needs it, but do not change it while you have open trades. Never enter the market to trade forex without a clear trading plan that you know you can stick to!

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Thursday, December 2nd, 2010 Introduction, Strategy No Comments

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

Forex Mini Account Trading

Forex mini accounts are ideal for just about anybody who is starting out in forex trading. You would have to be very rich or very confident to start right out with a standard account if you are a retail trader (i.e. somebody trading on their own account from home). A mini account lets you get started without risking so much money and this makes it a very attractive option for most people.

Mini forex trading accounts generally allow you to trade with just one tenth of the normal lot size. This usually means 10,000 units of currency instead of 100,000.

Of course you do not have to have this much in your account. Currency trading works with leverage. If you are using 100 times leverage then you need $100 to control $10,000 in your mini account or $1,000 to control $100,000 for a standard account.

$100 or 100 units of other currency per trade is enough for most people to commit to a trade when they are starting out and that is why the mini trading account is so attractive.

The pip size is also usually smaller in a mini account. Pips are units in which you will measure your profits, losses and costs (the spread). Their dollar value can vary depending on the currency pair that you are trading, the lot size and other conventions of your broker, but a common standard pip size is $10 and mini pip size is $1.

Some brokers are now quoting prices to 5 decimal places which technically would make one pip 0.00001 of the quoted price, but we will continue to use the standard 4 decimal place pip for this example.

So if you have a standard forex account you can expect to put up $1,000 on each trade, be involved in trading lots of $100,000 and measure your profits in $10 units.

If you have a forex mini account you can expect to commit $100 on each trade, be involved in trading lots of $10,000 and measure your profits in $1 units.

Of course you can set stop losses so that you do not have to risk all of the money that is committed to the trade. But your losses will be measured in terms of pips so these too will be 10 times greater in the standard account.

If you are successful and your fund grows, you may want to move up to trading greater sums. You can still do this in your mini account by trading more than one lot at a time. So if you want to trade a standard lot size you would just trade 10 mini lots. This has the advantage of still giving you the ability for fine control of your stops because your pip size is still just $1.

The standard account used to be all that was available before so many people had powerful home computers and high speed internet connections that made it possible for the ordinary person to trade from home. The forex mini account is a development that has opened up the market to people who have the technology but not the money for standard currency trading investment.

If you want to risk even less of your money, you could look at forex micro accounts which allow you to make even smaller trades. Be aware though that the spread is often a little high and you might find it difficult to profit with a micro account. It may be better to use a demo account until your confidence builds and then open a forex mini account for real trading.

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Sunday, June 21st, 2009 Strategy No Comments